Chapter 1. Fair Trade Act.

§§ 59.1-1 through 59.1-9.

Repealed by Acts 1976, c. 10.

Chapter 1.1. Virginia Antitrust Act.

§ 59.1-9.1. Short title.

This chapter may be known and cited as the “Virginia Antitrust Act.”

History. 1974, c. 545.

Law Review.

For note, “Minimum Fee Schedules — The Battle and the War: Goldfarb at the Fourth Circuit,” see 60 Va. L. Rev. 1415 (1974).

For article on injuries to business under the Virginia Conspiracy Act, see 38 Wash. & Lee L. Rev. 377 (1981).

For article, “Provider-Sponsored Alternative Health Care Delivery Systems: Reducing Antitrust Liability After Maricopa,” see 19 U. Rich. L. Rev. 207 (1985).

For article addressing legislative developments and enforcement activities, and antitrust decisions of the United States Supreme Court, the Fourth Circuit Court of Appeals, and state and federal courts of Virginia from 1991 to 1992, see “Antitrust and Trade Regulation,” 26 U. Rich. L. Rev. 591 (1992).

For article, “Bank Mergers and the Antitrust Laws: The Case for Dual State and Federal Enforcement,” see 36 Wm. & Mary L. Rev. 95 (1994).

For an article, “Antitrust and Trade Regulation Law,” see 32 U. Rich. L. Rev. 973 (1998).

For an article, “Preserving Competition: Economic Analysis, Legal Standards, and Microsoft,” see 8 Geo. Mason L. Rev. 1 (1999).

For a symposium, “Convergence: The Future of Technology & Competition Policy,” see 8 Geo. Mason L. Rev. 619 (2000).

For an article, “The Impact of Convergence and the Gramm-Leach-Bliley Act on the Insurance Industry,” see 8 Geo. Mason L. Rev. 623 (2000).

For an article, “The Cable Open Access Debate: The Case for a Wholesale Market,” see 8 Geo. Mason L. Rev. 653 (2000).

For an article, “Technology and Bank Competition Policy,” see 8 Geo. Mason L. Rev. 721 (2000).

For an article, “Harmonizing Regulation By Promoting Facilities-Based Competition,” see 8 Geo. Mason L. Rev. 729 (2000).

For a comment, “Cable Open Access: The FCC Should Establish a National Policy of Staying Out of the Way of Broadband Competition,” see 8 Geo. Mason L. Rev. 749 (2000).

For an article, “Non-regulation of Advanced Internet Services,” see 8 Geo. Mason L. Rev. 681 (2000).

For 2000 survey of Virginia antitrust and trade regulation law, see 34 U. Rich. L. Rev. 647 (2000).

For article, “Antitrust and Trade Regulation,” see 35 U. Rich. L. Rev. 453 (2001).

For essay, “Non-Competition Agreements in Virginia in the Aftermath of Home Paramount Pest Control v. Shaffer ,” see 47 U. Rich. L. Rev. 457 (2012).

Michie’s Jurisprudence.

For related discussion, see 13A M.J. Monopolies and Restraints of Trade, §§ 1, 8, 10.

§ 59.1-9.2. Purpose of chapter.

The purpose of this chapter is to promote the free market system in the economy of this Commonwealth by prohibiting restraints of trade and monopolistic practices that act or tend to act to decrease competition. This chapter shall be construed in accordance with the legislative purpose to implement fully the Commonwealth’s police power to regulate commerce.

History. 1974, c. 545.

§ 59.1-9.3. Definitions.

When used in this chapter:

  1. The term “person” includes, unless the context otherwise requires, any natural person, any trust or association of persons, formal or otherwise, or any corporation, partnership, company, or other legal or commercial entity.
  2. The terms “trade or commerce,” “trade,” and “commerce,” include all economic activity involving or relating to any commodity, service or business activity.
  3. The term “commodity” includes any kind of real or personal property.
  4. The term “service” includes any activity that is performed in whole or in part for the purpose of financial gain, including but not limited to personal service, rental, leasing or licensing for use.

History. 1974, c. 545.

§ 59.1-9.4. Certain activities not prohibited.

  1. No provision of this chapter shall be construed to make illegal:
    1. The activities of any labor or professional organization or of individual members thereof that are directed solely to labor or professional objectives legitimate under the laws of the Commonwealth or the United States.
    2. The activities of any agricultural or horticultural cooperative organization, or of individual members thereof, to the extent necessary to achieve the aims of the enacted laws of either the Commonwealth or the United States.
    3. The bona fide religious and charitable activities of any nonprofit corporation, trust or organization established exclusively for religious or charitable purposes.
  2. Nothing contained in this chapter shall make unlawful conduct that is authorized, regulated or approved (i) by a statute of the Commonwealth or (ii) by an administrative or constitutionally established agency of the Commonwealth or of the United States having jurisdiction of the subject matter and having authority to consider the anticompetitive effect, if any, of such conduct. Nothing in this subsection shall be construed to alter or terminate any other applicable limitation, exemption or exclusion.

History. 1974, c. 545; 1979, c. 640; 2018, c. 574.

The 2018 amendments.

The 2018 amendment by c. 574 redesignated subsections, subdivisions and clauses throughout; deleted former subdivision (a)(4), which read: “The activities of any nonprofit hospital, or of any officer, director or employee thereof, that are directed to a reduction in services or an improvement in the quality of services to the extent that any such reduction or improvement will reduce, stabilize or limit cost increases”; and made minor stylistic changes.

Law Review.

For note, “Minimum Fee Schedules — The Battle and the War: Goldfarb at the Fourth Circuit,” see 60 Va. L. Rev. 1415 (1974).

For survey of developments in Virginia administrative law for the year 1973-1974, see 60 Va. L. Rev. 1446 (1974).

For article discussing due-on-sale clauses in home-purchasing contracts, see 16 U. Rich. L. Rev. 35 (1982).

For article on immunity of local governments and their officials from the federal antitrust laws, see 16 U. Rich. L. Rev. 705 (1982).

CIRCUIT COURT OPINIONS

State action doctrine inapplicable. —

City’s demurrer to a county water authority’s complaint alleging monopolization and attempted monopolization in violation of the Virginia Antitrust Act was overruled because the state action doctrine did not immunize the city from liability under the Act; nothing in the statutory provisions the parties cited authorized the city to engage in anti-competitive behavior in the provision of municipal utility services in a neighboring municipality, without first obtaining the consent of the neighboring municipality. Fairfax County Water Auth. v. City of Falls Church, 78 Va. Cir. 177, 2009 Va. Cir. LEXIS 17 (Fairfax County Mar. 13, 2009).

§ 59.1-9.5. Contracts, etc., in restraint of trade unlawful.

Every contract, combination or conspiracy in restraint of trade or commerce of this Commonwealth is unlawful.

History. 1974, c. 545.

Law Review.

For survey of developments in Virginia administrative law for the year 1973-1974, see 60 Va. L. Rev. 1446 (1974).

CASE NOTES

Virtually identical to 15 U.S.C.S. § 1. —

The wording of the Virginia restraint-of-trade provision is virtually identical to that of its federal counterpart, 15 U.S.C.S. § 1. Net Realty Holding Trust v. Franconia Properties, Inc., 544 F. Supp. 759, 1982 U.S. Dist. LEXIS 14076 (E.D. Va. 1982).

Foreclosed liability under federal act forecloses liability under state act. —

The Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943) state action immunity which foreclosed liability under the federal anti-trust act forecloses liability under the state antitrust act. Moreover, the Virginia Antitrust Act excludes any activity which is authorized by a Virginia statute. Reasor v. City of Norfolk, 606 F. Supp. 788, 1984 U.S. Dist. LEXIS 14878 (E.D. Va. 1984).

Rule of reason most prudent course absent precedent. —

Where the court cannot find any cases that have dealt with the type of restraints being challenged, the most prudent course for the court to take is to apply the rule of reason. Net Realty Holding Trust v. Franconia Properties, Inc., 544 F. Supp. 759, 1982 U.S. Dist. LEXIS 14076 (E.D. Va. 1982).

Exclusive distributorship arrangements do not violate the antitrust laws unless they foreclose competition in the relevant market. Thompson Everett, Inc. v. National Cable Adv., 850 F. Supp. 470, 1994 U.S. Dist. LEXIS 5168 (E.D. Va. 1994), aff'd, 57 F.3d 1317, 1995 U.S. App. LEXIS 15835 (4th Cir. 1995).

Due-on-sale clause in real estate deed of trust held not violation of antitrust law. See Williams v. First Fed. Sav. & Loan Ass'n, 651 F.2d 910, 1981 U.S. App. LEXIS 12924 (4th Cir. 1981).

Continuous operation provision in shopping mall agreement held subject to rule of reason analysis. —

See Net Realty Holding Trust v. Franconia Properties, Inc., 544 F. Supp. 759, 1982 U.S. Dist. LEXIS 14076 (E.D. Va. 1982).

Grant of exclusive cable television rights by apartment owners held not a restraint of trade. —

See Satellite Television & Associated Resources v. Continental Cablevision of Va., Inc., 714 F.2d 351, 1983 U.S. App. LEXIS 24968 (4th Cir. 1983), cert. denied, 465 U.S. 1027, 104 S. Ct. 1285, 79 L. Ed. 2d 688, 1984 U.S. LEXIS 1108 (1984).

For discussion of a narrow public policy exception to the employment-at-will doctrine, triggered when discharge is in response to employee’s refusal to commit an unlawful act or in employee’s exercise of a statutory right, see Haigh v. Matsushita Elec. Corp. of Am., 676 F. Supp. 1332, 1987 U.S. Dist. LEXIS 12113 (E.D. Va. 1987).

Pleading requirements. —

Plaintiff’s Virginia Antitrust Statute, § 59.1-9.5 et seq., and the Sherman Act, 15 U.S.C.S. § 1, claims were dismissed with leave to replead, where the complaint merely mimicked the language of the Sherman Act and provided no factual insight as to when, where and how such an agreement was formed, and how defendants harmed competition in the relevant market. College Loan Corp. v. SLM Corp., No. 02-1377-A, 2002 U.S. Dist. LEXIS 27744 (E.D. Va. Dec. 10, 2002), vacated, 396 F.3d 588, 2005 U.S. App. LEXIS 1493 (4th Cir. 2005).

CIRCUIT COURT OPINIONS

Post-employment restrictive covenants. —

Agreements containing post-employment restrictive covenants not to compete, in the abstract, are not prohibited by the Virginia Antitrust Act, § 59.1-9.1 et seq. Integrity Auto Specialists, Inc. v. Meyer, 83 Va. Cir. 119, 2011 Va. Cir. LEXIS 260 (Chesapeake June 28, 2011).

§ 59.1-9.6. Monopolies unlawful.

Every conspiracy, combination, or attempt to monopolize, or monopolization of, trade or commerce of this Commonwealth is unlawful.

History. 1974, c. 545.

Law Review.

For survey of developments in Virginia administrative law for the year 1973-1974, see 60 Va. L. Rev. 1446 (1974).

CASE NOTES

The elements of a conspiracy to monopolize claim are: (1) concerted action, (2) specific intent to achieve an unlawful monopoly, (3) commission of an overt act in furtherance of the conspiracy, and (4) antitrust injury. Va. Vermiculite, Ltd. v. W.R. Grace & Co.-Conn, 144 F. Supp. 2d 558, 2001 U.S. Dist. LEXIS 7006 (W.D. Va. 2001), aff'd, 307 F.3d 277, 2002 U.S. App. LEXIS 20877 (4th Cir. 2002).

Not required that all conspirators share anticompetitive motive. —

It is not necessary that one conspirator have shared another’s alleged anticompetitive motive in entering into a proscribed restraint; it is sufficient that the conspirator, regardless of its own motive, merely acquiesced in the restraint with the knowledge that it would have anticompetitive effects. Va. Vermiculite, Ltd. v. W.R. Grace & Co.-Conn, 144 F. Supp. 2d 558, 2001 U.S. Dist. LEXIS 7006 (W.D. Va. 2001), aff'd, 307 F.3d 277, 2002 U.S. App. LEXIS 20877 (4th Cir. 2002).

The offense of monopolization must consist of two elements. First, the defendant must possess monopoly power in the relevant market. Second, the defendant must willfully acquire or maintain that power. Levine v. McLeskey, 881 F. Supp. 1030, 1995 U.S. Dist. LEXIS 5318 (E.D. Va. 1995), aff'd in part, vacated in part, 164 F.3d 210, 1998 U.S. App. LEXIS 32621 (4th Cir. 1998).

Attempted monopolization elements. —

As to claim of attempted monopolization, plaintiff needs to show that the defendant had a specific intent to achieve a monopoly in the market, took anticompetitive or predatory actions, and that there was a dangerous probability that the defendant would succeed in achieving monopoly power. Levine v. McLeskey, 881 F. Supp. 1030, 1995 U.S. Dist. LEXIS 5318 (E.D. Va. 1995), aff'd in part, vacated in part, 164 F.3d 210, 1998 U.S. App. LEXIS 32621 (4th Cir. 1998).

Proof of specific intent. —

A plaintiff is not required to prove an economically defined relevant market to establish an intent to monopolize, nor does any particular level of market power or probability of success have to be proved in a conspiracy claim where the specific intent to monopolize is otherwise apparent from the character of the actions taken; but where the actions are ambiguous, the existence and extent of market power may make the inference of specific intent from conduct more or less plausible. Va. Vermiculite, Ltd. v. W.R. Grace & Co.-Conn, 144 F. Supp. 2d 558, 2001 U.S. Dist. LEXIS 7006 (W.D. Va. 2001), aff'd, 307 F.3d 277, 2002 U.S. App. LEXIS 20877 (4th Cir. 2002).

Burden of proving antitrust violation. —

The plaintiff in a civil action bears the burden of proving an antitrust violation, such as a conspiracy to monopolize, by a preponderance of the evidence. Va. Vermiculite, Ltd. v. W.R. Grace & Co.-Conn, 144 F. Supp. 2d 558, 2001 U.S. Dist. LEXIS 7006 (W.D. Va. 2001), aff'd, 307 F.3d 277, 2002 U.S. App. LEXIS 20877 (4th Cir. 2002).

Monopoly power may be inferred. —

Where monopoly power cannot be shown specifically, it may be inferred by a showing that the firm in question controls a large percentage of the relevant market. Levine v. McLeskey, 881 F. Supp. 1030, 1995 U.S. Dist. LEXIS 5318 (E.D. Va. 1995), aff'd in part, vacated in part, 164 F.3d 210, 1998 U.S. App. LEXIS 32621 (4th Cir. 1998).

To establish concerted action for the purposes of a conspiracy to monopolize claim, it is necessary to prove that two or more parties acted with a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement. Va. Vermiculite, Ltd. v. W.R. Grace & Co.-Conn, 144 F. Supp. 2d 558, 2001 U.S. Dist. LEXIS 7006 (W.D. Va. 2001), aff'd, 307 F.3d 277, 2002 U.S. App. LEXIS 20877 (4th Cir. 2002).

To prove a specific intent to monopolize, a plaintiff must establish that the defendant sought to create a monopoly over some appreciable part of interstate commerce. Va. Vermiculite, Ltd. v. W.R. Grace & Co.-Conn, 144 F. Supp. 2d 558, 2001 U.S. Dist. LEXIS 7006 (W.D. Va. 2001), aff'd, 307 F.3d 277, 2002 U.S. App. LEXIS 20877 (4th Cir. 2002).

Foreclosed liability under federal act forecloses liability under state act. —

The Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943) state action immunity which foreclosed liability under the federal anti-trust act forecloses liability under the state antitrust act. Moreover, the Virginia Antitrust Act excludes any activity which is authorized by a Virginia statute. Reasor v. City of Norfolk, 606 F. Supp. 788, 1984 U.S. Dist. LEXIS 14878 (E.D. Va. 1984).

Exclusive distributorship arrangements do not violate the antitrust laws unless they foreclose competition in the relevant market. Thompson Everett, Inc. v. National Cable Adv., 850 F. Supp. 470, 1994 U.S. Dist. LEXIS 5168 (E.D. Va. 1994), aff'd, 57 F.3d 1317, 1995 U.S. App. LEXIS 15835 (4th Cir. 1995).

A party’s intent to injure its competitor to increase its competitive position is not equivalent to and, without more, is not sufficient to establish an intent to create a monopoly. Va. Vermiculite, Ltd. v. W.R. Grace & Co.-Conn, 144 F. Supp. 2d 558, 2001 U.S. Dist. LEXIS 7006 (W.D. Va. 2001), aff'd, 307 F.3d 277, 2002 U.S. App. LEXIS 20877 (4th Cir. 2002).

Grant of exclusive cable television rights by apartment owners held not a monopoly. —

See Satellite Television & Associated Resources v. Continental Cablevision of Va., Inc., 714 F.2d 351, 1983 U.S. App. LEXIS 24968 (4th Cir. 1983), cert. denied, 465 U.S. 1027, 104 S. Ct. 1285, 79 L. Ed. 2d 688, 1984 U.S. LEXIS 1108 (1984).

Same standard under state and federal antitrust acts. —

A claim of monopolization under the Virginia Antitrust Act is governed by the same standard as a claim under the Sherman Act. Va. Vermiculite, Ltd. v. W.R. Grace & Co.-Conn, 144 F. Supp. 2d 558, 2001 U.S. Dist. LEXIS 7006 (W.D. Va. 2001), aff'd, 307 F.3d 277, 2002 U.S. App. LEXIS 20877 (4th Cir. 2002).

§ 59.1-9.7. Discriminatory practices unlawful; proof; payment or acceptance of certain commissions, etc., unlawful.

  1. It is unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities or services of like grade and quality, where either or any of the purchasers involved in such commerce are in competition, where such commodities or services are sold for use, consumption or resale within the Commonwealth and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them; provided, that nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale or delivery resulting from the different methods or quantities in which such commodities or services are to such purchasers sold or delivered; and provided further, that nothing herein contained shall prevent persons engaged in selling commodities or services in commerce from selecting their own customers in bona fide transactions and not in restraint of trade; and provided further, that nothing herein contained shall prevent price changes from time to time where in response to changing conditions affecting the market for or the marketability of the goods concerned, such as, but not limited to, actual or imminent deterioration of perishable goods, obsolescence of seasonal goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned.
  2. Upon proof being made, at any suit on a complaint under this section, that there has been discrimination in price or services or facilities furnished or in payment for services or facilities to be rendered, the burden of rebutting the prima facie case thus made by showing justification shall be upon the person charged with a violation of this section; provided, however, that nothing herein contained shall prevent a seller rebutting the prima facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor.
  3. It is unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for and not exceeding the actual cost of such services rendered in connection with the sale or purchase of goods, wares or merchandise.
  4. It is unlawful for any person engaged in commerce to pay or contract for the payment of anything of value to or for the benefit of a customer of such person in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale or offering for sale of any products, commodities or services manufactured, sold or offered for sale by such person, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products, commodities or services.
  5. It is unlawful for any person to discriminate in favor of one purchaser against another purchaser or purchasers of a commodity bought for resale with or without processing, by contracting to furnish or furnishing, or by contributing to the furnishing of, any services or facilities connected with the processing, handling, sale or offering for sale of such commodity so purchased upon terms not accorded to all purchasers on proportionally equal terms.
  6. It is unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price that is prohibited by this section.

History. 1974, c. 545.

Michie’s Jurisprudence.

For related discussion, see 3A M.J. Bribery, § 3.

CASE NOTES

Knowledge that agent is accepting commission. —

When a buyer is expressly notified that his intermediary or agent is accepting a commission from the seller, and the buyer is not prevented from learning the amount of the commission given, the payment will not constitute commercial bribery. Stephen Jay Photography, Ltd. v. Olan Mills, Inc., 713 F. Supp. 937, 1989 U.S. Dist. LEXIS 5513 (E.D. Va. 1989), aff'd, 903 F.2d 988, 1990 U.S. App. LEXIS 7916 (4th Cir. 1990).

CIRCUIT COURT OPINIONS

Demurrer denied. —

Because a retailer pleaded (1) a concerted action by a manufacturer and a former employee, and (2) the manufacturer’s unequal application of a marketing and resale policy, the retailer’s claims under the Virginia Antitrust Act, survived demurrer. Atl. Futon v. Tempur-Pedic, Inc., 67 Va. Cir. 269, 2005 Va. Cir. LEXIS 165 (Charlottesville Apr. 26, 2005).

§ 59.1-9.8. Forum; restraining orders and injunctions; penalties.

Actions and proceedings for violations of this chapter shall be brought in the circuit courts of this Commonwealth. Those courts may issue temporary restraining orders and injunctions to prevent and restrain violations of this chapter, and may award the damages and impose the civil penalties provided herein. They may also grant mandatory injunctions reasonably necessary to eliminate violations of this chapter.

History. 1974, c. 545.

Michie’s Jurisprudence.

For related discussion, see 10A M.J. Injunctions, § 88.

§ 59.1-9.9. Venue.

The venue for all actions and proceedings for violations of this chapter shall be as specified below in this section.

The circuit court of the county or city wherein any defendant: (i) resides; or (ii) regularly or systematically conducts affairs or business activity; or (iii) has property that may be affected by the action or proceeding. Provided, however, that if said defendant does not, as specified in (i), (ii) and (iii) above, reside in, conduct affairs or business activity in, or have such property in the Commonwealth, then the action or proceeding may be brought in the circuit court of the county or city in which the registered office of said defendant is located or wherein the alleged violation occurred.

History. 1974, c. 545; 1975, c. 289.

Law Review.

For survey of Virginia law on practice and pleading for the year 1974-1975, see 61 Va. L. Rev. 1799 (1975).

§ 59.1-9.10. Investigation by Attorney General of suspected violations; civil investigative demand to witnesses; access to business records, etc.

  1. Whenever it shall appear to the Attorney General, either upon complaint or otherwise, that any person has engaged in, or is engaging in, or is about to engage in any act or practice prohibited by this chapter, the Attorney General may in his discretion either require or permit such person to file with him a statement in writing or otherwise, under oath, as to all facts and circumstances concerning the subject matter. The Attorney General may also require such other data and information as he may deem relevant to the subject matter of an investigation of a possible violation of this chapter and may make such special and independent investigations as he may deem necessary in connection with such matter.
  2. In connection with any such investigation, the Attorney General, or his designee, is empowered to issue a civil investigative demand to witnesses by which he may (i) compel the attendance of such witnesses; (ii) examine such witnesses under oath before himself or a court of record; (iii) subject to subsection C, require the production of any books or papers that he deems relevant or material to the inquiry; and (iv) issue written interrogatories to be answered by the witness served or, if the witness served is a public or private corporation or a partnership or association or governmental agency, by any officer or agent, who shall furnish such information as is available to the witness. The above investigative powers shall not abate or terminate by reason of any action or proceeding brought by the Attorney General under this chapter. When documentary material is demanded by a civil investigative demand, said demand shall not: (1) contain any requirement that would be unreasonable or improper if contained in a subpoena duces tecum issued by a court of this Commonwealth; or (2) require the disclosure of any documentary material that would be privileged, or production of which for any other reason would not be required by a subpoena duces tecum issued by a court of the Commonwealth.
  3. Where the information requested pursuant to a civil investigative demand may be derived or ascertained from the business records of the party upon whom the interrogatory has been served or from an examination, audit or inspection of such business records, or from a compilation, abstract or summary based therein, and the burden of deriving or ascertaining the answer is substantially the same for the Attorney General as for the party from whom such information is requested, it is sufficient for that party to specify the records from which the answer may be derived or ascertained and to afford the Attorney General, or other individuals properly designated by the Attorney General, reasonable opportunity to examine, audit or inspect such records and to make copies, compilations, abstracts or summaries. Further, the Attorney General is hereby authorized, and may so elect, to require the production pursuant to this section, of documentary material before or after the taking of any testimony of the person summoned pursuant to a civil investigative demand, in which event, said documentary matter shall be made available for inspection and copying during normal business hours at the principal place of business of the person served, or at such other time and place, as may be agreed upon by the person served and the Attorney General.
  4. Any civil investigative demand issued by the Attorney General shall contain the following information:
    1. The statute and section hereof, the alleged violation of which is under investigation and the subject matter of the investigation.
    2. The date and place at which time the person is required to appear to produce documentary material in his possession, custody or control in the office of the Attorney General located in Richmond, Virginia. Such date shall not be less than twenty days from the date of the civil investigative demand.
    3. Where documentary material is required to be produced, the same shall be described by class so as to clearly indicate the material demanded.
  5. Service of civil investigative demand of the Attorney General as provided herein may be made by:
    1. Delivery of a duly executed copy thereof to the person served, or if a person is not a natural person, to the principal place of business of the person to be served, or
    2. Mailing by certified mail, return receipt requested, a duly executed copy thereof addressed to the person to be served at his principal place of business in the Commonwealth, or if said person has no place of business in the Commonwealth, to his principal office.
  6. Within twenty days after the service of any such demand upon any person or enterprise, or at any time before the return date specified in the demand, whichever period is shorter, such party may file, in the Circuit Court of the City of Richmond and serve upon the Attorney General a petition for an order of such court modifying or setting aside such demand. The time allowed for compliance with the demand in whole or in part as deemed proper and ordered by the court shall not run during the pendency of such petition in the court. Such petition shall specify each ground upon which the petitioner relies in seeking such relief, and may be based upon any failure of such demand to comply with the provisions of this chapter or upon any constitutional or other legal right or privilege of such party. The provisions of this subsection shall be the exclusive means for a witness summoned pursuant to a civil investigative demand under this section to challenge a civil investigative demand issued pursuant to subsection B.
  7. The examination of all witnesses under this section shall be conducted by the Attorney General, or his designee, before an officer authorized to administer oaths in this Commonwealth. The testimony shall be taken stenographically or by a sound recording device and shall be transcribed.
  8. Any person required to testify or to submit documentary evidence shall be entitled, on payment of lawfully prescribed cost, to procure a copy of any document produced by such person and of his own testimony as stenographically reported or, in the case of depositions, as reduced to writing by or under the direction of a person taking the deposition. Any party compelled to testify or to produce documentary evidence may be accompanied and advised by counsel, but counsel may not, as a matter of right, otherwise participate in the investigation.
  9. All persons served with a civil investigative demand by the Attorney General under this chapter, other than any person or persons whose conduct or practices are being investigated or any officer, director or person in the employ of such person under investigation, shall be paid the same fees and mileage as paid witnesses in the courts of this Commonwealth. No person shall be excused from attending such inquiry pursuant to the mandate of a civil investigative demand, or from producing a paper or from being examined or required to answer questions on the ground of failure to tender or pay a witness fee or mileage unless demand therefor is made at the time testimony is about to be taken and as a condition precedent to offering such production or testimony and unless payment thereof is not thereupon made.
  10. Any natural person who shall neglect or refuse to attend and testify, or to answer any lawful inquiry or to produce documentary evidence, if in his power to do so, in obedience of a civil investigative demand or lawful request of the Attorney General or those properly authorized by the Attorney General, pursuant to this section, shall be guilty of a misdemeanor and upon conviction thereof by a court of competent jurisdiction shall be punished by a fine of not more than $5,000, or by imprisonment in jail for not more than one year, or both such fine and imprisonment.Any natural person who commits perjury or false swearing or contempt in answering, or failing to answer, or in producing evidence or failing to do so in accordance with a civil investigative demand or lawful request by the Attorney General, pursuant to this section, shall be guilty of a misdemeanor and upon conviction therefor by a court of competent jurisdiction shall be punished by a fine of not more than $5,000, or by imprisonment in jail for not more than one year, or both such fine and imprisonment.
  11. In any investigation brought by the Attorney General pursuant to this chapter, no individual shall be excused from attending, testifying or producing documentary material, objects or intangible things in obedience to a civil investigative demand or under order of the court on the ground that the testimony or evidence required of him may tend to incriminate him or subject him to any penalty, but no testimony or other information compelled either by the Attorney General or under order of the court, or any information directly or indirectly derived from such testimony or other information, may be used against the individual or witness in any criminal case. However, he may nevertheless be prosecuted or subjected to penalty or forfeiture for any perjury, false swearing or contempt committed in answering, or failing to answer, or in producing evidence or failing to do so in accordance with the order of the Attorney General or the court. If an individual refuses to testify or produce evidence after being granted immunity from prosecution and after being ordered to testify or produce evidence as aforesaid, he may be adjudged in civil contempt by a court of competent jurisdiction and committed to the county jail until such time as he purges himself of contempt by testifying, producing evidence or presenting a written statement as ordered. The foregoing shall not prevent the Attorney General from instituting other appropriate contempt proceedings against any person who violates any of the above provisions.
  12. It shall be the duty of all public officials, both state and local, their deputies, assistants, clerks, subordinates or employees, and all other persons to render and furnish to the Attorney General, his deputy or other designated representative, when so requested, all information and assistance in their possession or within their power. Any officer participating in such inquiry and any person examined as a witness upon such inquiry who shall disclose to any such person other than the Attorney General the name of any witness examined or any other information obtained upon such inquiry, except as so directed by the Attorney General, shall be guilty of a misdemeanor and subject to the sanctions prescribed in subsection J. Such inquiry may upon written authorization of the Attorney General be made public.
  13. The Attorney General may promulgate rules and regulations to implement and carry out the provisions of this section.
  14. It shall be the duty of the Attorney General, or his designees, to maintain the secrecy of all evidence, testimony, documents or other results of such investigations. Violation of this subsection shall be a misdemeanor. Nothing herein contained shall be construed to prevent (i) the disclosure of any such investigative evidence by the Attorney General in his discretion to any federal or state law-enforcement authority that has restrictions governing confidentiality similar to those contained in this subsection or (ii) the presentation and disclosure of any such investigative evidence by the Attorney General, in his discretion, in any action or proceeding brought by the Attorney General under this chapter.

History. 1974, c. 545; 1982, c. 285; 2000, c. 755.

Cross references.

As to civil investigative demands in cases involving assertions of patent infringement, see § 59.1-215.3.

The 2000 amendments.

The 2000 amendment by c. 755 redesignated former subsections a through n as present subsections A through N, and former subdivisions (d) (1) through (d) (3) as present subdivisions D 1 through D 3, and redesignated former subdivisions (e) (1) and (e) (2) as present subdivisions E 1 and E 2, in subsection B, substituted “C” for “(c) of this section” in the first sentence, and made minor stylistic changes in subsection B and subdivision E 2, at the end of subsection F, substituted “B” for “(b),” in subsection L, substituted “J” for “(j),” and in subsection N, added the language beginning “or (ii) the presentation” and ending “under this chapter.”

Law Review.

For survey of developments in Virginia administrative law for the year 1973-1974, see 60 Va. L. Rev. 1446 (1974).

CIRCUIT COURT OPINIONS

Construction. —

Attorney General has a statutorily imposed duty under subsection N of § 59.1-9.10 to maintain the secrecy of all evidence obtained, but the statute also clearly gives the Attorney General discretion to share any such information with any federal or state law-enforcement authority that has restrictions governing confidentiality similar to those contained in this subsection. Commonwealth v. Nexus Servs., 102 Va. Cir. 458, 2018 Va. Cir. LEXIS 2473 (Richmond Aug. 7, 2018).

Subsection N permits the Attorney General to forward the collected information in his discretion, the court has no authority to override or limit that statute, and the law clearly provided the Attorney General the right to seek the information sought in the civil investigative demand in this case; the Attorney General needed the information to conduct its investigation and names and contact information of individuals who dealt with the business and/or are connected to the bond holders, was pertinent. Commonwealth v. Nexus Servs., 102 Va. Cir. 458, 2018 Va. Cir. LEXIS 2473 (Richmond Aug. 7, 2018).

§ 59.1-9.11. Penalty for flagrant violations.

In any action or proceeding brought under § 59.1-9.15 (a) the court may assess for the benefit of the Commonwealth a civil penalty of not more than $100,000 for each willful or flagrant violation of this chapter. No civil penalty shall be imposed in connection with any violation for which any fine or penalty is imposed pursuant to federal law.

History. 1974, c. 545.

Law Review.

For survey of developments in Virginia administrative law for the year 1973-1974, see 60 Va. L. Rev. 1446 (1974).

§ 59.1-9.12. Personal suit for injunction or actual damages.

  1. Any person threatened with injury or damage to his business or property by reason of a violation of this chapter may institute an action or proceeding for injunctive relief when and under the same conditions and principles as injunctive relief is granted in other cases.
  2. Any person injured in his business or property by reason of a violation of this chapter may recover the actual damages sustained, and, as determined by the court, the costs of suit and reasonable attorney’s fees. If the trier of facts finds that the violation is willful or flagrant, it may increase damages to an amount not in excess of three times the actual damages sustained.

History. 1974, c. 545.

Law Review.

For survey of developments in Virginia administrative law for the year 1973-1974, see 60 Va. L. Rev. 1446 (1974).

For article on injuries to business under the Virginia Conspiracy Act, see 38 Wash. & Lee L. Rev. 377 (1981).

For survey of antitrust law in Virginia for 1989, see 23 U. Rich. L. Rev. 455 (1989).

Research References.

Friend’s Virginia Pleading and Practice (Matthew Bender). Chapter 33 Writs and Injunctions. § 33.02 Injunctions. Friend.

Michie’s Jurisprudence.

For related discussion, see 5A M.J. Costs, § 3; 13A M.J. Monopolies and Restraints of Trade, § 14.

§ 59.1-9.13. Effect of conviction in other proceedings.

A final judgment or decree to the effect that a defendant has violated this chapter, other than a consent judgment or decree entered before any testimony has been taken, in an action or proceeding brought under § 59.1-9.15 (a) is prima facie evidence against that defendant in any other action or proceeding against him brought under § 59.1-9.12 or § 59.1-9.15 (b) as to all matters with respect to which the judgment or decree would be an estoppel between the parties thereto.

History. 1974, c. 545.

§ 59.1-9.14. Limitation of actions.

  1. An action under § 59.1-9.15 (a) to recover a civil penalty is barred if it is not commenced within four years after the cause of action accrues.
  2. An action under § 59.1-9.12 (b) or § 59.1-9.15 (b) to recover damages is barred if it is not commenced within four years after the cause of action accrues, or within one year after the conclusion of any action or proceeding under § 59.1-9.15 (a) commenced within or before that time based in whole or in part on any matter complained of in the action for damages, whichever is later.

History. 1974, c. 545.

§ 59.1-9.15. Actions on behalf of Commonwealth or localities; injunctive relief; damages.

  1. The Attorney General on behalf of the Commonwealth, or the attorney for the Commonwealth or county attorney on behalf of a county, or the city attorney on behalf of a city, or the town attorney on behalf of a town may institute actions and proceedings for injunctive relief and civil penalties for violations of this chapter. In any such action or proceeding in which the plaintiff substantially prevails, the court may award the cost of suit, including a reasonable attorney’s fee, to such plaintiff.
  2. The Commonwealth, a political subdivision thereof, or any public agency injured in its business or property by reason of a violation of this chapter, may recover the actual damages sustained, reasonable attorney’s fees and the costs of suit. If the trier of facts finds that the violation is willful or flagrant, it may increase damages to an amount not in excess of three times the actual damages sustained.
  3. The Attorney General in acting under subsection (a) or (b) of this section may also bring such action on behalf of any political subdivision of the Commonwealth, provided that the Attorney General shall notify each such subdivision of the pendency of the action and give such subdivision the option of exclusion from the action.
  4. The Attorney General may bring a civil action to recover damages and secure other relief as provided by this chapter as parens patriae respecting injury to the general economy of the Commonwealth.

History. 1974, c. 545; 1982, c. 60; 1988, c. 589.

Law Review.

For survey of developments in Virginia administrative law for the year 1973-1974, see 60 Va. L. Rev. 1446 (1974).

For article, “Federalism and the Indirect Purchaser Mess,” see 11 Geo. Mason L. Rev. 157 (2002).

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 5 Parties. § 5.02 Competency. Bryson.

Michie’s Jurisprudence.

For related discussion, see 5A M.J. Costs, § 3.

§ 59.1-9.16. Remedies cumulative.

The remedies in this chapter are cumulative.

History. 1974, c. 545.

§ 59.1-9.17. Construction of chapter.

This chapter shall be applied and construed to effectuate its general purposes in harmony with judicial interpretation of comparable federal statutory provisions.

History. 1974, c. 545.

Law Review.

For article, “Bank Mergers and the Antitrust Laws: The Case for Dual State and Federal Enforcement,” see 36 Wm. & Mary L. Rev. 95 (1994).

For an article, “Preserving Competition: Economic Analysis, Legal Standards, and Microsoft,” see 8 Geo. Mason L. Rev. 1 (1999).

§ 59.1-9.18. Repealed by Acts 2015, c. 709, cl. 2.

Editor’s note.

Former § 59.1-9.18, pertaining to severability, derived from 1974, c. 545.

Chapter 2. Unfair Sales Act.

§§ 59.1-10 through 59.1-21.

Repealed by Acts 1984, c. 582.

Chapter 2.1. Virginia Home Solicitation Sales Act.

§ 59.1-21.1. Citation of chapter.

This chapter shall be known, and may be cited, as the “Virginia Home Solicitation Sales Act.”

History. 1970, c. 668.

Law Review.

For survey of recent legislation on commerce — home solicitation sales, see 5 U. Rich. L. Rev. 187 (1970).

For survey of Virginia commercial law for the year 1969-1970, see 56 Va. L. Rev. 1387 (1970).

For article, “Uniform Consumer Credit Code — A Prospect for Consumer Credit Reform in Virginia,” see 28 Wash. & Lee L. Rev. 75 (1971).

For survey of Virginia commercial law for the year 1971-1972, see 58 Va. L. Rev. 1183 (1972).

For survey of Virginia commercial law for the year 1972-1973, see 59 Va. L. Rev. 1426 (1973).

For survey of Virginia commercial law for the year 1975-1976, see 62 Va. L. Rev. 1375 (1976).

Michie’s Jurisprudence.

For related discussion, see 3C M.J. Commercial Law, §§ 2, 95.

§ 59.1-21.2. Definitions.

  1. “Home solicitation sale” means:
    1. A consumer sale or lease of goods or services in which the seller or a person acting for him engages (i) in a personal solicitation of the sale or lease or (ii) in a solicitation of the sale or lease by telephonic or other electronic means at any residence other than that of the seller; and
    2. The buyer’s agreement or offer to purchase or lease is there given to the seller or a person acting for him.
    1. “Home solicitation sale” shall not mean a consumer sale or lease of farm equipment. B. 1. “Home solicitation sale” shall not mean a consumer sale or lease of farm equipment.
    2. It does not include cash sales of less than twenty-five dollars, a sale or lease made pursuant to a preexisting revolving charge account, or a sale or lease made pursuant to prior negotiations between the parties.
  2. As used in this chapter, “goods” means tangible personal property and also includes a merchandise certificate whereby a writing is issued by the seller which is not redeemable in cash and is usable in lieu of cash in exchange for goods or services; “seller” means seller or lessor and “buyer” means buyer or lessee.

History. 1970, c. 668; 1972, c. 448; 1975, c. 217; 1986, c. 577.

Law Review.

For survey of Virginia commercial law for the year 1971-1972, see 58 Va. L. Rev. 1183 (1972).

For survey of Virginia commercial law for the year 1974-1975, see 61 Va. L. Rev. 1668 (1975).

CIRCUIT COURT OPINIONS

“Home Solicitation Sale.” —

Defendant’s demurrer was sustained because plaintiff did not state sufficient facts to support a violation of the Virginia Home Solicitation Sales Act because she failed to sufficiently allege a home solicitation sale as defendant came to plaintiff’s residence at her request to conduct home repair services; and her complaint failed to allege that she agreed to purchase services from defendant when its representative first visited her at her home because the contract for specific services was typed, indicating that it likely was not completed at the time of the initial visit, and the contract was dated almost two months before plaintiff’s dated signature, further proof that she probably did not execute the agreement during the home visit. Theuer v. Norfolk Air Heating & Cooling, Inc., 106 Va. Cir. 113, 2020 Va. Cir. LEXIS 190 (Norfolk Oct. 7, 2020).

§ 59.1-21.3. Cancellation of sale.

  1. Except as provided in subsection (5), in addition to any right otherwise to revoke an offer, the buyer has the right to cancel a home solicitation sale until midnight of the third business day after the day on which the buyer signs an agreement or offer to purchase which complies with § 59.1-21.4.
  2. Cancellation occurs when the buyer gives written notice of cancellation to the seller at the address stated in the agreement or offer to purchase.
  3. Notice of cancellation, if given by mail, is given when it is deposited in a mailbox properly addressed and postage prepaid.
  4. Notice of cancellation given by the buyer need not take a particular form and is sufficient if it indicates by any form of written expression the intention of the buyer not to be bound by the home solicitation sale.
  5. The buyer may not cancel a home solicitation sale if the buyer requests the seller to provide goods or services without delay because of an emergency, and
    1. The seller in good faith makes a substantial beginning of performance of the contract before the buyer gives notice of cancellation, and
    2. In the case of goods, the goods cannot be returned to the seller in substantially as good condition as when received by the buyer, and
    3. The buyer’s emergency request is in a dated writing personally signed by the buyer and which expressly states that the buyer understands that he is waiving his right to cancel the sale under the provisions of this act.
  6. Except as provided in subsection (5), any waiver or modification of a buyer’s right to cancel is void and of no effect. In the event the seller obtains from the buyer a waiver or modification of his right to cancel, the buyer’s right to cancel shall commence on the first business day following his learning that the waiver or modification is void and of no effect.

History. 1970, c. 668; 1972, c. 448.

Law Review.

For survey of Virginia commercial law for the year 1971-1972, see 58 Va. L. Rev. 1183 (1972).

Michie’s Jurisprudence.

For related discussion, see 3C M.J. Commercial Law, § 7.

§ 59.1-21.4. Receipt or written agreement.

  1. In a home solicitation sale, unless the buyer requests the seller to provide goods or services without delay in an emergency, the seller must present to the buyer a fully completed receipt if it is a cash or credit card sale or obtain the buyer’s signature to a written agreement or offer to purchase, in the case of a credit sale, which designates as the date of the transaction the date on which the buyer actually makes payment in whole or in part or signs, and which contains a statement of the buyer’s rights and a notice of cancellation which comply with subsection (2). The seller shall also furnish the buyer with a copy of any contract pertaining to a home solicitation sale at the time of its execution.
  2. The statement shall
    1. Appear on the front side of the receipt or contract, or immediately above the buyer’s signature, in bold face type of a minimum size of ten points under the conspicuous caption: “BUYER’S RIGHT TO CANCEL,” and
    2. Read as either of the following: (i) “If this agreement was solicited at a residence and you do not want the goods or services, you, the buyer, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right.
  3. Except as otherwise provided in this section until the seller has complied with this section the buyer may cancel the home solicitation sale by notifying the seller in any manner and by any means of his intention to cancel.
  4. A home solicitation sale shall be deemed to be in compliance with notice requirements of this section if (a) the buyer may at any time (i) cancel the order, or (ii) refuse to accept delivery of the goods without any obligation to pay for them, or (iii) return the goods to the seller and receive a full refund for any amount the buyer has paid; and (b) the buyer’s right to cancel the order, refuse delivery or return the goods, together with the name and address of either the selling company or the salesperson, is clearly and conspicuously set forth on the face or reverse side of the sales receipt or contract in a size larger than that used in the body of the receipt or contract.
  5. Any statement or notice form satisfying the requirements of this section as in effect prior to July 1, 1975, may be used until January 1, 1977.

Notice of Cancellation (Date of Transaction) To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice or any other written notice, or send a telegram to . . . . . . . . . . . . . . . . . . . . . . . . . . . ., at (name of seller) (address of seller’s place of business) not later than midnight of . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Date) I hereby cancel this transaction (Date) ”; or (Buyer’s signature)

History. 1970, c. 668; 1972, c. 448; 1973, c. 147; 1975, c. 217.

§ 59.1-21.5. Tender of payments to buyer.

  1. Except as provided in this section, within ten days after a home solicitation sale has been canceled or an offer to purchase revoked the seller must tender to the buyer any payments made by the buyer and any note or other evidence of indebtedness.
  2. If the down payment includes goods traded in, the goods must be tendered in substantially as good condition as when received by the seller. If the seller fails to tender the goods as provided by this section, the buyer may elect to recover an amount equal to the trade-in allowance stated in the agreement.
  3. Until the seller has complied with the obligations imposed by this section, the buyer may retain possession of goods delivered to him by the seller and has a lien on the goods in his possession or control for any recovery to which he is entitled.

History. 1970, c. 668; 1972, c. 448; 1973, c. 147.

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 18 Enforcement of Judgments and Decrees. § 18.04 Equity. Bryson.

§ 59.1-21.6. Tender of goods to seller.

  1. Except as provided by the provisions of § 59.1-21.5 (3), within a reasonable time after a home solicitation sale has been canceled or an offer to purchase revoked, the buyer upon demand must tender to the seller any goods delivered by the seller pursuant to the sale but he is not obligated to tender at any place other than his residence. If the seller fails to demand possession of goods within twenty days after cancellation or revocation, the goods become the property of the buyer without obligation to pay for them.
  2. The buyer has a duty to take reasonable care of the goods in his possession before cancellation or revocation and for a reasonable time thereafter, during which time the goods are otherwise at the seller’s risk.
  3. If the seller has performed any services pursuant to a home solicitation sale prior to its cancellation, the seller is entitled to no compensation.

History. 1970, c. 668; 1973, c. 147.

§ 59.1-21.7. Cancellation of contract when seller has misrepresented nature or purpose of transaction.

Notwithstanding any other provision of law, if at the time of a home solicitation a seller or his agent should fail to immediately identify himself as a seller or lessor, or should he represent or imply that his purpose at the time of solicitation is anything other than selling or leasing if that is not substantially true, the buyer shall have a total of thirty days to cancel any home solicitation sales contract there entered into in the same manner and to the same extent as otherwise provided by this chapter; provided that the goods or merchandise are made available for the seller’s repossession and are tendered back to the seller in substantially as good condition as when received by the buyer.

History. 1972, c. 448; 2001, c. 402.

The 2001 amendments.

The 2001 amendment by c. 402 substituted “provision” for “provisions,” and substituted “imply” for “infer.”

Law Review.

For survey of Virginia commercial law for the year 1971-1972, see 58 Va. L. Rev. 1183 (1972).

§ 59.1-21.7:1. Enforcement; penalties.

Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act of 1977, Chapter 17 (§ 59.1-196 et seq.) of this title.

History. 1987, cc. 462, 464.

CIRCUIT COURT OPINIONS

Demurrer sustained. —

Homeowners did not allege facts, which if true, supported a claim of violation of the Virginia Consumer Protection Act because the fact that the contractor orally agreed to provide a scope of work and did not do so was not a misrepresentation constituting actionable fraud in the inducement to enter into the agreement. Jenkins Servs., LLC v. Martin, 95 Va. Cir. 5, 2016 Va. Cir. LEXIS 241 (Westmoreland County Feb. 5, 2016).

Chapter 2.2. Virginia Petroleum Products Franchise Act.

§ 59.1-21.8. Short title.

This chapter may be cited as the “Virginia Petroleum Products Franchise Act.”

History. 1973, c. 423.

The numbers of §§ 59.1-21.8 through 59.1-21.18 were assigned by the Virginia Code Commission, the numbers in the 1973 act having been 59.1-21.7 through 59.1-21.17.

Law Review.

For survey of Virginia law on business associations for the year 1972-1973, see 59 Va. L. Rev. 1412 (1973).

For article, “Antitrust and Trade Regulation,” see 35 U. Rich. L. Rev. 453 (2001).

Michie’s Jurisprudence.

For related discussion, see 2B M.J. Automobiles, § 128.

CASE NOTES

This chapter regulates the contractual relationships of private parties, not the relationship of oil companies and the Commissioner; it contains no provision for criminal sanctions, and no self-contained reference to the Commissioner’s enforcement authority; and it explicitly provides for civil enforcement by private parties. Mobil Oil Corp. v. Attorney Gen., 747 F. Supp. 1173, 1990 U.S. Dist. LEXIS 13175 (E.D. Va. 1990), rev'd, 940 F.2d 73, 1991 U.S. App. LEXIS 14259 (4th Cir. 1991).

Suit for declaratory and injunctive relief presented justiciable controversy. —

Oil company’s suit seeking declaratory and injunctive relief, and contending that the 1990 amendments to this chapter were unconstitutional under a variety of theories, presented a justiciable case or controversy under the federal Declaratory Judgments Act. Mobil Oil Corp. v. Attorney Gen., 940 F.2d 73, 1991 U.S. App. LEXIS 14259 (4th Cir. 1991), cert. denied, Virginia Gasoline Marketers & Auto. Repair Ass'n v. Mobil Oil Corp., 513 U.S. 1148, 115 S. Ct. 1097, 130 L. Ed. 2d 1065, 1995 U.S. LEXIS 1029 (1995).

§ 59.1-21.9. Findings of General Assembly.

The General Assembly finds and declares that since the distribution and sales through franchise arrangements of petroleum products in the Commonwealth of Virginia vitally affect the economy of the Commonwealth, the public interest, welfare, and transportation, and since the preservation of the rights, responsibilities, and independence of the small businesses in the Commonwealth is essential to economic vitality, it is necessary to define the relationships and responsibilities of the parties to certain agreements pertaining thereto. Consistent with these findings and declarations, the provisions of § 59.1-21.15:2, which do not relate to the termination or nonrenewal of petroleum franchises governed by federal law, advance the interests of the Commonwealth, and its citizens, by facilitating the purchase of retail service stations by their occupying lessee-franchisees, thereby insuring the motoring public greater access to service stations and petroleum products and furthering a more dynamic and full-service-oriented retail marketplace, while also considering the interests of the franchisor and, if applicable, the property owner, with regard to such service station premises.

History. 1973, c. 423; 1990, c. 907; 2014, c. 222.

The 2014 amendments.

The 2014 amendment by c. 222 added the last sentence.

§ 59.1-21.10. Definitions.

As used in this chapter, the following terms shall have the following meanings unless the context requires otherwise:

“Dealer” means any person who purchases motor fuel for sale to the general public for ultimate consumption. “Dealer” shall not mean any person, including any affiliate of such person, who (i) purchases motor fuel for sale, consignment, or distribution to another; (ii) receives motor fuel on consignment for consignment or distribution to his own motor fuel accounts or to accounts of his supplier; or (iii) who is an employee of, or merely serves as a common carrier providing transportation service, for such person.

“Designated family member” means the adult spouse, adult child or stepchild, or adult brother or sister of the dealer who is designated in the franchise agreement as the successor to the dealer’s interest under the agreement and who shall become the dealer upon the completion of the succession.

“Franchise” or “franchise agreement” means any agreement, express or implied, between a refiner and a dealer under which a refiner authorizes or permits a dealer to use, in connection with the sale, consignment, or distribution of motor fuel, a trademark which is owned or controlled by such refiner. “Franchise” or “franchise agreement” shall also mean any agreement, express or implied, under which a dealer is granted the right to occupy leased marketing premises, which premises are to be employed in connection with the sale, consignment, or distribution of motor fuel under a trademark which is owned or controlled by such refiner.

“Franchise fee” means any fee or charge that a dealer is required to pay or agrees to pay for the right to enter into a franchise agreement or to become a dealer at the premises to which the franchise agreement relates. The term “franchise fee” shall not include reasonable actual costs and expenses incurred by the refiner in effecting the assignment, transfer, or sale.

“Franchisor” means a refiner who authorizes or permits, under a franchise, a dealer to use a trademark in connection with the sale, consignment, or distribution of motor fuel.

“Jobber/distributor” means any person, including any affiliate of such person, who (i) purchases motor fuel for sale, consignment, or distribution to another; or (ii) receives motor fuel on consignment for consignment or distribution to his own motor fuel accounts or to accounts of his supplier, but shall not include a person who is an employee of, or merely serves as a common carrier providing transportation service for, such supplier.

“Newly remodeled facility” means a retail outlet, marketing premises, or leased marketing premises which, within an 18-month period, has been rebuilt, renovated, or reconstructed at a cost of (i) for facilities remodeled before January 1, 2004, a minimum of $560,000; or (ii) for facilities remodeled on or after January 1, 2004, a minimum of $560,000 plus an amount reflecting the annual rate of inflation, such amount to be calculated on January 1 of each year by the Commissioner of the Department of Agriculture and Consumer Services by referring to the Consumer Price Index published by the United States Department of Labor, Bureau of Labor Statistics.

“Operation of a retail outlet” means the ownership or option to buy a properly zoned parcel of property for which a permit to build a retail outlet has been granted.

“Petroleum products” or “motor fuel” means gasoline and diesel fuel of a type distributed for use as a fuel in self-propelled vehicles designed primarily for use on public streets, roads, and highways.

“Profit” means the net gain, for income tax purposes, realized by the dealer upon the assignment, transfer, or sale of the franchise agreement.

“Refiner” means any person engaged in the refining of crude oil to produce motor fuel and includes any affiliate of such person.

“Retail” means the sale of petroleum products for purposes other than resale.

“Retail outlet,” “marketing premises,” or “leased marketing premises” means the premises at which petroleum products are sold to the general public.

“Trial franchise” means the same as provided in the Petroleum Marketing Practices Act (15 U.S.C. § 2803 et seq.).

History. 1973, c. 423; 1979, c. 306; 1990, c. 907; 2003, c. 410; 2005, c. 839; 2012, c. 351.

The 2003 amendments.

The 2003 amendment by c. 410, in the definition of “Newly remodeled facility,” substituted “18” for “eighteen,” and substituted clauses (i) and (ii) for “$350,000 or more.”

The 2005 amendments.

The 2005 amendment by c. 839, effective October 1, 2005, deleted the definition of “Person.”

The 2012 amendments.

The 2012 amendment by c. 351 added the paragraph defining “Jobber/distributor.”

§ 59.1-21.11. Required provisions pertaining to agreements between refiners and dealers.

Every agreement between a refiner and a dealer shall be subject to the following provisions, whether or not expressly set forth therein:

  1. The dealer shall not be required to keep his retail outlet open for business for more than sixteen consecutive hours per day, nor more than six days per week. This subdivision shall not be construed to prevent any retail outlet being open when required to be open to conform to any local, state or federal law or regulation, nor shall this subdivision be construed to prevent any retail outlet from being open for business for more than sixteen consecutive hours per day or more than six days per week when the dealer determines that market conditions warrant such operation.  This subdivision shall not apply to retail outlets which participate in the travel services signing program of the Virginia Department of Transportation.
  2. The right of either party to trial by jury or to the interposition of counterclaims or cross claims shall not be waived.
  3. In the absence of any express agreement, the dealer shall not be required to participate financially in the use of any premium, coupon, give-away, or rebate in the operation of a retail outlet.  The refiner may require the dealer to distribute to customers premiums, coupons, or give-aways which are furnished to the dealer at the expense of the refiner.
  4. No agreement or franchise subject to the provisions of this chapter shall limit, restrict, or impair the number of retail outlets which an individual dealer may operate for the same refiner, nor may any agreement or franchise establish working hours for the dealer. However, an agreement or franchise may require the dealer to be involved in the operation of the business of the dealer’s retail outlet or retail outlets for not more than an average of sixty hours per month. Notwithstanding the provisions of this subdivision, a refiner may impose a requirement in a trial franchise only, that a dealer be on the marketing premises of the dealer’s retail outlet or retail outlets for a reasonable number of hours per week not to exceed twenty hours per week.
  5. No transfer or assignment of a franchise by a dealer to a qualified transferee or assignee shall be unreasonably disapproved by the refiner.  A refiner shall have forty-five days, after the date of submission by a proposed transferee or assignee of all personal and financial information required by the refiner’s reasonable and uniform standards, within which to notify a dealer in writing that a proposed transferee or assignee meets or fails to meet the refiner’s reasonable and uniform qualifications.  If the proposed transferee or assignee fails to meet the refiner’s reasonable and normal qualifications, the notice to the dealer shall state with specificity the reasons for such failure.
  6. The term of the initial agreement between the refiner and the dealer relating to specific marketing premises shall not be less than one year; the term of all subsequent agreements between the refiner and the dealer, relating to the same marketing premises, shall not be for less than three years. The rental provisions in any such agreement or franchise shall be based on commercially fair and reasonable standards, uniformly applied to all similarly situated dealers of the same refiner in the same geographic area.
  7. A refiner may require a dealer to pay a fee or charge for the privilege of honoring a credit card issued by the refiner and used by customers of the dealer in purchasing at retail products and services at retail outlets which bear the brand name or trademark of the refiner only if such refiner has deducted the cost of extending retail credit from the tankwagon price charged dealers, has notified the dealer in writing of such deduction and such fee is a part of a program designed (i) to induce retail purchases for cash or (ii) to separate the cost of extending retail credit from the tankwagon price paid by the dealer. The amount of any such fee or charge shall be directly related to the actual cost incurred by the refiner in the extension of retail credit. Notwithstanding the provisions of subsection A of § 59.1-21.12, any refiner who violates the provisions of this subdivision shall be civilly liable for damages in treble the amount of the damages sustained by the complaining party as a result of the violation.
  8. A dealer shall have the right, effective upon his death, permanent and total disability, or retirement, to have his interests under a franchise agreement with a refiner assigned to a designated family member who has been approved by the refiner in accordance with the refiner’s reasonable and uniform standards for personal and financial condition unless the refiner shows that the designated family member no longer meets the reasonable and uniform standards at the time of the previous approval. All franchise agreements shall contain a provision identifying the designated family member who is entitled to succeed to the interests of the dealer under the agreement upon his death, permanent and total disability, or retirement.  The foregoing shall not prohibit a refiner from requiring that the designated family member accept a trial franchise within twenty-one days of the dealer’s death, permanent and total disability, or retirement and that the designated family member attend a training program offered by the refiner.A dealer and the refiner may mutually agree to change the designated family member entitled to succeed to the dealer’s interests under a franchise agreement. The designated family member shall provide, upon the request of the refiner, personal and financial information that is reasonably necessary to determine whether the succession should be honored.  The refiner shall not be obligated to accept a designated family member under this subdivision who does not meet the reasonable and uniform standards uniformly imposed by the refiner; however, any refusal to accept the designated family member as a successor dealer shall be given by the refiner in writing to the dealer, not later than ninety days after the date of the designation of the designated family member by the dealer, and shall state with specificity the reasons for such refusal.
    1. No refiner shall condition approval of an assignment, transfer, sale, or renewal of a franchise agreement on the payment by the dealer, or the proposed successor dealer, of a franchise fee or penalty unless the assignment, transfer, or sale is of a franchise agreement covering a new or newly remodeled facility.
    2. A refiner may require a dealer to pay a franchise fee or penalty, as hereinafter provided, upon the assignment, transfer, or sale of a franchise agreement covering a new facility within the first three years of the initial term of the franchise agreement, or upon the assignment, transfer or sale of a franchise agreement covering a newly remodeled facility within the first three years after the completion of the remodeling:
      1. An amount not to exceed sixty percent of the profit realized by the dealer if the assignment, transfer, or sale takes place within the first twelve-month period.
      2. An amount not to exceed twenty-five percent of the profit realized by the dealer if the assignment, transfer, or sale takes place within the second twelve-month period.
      3. An amount not to exceed ten percent of the profit realized by the dealer if the assignment, transfer, or sale takes place within the third twelve-month period.
    3. Nothing in this section shall authorize a refiner to impose a franchise fee or penalty upon an assignment, transfer, or sale to a family member pursuant to subdivision 8 of this section.
    4. In the case of a new facility, a franchise fee may be charged at the time the first franchise agreement is entered into.
  9. Any provision in any agreement or franchise purporting to waive any right or remedy under this chapter or any applicable provisions of the Petroleum Marketing Practices Act (15 U.S.C. § 2802 et seq.) shall be null and void.

History. 1973, c. 423; 1979, c. 306; 1982, c. 350; 1985, c. 498; 1987, c. 535; 1990, c. 907; 1991, c. 199.

CASE NOTES

Subdivision 1 federally preempted. —

The prohibition of operations exceeding sixteen consecutive hours per day or six days per week under subdivision 1 of this section is preempted by the Petroleum Marketing Practices Act, 15 U.S.C.S. §§ 2801 to 2806, but is not impliedly preempted by the Lanham Trade-Mark Act, 15 U.S.C.S. § 1127. Mobil Oil Corp. v. Virginia Gasoline Marketers & Automotive Repair Ass'n, 34 F.3d 220, 1994 U.S. App. LEXIS 17761 (4th Cir. 1994), cert. denied, 513 U.S. 1148, 115 S. Ct. 1097, 130 L. Ed. 2d 1065, 1995 U.S. LEXIS 1029 (1995).

Subdivision 4 federally preempted. —

The prohibition on refiner limits as to the number of stations a single dealer can operate under subdivision 4 of this section is preempted by the Petroleum Marketing Practices Act, 15 U.S.C.S. §§ 2801 to 2806, but is not impliedly preempted by the Lanham Trade-Mark Act, 15 U.S.C.S. § 1127. Mobil Oil Corp. v. Virginia Gasoline Marketers & Automotive Repair Ass'n, 34 F.3d 220, 1994 U.S. App. LEXIS 17761 (4th Cir. 1994), cert. denied, 513 U.S. 1148, 115 S. Ct. 1097, 130 L. Ed. 2d 1065, 1995 U.S. LEXIS 1029 (1995).

Subdivision 6 federally preempted. —

The requirements that rents be based on commercially fair and reasonable standards and uniformly applied to similarly situated dealers of the same refiner in the same area and that all franchise renewals extend at least three years under subdivision 6 of this section are preempted by the Petroleum Marketing Practices Act, 15 U.S.C.S. §§ 2801 to 2806, but are not impliedly preempted by the Lanham Trade-Mark Act, 15 U.S.C.S. § 1127. Mobil Oil Corp. v. Virginia Gasoline Marketers & Automotive Repair Ass'n, 34 F.3d 220, 1994 U.S. App. LEXIS 17761 (4th Cir. 1994), cert. denied, 513 U.S. 1148, 115 S. Ct. 1097, 130 L. Ed. 2d 1065, 1995 U.S. LEXIS 1029 (1995).

Violation of § 18.2-250 , felony possession of cocaine, is a crime involving moral turpitude, and oil company could reasonably terminate cocaine user’s franchise. Portaluppi v. Shell Oil Co., 684 F. Supp. 900, 1988 U.S. Dist. LEXIS 3077 (E.D. Va. 1988), aff'd, 869 F.2d 245, 1989 U.S. App. LEXIS 2828 (4th Cir. 1989).

§ 59.1-21.11:1. Waiver of constitutional rights prohibited.

Any provision in any agreement or franchise subject to the provisions of this chapter purporting to waive or to directly or indirectly limit the constitutional rights of a dealer (i) to petition any governmental authority or body or (ii) lawfully to seek or oppose any governmental or regulatory action with respect to any matter, notwithstanding any contrary position taken by the franchisor thereon, shall be null and void.

History. 1994, c. 170.

§ 59.1-21.12. Civil action for violation of chapter.

  1. Any person who violates any provision of this chapter shall be civilly liable for liquidated damages of $10,000 and reasonable attorney’s fees, plus provable damages caused as a result of such violation, and be subject to such other remedies, legal or equitable, including injunctive relief, as may be available to the party damaged by such violation. Such action shall be brought in the circuit court of the jurisdiction wherein the franchised premises are located. For the purposes of subdivisions 5 and 9 of § 59.1-21.11, a proposed transferee, assignee, or designated family member who is not approved as a dealer by a refiner shall have legal standing to challenge a refiner’s compliance with the provisions of this section relating to assignment.
  2. No action may be brought under the provisions of this chapter for a cause of action which arises more than two years prior to the date on which such action is brought.

History. 1973, c. 423; 1990, c. 907; 2003, c. 410.

The 2003 amendments.

The 2003 amendment by c. 410 substituted “$10,000” for “$2,500.”

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 14 Costs. § 14.02 Items Included. Bryson.

CASE NOTES

Damages. —

Where a refining company’s violation was willful, what made disgorgement such an appropriate remedy was that it was the refining company’s purpose to continue operating illegally until a franchise dealer was in place so there would be no break in its receipt of profits from each day’s operation. Frank Shop, Inc. v. Crown Cent. Petroleum Corp., 264 Va. 1 , 564 S.E.2d 134, 2002 Va. LEXIS 69 (2002).

§ 59.1-21.13. Obligation of refiner to repurchase upon termination, etc., of agreement.

In the event of any termination, cancellation, or failure to renew whether by mutual agreement or otherwise, a refiner shall make or cause to be made a good faith offer to repurchase from the dealer, his heirs, successors, and assigns, at the current wholesale prices any and all merchantable products purchased by such dealer from the refiner; provided, that in such event the refiner shall have the right to apply the proceeds against any existing indebtedness owed to him by the dealer; and provided further, that such repurchase obligation is conditioned upon there being no other claims or liens against such products by or on behalf of other creditors of the dealer.

History. 1973, c. 423; 1979, c. 306; 1990, c. 907.

§ 59.1-21.14. Producer or refiner not to terminate, etc., agreement without notice and reasonable cause; nonrenewal by franchisor.

  1. A producer or refiner shall not terminate, cancel, or fail to renew a petroleum products franchise unless he furnishes prior written notification pursuant to this paragraph to each dealer affected thereby. Such notification shall contain a statement of intention to terminate, cancel, or not renew with the reasons therefor; the date on which such action shall take effect; and shall be sent to such dealer by certified mail not less than sixty days prior to the date on which such petroleum products franchise will be terminated, canceled, or not renewed. In circumstances where it would not be reasonable to provide advance notice of sixty days, the producer or refiner shall provide notice at the earliest date as is reasonably practicable. Termination, cancellation, or failure to renew shall be effective immediately upon notice given by certified mail to the dealer at his last known address in situations involving:
    1. Failure of the dealer to open for business during reasonable business hours for five consecutive days, or
    2. Criminal conduct or violations of law by the dealer involving moral turpitude, or
    3. Bankruptcy, an assignment for the benefit of creditors by the dealer, or a petition for reorganization by the dealer, or
    4. Condemnation or other taking of the premises, in whole or in part, pursuant to the power of eminent domain, or
    5. Mutual agreement of the parties to terminate the franchise, or
    6. Death, incapacity, or permanent and total disability of the dealer.
  2. A producer or refiner shall not terminate, cancel, or fail to renew, a petroleum products franchise, except for reasonable cause.
  3. Reasonable cause shall include, but not be limited to:
    1. A failure of the dealer to comply substantially with the express provisions of such petroleum products franchise, or
    2. A failure of the dealer to act in good faith in carrying out the terms of such petroleum products franchise, and federal and state laws, which shall include, but not be limited to:
      1. Adulteration of the producer’s or refiner’s products, or
      2. Misbranding of gasoline, or
      3. Misleading or deceiving consumers, or
      4. Trademark violations, or
      5. False or deceptive representations to the producer or refiner, or
    3. Receipt and documentation by the supplier of repeated customer complaints uncorrected by the dealer within a reasonable time, or
    4. A total withdrawal by the producer or refiner from the sale of motor fuels in commerce for sale in the county, city or standard statistical metropolitan area in which the franchise is situated, or
    5. The occurrence of any of the situations set out in subsection A hereof, not requiring sixty days’ notice.
  4. A franchisor may elect not to renew a franchise which involves the lease by the franchisor to the franchisee of premises, in the event the franchisor:
    1. Sells or leases such premises to other than a subsidiary or affiliate of the franchisor for any use; or
    2. Sells or leases such premises to a subsidiary or affiliate of the franchisor, except such subsidiary or affiliate shall not use such premises for the retail sale of motor fuels; or
    3. Converts such premises to a use other than the retail sale of motor fuels; or
    4. Has leased such premises from a person not the franchisee and such lease is terminated, canceled or not renewed; or
    5. Determines, in the case of any retail service station opened after July 1, 1979, under a franchise term of at least three years, in good faith and in the normal course of business that renewal of the petroleum products franchise is likely to be uneconomical to the producer or refiner despite any reasonable changes or reasonable additions to the provisions of the franchise which may be acceptable to the dealer.
  5. The provisions of this section shall apply to any petroleum products franchise entered into or renewed on and after July 1, 1976.

History. 1973, c. 423; 1976, c. 645; 1979, c. 306; 1997, c. 801.

Editor’s note.

Acts 1997, c. 801, cl. 2, provides: “That the provisions of this act shall become effective on January 1, 1998. The powers granted and duties imposed pursuant to this act shall apply prospectively to guardians and conservators appointed by court order entered on or after that date, or modified on or after that date if the court so directs, without regard to when the petition was filed. The procedures specified in this act governing proceedings for appointment of a guardian or conservator or termination or other modification of a guardianship shall apply on and after that date without regard to when the petition therefor was filed or the guardianship or conservatorship created.”

§ 59.1-21.15. Disclosures to be made by refiner before conclusion of agreement.

A refiner shall disclose to any prospective dealer the following information, before any franchise agreement is concluded:

  1. The gallonage volume history, if any, of the location under negotiation for and during the three-year period immediately past or for the entire period which the location has been supplied by the refiner, whichever is shorter.
  2. The name and last known address of the previous dealer or dealers for the last three years, or for and during the entire period which the location has been supplied by the refiner, whichever is shorter.
  3. Any legally binding commitments for the sale, demolition, or other disposition of the location.
  4. The training programs, if any, and the specific goods and services the refiner will provide for and to the dealer.
  5. Full disclosure of any and all obligations which will be required of the dealer.
  6. Full disclosure of all restrictions on the sale, transfer, and termination of the agreement.

History. 1973, c. 423; 1979, c. 306; 1990, c. 907.

§ 59.1-21.15:1. Continued rights of dealers upon sale or assignment of franchise agreement.

Any franchise between a dealer and a refiner located in Planning District 8 in effect on or after January 1, 2008, which franchise is sold or assigned to a third party shall require such acquiring third party, and its successors, assigns, affiliates and subsidiaries, to comply with, provide, grant, and make available to the dealer and to any successor of the dealer any and all rights, privileges, or protections provided for in this chapter and required of or enforceable against the assigning refiner-franchisor except for such sale or assignment. With respect to the requirements of § 59.1-21.16:2, the one and one-half mile restriction shall only apply to a franchise location which is sold or assigned on or after January 1, 2008.

History. 2008, c. 837.

§ 59.1-21.15:2. Franchisor’s obligation to offer leased marketing premises to occupying dealer.

  1. As used in this section, unless the context requires otherwise:“Bona fide offer” means an offer by the franchisor to the dealer that approximates the fair market value of the leased marketing premises under an objectively reasonable analysis, and:
    1. In the case of the franchisor offering to the dealer a right of first refusal regarding an offer to purchase the marketing premises that has been made to the franchisor by a third party regarding the leased marketing premises, the offer made by such third party shall be a bona fide offer acceptable to the franchisor, and may not be an offer that has been unfairly or improperly established by either the franchisor or the third party offer; or
    2. In the case of service station premises that the franchisor leases from a third party, and providing the lease allows the assignment of such lease by the franchisor, the franchisor’s lease rights in the station premises shall be transferred or assigned to the dealer, with the franchisor making a bona fide offer with regard to the sale of structures located on the station’s premises, including all pumps, dispensers, storage tanks, piping, and all other equipment located upon the premises necessary for the continued operation of a service station.If the leased marketing premises occupied by a dealer are to be part of a sale of multiple properties owned or controlled by the franchisor, a bona fide offer shall reasonably allocate a portion of the total price for the multiple properties intended to be sold to the leased marketing premises occupied by the dealer in order to allow the dealer to exercise the dealer’s right of first refusal regarding the leased marketing premises occupied by the dealer. In making such allocation, the purpose shall be to determine the fair market value of the leased marketing premises under an objectively reasonable analysis.A bona fide offer shall (i) include the sale of all structures located on the leased marketing premises, including all pumps, dispensers, storage tanks, piping, and all other equipment located upon the premises necessary for the continued operation of a service station if the dealer exercises the dealer’s right to buy; (ii) not include a requirement that the dealer enter into a supply agreement with the selling franchisor or with any other party and, to the extent that a bona fide offer acceptable to the franchisor from a third party contains such a supply agreement, it shall not be applicable to the dealer; and (iii) not, unless freely negotiated by the dealer, release the continuing obligations of the franchisor with regard to any environmental obligations regarding the service station premises nor require the dealer to assume such obligations of the franchisor with regard to the dealer’s purchase of the premises or acquisition of the franchisor’s rights in the premises. In conjunction with the dealer’s acquisition of the rights of the franchisor in the leased marketing premises, such environmental tests, surveys, and other due diligence investigations shall be conducted as are customary in such transactions.“Leased marketing premises” means marketing premises owned, leased, or controlled by a franchisor and that the dealer is authorized or permitted, under the petroleum franchise, to employ, to occupy, or both in connection with the sale, consignment, or distribution of petroleum products.“Supply agreement” means an agreement, oral or written, under which a party is to supply, and a dealer is required to buy, petroleum products.
  2. In the case of leased marketing premises owned by a franchisor, or in which a franchisor owns a leasehold interest, which premises are occupied by a dealer, the franchisor shall not sell, transfer, or assign to another person the franchisor’s interest in the premises unless the franchisor has first either made a bona fide offer to sell, transfer, or assign to the dealer the franchisor’s interest in the premises, other than signs displaying the refiner’s insignia and any other trademarked, service marked, copyrighted, or patented items of the franchisor, or, if applicable, offered to the dealer a right of first refusal of any bona fide offer acceptable to the franchisor made by another person to acquire the franchisor’s interest in the premises.
  3. Nothing in this section shall be deemed to require a franchisor to continue an existing franchise relationship, or to renew a franchise relationship, if not otherwise required by federal law.
  4. Nothing in this section shall be deemed to require a franchisor to continue to supply petroleum products to a dealer if the dealer exercises its right to acquire the interests of the franchisor in the premises.
  5. The bona fide offer required to be made to the dealer by the franchisor shall:
    1. Be in writing;
    2. Set forth fully and completely all terms and conditions of the offer being made by the franchisor;
    3. In the case of a bona fide offer being made by a third party to acquire the interests of the franchisor in the property, which offer is acceptable to the franchisor, also contain a full copy of the proposal of the third party, or the contract or its equivalent between the franchisor and the third party if such a contract exists, to include all schedules, attachments, addenda, or their equivalent; and
    4. In the case of leased marketing premises that the franchisor leases from a third party or parties, also contain a full copy of the underlying lease, including all schedules, attachments, addenda, or their equivalent.
  6. After receipt of the bona fide offer from the franchisor, the dealer shall have a period of not less than 60 days within which to exercise the dealer’s rights as established under this section, which exercise shall be effective upon delivering written notice of such exercise to the franchisor. After exercise of the dealer’s rights, the closing on, and transfer of, the leased marketing premises shall occur (i) within 60 days after the dealer’s exercise of such rights or (ii) on or before the closing date established within the bona fide offer regarding which the dealer has exercised the dealer’s right of first refusal under this section, whichever date occurs later.
  7. The provisions of this section shall apply only to the sale, assignment, or transfer of a franchisor’s interest in or to any leased marketing premises located only in Planning District 8, and shall not apply to leased marketing premises owned or controlled by a jobber/distributor.

History. 2014, c. 222.

§ 59.1-21.16. Authority of Attorney General under § 59.1-68.2 not limited.

Nothing in this chapter shall be construed as limiting the authority of the Attorney General under the provisions of § 59.1-68.2.

History. 1973, c. 423.

§ 59.1-21.16:1. Expired.

Editor’s note.

This section was enacted by Acts 1978, c. 822, and expired by its own terms March 1, 1979.

§ 59.1-21.16:2. Operation of retail outlet by refiner; apportionment of fuels during periods of shortage; rules and regulations.

  1. After July 1, 1979, no refiner of petroleum products shall operate any major brand, secondary brand, or unbranded retail outlet in the Commonwealth of Virginia with company personnel, a parent company, or under a contract with any person, firm, or corporation, managing a service station on a fee arrangement with the refiner; however, such refiner may operate such retail outlet with the aforesaid personnel, parent, person, firm, or corporation if such outlet is located not less than one and one-half miles from the nearest retail outlet operated by any dealer or jobber/distributor, as measured by the most direct surface transportation route from the gas pump at the refiner’s facility that is nearest a gas pump at the dealer’s or jobber/distributor’s facility; and provided, that once in operation, no refiner shall be required to change or cease operation of any retail outlet by the provisions of this section.During the period July 1, 1990, through June 30, 1991, no refiner may construct and operate with company personnel as defined in this section any new major brand, secondary brand, or unbranded retail outlet in the Commonwealth of Virginia, except on any property purchased or under option to purchase by March 1, 1990.
  2. Every refiner of petroleum products shall apportion all gasoline and diesel fuel among their purchasers during periods of shortages on an equitable basis.
  3. No new lease, lease renewal, new supply contract, or new supply contract renewal under this chapter shall impose purchase or sales quotas.
  4. The provisions of this section shall not be applicable to retail outlets operated by producers or refiners on July 1, 1979.

History. 1979, c. 306; 1984, c. 720; 1990, c. 907; 1995, c. 664; 2003, c. 410; 2012, c. 351.

The 2003 amendments.

The 2003 amendment by c. 410, in subsection A, deleted “as measured by the most direct surface transportation route” following “one and one-half miles,” and inserted “as measured by the most direct surface transportation route from the gas pump at the refiner’s facility that is nearest a gas pump at the dealer’s facility.”

The 2012 amendments.

The 2012 amendment by c. 351 deleted former subsection D, which read “The Commissioner of Agriculture and Consumer Services shall adopt regulations (i) defining the circumstances under which a refiner may temporarily operate a previously dealer-operated retail outlet; (ii) providing for the rebuilding or relocation of retail outlets which were producer or refiner operated on July 1, 1979; (iii) requiring each refiner to file a list of retail outlets operated by such refiner and to keep such listing current; (iv) requiring each franchise dealer to file a listing of any retail outlets operated by such franchise dealer, and to keep such list current”; and redesignated former subsection E as D.

CASE NOTES

Subsection C federally preempted. —

The prohibitions on gasoline purchase or sales quotas contained in subsection C of this section are preempted by the Petroleum Marketing Practices Act, 15 U.S.C.S. §§ 2801 to 2806, but are not impliedly preempted by the Lanham Trade-Mark Act, 15 U.S.C.S. § 1127. Mobil Oil Corp. v. Virginia Gasoline Marketers & Automotive Repair Ass'n, 34 F.3d 220, 1994 U.S. App. LEXIS 17761 (4th Cir. 1994), cert. denied, 513 U.S. 1148, 115 S. Ct. 1097, 130 L. Ed. 2d 1065, 1995 U.S. LEXIS 1029 (1995).

Divorcement and grandfather clauses. —

Subsection A, referred to as the “divorcement clause,” prohibits a producer or refiner of petroleum products from operating a retail gasoline outlet within one and one-half miles of a retail outlet operated by a franchised dealer; however, subsection E, referred to as the “grandfather clause,” states that the provisions of this section shall not be applicable to retail outlets operated by producers or refiners on July 1, 1979. Frank Shop, Inc. v. Crown Cent. Petroleum Corp., 261 Va. 169 , 540 S.E.2d 897, 2001 Va. LEXIS 17 (2001).

The grandfather clause of this act exempts a retail gasoline outlet that was operated by a producer or refiner on July 1, 1979, and subsequently operated by a company that is not a producer or refiner under this act. Beach Robo, Inc. v. Crown Cent. Petro. Corp., 236 Va. 131 , 372 S.E.2d 144, 5 Va. Law Rep. 565, 1988 Va. LEXIS 122 (1988); Beach Robo, Inc. v. Crown Cent. Petro., Inc., 860 F.2d 606, 1988 U.S. App. LEXIS 14676 (4th Cir. 1988).

This section regulates interbrand competition because it prohibits a refiner from operating a retail outlet unless that outlet is located one and one-half miles or more from a retail outlet operated by a franchised dealer, including franchised dealers that are not franchisees of the refiner. Crown Cent. Petro. Corp. v. Hill, 254 Va. 88 , 488 S.E.2d 345, 1997 Va. LEXIS 71 (1997).

§ 59.1-21.17. Effective date of chapter.

The provisions of this chapter shall be applicable to franchise agreements entered into on and after July 1, 1973.

History. 1973, c. 423.

§ 59.1-21.18. Repealed by Acts 2015, c. 709, cl. 2.

Editor’s note.

Former § 59.1-21.18, pertaining to severability, derived from 1973, c. 423.

§ 59.1-21.18:1. Exclusions.

Franchise agreements subject to the provisions of this chapter shall not be subject to any requirement contained within Chapter 8 (§ 13.1-557 et seq.) of Title 13.1.

History. 1978, c. 670.

The number of this section was assigned by the Virginia Code Commission, the number in the 1978 act having been 59.1-21.19.

Chapter 2.2:1. Emergency Petroleum Products Supply Act.

§ 59.1-21.18:2. Definitions.

As used in this chapter, unless the context requires otherwise, the following terms and phrases shall have the following meanings:

  1. “Petroleum products” shall mean kerosene and number one and two heating oils;
  2. “Supplier” shall mean any person, partnership, company, corporation or association engaged in the refining and subsequent sale of petroleum products to any distributor in the Commonwealth;
  3. “Distributor” shall mean any distributor, wholesaler, jobber, consignee or commission agent who purchases or otherwise acquires possession of or an interest in petroleum products under a contract of supply in the Commonwealth from a supplier for redistribution or wholesale sale;
  4. “Monthly allocation” shall mean the monthly amount of petroleum products sold or otherwise supplied to a distributor under applicable U.S. Department of Energy regulations and rules, or which the supplier may otherwise be allocating to its distributors;
  5. “To discontinue” shall mean the failure or refusal to sell a monthly allocation as defined herein to a distributor for a period of six consecutive months unless such failure or refusal is the direct and proximate result of force majeure;
  6. “To reduce” shall mean the failure or refusal of a supplier to deliver at least seventy-five per centum of a monthly allocation to a distributor for a period of two consecutive months unless such failure or refusal is the direct and proximate result of an allocation percentage factor applied by the supplier to all its distributors or force majeure;
  7. “Force majeure” means an act of God or any other cause not reasonably within the control of the supplier.

History. 1980, c. 457.

§ 59.1-21.18:3. Prohibited acts.

Except in the event of failure by any distributor in the Commonwealth to comply with the material requirements imposed upon him by a contract or agreement with the supplier, other than a failure caused by force majeure; or except as may be required by an agency of the federal or state government responsible for regulating allocations of petroleum products; or except as provided in § 59.1-21.18:4, it shall be unlawful for any supplier:

  1. To discontinue monthly allocations of petroleum products to a distributor, his successors in interest or qualified assigns provided that such successors in interest or qualified assigns meet the supplier’s usual contract acceptance criteria; or
  2. To reduce monthly allocations of petroleum products to a Virginia distributor, his successors in interest or qualified assigns provided that such successors in interest or qualified assigns meet the supplier’s usual contract acceptance criteria.

History. 1980, c. 457.

§ 59.1-21.18:4. Exemptions under chapter.

A supplier shall be authorized to reduce or discontinue monthly allocations of petroleum products with any Virginia distributor if the supplier:

  1. Furnishes the distributor with an alternative source of monthly allocations of petroleum products of equal type, grade, quantity and equivalent delivery location; or
  2. Agrees to supply the distributor with monthly allocations of petroleum products for a period of twelve months and furnishes the distributor and the Governor of the Commonwealth with written notice of its intention to discontinue or reduce such allocations at least twelve months in advance of such discontinuance or reduction.

History. 1980, c. 457.

Chapter 2.3. Equal Credit Opportunity Act.

§§ 59.1-21.19 through 59.1-21.28.

Repealed by Acts 2010, c. 794, cl. 11, effective October 1, 2010.

Editor’s note.

This chapter was repealed by Acts 2010, c. 794, cl. 11, and recodified as Chapter 5 (§ 6.2-500 et seq.) of Title 6.2, effective October 1, 2010.

Former § 59.1-21.21 was repealed by Acts 1977, c. 589.

Chapter 3. Trusts, Combinations and Monopolies.

§§ 59.1-22 through 59.1-41.

Repealed by Acts 1974, c. 545.

Cross references.

For present provisions as to regulation of trusts and monopolies, see the Virginia Antitrust Act (§ 59.1-9.1 et seq.).

Chapter 3.1. Records, Tapes and Other Recorded Devices.

§ 59.1-41.1. “Owner” defined.

As used in this chapter, “owner” means the person who owns the sounds fixed in any master phonograph record, master disc, master tape, master film or other device used for reproducing recorded sounds on phonograph records, discs, tapes, films, videocassettes, or other articles now known or later developed on which sound is recorded and from which the transferred sounds are directly or indirectly derived, or the person who owns the rights to record or authorize the recording of a live performance.

History. 1972, c. 618; 1989, c. 240.

Law Review.

For note, “Goldstein v. California and the Protection of Sound Recordings: Arming the States for Battle with the Pirates,” see 31 Wash. & Lee L. Rev. 604 (1974).

Michie’s Jurisprudence.

For related discussion, see 17 M.J. Statutes, § 35.

§ 59.1-41.2. Recording of live concerts or recorded sounds and distribution, etc., of such recordings unlawful in certain circumstances.

It shall be unlawful for any person to:

  1. Knowingly transfer or cause to be transferred, directly or indirectly by any means, any sounds at a live concert or any sounds recorded on a phonograph record, disc, wire, tape, film, videocassette, or other article now known or later developed on which sounds are recorded, with the intent to sell, rent or cause to be sold or rented, or to be used for profit through public performance, such article on which sounds are so transferred, without consent of the owner; or
  2. For commercial advantage or private financial gain, manufacture, distribute, transport or wholesale, or cause to be manufactured, distributed, transported or sold as wholesale, or possess for such purposes any article with the knowledge that the sounds are so transferred, without consent of the owner.

    This section shall not apply to any person engaged in radio or television broadcasting who transfers, or causes to be transferred, any such sounds other than from the sound track of a motion picture intended for, or in connection with broadcast or telecast transmission or related uses, or for archival purposes.

History. 1972, c. 618; 1989, c. 240.

Law Review.

For article, “Copyright Liability for Audio Home Recording: Dispelling the Betamax Myth,” see 68 Va. L. Rev. 1505 (1982).

§ 59.1-41.3. Selling or renting, etc., of certain recorded devices unlawful.

It shall be unlawful for any person to knowingly sell, rent, cause to be sold or rented, or possess for the purpose of selling or renting any recorded device that has been produced, manufactured, distributed, or acquired in violation of any provision of this chapter.

History. 1972, c. 618; 1989, c. 240.

Michie’s Jurisprudence.

For related discussion, see 9B M.J. Indictments, Informations, and Presentments, § 59; 17 M.J. Statutes, § 35.

CASE NOTES

Sufficient evidence for conviction. —

More than sufficient evidence existed to prove that defendant knowingly possessed illegally reproduced videocassettes for sale, in violation of § 59.1-41.3, where the evidence presented at trial proved that defendant accepted, paid for, and transported two packages known by police officers to contain pirated CDs and videocassettes and defendant had a price list in his wallet titled “the Underground Wholesale Price List.” Milteer v. Commonwealth, 267 Va. 732 , 595 S.E.2d 275, 2004 Va. LEXIS 69 (2004).

Separate indictment should have been stricken. —

Where defendant was charged separately for violating § 59.1-41.3 and § 59.1-41.4, for possessing videocassettes and CDs for the purpose of selling, manufacturing, distributing, or acquiring them without their true names and addresses of their manufacturers, the trial court erred in failing to strike the indictment on the CD charge, namely § 59.1-41.4, because the acts charged under § 59.1-41.4, standing alone, did not constitute a crime as neither the indictment nor the conviction order cited a violation of § 59.1-41.3, which conviction under § 59.1-41.4 depended upon. Milteer v. Commonwealth, 267 Va. 732 , 595 S.E.2d 275, 2004 Va. LEXIS 69 (2004).

§ 59.1-41.4. Recorded devices to show true name of manufacturer.

Ninety days after July 1, 1972, every recorded device sold, rented or transferred or possessed for the purpose of sale, rental or transfer by any manufacturer, distributor, or wholesale or retail merchant shall contain on its packaging the true name and address of the manufacturer. The term “manufacturer” shall not include the manufacturer of the cartridge or casing itself. The term “recorded device” means the tangible medium upon which sounds or images are recorded or otherwise stored, and includes any phonograph record, disc, wire, tape, videocassette, film or other medium now known or later developed on which sounds or images are recorded or otherwise stored.

History. 1972, c. 618; 1989, c. 240.

Michie’s Jurisprudence.

For related discussion, see 9B M.J. Indictments, Informations, and Presentments, § 59; 17 M.J. Statutes, § 35.

CASE NOTES

Separate indictment should have been stricken. —

Where defendant was charged separately for violating § 59.1-41.3 and § 59.1-41.4, for possessing videocassettes and CDs for the purpose of selling, manufacturing, distributing, or acquiring them without their true names and addresses of their manufacturers, the trial court erred in failing to strike the indictment on the CD charge, namely § 59.1-41.4, because the acts charged under § 59.1-41.4, standing alone, did not constitute a crime as neither the indictment nor the conviction order cited a violation of § 59.1-41.3, which conviction under § 59.1-41.4 depended upon. Milteer v. Commonwealth, 267 Va. 732 , 595 S.E.2d 275, 2004 Va. LEXIS 69 (2004).

Suppression of evidence. —

Trial court’s denial of defendant’s motion to suppress was error and, thus, the finding that defendant was guilty of possession of marijuana with intent to distribute had to be reversed; police did not have probable cause to seize CDs found in defendant’s car, pursuant to §§ 59.1-41.5 and 59.1-41.4, since the items they thought were bogus CDs could have been legitimate, homemade CDs, and, thus, since the search for more CDs in his car led to the discovery of marijuana, the motion to suppress the marijuana evidence should have been granted because the seizure of that evidence was not reasonable given the lack of probable cause to search. McLaughlin v. Commonwealth, 48 Va. App. 243, 629 S.E.2d 724, 2006 Va. App. LEXIS 218 (2006).

§ 59.1-41.5. Confiscation of nonconforming recorded devices.

Ninety days after July 1, 1972, it shall be the duty of all law-enforcement officers, upon discovery, to confiscate all recorded devices that do not conform to the provisions of § 59.1-41.4. The nonconforming recorded devices shall be delivered to the attorney for the Commonwealth of the county in which the confiscation was made. The attorney for the Commonwealth by court order may give the same to a charitable or educational organization. The provisions of this section shall apply to any nonconforming recorded device, regardless of the requirement in § 59.1-41.3 of knowledge or intent of a retail seller.

History. 1972, c. 618.

CASE NOTES

Suppression of evidence. —

Trial court’s denial of defendant’s motion to suppress was error and, thus, the finding that defendant was guilty of possession of marijuana with intent to distribute had to be reversed; police did not have probable cause to seize CDs found in defendant’s car, pursuant to §§ 59.1-41.5 and 59.1-41.4, since the items they thought were bogus CDs could have been legitimate, homemade CDs, and, thus, since the search for more CDs in his car led to the discovery of marijuana, the motion to suppress the marijuana evidence should have been granted because the seizure of that evidence was not reasonable given the lack of probable cause to search. McLaughlin v. Commonwealth, 48 Va. App. 243, 629 S.E.2d 724, 2006 Va. App. LEXIS 218 (2006).

§ 59.1-41.6. Penalties for violation of chapter.

Violations of this chapter are punishable as follows:

  1. Except as otherwise provided in this section, any person convicted of an offense under this chapter is guilty of a Class 1 misdemeanor.
  2. Any person convicted of an offense involving at least 100 unlawful sound recordings or twenty unlawful audio visual recordings during any 180-day period is guilty of a felony punishable by a term of imprisonment of not less than one nor more than two years, or in the discretion of the jury or the court trying the case without a jury, confinement in jail for not more than twelve months and a fine of not more than $5,000, either or both;
  3. Any person convicted of an offense involving at least 1,000 unlawful sound recordings or 65 unlawful audio visual recordings during any 180-day period is guilty of a felony punishable by a term of imprisonment of not less than one nor more than three years, or in the discretion of the jury or the court trying the case without a jury, confinement in jail for not more than twelve months and a fine of not more than $100,000, either or both; and
  4. Any second or subsequent felony offense under this chapter shall be punishable by a term of imprisonment of not less than one nor more than three years, or in the discretion of the jury or the court trying the case without a jury, confinement in jail for not more than twelve months and a fine of not more than $100,000, either or both.
  5. Upon conviction of a person of any offense under this chapter, the court in its judgment of conviction may order the forfeiture and destruction or other disposition of all infringing recordings and of all implements, devices and equipment used by the person in the manufacture of the infringing recordings.

History. 1972, c. 618; 1989, c. 240; 2007, c. 805.

Cross references.

As to punishment for Class 1 misdemeanors, see § 18.2-11 .

The 2007 amendments.

The 2007 amendment by c. 805 added the exception to the beginning of subdivision 1; in subdivisions 2 and 3, inserted “person convicted of an,” and substituted “is guilty of a felony” for “shall be”; in subdivision 5, substituted “Upon conviction of a person” for “If a person is convicted” and “by the person” for “or intended to be used”; and made minor stylistic changes.

Chapter 4. Misrepresentations and Other Offenses Connected With Sales.

§§ 59.1-42 through 59.1-68.1.

Repealed by Acts 1975, c. 589.

Cross references.

For new provisions covering the subject matter of the repealed sections, see §§ 18.2-214 through 18.2-246 .

Chapter 4.1. Remedies for Violations of Preceding Chapters and Chapter 6, Article 8, of Title 18.2.

§ 59.1-68.2. Authority of Attorney General.

Notwithstanding any other provisions of the law to the contrary, the Attorney General may investigate and bring an action in the name of the Commonwealth to enjoin any violation of Chapters 2.1 (§ 59.1-21.1 et seq.) through 3.1 (§ 59.1-41.1 et seq.) and of Article 8 (§ 18.2-214 et seq.), Chapter 6 of Title 18.2.

History. 1970, c. 780; 1973, c. 537; 1975, c. 43; 1984, c. 582.

Law Review.

For survey of Virginia commercial law for the year 1969-1970, see 56 Va. L. Rev. 1387 (1970).

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 5 Parties. § 5.02 Competency. Bryson.

Michie’s Jurisprudence.

For related discussion, see 3C M.J. Commercial Law, § 2.

CASE NOTES

No private suit for injunctive relief. —

Because the Virginia’s false advertising statute (VFAS), §§ 18.2-216 , 59.1-68.2 to 51.9-68.5, did not permit a private suit for injunctive relief, the district court’s dismissal of plaintiffs’ claims for injunctive relief was affirmed; the VFAS contained a bifurcated remedy scheme, whereby government officials could seek to enjoin violative conduct and individuals could seek damages. Physicians Comm. for Responsible Med. v. General Mills, Inc., 283 Fed. Appx. 139, 2008 U.S. App. LEXIS 13020 (4th Cir. 2008).

§ 59.1-68.3. Action for damages or penalty for violation of Article 8, Chapter 6 of Title 18.2 or Chapter 2.1 of Title 59.1; attorney’s fees.

Any person who suffers loss as the result of a violation of Article 8 (§ 18.2-214 et seq.), Chapter 6 of Title 18.2 or Chapter 2.1 (§ 59.1-21.1 et seq.) of Title 59.1 shall be entitled to bring an individual action to recover damages, or $100, whichever is greater. Certified copies of the transcript and exhibits in evidence in any final proceeding in which the Attorney General has obtained a permanent injunction for a violation of Article 8, Chapter 6 of Title 18.2 or Chapter 2.1 of Title 59.1 shall be admissible in evidence in any action brought pursuant to this section by any person claiming damage as a result of the enjoined conduct. Notwithstanding any other provision of law to the contrary, in addition to the damages recovered by the aggrieved party, such person may be awarded reasonable attorney’s fees.

History. 1973, c. 537; 1975, c. 43; 1976, c. 87.

Law Review.

For 2003/2004 survey of real estate and land use law, see 39 U. Rich. L. Rev. 357 (2004).

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 14 Costs. § 14.02 Items Included. Bryson.

Michie’s Jurisprudence.

For related discussion, see 1A M.J. Actions, § 5; 3C M.J. Commercial Law, § 36.

CASE NOTES

Time limitations. —

A cause of action for false advertising brought pursuant to this section and § 18.2-216 is subject to the limitation period prescribed in § 8.01-243 rather than the limitation period and accrual date for fraud set forth in §§ 8.01-243(a) and 8.01-249(1) , respectively. McMillion v. Dryvit Sys., 262 Va. 463 , 552 S.E.2d 364, 2001 Va. LEXIS 110 (2001).

Action to recover false advertising damages. —

Plaintiff car dealership’s former owner’s claim under § 8.01-221 against defendants, a car manufacturer and its financing division, failed to state a claim as § 8.01-221 did not create a separate private action for the alleged Racketeer Influenced and Corrupt Organizations Act claims’ predicate acts, and while § 59.1-68.3 provided private actions for false advertising under §§ 18.2-216 and 18.2-217 , there were no allegations on the nature of such advertising, and an executive’s alleged false credentials in a resume was insufficient. Field v. GMAC LLC, 660 F. Supp. 2d 679, 2008 U.S. Dist. LEXIS 110164 (E.D. Va. 2008), aff'd, 328 Fed. Appx. 873, 2009 U.S. App. LEXIS 16460 (4th Cir. 2009).

Damages not alleged. —

Summary judgment under Va. Sup. Ct. R. 3:18 [see now Rule 3:20] for a developer was affirmed as to two condominium owners’ false advertising claims under § 59.1-68.3, even assuming that the developer made untrue, deceptive, and misleading statements in advertising, that the owners were induced to purchase their units, and that they would not have done so in the absence of the inducement; there was no basis to conclude that the owners suffered a loss since they sold their units in a known defective condition at a profit. Klaiber v. Freemason Assocs., 266 Va. 478 , 587 S.E.2d 555, 2003 Va. LEXIS 98 (2003).

CIRCUIT COURT OPINIONS

Action to recover false advertising damages. —

Home purchasers adequately alleged that the development corporation and other defendants involved in the building of the home purchasers’ home published, disseminated, and circulated before the public and potential consumers, including the home purchasers, written advertising information which falsely represented their expertise in design and construction, with the intent to sell and to offer their services as an architectural and construction firm to the public; thus, the development corporation’s demurrer had to be denied. Weiss v. Cassidy Dev. Corp., 63 Va. Cir. 76, 2003 Va. Cir. LEXIS 183 (Fairfax County Aug. 18, 2003).

A criminal conviction is not a prerequisite to recovery under §§ 18.2-216 and 59.1-68.3.Va. Beach Rehab Specialists, Inc. v. Augustine Med., Inc., 58 Va. Cir. 379, 2002 Va. Cir. LEXIS 155 (Norfolk Mar. 19, 2002).

Standing. —

Because they suffered no loss, former owners of condominium units lacked standing to bring a claim under § 59.1-68.3 of the Condominium Act, this count was dismissed on summary judgment. 313 Freemason v. Freemason Assocs., 59 Va. Cir. 407, 2002 Va. Cir. LEXIS 365 (Norfolk Aug. 30, 2002).

Statute of limitations. —

Claim for deceptive advertising, under § 59.1-68.3, by a condominium association against a manufacturer of an allegedly defective exterior insulation finishing system was barred by the two-year statute of limitations of § 8.01-248 , under the statute’s “catch-all” provision; the time that plaintiffs “suffered loss” was not upon the discovery of the finishing system related damage, as the date of loss occurred either when the finishing system was chosen by the builders or when the system was installed, pursuant to § 8.01-230 . Bd. of Dirs. of the Lesner Pointe Condo. on the Chesapeake Bay Ass'n v. Harbour Point Bldg. Corp., 2002 Va. Cir. LEXIS 422 (Virginia Beach June 18, 2002).

§ 59.1-68.4. Suits by attorneys for the Commonwealth and city and county attorneys.

Notwithstanding any other provisions of the law to the contrary, any attorney for the Commonwealth, or the attorney for any city or county, may investigate and cause to be brought suit in the name of the Commonwealth, or of the county or city, to enjoin any violation of Chapter 2.1 (§ 59.1-21.1 et seq.) of this title and of Article 8 (§ 18.2-214 et seq.), Chapter 6 of Title 18.2. The court having jurisdiction may enjoin such violations notwithstanding the existence of an adequate remedy at law. In any action under this section, it shall not be necessary that damages be alleged or proved.

History. 1974, c. 644; 1975, c. 43.

The number of this section was assigned by the Virginia Code Commission, the number in the 1974 act having been 15.1-23.4.

Law Review.

For survey of developments in Virginia commercial law for the year 1973-1974, see 60 Va. L. Rev. 1475 (1974).

CASE NOTES

No private suit for injunctive relief. —

Because the Virginia’s false advertising statute (VFAS), §§ 18.2-216 , and 59.1-68.2 to 51.9-68.5, did not permit a private suit for injunctive relief, the district court’s dismissal of plaintiffs’ claims for injunctive relief was affirmed; the VFAS contained a bifurcated remedy scheme, whereby government officials could seek to enjoin violative conduct and individuals could seek damages. Physicians Comm. for Responsible Med. v. General Mills, Inc., 283 Fed. Appx. 139, 2008 U.S. App. LEXIS 13020 (4th Cir. 2008).

§ 59.1-68.5. Further provisions as to actions for violation of Article 8, Chapter 6 of Title 18.2.

Any person who suffers loss as the result of a violation of Article 8 (§ 18.2-214 et seq.), Chapter 6 of Title 18.2 shall be entitled to bring an individual action to recover damages, or $100, whichever is greater. Certified copies of the transcript and exhibits in evidence in any final proceeding in which the Commonwealth, or a county or city has obtained a permanent injunction for a violation of Article 8, Chapter 6 of Title 18.2 shall be admissible in evidence in any action brought pursuant to this section by any person claiming damage as a result of the enjoined conduct. Notwithstanding any other provision of law to the contrary, in addition to the damages recovered by the aggrieved party, such person may be awarded reasonable attorney’s fees.

History. 1974, c. 644; 1975, c. 43.

The number of this section was assigned by the Virginia Code Commission, the number in the 1974 act having been 15.1-23.5.

Law Review.

For survey of developments in Virginia commercial law for the year 1973-1974, see 60 Va. L. Rev. 1475 (1974).

Chapter 4.2. Conspiracy to Rig Bids to Government.

§ 59.1-68.6. Definitions.

As used in this chapter, unless the text indicates otherwise:

  1. “Person” means any individual, firm, partnership or corporation;
  2. “Governmental units” means all state agencies and all political subdivisions or agencies thereof;
  3. “Bid” means any submission of a price, whether written or oral, for any goods, services or construction to be provided.

History. 1980, c. 471.

Cross references.

As to this section and the requirements for prequalification of prospective contractors under the Virginia Public Procurement Act, see § 2.2-4317 .

Law Review.

For article on injuries to business under the Virginia Conspiracy Act, see 38 Wash. & Lee L. Rev. 377 (1981).

CASE NOTES

Prosecution under § 18.2-178 for inflated vendors’ bids. —

The enactment of this chapter and § 18.2-498.1 et seq. did not preclude the Commonwealth from obtaining a conviction under § 18.2-178 of a defendant alleged to have improperly inflated vendors’ bids to the detriment of the Commonwealth, where the alleged acts took place prior to the enactment of the new statutes. Mosteller v. Commonwealth, 222 Va. 143 , 279 S.E.2d 380, 1981 Va. LEXIS 284 (1981).

§ 59.1-68.7. Combinations to rig bids.

  1. Any combination, conspiracy or agreement to intentionally rig, alter or otherwise manipulate, or to cause to be rigged, altered or otherwise manipulated any bid submitted to the Commonwealth of Virginia or any governmental unit for the purpose of allocating purchases or sales to or among persons, raising or otherwise fixing the prices of the goods or services, or excluding other persons from dealing with the Commonwealth or any other governmental unit shall be unlawful.
  2. Any person violating this section shall be guilty of a Class 6 felony.

History. 1980, c. 471.

Cross references.

As to punishment for Class 6 felonies, see § 18.2-10 .

§ 59.1-68.8. Enforcement.

The Attorney General of Virginia, with respect to state agencies only, shall have concurrent power and authority to investigate and prosecute any violation of § 59.1-68.7. In addition, the attorneys for the Commonwealth of the several counties and cities shall retain the power and authority to prosecute any and all violations of § 59.1-68.7 occurring within their jurisdiction.

History. 1980, c. 471.

Chapter 5. Transacting Business Under Assumed Name.

§ 59.1-69. Certificate required of person transacting business under assumed name.

  1. As used in this chapter, unless the context requires a different meaning:“Commission” means the State Corporation Commission.“Person” has the meaning prescribed in § 1-230 .
  2. No person shall conduct or transact business in the Commonwealth under any assumed or fictitious name unless such person files in the office of the clerk of the Commission a certificate of assumed or fictitious name.
  3. No person shall use an assumed or fictitious name in the conduct of the person’s business to intentionally misrepresent the geographic origin or location of the person.

History. Code 1950, § 59-169; 1968, c. 439; 1987, c. 702; 1995, c. 168; 1996, c. 904; 2017, c. 594.

Editor’s note.

Acts 2017, c. 594, cl. 2, as amended by Acts 2018, c. 251, cl. 1, provides “That the provisions of this act shall become effective on January 1, 2020.”

Acts 2017, c. 594, cl. 3 provides: “That the provisions of this act (i) shall be applied prospectively only; (ii) shall not affect the validity of any filing made, or other action taken, prior to the effective date of this act with respect to a fictitious or assumed name certificate; and (iii) shall not be construed to require any person who was in compliance with applicable laws regarding fictitious or assumed name certificates prior to the effective date of this act to take any action to comply with the requirements of this act.”

The 2017 amendments.

The 2017 amendment by c. 594, effective January 1, 2020, rewrote the section. For applicability, see Editor’s note.

Law Review.

For overview of Virginia Supreme Court decisions on domestic relations, see 15 U. Rich. L. Rev. 321 (1981).

Research References.

Friend’s Virginia Pleading and Practice (Matthew Bender). Chapter 5 Parties. § 5.07 Specific Types of Parties - Various Actions. Friend.

Virginia Forms (Matthew Bender). No. 11-1115 Certificate of Fictitious Name of Corporation, et seq.; No. 12-106 Certificate of Fictitious Name, etc.

Michie’s Jurisprudence.

For related discussion, see 4B M.J. Corporations, § 37; 12A M.J. Limited Liability Companies, § 5; 13B M.J. Names, § 5; 14A M.J. Partnerships, § 5; 15 M.J. Recording Acts, § 6; 18 M.J. Traders Act and Trading Under Assumed Name, §§ 1-4 .

CASE NOTES

The relief afforded by this chapter is not co-extensive with that afforded by § 8.01-217 providing for change of a person’s name. In re Miller, 218 Va. 939 , 243 S.E.2d 464, 1978 Va. LEXIS 250 (1978) (decided under former § 8-577.1).

The object of this chapter is to protect the public by giving information as to the person with which it deals and to afford it protection against possible fraud and deceit. Tate v. Atlanta Oak Flooring Co., 179 Va. 365 , 18 S.E.2d 903, 1942 Va. LEXIS 230 (1942).

The main object of the statute is to prevent fraud and to compel an individual or a corporation to disclose the name of the real owner of the business, in order that the person or corporation may sue in or be sued by the proper name. There is a further reason for the enactment of the statute and that is that prospective creditors of the firm or corporation may, by an examination of the lien dockets, determine to whom credit can be extended. Judgments are docketed in the true name of the plaintiff and defendant, and all that is required of an examiner of the lien docket, in order to ascertain against whom a judgment is docketed, is to look for the name of the person or corporation under investigation. Leckie v. Seal, 161 Va. 215 , 170 S.E. 844 , 1933 Va. LEXIS 313 (1933) (see Colbert v. Ashland Constr. Co., 176 Va. 500 , 11 S.E.2d 612 (1940)).

The purpose of this section is to prevent fraud and to compel an individual or a corporation to disclose the name of the real owner of the business, in order that the person or corporation may sue in or be sued by the proper name. Bryant Elec. Co. v. Joe Rainero Tile Co., 84 F.R.D. 120, 1979 U.S. Dist. LEXIS 8908 (W.D. Va. 1979).

And it is to be strictly construed. —

This chapter is to be strictly construed, bearing in mind its intent and purpose. Tate v. Atlanta Oak Flooring Co., 179 Va. 365 , 18 S.E.2d 903, 1942 Va. LEXIS 230 (1942). But see Colbert v. Ashland Constr. Co., 176 Va. 500 , 11 S.E.2d 612, 1940 Va. LEXIS 269 (1940) (holding that the chapter should be liberally construed).

Name not within chapter. —

Where the designation under which a business is being conducted consists of the surname of the proprietor or proprietors, with the addition of the words “and Company” or “ & Co.,” preceded by a word descriptive of the nature of the business, the name is not within this chapter. Tate v. Atlanta Oak Flooring Co., 179 Va. 365 , 18 S.E.2d 903, 1942 Va. LEXIS 230 (1942) (holding that this section did not apply where trade name was “A. E. Tate Lumber Company” and A. E. Tate was the sole owner) (see also Matthews v. Barfield, 179 Va. 691 , 20 S.E.2d 497 (1942)).

Judgment against fictitious person not a lien. —

No language is embodied in the chapter which even tends to support the proposition that it was the intention of the legislature that a judgment obtained against a fictitious person or corporation as such, should be a lien upon the property of the true owner. Leckie v. Seal, 161 Va. 215 , 170 S.E. 844 , 1933 Va. LEXIS 313 (1933).

Amendment of complaint in diversity action upon discovery of proper name. —

Where, because of defendant corporation’s failure to comply with this section, plaintiff in a diversity action in federal court was unable to ascertain the correct name of the corporation, and therefore was placed in the position of naming in his complaint the person who was apparently in charge of the business, plaintiff properly amended his complaint under Fed. R. Civ. P. 15 (a) prior to responsive pleading by the defendant upon discovering the proper name of the defendant. Bryant Elec. Co. v. Joe Rainero Tile Co., 84 F.R.D. 120, 1979 U.S. Dist. LEXIS 8908 (W.D. Va. 1979).

CIRCUIT COURT OPINIONS

Failure to file certificate of fictitious name use. —

Defendant’s motion for summary judgment was granted, which asserted it was not the proper defendant, because plaintiff’s negligence complaint suing “Jeff Rorer, d/b/a Mostly Sofa’s” when it should have sued “Faith, Inc.” was more than a misnomer and was not amendable under § 8.01-6 , because the businesses were separate entities. Amendment was further precluded because neither the originally named defendant, nor the correct defendant, was served within the applicable statute of limitations period, thus, it did not matter that “Mostly Sofa’s” never filed a certificate identifying itself as a fictitious name. Bryant v. Rorer, 66 Va. Cir. 226, 2004 Va. Cir. LEXIS 353 (Roanoke Nov. 19, 2004).

Trial court granted the claimant’s motion to amend the named party; due to the named corporation’s failure to file a fictitious name report in Virginia’s public records, the claimant’s efforts to discover the correct entity behind the name and address of the true operator of the hotel where the claimant allegedly was injured yielded only the named corporation and its registered agent for service of process, which was the information that the claimant used. Roper v. FCGMI, Inc., 72 Va. Cir. 135, 2006 Va. Cir. LEXIS 212 (Fairfax County Oct. 4, 2006).

Because the correct operating entity of a hotel never filed the fictitious name certificate required by § 59.1-69, and because there was no way that the plaintiff could ever have learned the correct name, the entity’s failure amounted to concealment that estopped it from claiming that service on its registered agent was untimely under § 8.01-6 . Roper v. Fcgmi, Inc., 72 Va. Cir. 135, 2007 Va. Cir. LEXIS 6 (Fairfax County Jan. 2, 2007).

When a law firm sued a car dealership for negligence regarding a vehicle that was titled in an unregistered fictitious name, the firm’s failure to register the fictitious name before titling the car did not bar the suit because the non-compliance with § 59.1-69 was eliminated when the firm later registered the fictitious name, after which any bar imposed by § 59.1-76 was removed. Ferris Law Offices, P.C. v. Sonic-Manhattan Fairfax, Inc., 81 Va. Cir. 283, 2010 Va. Cir. LEXIS 113 (Fairfax County Oct. 21, 2010).

Standing. —

When a law firm sued a car dealership for negligence regarding a vehicle that was titled in an unregistered fictitious name, the firm did not lack standing because: (1) the firm’s failure to register the name before titling the car did not show the firm was a separate entity from the name, as, under §§ 59.1-69 and 59.1-76, an unregistered fictitious name was not automatically a separate entity from the underlying corporation; (2) these provisions did not void acts taken under an unregistered fictitious name; and (3) the name’s registration cured any non-registration issue. Ferris Law Offices, P.C. v. Sonic-Manhattan Fairfax, Inc., 81 Va. Cir. 283, 2010 Va. Cir. LEXIS 113 (Fairfax County Oct. 21, 2010).

OPINIONS OF THE ATTORNEY GENERAL

Foreign business trust may file fictitious name certificate in Commonwealth. —

A foreign business trust, as a “person” within the meaning of subsection A, may file a fictitious name certificate in the Commonwealth. See opinion of Attorney General to The Honorable John T. Frey, Clerk, Circuit Court of Fairfax County, 00-039, 2000 Va. AG LEXIS 40 (6/12/00).

§ 59.1-70. Filing a certificate with State Corporation Commission; fee.

  1. The certificate of assumed or fictitious name shall be on a form prescribed by the Commission that sets forth the following:
    1. The name of the person who will be conducting business under the assumed or fictitious name;
    2. The assumed or fictitious name of the business;
    3. Whether the person who will be conducting business under the assumed or fictitious name is an individual or, if not, the type of legal or commercial entity of the person;
    4. If the person who will be conducting business under the assumed or fictitious name is an individual, the post office address of the individual’s office or residence, which shall include a street address, city or town, state, and zip code;
    5. If the person who will be conducting business under the assumed or fictitious name is a domestic or foreign corporation, limited liability company, business trust, or limited partnership authorized by the Commission to transact business in the Commonwealth, the identification number issued by the Commission to the person;
    6. If the person who will be conducting business under the assumed or fictitious name is a domestic or foreign partnership that has filed with the Commission a statement of partnership authority or a statement of registration as a registered limited liability partnership that has not been canceled, the identification number issued by the Commission to the partnership;
    7. If the person who will be conducting business under the assumed or fictitious name is not subject to subdivision 4, 5, or 6, the post office address of the person’s principal place of business, which shall include a street address, city or town, state, and zip code; and
    8. The printed name and title of the individual signing the certificate of assumed or fictitious name.
  2. The certificate of assumed or fictitious name shall be signed by (i) the individual who will be conducting business under the assumed or fictitious name or (ii) an authorized representative of the person who will be conducting business under the assumed or fictitious name when the person is not an individual.
  3. The clerk of the Commission shall charge a fee of $10 for the filing of a certificate of assumed or fictitious name.

History. Code 1950, § 59-170; 1968, c. 439; 1976, c. 79; 1981, c. 519; 1984, c. 771; 1987, c. 702; 1991, c. 439; 1995, c. 168; 2017, c. 594.

Editor’s note.

Acts 2017, c. 594, cl. 2, as amended by Acts 2018, c. 251, cl. 1, provides: “That the provisions of this act shall become effective on January 1, 2020.”

Acts 2017, c. 594, cl. 3 provides: “That the provisions of this act (i) shall be applied prospectively only; (ii) shall not affect the validity of any filing made, or other action taken, prior to the effective date of this act with respect to a fictitious or assumed name certificate; and (iii) shall not be construed to require any person who was in compliance with applicable laws regarding fictitious or assumed name certificates prior to the effective date of this act to take any action to comply with the requirements of this act.”

The 2017 amendments.

The 2017 amendment by c. 594, effective January 1, 2020, rewrote the section. For applicability, see Editor’s note.

§ 59.1-70.1. Certificate of release.

  1. When a person is no longer conducting business in the Commonwealth under an assumed or fictitious name on file with the clerk of the Commission, the name may be released by filing a certificate of release of an assumed or fictitious name in the office of the clerk of the Commission that is signed (i) by the individual who conducted business under the assumed or fictitious name, (ii) on behalf of the person who conducted business under the assumed or fictitious name when the person is not an individual, (iii) by a court-appointed fiduciary of the person, or (iv) by the person’s successor in interest when the person is not an individual.
  2. When a person is no longer conducting business in the Commonwealth under an assumed or fictitious name on file with a circuit court, the name may be released by filing a certificate of release of an assumed or fictitious name with the clerk of the court that is signed and acknowledged by the person, a court-appointed fiduciary of the person, or, when the person is not an individual, the person’s successor in interest.
  3. The certificate of release of an assumed or fictitious name shall be on a form prescribed by the Commission. The fee to file a certificate of release of an assumed or fictitious name with the clerk of the Commission or with the clerk of the court shall be $10.

History. 2017, c. 594.

Editor’s note.

Acts 2017, c. 594, cl. 2, as amended by Acts 2018, c. 251, cl. 1, provides: “That the provisions of this act shall become effective on January 1, 2020.”

Acts 2017, c. 594, cl. 3 provides: “That the provisions of this act (i) shall be applied prospectively only; (ii) shall not affect the validity of any filing made, or other action taken, prior to the effective date of this act with respect to a fictitious or assumed name certificate; and (iii) shall not be construed to require any person who was in compliance with applicable laws regarding fictitious or assumed name certificates prior to the effective date of this act to take any action to comply with the requirements of this act.”

§§ 59.1-71, 59.1-72. Repealed by Acts 2002, c. 267, effective July 1, 2002.

§ 59.1-73. Repealed by Acts 1994, c. 432.

§ 59.1-74. Recordation of certificate and registration of names.

  1. The clerk of the court with whom a certificate of assumed or fictitious name is filed shall keep a book in which all certificates of assumed or fictitious name and certificates of release of an assumed or fictitious name are recorded, with their date of record, and shall keep a register in which shall be entered in alphabetical order the name under which every business is conducted and the names of every person owning the business.
  2. No license shall be issued by a commissioner of the revenue until a certificate of assumed or fictitious name has been made and filed (i) in the office of the clerk of the Commission or (ii) prior to January 1, 2020, in the office of the clerk of the court, and evidence of the filing has been provided to the commissioner of the revenue by the person conducting business under the assumed or fictitious name.

History. Code 1950, § 59-174; 1968, c. 439; 1975, c. 230; 1983, c. 103; 1992, c. 784; 2002, c. 267; 2017, c. 594; 2019, c. 464.

Editor’s note.

Acts 2017, c. 594, cl. 2, as amended by Acts 2018, c. 251, cl. 1, provides: “That the provisions of this act shall become effective on January 1, 2020.”

Acts 2017, c. 594, cl. 3 provides: “That the provisions of this act (i) shall be applied prospectively only; (ii) shall not affect the validity of any filing made, or other action taken, prior to the effective date of this act with respect to a fictitious or assumed name certificate; and (iii) shall not be construed to require any person who was in compliance with applicable laws regarding fictitious or assumed name certificates prior to the effective date of this act to take any action to comply with the requirements of this act.”

The 2002 amendments.

The 2002 amendment by c. 267 deleted “the name of the statutory agent” following “business is conducted” in the first sentence.

The 2017 amendments.

The 2017 amendment by c. 594, effective January 1, 2020, rewrote the section. For applicability, see Editor’s note.

The 2019 amendments.

The 2019 amendment by c. 464, effective March 18, 2019, substituted “January 1, 2020” for “May 1, 2019” in subsection B.

Research References.

Virginia Forms (Matthew Bender). No. 11-1115 Certificate of Fictitious Name of Corporation, etc. No. 12-106 Certificate of Fictitious Name, etc.

§ 59.1-75. Penalty for violation.

Any person violating any of the provisions of this chapter shall be guilty of a misdemeanor and, upon conviction, shall be punished by a fine not exceeding $2,500 or by confinement in jail for not more than one year, or both.

History. Code 1950, § 59-175; 1968, c. 439; 1991, c. 710.

§ 59.1-75.1. Penalty for signing false certificate.

  1. It is unlawful for any person to sign a certificate the person knows is false in any material respect with intent that the certificate be delivered to the Commission for filing.
  2. Any person who violates the provisions of this section is guilty of a Class 1 misdemeanor.

History. 2017, c. 594.

Cross references.

As to punishment for Class 1 misdemeanors, see § 18.2-11 .

Editor’s note.

Acts 2017, c. 594, cl. 2, as amended by Acts 2018, c. 251, cl. 1, provides: “That the provisions of this act shall become effective on January 1, 2020.”

Acts 2017, c. 594, cl. 3 provides: “That the provisions of this act (i) shall be applied prospectively only; (ii) shall not affect the validity of any filing made, or other action taken, prior to the effective date of this act with respect to a fictitious or assumed name certificate; and (iii) shall not be construed to require any person who was in compliance with applicable laws regarding fictitious or assumed name certificates prior to the effective date of this act to take any action to comply with the requirements of this act.”

§ 59.1-76. Effect of failure to file certificate on right of action.

The failure of any person or corporation to comply with the provisions of this chapter shall not prevent a recovery by or against such person or corporation, in any of the courts in this Commonwealth on any cause of action heretofore or hereafter arising, but no action shall be maintained in any of the courts in this Commonwealth by any such person, corporation or his or its assignee or successor in title unless and until the certificate required by this chapter has been filed.

History. Code 1950, § 59-176; 1968, c. 439.

Michie’s Jurisprudence.

For related discussion, see 4B M.J. Corporations, § 297; 12A M.J. Limited Liability Companies, § 5; 13B M.J. Names, § 5; 14A M.J. Partnerships, § 5; 18 M.J. Trading Under Assumed Name, § 6.

CASE NOTES

This section is remedial and is to be construed liberally to the end that a litigant may have his day in court, provided he complies with the provisions of the chapter. Phlegar v. Virginia Foods, Inc., 188 Va. 747 , 51 S.E.2d 227, 1949 Va. LEXIS 244 (1949).

It accomplishes two purposes. It removes the taint of illegality from the cause of action, and it gives the suitor the right to maintain the action after he has complied with the requirements of the chapter. Phlegar v. Virginia Foods, Inc., 188 Va. 747 , 51 S.E.2d 227, 1949 Va. LEXIS 244 (1949).

And does not render the cause of action illegal. —

As amended in 1942, by the addition of this section, this chapter does not render the cause of action illegal. It is not the right to begin the action, but the right to maintain it, that is withheld for failure to comply with its terms. It takes no right away from the offending party after compliance. When its terms are met, the barriers theretofore existing are removed. Phlegar v. Virginia Foods, Inc., 188 Va. 747 , 51 S.E.2d 227, 1949 Va. LEXIS 244 (1949).

Filing certificate prior to bringing action. —

Under this section, whenever it appears that the principal creditor or his assignee has filed a certificate pursuant to the provisions of this chapter prior to the bringing of the action, then he is entitled to recover, if the law and the facts be with him. Watkins v. Bishop, 181 Va. 191 , 24 S.E.2d 422, 1943 Va. LEXIS 167 (1943).

Or at any time before final judgment. —

While the case of Bain v. Boykin, 180 Va. 259 , 23 S.E.2d 127 (1942), was pending in the Supreme Court, the General Assembly amended the act from which this chapter was derived, in effect overruling the decision in Colbert v. Ashland Constr. Co., 176 Va. 500 , 11 S.E.2d 612 (1940), and expressly providing that failure to comply with the provisions of the act should not constitute a bar to the action if such certificate was filed at any time before final judgment. City of Norfolk v. Stephenson, 185 Va. 305 , 38 S.E.2d 570, 1946 Va. LEXIS 201 (1946).

Compliance with the chapter after defendants filed pleas of the general issue was sufficient. Phlegar v. Virginia Foods, Inc., 188 Va. 747 , 51 S.E.2d 227, 1949 Va. LEXIS 244 (1949).

CIRCUIT COURT OPINIONS

Failure to file as it relates to statute of limitations. —

Defendant’s motion for summary judgment was granted, which asserted it was not the proper defendant, because plaintiff’s negligence complaint suing “Jeff Rorer, d/b/a Mostly Sofa’s” when it should have sued “Faith, Inc.” was more than a misnomer and was not amendable under § 8.01-6 , because the businesses were separate entities. Amendment was further precluded because neither the originally named defendant, nor the correct defendant, was served within the applicable statute of limitations period, thus, it did not matter that “Mostly Sofa’s” never filed a certificate identifying itself as a fictitious name. Bryant v. Rorer, 66 Va. Cir. 226, 2004 Va. Cir. LEXIS 353 (Roanoke Nov. 19, 2004).

Registration to do business in Virginia was not condition precedent to maintaining a lawsuit. —

See Geographic Network Affiliates-Int'l, Inc. v. Enter. for Empowerment Found., 68 Va. Cir. 185, 2005 Va. Cir. LEXIS 237 (Norfolk June 27, 2005).

Standing despite failure to register fictitious name. —

When a law firm sued a car dealership for negligence regarding a vehicle that was titled in an unregistered fictitious name, the firm’s failure to register the fictitious name before titling the car did not bar the suit because the non-compliance with § 59.1-69 was eliminated when the firm later registered the fictitious name, after which any bar imposed by § 59.1-76 was removed. Ferris Law Offices, P.C. v. Sonic-Manhattan Fairfax, Inc., 81 Va. Cir. 283, 2010 Va. Cir. LEXIS 113 (Fairfax County Oct. 21, 2010).

When a law firm sued a car dealership for negligence regarding a vehicle that was titled in an unregistered fictitious name, the firm did not lack standing because: (1) the firm’s failure to register the name before titling the car did not show the firm was a separate entity from the name, as, under §§ 59.1-69 and 59.1-76, an unregistered fictitious name was not automatically a separate entity from the underlying corporation; (2) these provisions did not void acts taken under an unregistered fictitious name; and (3) the name’s registration cured any non-registration issue. Ferris Law Offices, P.C. v. Sonic-Manhattan Fairfax, Inc., 81 Va. Cir. 283, 2010 Va. Cir. LEXIS 113 (Fairfax County Oct. 21, 2010).

Although the HOT lanes operator had not filed a fictitious name certificate before filing a complaint against defendant for failing to pay tolls and imposing civil penalties, it had subsequently filed the certificate as required by § 59.1-76, and thus, defendant’s motion to dismiss was denied. Transurban v. D'Arco, 92 Va. Cir. 285, 2016 Va. Cir. LEXIS 33 (Fairfax County Feb. 3, 2016).

Chapter 6. Registration and Protection of Trademarks, Service Marks, and Case Marks.

§§ 59.1-77 through 59.1-92.

Repealed by Acts 1998, c. 819.

Cross references.

For the Virginia Trademark and Service Mark Act, see now § 59.1-92.1 et seq.

Chapter 6.1. Registration and Protection of Trademarks and Service Marks.

§ 59.1-92.1. Short title.

This chapter shall be known as the “Virginia Trademark and Service Mark Act (1998).”

History. 1998, c. 819.

Law Review.

For an article, “Technology and the Law,” see 32 U. Rich. L. Rev. 1383 (1998).

Michie’s Jurisprudence.

For related discussion, see 18 M.J. Trademarks, Trade Names and Unfair Competition, § 3.

§ 59.1-92.2. Definitions.

As used in this chapter, the following words shall have the following meanings:

“Abandoned” means either (i) the discontinuance of use of a mark with intent not to resume such use (intent not to resume may be inferred from circumstances, i.e., nonuse for three consecutive years shall constitute prima facie evidence of abandonment) or (ii) any course of conduct of the owner, including acts of omission as well as commission, which causes the mark to lose its significance as a mark.

“Applicant” means any person filing an application for registration of a mark under this chapter, and the legal representatives, successors, or assigns of such person.

“Commission” means the State Corporation Commission.

“Mark” means any trademark or service mark registered in the Commonwealth or the United States Patent and Trademark Office, or entitled to registration under this chapter, whether registered or not.

“Registrant” means any person to whom the registration of a mark under this chapter or prior law is issued, and the legal representatives, successors, or assigns of such person.

“Service mark” means any word, name, symbol, or device or any combination thereof used by a person to identify and distinguish the services of such person from the services of others.

“Trade name” means any name used by a person to identify a business or enterprise.

“Trademark” means any word, name, symbol, or device or any combination thereof used by a person to identify and distinguish the goods of such person from those manufactured or sold by others.

“Use” means the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark. For the purposes of this chapter, a mark shall be deemed to be in use (i) on goods when it is placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sale, and the goods are possessed in the Commonwealth or sold or otherwise distributed in commerce in the Commonwealth, and (ii) in connection with services when it is used or displayed in the course of selling or providing services in the Commonwealth, or advertising descriptive of services available within the Commonwealth that is communicated within or into the Commonwealth.

History. 1998, c. 819; 2008, cc. 759, 800; 2011, c. 801.

The 2008 amendments.

The 2008 amendments by cc. 759 and 800 are identical, and inserted “registered in the Commonwealth or the United States Patent and Trademark Office, or” in the definition of “Mark”; and substituted “the Commonwealth” for “this Commonwealth” four times in the definition of “Use.”

The 2011 amendments.

The 2011 amendment by c. 801, in the definition for “Use,” inserted “possessed in the Commonwealth or” in clause (i).

CASE NOTES

Use in advertisement. —

To establish a preexisting common-law mark, plaintiff relied on a combination of its advertising efforts in Virginia and the increasing number of Virginia customers listed in its database, but its evidence failed to show any relationship between the advertisements and the Virginia based transactions. Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., No. 3:12CV303-HEH, 2012 U.S. Dist. LEXIS 161316 (E.D. Va. Nov. 9, 2012).

CIRCUIT COURT OPINIONS

First use of service mark occurred when the service mark registrant began to advertise its funeral services using that name, rather than when the registrant registered the mark with the State Corporation Commission or began to prepare to do business using the mark. Old Town Funeral Choices v. N. Va. Funeral Choices, 55 Va. Cir. 459, 2000 Va. Cir. LEXIS 399 (Fairfax County Aug. 15, 2000).

§ 59.1-92.3. Registrability.

A mark by which the goods or services of any applicant for registration may be distinguished from the goods or services of others shall not be registered if it consists of or comprises:

  1. Any immoral, deceptive or scandalous matter;
  2. Any matter which may falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute;
  3. The flag or coat of arms or other insignia of the United States, or of any state or municipality, or of any foreign nation, or any simulation thereof;
  4. The name, signature or portrait identifying a particular living individual, except by the individual’s written consent;
  5. A mark which (i) when used on or in connection with the goods or services of the applicant, is merely descriptive or deceptively misdescriptive of them; (ii) when used on or in connection with the goods or services of the applicant, is primarily geographically descriptive or deceptively misdescriptive of them; or (iii) is primarily merely a surname; however, nothing in this subdivision shall prevent the registration of a mark used by the applicant which has become distinctive in this Commonwealth of the applicant’s goods or services. The Commission may accept as prima facie evidence that the mark has become distinctive, as used on or in connection with the applicant’s goods or services, proof of continuous use thereof as a mark by the applicant in this Commonwealth for the five years before the date of the application for registration; or
  6. A mark which so resembles a mark registered in this Commonwealth or a trademark, service mark or trade name previously used in this Commonwealth by another and not abandoned, as to be likely, when used on or in connection with the goods or services of the applicant, to cause confusion or mistake, or to deceive.

History. 1998, c. 819.

CASE NOTES

Actual use. —

Although both the Georgia and Virginia Southern Christian Leadership Conferences (SCLC) operated in Virginia without proper authority under § 13.1-757 , the Breakaway SCLC’s registration of the service/trademarks did not defeat their continuous common law use of the contested marks under subdivision 6 of this section; therefore, the trial court’s judgment that the Georgia SCLC and Virginia SCLC had a superior claim to the marks was not erroneous. SCLC v. Shannon, 270 Va. 104 , 613 S.E.2d 596, 2005 Va. LEXIS 61 (2005).

§ 59.1-92.4. Application for registration.

Subject to the limitations set forth in this chapter, any person who uses a mark may file with the Commission, in a manner complying with the requirements of the Commission, an application for registration of that mark setting forth, but not limited to, the following information:

  1. The name and business address of the person applying for such registration; and, if a corporation, limited liability company, partnership, limited liability partnership, or any other legal entity, the state or other jurisdiction of incorporation, formation, or organization, as the case may be;
  2. The goods or services on or in connection with which the mark is used and the manner in which the mark is used on or in connection with such goods or services and the class in which such goods or services fall;
  3. The date when the mark was first used anywhere and the date when it was first used in this Commonwealth by the applicant or a predecessor in interest; and
  4. A statement that the applicant is the owner of the mark, that the mark is in use in this Commonwealth, and that, to the knowledge of the person verifying the application, no other person has registered the mark in this Commonwealth, or has the right to use such mark in this Commonwealth either in the identical form thereof or in such near resemblance thereto as to be likely, when applied to the goods or services of such other person, to cause confusion or mistake, or to deceive.The Commission may also require that a drawing of the mark, complying with such requirements as the Commission may specify, accompany the application.The application shall be signed and verified (by oath, affirmation or declaration subject to perjury laws) by the applicant or by a person authorized by the applicant to make the application.The application shall be accompanied by a specimen showing the mark as actually used.The application shall be accompanied by a nonrefundable application fee.

History. 1998, c. 819.

Editor’s note.

Acts 1998, c. 819, cl. 4, provides: “That the provisions of this act apply prospectively to all causes of action accruing on or after July 1, 1998, but shall not affect any application for trademark or service mark filed before July 1, 1998, and then pending with the State Corporation Commission.”

§ 59.1-92.5. Filing of applications.

  1. Upon the filing of an application for registration and payment of the application fee, the Commission shall cause the application to be examined for conformity with this chapter.
  2. The applicant shall provide any additional relevant information requested by the Commission, including a description of a design mark, and may make, or authorize the Commission to make, such amendments to the application as may be reasonably requested by the Commission or deemed by the applicant to be advisable to respond to any rejection or objection.
  3. The Commission may require the applicant to disclaim any unregistrable component of a mark otherwise registrable, and an applicant may voluntarily disclaim any component of a mark sought to be registered. No disclaimer shall prejudice or affect the applicant’s or registrant’s common law rights then existing or thereafter arising in the disclaimed matter, or the applicant’s or registrant’s rights of registration on another application if the disclaimed matter is or has become distinctive of the applicant’s or registrant’s goods or services.
  4. Amendments to the application may be made by the Commission with the applicant’s consent.
  5. If the applicant is found not to be entitled to registration, the Commission shall notify the applicant thereof in writing and of the reasons therefor. The applicant shall have ninety days from the date of the Commission’s notice to make a bona fide reply, or to amend the application, in which event the application shall then be reexamined. This procedure may be repeated until (i) the Commission finally refuses registration of the mark or (ii) the applicant fails to reply or amend within the specified period, whereupon the request for registration shall be deemed to have been finally refused.

History. 1998, c. 819.

§ 59.1-92.6. Certificate of registration.

Upon compliance by the applicant with the requirements of this chapter, the Commission shall cause a certificate of registration to be issued and delivered to the applicant. The certificate shall show (i) the name and business address of the registrant and, if a corporation, limited liability company, partnership, limited liability partnership, or any other legal entity, the state or other jurisdiction of incorporation, formation, or organization, as the case may be; (ii) the date claimed for the first use of the mark anywhere and the date claimed for the first use of the mark in this Commonwealth; (iii) the class of goods or services and a description of the goods or services on or in connection with which the mark is used; (iv) a reproduction of the mark; and (v) the registration date and the term of the registration.

Any certificate of registration issued by the Commission under the provisions hereof or a copy thereof duly certified by the clerk of the Commission shall be prima facie evidence of the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the registered mark within the Commonwealth on or in connection with the goods or services specified in the certificate, and shall be admissible in evidence as competent and sufficient proof of the registration of such mark in any actions or judicial proceedings in any court of this Commonwealth.

History. 1998, c. 819.

CASE NOTES

Prima facie evidence of ownership. —

It is undisputed that defendant registered the mark in January, effectively shifting the burden to plaintiff, as the certificate constituted prima facie evidence of the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the registered mark within Virginia. Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., No. 3:12CV303-HEH, 2012 U.S. Dist. LEXIS 161316 (E.D. Va. Nov. 9, 2012).

Presumption of ownership. —

On counterclaims for service mark infringement and violation of 15 U.S.C.S. § 1125(a) through false advertising, defendant jeweler was entitled to injunctive relief because, in part, a presumption of ownership resulted from its Virginia registration of the trademark at issue, pursuant to § 59.1-92.6.Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., 895 F. Supp. 2d 752, 2012 U.S. Dist. LEXIS 142686 (E.D. Va. 2012).

CIRCUIT COURT OPINIONS

Prima facie evidence. —

Where service mark registrant had first use of the mark and registered its mark with the State Corporation Commission, the certificate of registration issued to the registrant was prima facie evidence of the registrant’s ownership of the mark and the registrant’s exclusive right to use the mark in the Commonwealth with the funeral services specified in the certificate; further, the infringer’s evidence did not rebut the prima facie evidence. Old Town Funeral Choices v. N. Va. Funeral Choices, 55 Va. Cir. 459, 2000 Va. Cir. LEXIS 399 (Fairfax County Aug. 15, 2000).

§ 59.1-92.7. Duration and renewal.

A registration of a mark hereunder shall be effective for a term of five years from the date of registration and, upon application filed within six months prior to the expiration of such term, in a manner complying with the requirements of the Commission, the registration may be renewed for a like term from the end of the expiring term. A renewal fee shall accompany the application for renewal of the registration.

A registration may be renewed for successive periods of five years in like manner.

Any registration in force on the date on which this chapter becomes effective shall continue in full force and effect for the unexpired term thereof and may be renewed for five years by filing with the Commission, within six months prior to the expiration of the registration, an application for renewal complying with the requirements of the Commission and paying the aforementioned renewal fee therefor.

All applications for renewal under this chapter, whether of registrations made under this chapter or of registrations effected under any prior law, shall include a verified statement that the mark has been and is still in use and include a specimen showing actual use of the mark on or in connection with the goods or services.

History. 1998, c. 819.

§ 59.1-92.8. Assignments and changes of name.

  1. Any mark and its registration hereunder shall be assignable with the good will of the business in which the mark is used, or with that part of the good will of the business connected with the use of and symbolized by the mark. Assignment shall be by instruments in writing duly executed and may be filed with the Commission upon the payment of a fee. The Commission shall issue in the name of the assignee a new certificate for the remainder of the term of the registration or of the last renewal thereof. An assignment of any registration under this chapter shall be void as against any subsequent purchaser for valuable consideration without notice, unless it is filed with the Commission within three months after the date of the assignment or prior to such subsequent purchase.
  2. Any applicant effecting a change of name may file a certificate of name change with the Commission upon the payment of a fee. The Commission shall prescribe the form and content of such certificate. If the Commission issues a registration based on such applicant’s request for registration, the registration shall be issued in the new name of the applicant.
  3. Any registrant effecting a change of name may file a certificate of name change with the Commission upon the payment of a fee. The Commission shall prescribe the form and content of such certificate. The Commission shall issue in the new name of the registrant a new certificate of registration for the remainder of the term of the registration or last renewal thereof.
  4. A photocopy of any instrument referred to in this section shall be accepted for filing if it is certified by any of the parties thereto, or their successors, to be a true and correct copy of the original.

History. 1998, c. 819.

§ 59.1-92.9. Records.

The Commission shall keep for public examination a record of all marks registered or renewed under this chapter, as well as a record of all documents filed pursuant to § 59.1-92.8.

History. 1998, c. 819.

§ 59.1-92.10. Cancellation.

  1. The Commission shall cancel, in whole or in part:
    1. Any registration concerning which the Commission receives a voluntary request for cancellation thereof from the registrant or the assignee of record;
    2. Any registration granted under this chapter or prior law and not renewed in accordance with the provisions hereof; or
    3. Any registration concerning which the Commission finds on its own motion, or on petition of any person who alleges that he is or will be damaged by such registration, that:
      1. The registered mark has been abandoned;
      2. The registrant is not the owner of the mark;
      3. The registration was granted as a result of a clerical error;
      4. The registration was obtained fraudulently;
      5. The mark is or has become the generic name for the goods or services, or a portion thereof, for which it has been registered; or
      6. There is a substantial likelihood of confusion with a mark or trade name previously used in this Commonwealth by another and not abandoned.
  2. The Commission may also cause a partial cancellation of a registration by requiring the registrant to amend the registration to adopt a narrower identification of goods or services than is identified in the original certificate.
  3. Before the Commission cancels or partially cancels any registration under subdivision A 3, the Commission shall give reasonable notice and an opportunity to be heard to the registrant and to other persons known to have or claim an interest in the mark.

History. 1998, c. 819.

§ 59.1-92.11. Classification.

The Commission shall by regulation establish a classification of goods and services for convenience of the administration of this chapter, but not to limit or extend the applicant’s or registrant’s rights, and a single application for registration of a mark may include any or all goods upon which, or services in connection with which, the mark is actually being used indicating the appropriate class or classes of goods or services. When a single application includes goods or services which fall within multiple classes, the Commission may require payment of a fee for each class. To the extent practical, the classification of goods and services should conform to the classification adopted by the United States Patent and Trademark Office.

History. 1998, c. 819.

§ 59.1-92.12. Infringement.

Subject to the provisions of § 59.1-92.15, any person who (i) uses in a manner likely to cause a consumer confusion, mistake, or deception as to the source or origin of any goods or services, without the consent of the owner of a registered mark, any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of such goods or services or (ii) reproduces, counterfeits, copies or colorably imitates a registered mark and applies such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles, advertisements, or any item intended to be used in a manner likely to cause a consumer confusion, mistake, or deception as to the source or origin of any goods or services in connection with the sale, offering for sale, distribution, or advertising of such goods or services shall be liable in a civil action by the owner of a registered mark for any and all of the remedies provided in § 59.1-92.13, except that under this subdivision the owner shall not be entitled to recover profits, damages, or attorney fees unless the acts have been committed with knowledge that such mark is intended to be used to cause confusion or mistake or to deceive.

History. 1998, c. 819; 2008, cc. 759, 800; 2011, c. 801.

The 2008 amendments.

The 2008 amendments by cc. 759 and 800 are identical, and rewrote subdivision 1, which read: “Uses in this Commonwealth without the consent of the registrant, any reproduction, counterfeit, copy, or colorable imitation of a mark registered under this chapter or prior law in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion or mistake or to deceive as to the source or origin of such goods or services; or”; and in subdivision 2, substituted “advertisements, or any item intended to be used in a manner likely to cause a consumer confusion, mistake, or deception as to the source or origin of any goods or services in connection with the sale, offering for sale, distribution, or advertising of such goods or services” for “or advertisements, intended to be used in this Commonwealth in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion or mistake or to deceive.”

The 2011 amendments.

The 2011 amendment by c. 801 twice substituted “owner of a registered mark” for “registrant,” substituted “the owner shall not be entitled” for “the registrant shall not be entitled” and “attorney fees” for “attorneys’ fees” and made minor stylistic changes.

CASE NOTES

Distinctiveness. —

Facts supported a conclusion that a watch producer’s mark, “SWAP,” was not merely descriptive of the feature that parts were interchangeable; individuals had to exercise imagination to connect “SWAP” with that feature, as evidenced by diagrams on ads that added arrows and adorned “SWAP” with “it.” Swatch AG v. Beehive Wholesale, LLC, 739 F.3d 150, 2014 U.S. App. LEXIS 255 (4th Cir. 2014).

Likelihood of confusion. —

Plaintiff’s unfair competition law claim survived a motion to dismiss because the fact that defendant attached the labels that it purchased from plaintiff to the bedding products it manufactured increased the likelihood that consumers were confused about the origin of defendant’s products (plaintiff did not have to plead that defendant acted without authorization), and plaintiff had clearly alleged that its marks were distinctive, the marks that defendant used were identical to plaintiff’s marks, defendant used those marks to identify other bedding products, defendant used the marks willfully, and that consumers were likely to be confused by defendant’s use of the marks. Power Mktg. Direct v. Int'l Bedding Corp., No. 3:07-CV-681, 2008 U.S. Dist. LEXIS 51901 (E.D. Va. July 3, 2008).

District court properly found no likelihood of confusion between watch producers’ marks, “SWAP” and “SWATCH,” despite the fame of “SWATCH” and the similarity of the goods; the marks were dissimilar and there was no evidence of actual confusion. Swatch AG v. Beehive Wholesale, LLC, 739 F.3d 150, 2014 U.S. App. LEXIS 255 (4th Cir. 2014).

Sufficiency of the evidence. —

Evidence was sufficient to support defendant’s conviction for trademark infringement because the evidence was sufficient to show that defendant, at defendant’s retail store, knowingly and intentionally sold counterfeit jerseys bearing the registered marks of several professional sports organizations without their permission. Carter v. Commonwealth, 2014 Va. App. LEXIS 174 (Va. Ct. App. May 13, 2014).

CIRCUIT COURT OPINIONS

Proof of infringement. —

Service mark infringer’s use of the service mark was likely to cause confusion with the service mark registrant’s suggestive mark since (1) the marks were not only similar, they were identical; (2) the marks were used for the same services, discount funeral services; (3) the market was the same; (4) the marketing media was similar and often identical; and (5) the infringer deliberately infringed upon the registrant’s mark. Old Town Funeral Choices v. N. Va. Funeral Choices, 55 Va. Cir. 459, 2000 Va. Cir. LEXIS 399 (Fairfax County Aug. 15, 2000).

§ 59.1-92.13. Remedies and penalties.

  1. Any owner of a registered mark in force and effect may proceed by suit in a court of competent jurisdiction to enjoin violations of § 59.1-92.12, seek such other remedies as are set forth herein, or both. Any court of competent jurisdiction may grant such injunctions as may by the court be deemed just and reasonable to restrain such violations, and may require any defendant to pay to such owner all profits derived from and/or all damages suffered by reason of such violations. The court shall also order that any material that violates § 59.1-92.12 that is in the possession or under the control of any defendant in such case be destroyed or delivered to an officer of the court or to the owner for destruction, or alternatively disposed of in another manner with the written consent of the owner of the registered mark. The court, in its discretion upon consideration of the circumstances of the case, may award reasonable attorney fees to the prevailing party.
  2. Any person who:
    1. Knowingly and intentionally violates the provisions of § 59.1-92.12 is guilty of a Class 1 misdemeanor and, upon a second or subsequent conviction, is guilty of a Class 6 felony.
    2. Knowingly and intentionally violates the provisions of § 59.1-92.12 and possesses 100 or more identical counterfeit registered marks or possesses counterfeit items valued at $200 or more, is guilty of a Class 6 felony.
  3. Property subject to lawful seizure by any officer charged with enforcing this chapter shall include any article bearing or consisting of a counterfeit mark used in violation of this chapter, any property used in the substantial connection with or intended for use in the course of a violation of this chapter, or any interest or profits substantially connected to a violation of this chapter. Forfeiture, seizure, and disposition of such property shall be in accordance with Chapter 22.1 (§ 19.2-386.1 et seq.) of Title 19.2.
  4. In any proceeding under this chapter, any certificate of registration issued by the Commonwealth or the United States Patent and Trademark Office shall be prima facie evidence of the facts stated therein.
  5. In any criminal proceeding under subsection B, upon motion of the Commonwealth the court shall order any material that violates § 59.1-92.12 that is in the possession or under the control of any defendant or law-enforcement officer be destroyed or delivered to an officer of the court or to the owner of the registered mark for destruction, or alternatively disposed of in another manner with the written consent of the owner of the registered mark.

History. 1998, c. 819; 2008, cc. 759, 800; 2011, c. 801.

Cross references.

As to punishment for Class 6 felonies, see § 18.2-10 . As to punishment for Class 1 misdemeanors, see § 18.2-11 .

The 2008 amendments.

The 2008 amendments by cc. 759 and 800 are identical, and in subsection A, substituted “court shall also” for “court may also” near the beginning and inserted “or alternatively disposed of in another manner with the written consent of the registrant” near the end of the third sentence and made a minor stylistic change; inserted the subdivision B 1 designation; substituted “is guilty” for “shall be guilty” twice and substituted “Class 1 misdemeanor” for “Class 2 misdemeanor” in subdivision B 1; added subdivision B 2 and subsections C and D.

The 2011 amendments.

The 2011 amendment by c. 801, in subsection A, substituted “owner” for “registrant” throughout, in the first sentence, inserted “registered,” deleted “and/or ” following “§ 59.1-92.12” and added “or both,” in the third sentence, added “of the registered mark,” and in the last sentence, substituted “attorney fees” for “attorneys’ fees”; and added subsection E.

Michie’s Jurisprudence.

For related discussion, see 18 M.J. Trademarks, Trade Names and Unfair Competition, § 5.

CASE NOTES

Evidence sufficient to support conviction. —

Evidence was sufficient to support defendant’s conviction for trademark infringement because the evidence was sufficient to show that defendant, at defendant’s retail store, knowingly and intentionally sold counterfeit jerseys bearing the registered marks of several professional sports organizations without their permission. Carter v. Commonwealth, 2014 Va. App. LEXIS 174 (Va. Ct. App. May 13, 2014).

§ 59.1-92.14. Service on out-of-state registrants.

In any action brought against a nonresident registrant, service may be effected upon the clerk of the Commission as agent for service of the registrant in accordance with the procedures established in § 12.1-19.1 .

History. 1998, c. 819.

§ 59.1-92.15. Common law rights.

Nothing herein shall adversely affect the rights or the enforcement of common-law rights in marks.

History. 1998, c. 819.

§ 59.1-92.16. Fees.

The Commission shall by regulation prescribe the fees payable for the various application and filing fees and for related services. Unless specified by the Commission, the fees payable herein are not refundable.

History. 1998, c. 819.

§ 59.1-92.17. Commission may consider final judgments.

In any proceeding before the Commission involving the right to registration, or the cancellation of registration, in whole or in part, the final judgment of a court of record involving the right to use the mark, in whole or in part, may be offered in evidence to the Commission or filed with the Commission by any party to the registration or cancellation proceeding before the Commission. The Commission may consider the judgment of the court in determining what action it should take with respect to the registration or cancellation involved.

History. 1998, c. 819.

§ 59.1-92.18. Appeals from final action of Commission.

From any final action of the Commission under the provisions of this chapter an appeal shall lie of right to the Supreme Court in accordance with the provisions of §§ 12.1-39 , 12.1-40 and 12.1-41 .

History. 1998, c. 819.

§ 59.1-92.19. Regulations and forms.

  1. The Commission shall have authority from time to time to make, amend, and rescind such regulations as may be necessary to carry out the provisions of this chapter, including regulations and forms governing applications, registrations, assignments, renewals, and fees, and defining technical and trade terms used in this chapter insofar as such definitions are not inconsistent with the provisions of this chapter. For the purpose of regulations and forms, the Commission may classify persons and matters within its jurisdiction and prescribe different requirements for different classes.
  2. All such regulations and forms shall be made available for distribution at the office of the Commission.
  3. No provision of this chapter imposing any liability shall apply to any act done or omitted in conformity with any regulation of the Commission, notwithstanding that such regulation may, after such act or omission, be amended, rescinded, or found for any reason to be invalid.

History. 1998, c. 819.

§ 59.1-92.20. Fees to cover expense of regulation.

The fees paid into the state treasury under this chapter, except for fees and funds collected for the Literary Fund, shall be deposited into a special fund and specifically accounted for and used by the Commission to defray the costs of supervising, implementing, and administering the provisions of this chapter, Chapters 5 (§ 13.1-501 et seq.) and 8 (§ 13.1-557 et seq.) of Title 13.1, and Chapter 7 (§ 59.1-93 et seq.) of this title. Included in the Commission’s costs shall be a reasonable margin in the nature of a reserve fund. All excesses of fees collected exceeding these costs shall revert to the general fund.

History. 1998, c. 819.

§ 59.1-92.21. Olympic symbols.

  1. Without the permission of the United States Olympic Committee, a person shall not, for the purpose of trade, to induce the sale of goods or services, or to promote a theatrical exhibition, athletic performance, or competition, use:
    1. The symbol of the International Olympic Committee, consisting of five interlocking rings;
    2. The emblem of the United States Olympic Committee, consisting of an escutcheon having a blue chief and vertically extending red and white bars on the base with five interlocking rings displayed on the chief;
    3. A trademark, trade name, sign, symbol, or insignia falsely representing association with or authorization by the International Olympic Committee or the United States Olympic Committee; or
    4. The words “Olympic,” “Olympiad,” or “Citius Altius Fortius” or a combination or simulation of those words that tends to cause confusion or mistake, to deceive, or to suggest falsely a connection with the United States Olympic Committee or an Olympic activity.
  2. Any person who actually used the emblem described in subdivision A 2, or the words, or any combination thereof, described in subdivision A 4, for any lawful purpose prior to September 21, 1950, shall not be prohibited by this section from continuing such lawful use for the same purpose and for the same goods or services. In addition, any person who actually used, or whose assignor actually used, any other trademark, trade name, sign, symbol, or insignia described in subdivisions A 3 and A 4 for any lawful purpose prior to September 21, 1950, shall not be prohibited by this section from continuing such lawful use for the same purpose and for the same goods or services.
  3. On violation of subsection A, the United States Olympic Committee is entitled to the remedies available to a registrant on infringement of a mark registered under this chapter.

History. 1998, c. 819.

§ 59.1-92.22. Use of name, logo, or symbol of a bank, trust company, savings institution, or credit union.

Any bank, trust company, savings institution, or credit union whose name, logo, or symbol, or any combination thereof, or any name, logo, or symbol, or any combination thereof that is deceptively similar thereto, is used by a person in a manner prohibited by §§ 6.2-941 , 6.2-1043 , 6.2-1105 , and 6.2-1307 , is entitled to the remedies that are available to a registrant under subsection A of § 59.1-92.13.

History. 2005, c. 240.

Editor’s note.

In this section, “§§ 6.2-941 , 6.2-1043 , 6.2-1105 , and 6.2-1307 ” was substituted for “§§ 6.1-119.1, 6.1-194.93:1, and 6.1-225.65,” effective October 1, 2010, to conform to the recodification of Title 6.1 by Acts 2010, c. 794.

Chapter 7. Names, Marks and Devices on Certain Containers and Other Articles.

§ 59.1-93. “Person” defined.

The word “person” as used in this chapter shall mean an individual, firm or corporation.

History. Code 1950, § 59-190; 1968, c. 439.

Michie’s Jurisprudence.

For related discussion, see 18 M.J. Trademarks, Trade Names and Unfair Competition, § 3.

§ 59.1-94. Filing and publication of description of names, marks or devices.

Any person engaged in manufacturing, bottling or selling soda waters, mineral or aerated waters, cider, ginger ale, milk, cream, ice cream, soft drinks or other beverages, or medicines, medical preparations, perfumery, oils, compounds or mixtures, in bottles, siphons, tins, crates or kegs, with his or its name or other marks or devices branded, stamped, engraved, etched, blown, impressed or otherwise produced upon such bottles, siphons, siphon heads, tins, crates, or kegs, or the boxes used by him, or any person engaged in the business of regularly supplying clean laundered garments, towels, table or bed linens or other such articles with his or its name or other marks or devices woven, impressed or produced thereon, and who periodically exchanges such clean articles for soiled articles, may file in the office of the clerk of the circuit court in which his principal office of business is situated, or if such person shall manufacture, supply or bottle out of this Commonwealth, then in any county or city in this Commonwealth, and also in the office of the State Corporation Commission, a description of the name or names or marks or devices so used by him and cause such description to be printed once in each week, for three weeks successively, in a newspaper published in the county or city in which such description may have been filed as aforesaid, and if there be no newspaper published in the county or city in which such description has been filed, then in the newspaper published nearest to that county or city, and he shall thereupon be deemed the proprietor of such name, mark or device, and of every vessel or receptacle or clean laundered or soiled articles mentioned herein upon which it may be branded, stamped, engraved, etched, blown, impressed, woven or otherwise produced.

History. Code 1950, § 59-191; 1958, c. 579; 1968, c. 439; 2002, c. 858.

The 2002 amendments.

The 2002 amendment by c. 858 substituted “circuit court” for “county or corporation court,” deleted “or in the clerk’s office of the Chancery Court of the City of Richmond, if such principal office of business is situated in such city” following “situated,” inserted “or city” following “in any county,” and substituted “county or city” for “county or corporation” three times.

§ 59.1-95. Certified copy as evidence; fees of the State Corporation Commission.

A certified copy of the description of the names, marks or devices referred to in this chapter, and filed with the State Corporation Commission, shall be prima facie evidence of the ownership of such bottles, siphons, boxes, crates, tins, kegs or clean laundered or soiled articles mentioned in this chapter in the trial of any case arising under the provisions of this chapter. For filing such paper or giving such copy, the State Corporation Commission may make a reasonable charge not exceeding five dollars.

History. Code 1950, § 59-192; 1958, c. 579; 1968, c. 439.

§ 59.1-95.1. Fees to cover expense of regulation.

The fees paid into the state treasury under this chapter, except for fees and funds collected for the Literary Fund, shall be deposited into a special fund and specifically accounted for and used by the State Corporation Commission to defray the costs of supervising, implementing, and administering the provisions of Chapters 5 (§ 13.1-501 et seq.) and 8 (§ 13.1-557 et seq.) of Title 13.1, and Chapters 6.1 (§ 59.1-92.1 et seq.) and 7 (§ 59.1-93 et seq.) of this title. Included in the Commission’s costs shall be a reasonable margin in the nature of a reserve fund. All excesses of fees collected exceeding these costs shall revert to the general fund.

History. 1987, c. 434.

Cross references.

For control share acquisitions, see § 13.1-728.1 et seq.

§ 59.1-96. Offenses and punishments.

It shall be unlawful for any person to fill with soda waters, mineral or aerated waters, cider, ginger ale, milk, or soft drinks, or other beverages or with medicine, medical preparations, perfumery, oils, compounds or mixtures, any bottle, box, crate, tin or keg so marked or distinguished as provided in § 59.1-94 with or by any name, mark or device, of which a description shall have been filed and published, as provided in such section, or to deface, erase, obliterate, cover up or otherwise remove, or conceal, any such name, mark or device thereon, or to sell, buy, give, take, receive, or otherwise dispose of or traffic in the same without the written consent of, or unless the same shall have been purchased by an agreement in writing from, the person whose mark or device shall be or shall have been in or upon the bottle, siphon, siphon head, crate, tin or keg so filled, trafficked in, used or handled as aforesaid. It shall also be unlawful for any person to sell, buy, rent, or otherwise traffic in any clean laundered or soiled articles mentioned in this chapter so marked or designated as provided in § 59.1-94 with or by any name, mark or device, of which a description shall have been filed and published, as provided in such section, or to deface, erase, obliterate, cover up or otherwise remove or conceal, any such name, mark or device thereon, or to sell, buy, give, take, receive or otherwise dispose of or traffic in the same without the written consent of, or unless the same shall have been purchased by an agreement in writing from, the person whose mark or device shall be or shall have been in or upon any such clean laundered or soiled article. Any person offending against the provisions of this section shall be deemed guilty of a misdemeanor, and shall be punished for the first offense by imprisonment for not less than ten days, nor more than one year, or by a fine of $5, and in addition thereto fifty cents for each and every such bottle, box, siphon, siphon head, crate, tin, or keg, sold, disposed of, received, bought or trafficked in, or by both such fine and imprisonment, and for each subsequent offense by imprisonment for not less than twenty days nor more than one year, or by a fine of not less than $50, and in addition thereto $1 for each and every bottle, box, siphon, crate, tin or keg filled, sold, used, disposed of, received, bought or trafficked in, or by both such fine and imprisonment, in the discretion of the judge or jury before whom the offense shall be tried; provided that in the case of any person offending against the provisions of this section relating to clean laundered or soiled articles such fine for the first offense shall be not less than $25 nor more than $200 and for each subsequent offense, the fine shall be not less than $50 nor more than $400.

History. Code 1950, § 59-193; 1958, c. 579; 1968, c. 439.

§ 59.1-97. Presumptive evidence of unlawful use and trafficking in marked containers and other articles.

The use by any person other than the person whose device, name or mark shall be or shall have been upon the same without such written consent as aforesaid, of any such marked or distinguished bottle, box, siphon, siphon heads, crate, tin or keg, and filed and published as aforesaid, for the sale therein of soda water, mineral or aerated waters, cider, ginger ale, milk, cream, soft drinks or other beverages, or of any articles of merchandise, medicines, medical preparations, perfumery, oils, compounds, mixtures or preparations, or for the furnishing of such or similar beverages to customers, or the receiving, buying, selling, using, disposing of or trafficking in any such bottles, boxes, siphons, siphon heads, crates, tins or kegs by any person other than the person having his name, mark or device thereon, or the having by any junk dealer, or dealers in secondhand articles, venders of bottles, etc., possession of any such bottles, boxes, siphons, siphon heads, crates, tins, or kegs, and description of the marks, names or devices whereon shall have been so filed and published, as aforesaid, or any such use of such device, name or mark distinguishing any clean laundered or soiled article mentioned in this chapter or any such receiving, buying, selling, using, disposing of or trafficking in any such article by any person other than the person having his name, mark or device thereon, or such having by any such junk dealer or other secondhand dealers possession of any such article and description of the marks, names or devices whereon shall have been so filed and published, as aforesaid, shall be presumptive evidence of the unlawful use and purchase of and trafficking in such bottles, siphons, boxes, siphon heads, crates, tins, kegs, or clean laundered or soiled article mentioned in this chapter.

History. Code 1950, § 59-194; 1958, c. 579; 1968, c. 439.

§ 59.1-98. Procedure when violation charged; awarding possession of property to owner.

Whenever any person mentioned in § 59.1-94 or his agent shall make oath before any magistrate, or other officer empowered to issue criminal warrants, that he has reason to believe, and does believe, that within the city, town or county served by such magistrate or other officer, any of his bottles, boxes, siphons, siphon heads, crates, tins, kegs, or clean laundered or soiled articles mentioned in this chapter a description of the names, marks or devices whereon has been filed and published as aforesaid, are being unlawfully used or filled or had, by any person manufacturing or selling soda, mineral or aerated waters, cider, ginger ale, milk, cream, soft drinks or other beverages or medicines, medical preparations, perfumery, oils, compounds or mixtures, or that any junk dealer or dealer in secondhand articles, vendor of bottles, or any other person has any such bottles, boxes, siphons, siphon heads, crates, tins, kegs or clean laundered or soiled articles mentioned in this chapter in his possession or secreted in any place, the magistrate or other officer, before whom such oath is made must thereupon issue a search warrant to discover and obtain the same, and may also issue his warrant stating the offense charged, and cause to be brought before any general district court having jurisdiction the person in whose possession such bottles, boxes, siphons, siphon heads, crates, tins, kegs or clean laundered or soiled articles mentioned in this chapter may be found, and shall then inquire into the circumstances of such possession and if such general district court finds such person has been guilty of a violation of § 59.1-96, it must impose the punishment therein prescribed, and it shall award possession of the property taken upon such warrant to the owner thereof.

History. Code 1950, § 59-195; 1958, c. 579; 1968, c. 439; 2008, cc. 551, 691.

The 2008 amendments.

The 2008 amendments by cc. 551 and 691 are identical, and substituted “magistrate” for “Justice of the peace” twice, substituted “general district” for “county or municipal” twice, and substituted “served by such magistrate” for “of such justice of the peace” following “town or county.”

§ 59.1-99. Right of appeal; commitment to jail; return and filing of papers.

Any person convicted under the provisions of § 59.1-98 shall have the right of appeal from the decision of such court not of record to the circuit, corporation or hustings court, and shall, unless let to bail, be committed to jail, until next term of such court of record, and the witnesses shall be recognized to appear at the same time. The judge of the court not of record shall return and file all of the papers in each case with the clerk of the court of record.

History. Code 1950, § 59-196; 1968, c. 439.

§ 59.1-100. Trial on appeal.

The appeal shall be tried without formal pleadings in writing, and the accused shall be entitled to trial by jury in the same manner as if he had been indicted for the offense in such court.

History. Code 1950, § 59-197; 1968, c. 439.

§ 59.1-101. Requiring or accepting deposit upon property not deemed a sale thereof.

The requiring, taking or accepting of any deposit, for any purpose, upon any bottle, siphon, siphon head, crate, tin, keg, freezer, can, spoon, block, mould, tray, pan, brick, pail, tub, refrigerator box, cutlery, glass, china, chair, table, sign or clean laundered or soiled article mentioned in this chapter shall not be deemed or constitute a sale of such property, either optional or otherwise in any proceeding under this chapter.

History. Code 1950, § 59-198; 1958, c. 579; 1968, c. 439.

§ 59.1-102. Records; previous filing and publishing of names, marks, etc.

The Secretary of the Commonwealth shall deliver the records of his office relating to names, marks and devices on such property as is mentioned in § 59.1-94 to the State Corporation Commission. No person who has filed prior to July 1, 1948, in the proper offices, a description of the name or names, marks or devices upon such property and has caused the same to be published according to the law existing at the time of such filing and publication, shall be required to again file and publish such description to be entitled to the benefits of this chapter.

History. Code 1950, § 59-199; 1968, c. 439.

Chapter 7.1. Safety Glazing.

§§ 59.1-102.1 through 59.1-102.7.

Repealed by Acts 1974, c. 233.

Chapter 8. Timber Brands.

§ 59.1-103. Persons engaged in lumbering or rafting on certain waters may adopt mark of designation.

It shall be lawful for any person at any time engaged in lumbering or rafting in any manner upon the Elizabeth River in the Commonwealth of Virginia, or on any of its tributaries, or in the Albemarle and Chesapeake Canal or in the Dismal Swamp Canal or in any river or creek lying within the boundaries of this Commonwealth and connecting with either of such canals or upon the Chesapeake Bay, to adopt a mark of designation wherewith to stamp or mark all sawlogs, piles, hewn timber or square timber put or intended to be put by him in any of such streams to be floated and rafted on the same. Such mark may be either in letters, figures, words, names or other devices at the discretion of the person adopting it.

A statement of the mark so adopted with a certificate appended that the same has been adopted as the mark of designation aforesaid, signed by the person adopting the same, shall be furnished to the clerk of the circuit court of the county or corporation court of the city where such person is doing business and has his principal office.

No person shall be entitled to adopt more than one of any of the respective kinds of marks or stamps aforesaid as his mark of designation, but any such person shall not be prohibited from using any other mark in addition to such mark of designation for distinguishing different kinds or lots of timber obtained from different localities, if it does not interfere with the mark of designation of any other person.

History. Code 1950, § 59-200; 1968, c. 439.

§ 59.1-104. Repealed by Acts 1994, c. 432.

§ 59.1-105. Certificate as evidence of right to use marks.

Any certificate of such mark of designation shall be prima facie evidence of the right of the person filing the same to use the mark or marks mentioned therein.

History. Code 1950, § 59-202; 1968, c. 439.

§ 59.1-106. Sale of unclaimed timber, etc., found adrift; disposition of proceeds.

Any person, except the owner thereof, taking up and securing any sawlog, pile, hewn timber or square timber detached from any raft and found adrift or aground on any of the waters or streams mentioned in § 59.1-103, shall promptly report such fact to the owner thereof, or shall lodge a list containing a description of the quantity, quality, and marks, if any, of such timber with a magistrate serving the jurisdiction where such timber was so found and secured, which magistrate shall promptly advertise the same for five consecutive days in a newspaper published in the City of Norfolk. If such timber shall not be claimed by the owner thereof within thirty days after such publication it shall be lawful for the magistrate to order the sale thereof at public auction by an officer after giving five days’ notice of the time, place, and terms of such sale by not less than six handbills posted in the most public places in the vicinity where the same was found and within the county wherein the magistrate serves. Out of the proceeds of such sale the magistrate, after paying the expenses of the advertisement and handbills, together with all the other costs of such proceeding at law, shall pay to the person or persons who found and secured the timber ten cents for each piece thereof so taken and secured, and the residue of such proceeds of sale shall be paid into the state treasury for the benefit of the Commonwealth.

History. Code 1950, § 59-203; 1968, c. 439; 2008, cc. 551, 691.

The 2008 amendments.

The 2008 amendments by cc. 551 and 691 are identical, and substituted “magistrate” for “justice of the peace” three times throughout the section, substituted “magistrate serving the jurisdiction” for “justice of the peace living nearest to the place” in the first sentence and “magistrate serves” for “justice of the peace may reside” in the second sentence.

§ 59.1-107. Fraudulent use of mark or claim of ownership; defacement of mark, etc.; destruction or conversion of timber, etc.

If any person shall fraudulently or willfully use any such registered mark, or shall fraudulently claim to be the owner of any such marked sawlog, pile, square or hewn timber found or being in any of the aforesaid streams or waters, whether floating or aground or tied up to any wharf or other object, either as part of a raft or not, or shall take and carry away any such marked sawlog, pile or piece of square or hewn timber without the authority of the owner thereof, or shall willfully deface or obliterate any such mark, name, figure, letter, or other designation thereon, or shall fraudulently saw, split, consume, destroy, or injure any such marked sawlog, pile, square or hewn timber or shall without the consent of the owner thereof sell or convert the same to his own use unless it shall have been duly forfeited according to the provisions of this chapter or according to other provisions of law, he shall for every such offense upon conviction be confined in jail not less than sixty days and not exceeding twelve months.

History. Code 1950, § 59-204; 1968, c. 439.

§ 59.1-108. Who are timber dealers.

Every person, firm or corporation dealing in logs or timber in any form to be floated on the streams of this Commonwealth shall be called and known as timber dealers, and as such may adopt a brand or trademark in the manner and with the effect hereinafter provided.

History. Code 1950, § 59-205; 1968, c. 439.

§ 59.1-109. Timber dealer may adopt brand or trademark; recordation.

Every such dealer desiring to adopt a brand or trademark who has not heretofore adopted one may do so by the execution and acknowledgement, as deeds are required to be acknowledged, of a writing substantially in form and effect as follows:

“Notice is hereby given that I (or we or the undersigned company, as the case may be) have (or has) adopted the following brand or trademark to be used in my (or our or its) business as a timber dealer (or dealers, as the case may be), to wit: (Here insert the word, letter or letters, or figures, or device or devices adopted.) “Given under my (or our or its) hand and seal this . . . . . . . . . . day of . . . . . . . . . ., two thousand (Seal.)”

Click to view

Such writing may be proved as deeds are proved in this Commonwealth and shall be recorded in the office of the clerk of the circuit court of the county in which the principal office or place of business of such timber dealer may be and of such other counties as such dealer may do business in. Nothing in this section shall be construed to prevent any person who has heretofore used any particular brand from adopting the same as his trademark, and when he shall have adopted it as his trademark as provided in this section it shall apply to the trees and timber heretofore marked with such brand as well as to such as may be hereafter so marked.

History. Code 1950, § 59-206; 1968, c. 439.

CASE NOTES

Constitutionality. —

The retrospective feature of this section is not in conflict with that part of Va. Const., Art. I, § 11 which forbids the legislature to pass “any law impairing the obligation of contracts.” Hurley v. Hurley, 110 Va. 31 , 65 S.E. 472 , 1909 Va. LEXIS 113 (1909).

§ 59.1-110. Using recorded brand or trademark without authority.

Every brand or trademark so adopted shall, from the date of its recordation be the exclusive brand or trademark of the person, firm or corporation adopting it, and any other person, firm or corporation knowingly using or attempting to use the same, without authority in writing from the owner thereof, shall be guilty of a misdemeanor and fined for each offense in so using the same not less than $20 nor more than $200, and shall be liable to the owner of such brand or trademark for all the damages sustained by such owner by reason of such unauthorized use.

History. Code 1950, § 59-207; 1968, c. 439.

§ 59.1-111. Unauthorized use of dealer’s branding iron, or defacing, etc., marks made by it.

Every timber dealer may have a branding iron or hammer with which to impress such brand or trademark on a log, tree or other timber; and any person who shall use such branding iron or hammer or have or use one of like form and making the same brand or trademark, or who shall intentionally and without authority in writing remove, deface, or obliterate or destroy such brand or trademark when once impressed or placed on a log, tree or other timber shall be guilty of a felony, and for each offense shall be confined in the penitentiary not less than one nor more than three years.

History. Code 1950, § 59-208; 1968, c. 439.

§ 59.1-112. Fraudulently impressing brand on timber.

If any person shall knowingly or fraudulently impress or place such brand or trademark on any log, tree or other timber not his own he shall be guilty of a misdemeanor and fined for each offense not less than $10 nor more than $100 and confined in jail not less than ten nor more than twenty days.

History. Code 1950, § 59-209; 1968, c. 439.

§ 59.1-113. Effect of impressing brand on tree, etc.

The placing or impressing such brand or trademark on a log, tree or other marketable timber shall be deemed to be a change of ownership and possession.

History. Code 1950, § 59-210; 1968, c. 439.

CASE NOTES

The effect of this statute is to take a contract for the sale of standing timber which has been branded in accordance with the provisions of this chapter out of the operation of the statute of frauds, and to invest the purchaser with the absolute title thereto. The branding is equivalent to a conveyance and delivery of the possession by the vendor to the vendee. Hurley v. Hurley, 110 Va. 31 , 65 S.E. 472 , 1909 Va. LEXIS 113 (1909).

§ 59.1-114. Unlawful cutting down, possessing or converting branded timber.

Any person who shall cut down a tree or shall knowingly have in his possession a log or other timber that has been so branded, without the written consent of its owner, and claiming it as his own, or who shall convert it to his own use or offer to sell same, shall be guilty of a felony and punished by confinement in the penitentiary for not less than one nor more than two years for each offense, unless the defendant in such case show a bona fide adverse claim or color of title to the timber or logs in question obtained before such branding.

History. Code 1950, § 59-211; 1968, c. 439.

§ 59.1-115. Sheriff’s sale of unbranded timber; recovery by owner; disposition of proceeds.

Every person who shall take, catch, hold or have in his possession any log or other marketable timber, not branded as aforesaid, without the written consent of the owner thereof, shall within ten days after catching, taking up, or getting possession of the same, as aforesaid, report the same in writing to the county clerk of the county in which such person resides, and thirty days after such report is received the sheriff of such county shall sell the same publicly at the courthouse door on the first day of a circuit court in the county, of which notice shall be given by the sheriff for at least ten days by written or printed notices posted at the front door of such courthouse or near thereto and at one or more public places in the county. Any person owning such log or timber may, however, recover the same, by satisfying the sheriff that he is entitled to it, or by action of detinue, as provided by law. Such sale shall be made for cash, and the proceeds when collected, after paying the expenses of sale, including a fee of twenty-five cents for each log or piece of timber so sold, shall be paid to the treasurer of the county for the benefit of the public schools of the district in which the party reporting the same shall at that time reside. Any person failing to report to such clerk, as aforesaid, or to turn over the log or other timber to the sheriff, or any sheriff failing or refusing to advertise and sell such log or timber, as aforesaid, shall be guilty of a misdemeanor, and fined not less than $10 nor more than $100 for each offense.

History. Code 1950, § 59-212; 1968, c. 439.

§ 59.1-116. Repealed by Acts 1994, c. 432.

Chapter 9. Secondhand Articles.

Article 1. Building Fixtures.

§ 59.1-116.1. Definitions.

As used in this article, unless the context requires a different meaning:

“Authorized scrap metal purchaser” has the same meaning as provided for the term “scrap metal purchaser ” in § 59.1-136.1.

“Authorized scrap seller” means any licensed plumber, electrical contractor, HVAC contractor, or building and construction contractor.

“Building material” means any secondhand heating or plumbing fixture or supplies, electric fixtures, or any wiring, gas fixtures or appliances, water faucets, pipes, locks, or any other secondhand fixtures of any kind or description used in the construction of a building.

“Junk dealer” means a person who regularly engages in the business of purchasing, acquiring, or canvassing secondhand building material, including all nonferrous scrap metal, proprietary articles, or both, for the purpose of resale and has conducted transactions involving, or has offered for sale, more than 600 pounds combined weight of secondhand building material or enters into more than 26 combined transactions annually. “Junk dealer” does not include a “scrap metal purchaser” as defined in § 59.1-136.1.

“Person” means any individual, corporation, partnership, association, cooperative, limited liability company, trust, joint venture, or other private commercial entity.

“Regularly engaged” with respect to purchasing or acquiring secondhand building material means having conducted transactions involving, or having offered for sale, more than 600 pounds combined weight of secondhand building material or enters into more than 26 combined transactions annually.

History. 2011, c. 836; 2013, c. 414.

The 2013 amendments.

The 2013 amendment by c. 414 substituted “purchaser” for “processor” twice in the paragraph defining “Authorized scrap metal purchaser,” and in the paragraph defining “Junk dealer.”

Michie’s Jurisprudence.

For related discussion, see 8B M.J. Fixtures, § 14.

§ 59.1-117. Permit required for trading in secondhand building fixtures.

Except as otherwise provided in this chapter, no person shall offer for sale or acquire any secondhand heating or plumbing fixtures or supplies, electric fixtures or any wiring, gas fixtures or appliances, water faucets, pipes, locks, bathtubs, gutters, downspouts, or other secondhand fixtures of whatever kind or description pertaining to a building or structure, without first obtaining a permit for the sale or acquisition of the same from the chief of police of the city or town or the sheriff of the county in which such property is offered for sale or acquisition.

History. Code 1950, § 59-145; 1968, c. 439; 2010, c. 805; 2011, c. 836; 2013, c. 414.

The 2010 amendments.

The 2010 amendment by c. 805 inserted “gutters, downspouts.”

The 2011 amendments.

The 2011 amendment by c. 836 deleted “firm or corporation” following “no person,” substituted “acquire” for “sell” and inserted “any” preceding “wiring,” inserted “or structure” and “or acquisition.”

The 2013 amendments.

The 2013 amendment by c. 414 added “or acquisition” at the end.

Michie’s Jurisprudence.

For related discussion, see 3C M.J. Commercial Law, § 2.

§ 59.1-118. Permit issued by chief of police or sheriff; revocation.

The chief of police of a city or the sheriff of a county may issue, to persons regularly engaged in the business of collecting secondhand building materials for resale, a semiannual or annual permit covering all sales and acquisitions made by such persons. The chief of police or sheriff may refuse to issue a permit, and may revoke any permit issued, to any person convicted of a felony or crime of moral turpitude within the three years prior to the request for the permit. The applicant shall file with the chief of police or sheriff, or his designee, an application form that shall include the applicant’s full name, address, age, sex, and fingerprints; the name, address, and telephone number of the applicant’s employer, if any; and the location of the applicant’s place of business. A permit shall be valid for one year from the date of issuance and may be renewed in the same manner as such permit was initially obtained. A fee of not more than $50 may be charged annually for the issuance of the permit.

History. Code 1950, § 59-146; 1968, c. 439; 2011, c. 836.

The 2011 amendments.

The 2011 amendment by c. 836, in the first sentence, inserted “building” and “and acquisitions”; in the second sentence, substituted “convicted of a felony or crime of moral turpitude within three years prior to the request for the permit” for “convicted of stealing or receiving stolen goods”; added the third and fourth sentences; and rewrote the last sentence, which read: “No charge shall be made for any such permit.”

§ 59.1-119. Who deemed a dealer.

Every person who is regularly engaged in the purchasing or acquiring of secondhand building material of the kind mentioned in § 59.1-117 for the purpose of resale or installation on the property of another shall be deemed a dealer within the meaning of the provisions of this article.

History. Code 1950, § 59-147; 1968, c. 439; 2011, c. 836.

The 2011 amendments.

The 2011 amendment by c. 836 substituted “who purchases secondhand property” for “who is regularly engaged in the purchasing or acquiring of secondhand building material.”

§ 59.1-119.1. Dealer required to show permit and identification.

Every dealer making a sale or purchase of a secondhand fixture pursuant to the provisions of this article shall first display the permit required by § 59.1-117 and also display positive photo identification to the purchaser or seller of such fixture.

History. 1992, c. 25.

§ 59.1-120. Recordkeeping requirements.

  1. At the time of purchasing, collecting, receiving, or acquiring a secondhand building fixture, the dealer shall be required to provide:
    1. The date and time of the secondhand building fixture’s acquisition; and
    2. The address from which the property was acquired and, if available, a driver’s license or other form of government identification to include the name and date of birth of the person from whom the material was collected.
  2. Every dealer shall keep at his place of business a permanently bound book or ledger in which shall be legibly written with ink in English at the time of each transaction in the course of the dealer’s transaction involving a secondhand building fixture that is collected, received, acquired, or purchased by the dealer. Such account shall set forth:
    1. A complete and accurate description of the secondhand building fixture that is the subject of the transaction;
    2. All information prescribed in subsection A regarding location and, if available, the name and date of birth of the person with whom the dealer conducts the transaction;
    3. The license number of the automobile or other vehicle in which the secondhand building fixture was delivered or received; and
    4. The number of the permit issued pursuant to § 59.1-118 by the chief of police of the city or town, or the sheriff of the county, in which the transaction involving a secondhand building fixture occurred.
  3. Records required by subsection B shall be maintained by the dealer at its normal place of business or at another readily accessible and secure location for a period of 24 months.

History. Code 1950, § 59-148; 1968, c. 439; 2010, c. 805; 2011, c. 836.

The 2010 amendments.

The 2010 amendment by c. 805 designated previously existing provisions as subsection B and added subsection A; in subsection B, substituted “ledger” for “books,” and “purchase and sale” for “purchase and/or sale” in the first sentence, substituted “and other information prescribed in subdivision A 1 regarding” for “residence and description of” and inserted “the time and date of the transaction” in the second sentence, and added the last sentence.

The 2011 amendments.

The 2011 amendment by c. 836 rewrote the section.

§ 59.1-121. Reports to be made to chief of police or sheriff.

Every junk dealer selling or acquiring secondhand building materials of the kind mentioned in § 59.1-117, including persons regularly engaged in the business of collecting or acquiring secondhand building materials for the purpose of resale to a scrap metal purchaser, shall deliver:

  1. If the purchase, acquisition, or receipt of the secondhand building fixture occurred in a city or town, to the chief of police of the city or town in which such goods were bought, collected, or received, every day except Sunday before noon, on blank forms to be prescribed and furnished by the chief of police of such city or town:
    1. A legible and accurate description of every secondhand building fixture purchased, acquired, or received by him during the next preceding business day;
    2. The date and time of the secondhand building fixture’s acquisition;
    3. If the person is a dealer, the number of his permit issued pursuant to § 59.1-118;
    4. The license number of any automobile or other vehicle in which the secondhand building fixture was collected or received;
    5. If available, the name and date of birth of the person with whom the dealer conducted the transaction; and
    6. If the person is a dealer, a reference to the volume and number of the page where the original entry required by subsection B of § 59.1-120 is made; or
  2. If the purchase, acquisition, or receipt of the secondhand building fixture occurred in a county, the same information required by subdivision 1 shall be furnished to the sheriff of the county in which such goods were bought, collected, or received not later than midday of the Saturday following the purchase or receipt of such goods, but the sheriff shall not be required to prepare or furnish blank forms for such reports for use in the county, and the dealer may submit any report which fairly conforms to the requirements of subdivision 1.

History. Code 1950, § 59-149; 1968, c. 439; 1972, c. 598; 2010, c. 805; 2011, c. 836; 2013, c. 414.

The 2010 amendments.

The 2010 amendment by c. 805 added subsection B.

The 2011 amendments.

The 2011 amendment by c. 836 rewrote the section.

The 2013 amendments.

The 2013 amendment by c. 414 substituted “scrap metal purchaser” for “scrap metal processor” in the introductory paragraph.

§ 59.1-122. Books and places of business open to inspection.

The books required by this article to be kept, and the places of business of all persons engaged in the acquiring, selling, receiving, or purchasing of the articles mentioned in § 59.1-117, shall at all reasonable times be open to the inspection of any police officer, sheriff, or deputy of the county, city, or town in which such place of business is located.

History. Code 1950, § 59-150; 1968, c. 439; 2011, c. 836.

The 2011 amendments.

The 2011 amendment by c. 836 substituted “persons engaged in the acquiring, selling, receiving, or purchasing” for “persons engaged in the sale, receiving, or purchasing.”

§ 59.1-123. Exemptions from article.

The provisions of this article shall not apply to:

  1. The sale of secondhand material mentioned in § 59.1-117 taken from premises occupied by the owner, when sold by such owner on the premises, or the sale of such articles when purchased from a public utility corporation at its place of business or a governmental agency;
  2. Scrap metal purchasers as provided in Article 4 (§ 59.1-136.1 et seq.);
  3. Authorized scrap sellers;
  4. Public utilities;
  5. Public transportation companies;
  6. Peddlers permitted under § 59.1-118;
  7. Industrial and manufacturing companies;
  8. Marine, automobile, and aircraft salvage and wrecking companies;
  9. Governmental entities; or
  10. The donation of secondhand material mentioned in § 59.1-117 by the material’s owner or the owner’s contractor or subcontractor to a nonprofit corporation as defined in § 501(c)(3) of the U.S. Internal Revenue Code or the sale of such donated material by such a nonprofit corporation.

History. Code 1950, § 59-151; 1968, c. 439; 2007, c. 917; 2011, c. 836; 2013, c. 414; 2015, c. 626.

The 2007 amendments.

The 2007 amendment by c. 917 rewrote the section.

The 2011 amendments.

The 2011 amendment by c. 836, in subdivision 1, substituted “material” for “materials” and “utility” for “utilities”; and added subdivisions 3 through 9 and made a related change.

The 2013 amendments.

The 2013 amendment by c. 414 substituted “purchasers” for “processors” in subdivision 2; and substituted “Peddlers permitted under § 59.1-118” for “Licensed peddlers and brokers” in subdivision 6.

The 2015 amendments.

The 2015 amendment by c. 626 added subdivision 10 and made related changes.

§ 59.1-124. Penalty for violation.

Any person who violates this article shall be guilty of a Class 3 misdemeanor. A person convicted of a second or subsequent offense under this article is guilty of a Class 1 misdemeanor.

History. Code 1950, § 59-152; 1968, c. 439; 1972, c. 598; 1988, c. 765; 2010, c. 805.

Cross references.

As to punishment for Class 1 and Class 3 misdemeanors, see § 18.2-11 .

The 2010 amendments.

The 2010 amendment by c. 805 rewrote the section.

Article 2. Equipment of Railroads and Other Companies.

§ 59.1-125. When unlawful to buy.

It shall be unlawful for any person, firm or corporation to barter, purchase, exchange, or buy from any person whomsoever, except plumbers, the owner of buildings from which the material is taken, railroad, coal mining, industrial, manufacturing and public utility companies, or the authorized agents of such companies, lawful owners and junk dealers, licensed in this Commonwealth, any secondhand steel, copper, copper wire, aluminum, aluminum wire, brass, brass bearings or fittings, electric light or gas fixtures, locks or other builders hardware, plumbing fixtures, bell or bell fixtures, lead or brass water pipes or any part of such fixtures or pipes, or any wire, cable, lead, solder, copper, iron or brass used by or belonging to a railroad, telephone, telegraph, coal mining, industrial, manufacturing or public utility company; provided that this section shall not apply to any person, firm or corporation which shall barter, purchase, exchange, buy or accept any secondhand grooved or figure-eight copper trolley wire, bare or insulated heavy stranded copper or aluminum feeder wire, high voltage copper or aluminum transmission wire, or bare or insulated mining machine copper cables, but § 59.1-128 shall be applicable thereto.

History. Code 1950, § 59-153; 1958, c. 614; 1968, c. 439; 2011, c. 836.

The 2011 amendments.

The 2011 amendment by c. 836 substituted “or buy from any person” for “buy or accept from any person” in the beginning.

§ 59.1-126. Receipt or bill of sale to be taken by buyer; sales procedures.

Any person buying, at public or private sale, any such secondhand articles as are mentioned in § 59.1-125, except those excepted in said section, shall:

  1. Take from the seller a properly dated written receipt or bill of sale signed by such seller which shall therein state specifically the seller’s address, business, social security number, vehicle license number, and place of residence. If a seller of such articles be not personally known to the buyer or if the seller be unable to write his name, such seller shall produce an adult witness personally known to the buyer to identify the seller and also to sign such receipt or bill of sale as witness, the latter also stating therein his full name, occupation and place of residence. Such receipt or bill of sale shall specifically set forth, by accurate description giving the character, kind, quality, weight, length or size, and other detailed description sufficient to accurately identify the same, each of such articles so purchased and shall be retained by the buyer at his place of business for a period of six months after such purchase; and
  2. Make any payment for such articles purchased of $1,000 or more in the form of a check.

History. Code 1950, § 59-154; 1958, c. 614; 1968, c. 439; 2011, c. 80.

The 2011 amendments.

The 2011 amendment by c. 80 subdivided the existing provisions of the section, creating the introductory language and adding the subdivision 1 designation; and added subdivision 2.

§ 59.1-127. Violation of § 59.1-125 or § 59.1-126 a misdemeanor; revocation of dealer’s license.

Any person violating any of the provisions of § 59.1-125 or § 59.1-126 shall be guilty of a misdemeanor.

History. Code 1950, § 59-155; 1958, c. 614; 1968, c. 439; 1972, c. 598; 1988, c. 765.

§ 59.1-128. When unlawful to buy, exchange, etc., secondhand copper or aluminum wire.

It shall be unlawful for any person, firm or corporation to barter, purchase, exchange, buy or accept from any person whomsoever, except the manufacturer thereof or his authorized agent, railroad, coal mining, industrial, manufacturing and public utility companies, or the authorized agents of such companies, governmental agencies, and licensed junk dealers, licensed scrap metal dealers, licensed electrical contractors and licensed merchants, any secondhand grooved or figure-eight copper trolley wire, bare or insulated heavy stranded copper or aluminum feeder wire, high voltage copper or aluminum transmission wire, or bare or insulated mining machine copper cables.

History. Code 1950, § 59-155.1; 1958, c. 614; 1968, c. 439.

§ 59.1-129. Requirements when articles mentioned in § 59.1-128 are bought, exchanged, etc.

  1. Any person, firm or corporation which shall barter, purchase, exchange, buy or accept any of the articles mentioned in § 59.1-128, shall comply with the provisions of § 59.1-126 and shall, in addition, tag each lot of said articles with the name of the seller and the date of receipt and shall retain each such lot in his possession so tagged for 30 days in such manner that its separate identity shall be preserved; provided that the requirements of this section for tagging said articles and retaining them in possession shall not be applicable if the receipt or bill of sale required by § 59.1-126 shall contain an authorization naming the agent who delivers the articles and signed by an officer, or by the proprietor, of the manufacturer, or coal mining, industrial, manufacturing, public utility company, governmental agency, licensed junk dealer, licensed scrap metal dealer, licensed electrical contractor or licensed merchant, giving such authorization.
  2. Notwithstanding anything in subsection A to the contrary, the provisions of this article shall not apply to scrap metal processors as provided in Article 4 (§ 59.1-136.1 et seq.).

History. Code 1950, § 59-155.2; 1958, c. 614; 1968, c. 439; 2007, c. 917.

The 2007 amendments.

The 2007 amendment by c. 917 designated the existing provisions as subsection A; substituted “30 days” for “thirty days” in subsection A; and added subsection B.

§ 59.1-130. Punishment for violation of § 59.1-128 or § 59.1-129.

Any person violating any of the provisions of § 59.1-128 or § 59.1-129 shall be confined in the penitentiary not less than one year nor more than two years, or in the discretion of the court or the jury trying the case, shall be fined not less than $100 nor more than $1,000, or confined in jail for any term not exceeding twelve months, or both. Possession of secondhand articles in violation of the provisions of the above sections shall be prima facie evidence of guilt.

History. Code 1950, § 59-155.3; 1958, c. 614; 1968, c. 439; 1972, c. 598; 1988, c. 765.

Article 3. Watches.

§ 59.1-131. When watch deemed secondhand.

A watch shall be deemed to be secondhand if

  1. As a whole or the case thereof or the movement shall have been previously sold to or acquired by any person who bought or acquired the same for his use or the use of another, but not for resale; or
  2. Its case serial numbers or movement numbers or other distinguishing numbers or identification marks shall be erased, defaced, removed, altered or covered.

History. Code 1950, § 59-156; 1968, c. 439.

§ 59.1-132. Tag to be affixed to watch.

Any person, firm, partnership, association or corporation engaged in the business of buying or selling watches, or any agent or servant thereof, who may sell or exchange, or offer for sale or exchange, expose for sale or exchange, possess with the intent to sell or exchange, or display with the intent to sell or exchange any secondhand watch, shall affix and keep affixed to the same a tag with the words “secondhand” clearly and legibly written or printed thereon, and the tag shall be so placed that the words “secondhand” shall be in plain sight at all times.

History. Code 1950, § 59-157; 1968, c. 439.

§ 59.1-133. Invoice to be furnished to purchaser.

Any person, firm, partnership, association or corporation engaged in the business of buying or selling watches, or any agent or servant thereof, who may sell a secondhand watch or in any other way pass title thereto shall deliver to the vendee a written invoice bearing the words “secondhand watch” in bold letters, larger than any of the other written matter upon such invoice. Such invoice shall further set forth the name and address of the vendor, the name and address of the vendee, the date of the sale, the name of the watch or its maker, and the serial numbers (if any), and any other distinguishing numbers or identification marks upon its case and movements. If the serial numbers or other distinguishing numbers or identification marks shall have been erased, defaced, removed, altered or covered, such invoice shall so state. The vendor shall keep on file a duplicate of such invoice for at least five years from the date of the sale thereof, which shall be open to inspection during all business hours by the law-enforcement officers of the county or city in which the vendor is engaged in business.

History. Code 1950, § 59-158; 1968, c. 439.

§ 59.1-134. Advertisement or display.

Any person, firm, partnership, association or corporation, or any agent or servant thereof, who advertises or displays in any manner a secondhand watch for sale or exchange shall state clearly in such advertisement or display that the watch is a secondhand watch.

History. Code 1950, § 59-159; 1968, c. 439.

§ 59.1-135. Penalty for violation.

Any person, firm, partnership, association or corporation, or any agent or servant thereof, who shall violate any of the provisions of this article shall be guilty of a misdemeanor and shall be punished by a fine not to exceed the sum of $500 or by imprisonment not to exceed ninety days, or both.

History. Code 1950, § 59-160; 1968, c. 439.

§ 59.1-136. Pawnbrokers’ auction sales exempted.

The provisions of this article shall not apply to pawnbrokers’ auction sales of unredeemed pledges when public notice of the fact that watches are rebuilt or are secondhand is given prior to the sale.

History. Code 1950, § 59-161; 1968, c. 439.

Article 4. Scrap Metal Purchasers.

§ 59.1-136.1. Definitions.

For the purpose of this article:

“Authorized scrap seller” means licensed plumbers, electricians, HVAC contractors, building and construction contractors, demolition contractors, construction and demolition debris contractors, public utilities, transportation companies, industrial and manufacturing companies, marine, automobile, and aircraft salvage and wrecking companies, and government entities.

“Broker” means any person or his authorized agent who negotiates, purchases, sells, or offers for sale any scrap metal either directly or through an authorized agent without obtaining title to or ownership of the scrap metal.

“Ferrous scrap” means any scrap metal consisting primarily of iron, steel, or both, but excluding any scrap metal consisting primarily of stainless steel. Ferrous scrap includes large manufactured articles such as automobile bodies that may contain other substances to be removed and sorted during normal operations of scrap metal processors.

“Metal article” means any manufactured item, consisting of metal, that is usable for its originally intended purpose without processing, repairs, or alteration and that is not otherwise excluded by the definitions in this section. Examples include, without limitation, railings, copper or aluminum wire, copper pipe and tubing, plumbing fixtures, copper and aluminum gutters, copper and aluminum downspouts, and cast-iron radiators.

“Nonferrous scrap” means any scrap metal consisting primarily of (i) stainless steel or (ii) any metal other than iron or steel. Nonferrous scrap does not include aluminum beverage cans; postconsumer household items such as pots, pans, barbecue grills, and lawn chairs; used flashing removed during building renovation or demolition; or small quantities of nonferrous metals contained in large manufactured articles, such as automobile bodies and appliances.

“Proprietary article” means (i) any metal article stamped, engraved, stenciled, or otherwise marked so as to identify it as being or having been the property of a governmental entity or public utility or transportation, shipbuilding, ship repair, mining, or manufacturing company; (ii) any hard drawn copper electrical conductor, cable, or wire that is three-eighths of one inch or greater in diameter, stranded or solid; (iii) any aluminum conductor, cable, or wire three quarters of one inch or greater in diameter, stranded or solid; (iv) stainless steel beer kegs; (v) any catalytic converter from a motor vehicle exhaust system that has been detached from a motor vehicle; (vi) any telecommunications cable that is one-half of one inch or greater in diameter and that contains 50 or more individual strands of solid, insulated, color-coded copper wire, including such telecommunication cable that has been unsheathed or burned; (vii) any manhole cover; (viii) any bronze or copper cemetery plaque, urn, or marker; (ix) aluminum bleacher seats or guardrails; or (x) any mining cable that is one-half inch or greater in diameter and is composed of one or more stranded copper conductors and stamped, engraved, stenciled, or otherwise marked with “Mine Safety and Health Administration” or “MSHA.”

“Scrap metal” means any manufactured item or article consisting of or containing metal; any metal removed from or obtained by cutting, demolishing, or disassembling any building, structure, manufactured item, or article; and any other metal that is no longer used for its original purpose and that can be processed for reuse in mills, foundries, and other manufacturing facilities.

“Scrap metal processor” means a business entity in good standing authorized to conduct business in the Commonwealth that regularly utilizes machinery and equipment at one or more established locations in the normal course of business for processing and manufacturing scrap metal into prepared grades for sale as raw material to mills, foundries, and other manufacturing facilities.

“Scrap metal purchaser” means any person or business, other than an authorized scrap seller or a broker buying or selling processed scrap metal, who purchases scrap metal either directly or through an authorized agent in excess of $20,000 during any 12-month period.

History. 2007, c. 917; 2009, c. 657; 2010, c. 805; 2012, c. 449; 2013, c. 414.

The 2009 amendments.

The 2009 amendment by c. 657 added clause (v) to the end of the definition of “Proprietary article” and made related changes.

The 2010 amendments.

The 2010 amendment by c. 805, in the definition of “metal article,” inserted “copper and aluminum gutters, copper and aluminum downspouts”; and in the definition of “nonferrous scrap,” substituted “used flashing” for “used items such as wire flashing, gutters, and downspouts.”

The 2012 amendments.

The 2012 amendment by c. 449 added clause (vi) to the end of the definition of “Proprietary article” and made related changes.

The 2013 amendments.

The 2013 amendment by c. 414 substituted “Purchasers” for “Processors” in the Article head; added the paragraphs defining “Broker” and “Scrap metal purchaser”; in definition of “Authorized scrap seller,” deleted “licensed peddlers and brokers” following “transportation companies”; in the paragraph defining “Metal article,” deleted “manhole covers” following “without limitation” and “bronze cemetery plaques, urns, and markers” preceding “plumbing fixtures”; added clause (vii) through (x) in the paragraph defining “Proprietary article,” and made a minor stylistic change.

§ 59.1-136.2. Purchases of ferrous scrap.

Except as provided in § 59.1-136.4, scrap metal processors may purchase ferrous scrap directly from any person.

History. 2007, c. 917.

§ 59.1-136.3. Purchases of nonferrous scrap, metal articles, and proprietary articles.

  1. Except as provided in § 59.1-136.4, scrap metal purchasers may purchase nonferrous scrap, metal articles, and proprietary articles from any person who is not an authorized scrap seller or the authorized agent and employee of an authorized scrap seller only in accordance with the following requirements and procedures:
    1. At the time of sale, the seller of any nonferrous scrap, metal article, or proprietary article shall provide a driver’s license or other government-issued current photographic identification including the seller’s full name, current address, date of birth, and social security or other recognized identification number; and
    2. The scrap metal purchaser shall record the seller’s identification information, as well as the time and date of the transaction, the license number of the seller’s vehicle, and a description of the items received from the seller, in a permanent ledger maintained at the scrap metal purchaser’s place of business. The ledger shall be made available upon request to any law-enforcement official, conservator of the peace, or special conservator of the peace appointed pursuant to § 19.2-13 , in the performance of his duties who presents his credentials at the scrap metal purchaser’s normal business location during regular business hours. Records required by this subdivision shall be maintained by the scrap metal dealer at its normal place of business or at another readily accessible and secure location for at least five years.
  2. Upon compliance with the other requirements of this section and § 59.1-136.4, a scrap metal purchaser may purchase proprietary articles from a person who is not an authorized scrap seller or the authorized agent and employee of an authorized scrap seller if the scrap metal purchaser complies with one of the following:
    1. The scrap metal purchaser receives from the person seeking to sell the proprietary articles documentation, such as a bill of sale, receipt, letter of authorization, or similar evidence, establishing that the person lawfully possesses the proprietary articles to be sold; or
    2. The scrap metal purchaser shall document a diligent inquiry into whether the person selling or delivering the same has a legal right to do so, and, after purchasing a proprietary article from a person without obtaining the documentation described in subdivision 1, shall submit a report to the local sheriff’s department or the chief of police of the locality, by the close of the following business day, describing the proprietary article and including a copy of the seller’s identifying information, and hold the proprietary article for not less than 15 days following purchase.
  3. The scrap metal purchaser shall take a photographic or video image of all proprietary articles purchased from anyone other than an authorized scrap seller. Such image shall be of sufficient quality so as to reasonably identify the subject of the image and shall be maintained by the scrap metal purchaser no less than 30 days from the date the image is taken. Any image taken and maintained in accordance with this subdivision shall be made available upon the request of any law-enforcement officer conducting official law-enforcement business.
  4. The scrap metal purchaser may purchase nonferrous scrap, metal articles, and proprietary articles directly from an authorized scrap seller and from the authorized agent or employee of an authorized scrap seller.
  5. For purchases of a catalytic converter or the parts thereof, a scrap metal purchaser shall adhere to the compliance provisions of subdivisions B 1 and 2. Copies of the documentation required under subdivisions B 1 and 2 shall (i) establish that the person from whom the scrap metal purchaser purchased the catalytic converter or the parts thereof had the lawful possession of such catalytic converter or the parts thereof at the time of sale or delivery and (ii) detail the scrap metal purchaser’s diligent inquiry into whether such person selling or delivering the catalytic converter or the parts thereof had a legal right to do so. Such documentation shall be maintained by the scrap metal purchaser at his normal place of business or at another readily accessible and secure location for at least two years after the purchase. Such copies shall be made available upon request to any law-enforcement officer, conservator of the peace, or special conservator of the peace appointed pursuant to § 19.2-13 in the performance of his duties who presents his credentials at the scrap metal purchaser’s normal business location during normal business hours.

History. 2007, c. 917; 2013, c. 414; 2022, cc. 664, 665.

The 2013 amendments.

The 2013 amendment by c. 414 substituted “purchasers” for “processors” and “purchaser’s” for “processor’s” throughout the section; in subdivision B 2, deleted “police or” preceding “sheriff’s department,” and inserted “or the chief of police of the locality”; added subsection C and redesignated former subsection C as D; and substituted “The scrap metal purchaser” for “Scrap metal processors” in subsection D.

The 2022 amendments.

The 2022 amendments by cc. 664 and 665 are identical, and added subsection E.

§ 59.1-136.4. Purchases of materials from minors.

Scrap metal processors shall not purchase ferrous scrap, nonferrous scrap, metal articles, proprietary articles, or other scrap metal from any person under the age of 18 years.

History. 2007, c. 917.

§ 59.1-136.5. Reports of purchases by scrap metal purchasers.

If requested by the chief law-enforcement officer of the locality in which the scrap metal purchaser conducts business, every scrap metal purchaser conducting business in the locality shall furnish to the chief law-enforcement officer of the locality in which the scrap metal purchaser conducts business a report of all of the scrap metal purchaser’s purchases of nonferrous scrap, metal articles, and proprietary articles, excluding aluminum cans and interior household items. Each report shall (i) be submitted on the next business day following the date of a purchase; (ii) include the seller’s name, date of birth, identification number, address, height, and weight and the license number of any motor vehicle in which the goods or things were delivered; and (iii) be submitted in an electronic format if required by the locality in which the scrap metal purchaser conducts business. The form of the report shall be prescribed by the Virginia State Police.

History. 2007, c. 917; 2013, c. 414.

The 2013 amendments.

The 2013 amendment by c. 414 substituted “purchaser” for “processor” and “purchaser’s” for “processor’s” throughout the section; deleted “of police or other” preceding “law-enforcement” in two places, and inserted “of the locality in which the scrap metal purchaser conducts business” in the first sentence, deleted “provided that if the locality requires that reports be submitted in electronic format, scrap metal processors shall be given a period of not more than one year following the locality’s adoption of such a requirement to implement the requirement” at the end and added the last sentence.

§ 59.1-136.6. Penalties.

  1. Any scrap metal purchaser who negligently violates any provisions of this article may be assessed a civil penalty not to exceed $7,500 for each violation. Any attorney for the county, city, or town in which an alleged violation of this article occurred may bring a civil action to recover such a civil penalty. The civil penalty shall be paid into the local treasury.
  2. Any scrap metal purchaser who knowingly violates any provisions of this article is guilty of a Class 1 misdemeanor.

History. 2007, c. 917; 2013, c. 414.

Cross references.

As to punishment for Class 1 misdemeanors, see § 18.2-11 .

The 2013 amendments.

The 2013 amendment by c. 414 substituted “purchaser” for “processor” in subsections A and B; and substituted “is guilty” for “shall be guilty” in subsection B.

§ 59.1-136.7. Exemption.

Nothing in this article shall apply to the purchase, sale or disposal of any material that is used in the provision of health care by any professional who is licensed, certified or registered to practice by a board within the Department of Health Professions under Title 54.1.

History. 2007, c. 917.

Chapter 10. Explosives.

§ 59.1-137. Definition.

Whenever used in this chapter:

“Explosives” means any chemical compound, mechanical mixture or device the primary or common purpose of which is to function by explosion. The term includes, but is not limited to dynamite and other high explosives, black blasting powder, pellet powder, initiating explosives, blasting caps, electric blasting caps, detonators, safety fuse, fuse igniters, fuse lighters, squibs, cordeau detonant fuse, instantaneous fuse, detonating cord, igniter cord, igniters and those materials included in the list published annually in the Federal Register by the Department of the Treasury pursuant to the Organized Crime Control Act of 1970 (18 U.S.C. § 841 et seq.).

History. Code 1950, § 59-222; 1960, c. 578; 1968, c. 439; 1976, c. 250.

Cross references.

As to transporting hazardous materials, see § 10.1-1450 et seq.

§ 59.1-138. Record of sales required; signing by purchasers; sales to persons under eighteen prohibited.

  1. Any person selling any explosives covered by this chapter shall keep a record of all such explosives sold, showing the kind and quantity sold, the name and address of the purchaser, and the date of each sale. The person selling such explosives shall also require any person purchasing such explosives to sign such record at the time of such purchase.
  2. No person shall sell, deliver, give away, or otherwise dispose of any explosives to any individual under eighteen years of age, whether such individual is acting for himself, herself, or for any other person.

History. Code 1950, § 59-223; 1960, c. 578; 1968, c. 439; 1972, c. 824.

§ 59.1-139. Persons possessing explosives to give notice of theft.

Any person having in his possession any explosives covered by this chapter shall immediately notify the sheriff of the county or the police officials of the city in which any such explosives are being stored or used in the event that any such explosives are stolen.

History. Code 1950, § 59-224; 1960, c. 578; 1968, c. 439.

§ 59.1-140. Effect of chapter upon municipal regulation.

Nothing contained in this chapter shall:

Affect any existing ordinance, rule or regulation of any city or municipality in this Commonwealth that is not less restrictive than this chapter; or affect, modify or limit the power of such cities or municipalities to make ordinances, rules or regulations not less restrictive than this chapter, governing the storage, possession, sale and use of explosives within their respective corporate limits.

History. Code 1950, § 59-225; 1960, c. 578; 1968, c. 439.

§ 59.1-141. Penalty.

Any person who violates any provision of this chapter shall be guilty of a misdemeanor and, upon conviction thereof, be punished accordingly.

History. Code 1950, § 59-226; 1960, c. 578; 1968, c. 439.

Chapter 11. Fireworks.

§§ 59.1-142 through 59.1-148.

Repealed by Acts 2002, c. 856.

Cross references.

For current provision authorizing localities to provide for the issuance of permits for the display of fireworks, see § 15.2-974 . For current provisions relating to fireworks, see the Virginia Statewide Fire Prevention Code, § 27-94 et seq.

Chapter 11.1. Firearms.

§§ 59.1-148.1, 59.1-148.2. Repealed by Acts 2004, c. 929.

§ 59.1-148.3. Purchase of handguns or other weapons of certain officers.

  1. The Department of State Police, the Department of Wildlife Resources, the Virginia Alcoholic Beverage Control Authority, the Virginia Lottery, the Marine Resources Commission, the Capitol Police, the Department of Conservation and Recreation, the Department of Forestry, any sheriff, any regional jail board or authority, and any local police department may allow any sworn law-enforcement officer, deputy, or regional jail officer, a local fire department may allow any full-time sworn fire marshal, the Department of Motor Vehicles may allow any law-enforcement officer, any institution of higher education named in § 23.1-1100 may allow any campus police officer appointed pursuant to Article 3 (§ 23.1-809 et seq.) of Chapter 8 of Title 23.1, retiring on or after July 1, 1991, and the Department of Corrections may allow any employee with internal investigations authority designated by the Department of Corrections pursuant to subdivision 11 of § 53.1-10 who retires (i) after at least 10 years of service, (ii) at 70 years of age or older, or (iii) as a result of a service-incurred disability or who is receiving long-term disability payments for a service-incurred disability with no expectation of returning to the employment where he incurred the disability to purchase the service handgun issued or previously issued to him by the agency or institution at a price of $1. If the previously issued weapon is no longer available, a weapon of like kind may be substituted for that weapon. This privilege shall also extend to any former Superintendent of the Department of State Police who leaves service after a minimum of five years. This privilege shall also extend to any person listed in this subsection who is eligible for retirement with at least 10 years of service who resigns on or after July 1, 1991, in good standing from one of the agencies listed in this section to accept a position covered by the Virginia Retirement System. Other weapons issued by the agencies listed in this subsection for personal duty use of an officer may, with approval of the agency head, be sold to the officer subject to the qualifications of this section at a fair market price determined as in subsection B, so long as the weapon is a type and configuration that can be purchased at a regular hardware or sporting goods store by a private citizen without restrictions other than the instant background check.
  2. The agencies listed in subsection A may allow any sworn law-enforcement officer who retires with five or more years of service, but less than 10, to purchase the service handgun issued to him by the agency at a price equivalent to the weapon’s fair market value on the date of the officer’s retirement. Any sworn law-enforcement officer employed by any of the agencies listed in subsection A who is retired for disability as a result of a nonservice-incurred disability may purchase the service handgun issued to him by the agency at a price equivalent to the weapon’s fair market value on the date of the officer’s retirement. Determinations of fair market value may be made by reference to a recognized pricing guide.
  3. The agencies listed in subsection A may allow the immediate survivor of any sworn law-enforcement officer (i) who is killed in the line of duty or (ii) who dies in service and has at least 10 years of service to purchase the service handgun issued to the officer by the agency at a price of $1.
  4. The governing board of any institution of higher learning named in § 23.1-1100 may allow any campus police officer appointed pursuant to Article 3 (§ 23.1-809 et seq.) of Chapter 8 of Title 23.1 who retires on or after July 1, 1991, to purchase the service handgun issued to him at a price equivalent to the weapon’s fair market value on the date of the officer’s retirement. Determinations of fair market value may be made by reference to a recognized pricing guide.
  5. Any officer who at the time of his retirement is a sworn law-enforcement officer with a state agency listed in subsection A, when the agency allows purchases of service handguns, and who retires after 10 years of state service, even if a portion of his service was with another state agency, may purchase the service handgun issued to him by the agency from which he retires at a price of $1.
  6. The sheriff of Hanover County may allow any auxiliary or volunteer deputy sheriff with a minimum of 10 years of service, upon leaving office, to purchase for $1 the service handgun issued to him.
  7. Any sheriff or local police department may allow any auxiliary law-enforcement officer with more than 10 years of service to purchase the service handgun issued to him by the agency at a price that is equivalent to or less than the weapon’s fair market value on the date of purchase by the officer.
  8. The agencies listed in subsection A may allow any full-time sworn law-enforcement officer currently employed by the agency to purchase his service handgun, with the approval of the chief law-enforcement officer of the agency, at a fair market price. This subsection shall only apply when the agency has purchased new service handguns for its officers, and the handgun subject to the sale is no longer used by the agency or officer in the course of duty.

History. 1989, c. 175; 1990, c. 359; 1991, c. 389; 1992, cc. 63, 83, 195; 1996, c. 50; 1998, c. 173; 1999, c. 312; 2000, c. 391; 2002, c. 25; 2003, c. 106; 2004, c. 136; 2005, c. 168; 2006, c. 185; 2007, c. 813; 2009, cc. 289, 412; 2010, cc. 590, 864; 2011, c. 628; 2012, c. 218; 2013, c. 62; 2014, c. 225; 2015, cc. 38, 730; 2016, cc. 196, 210, 215; 2019, c. 608; 2020, c. 958; 2022, cc. 245, 246.

Editor’s note.

Acts 2007, c. 813, cl. 2, provides: “That the provisions of this act shall not affect the powers of any locality with respect to any ordinance, resolution or bylaw validly adopted and not repealed or rescinded prior to July 1, 2007.”

Acts 2015, cc. 38 and 730, cl. 4, as amended by Acts 2017, cc. 698 and 707, cl. 2, provides: “That the provisions of this act shall become effective on January 15, 2018, except that the provisions of the (i) thirteenth, fourteenth, and fifteenth enactments of this act shall become effective on July 1, 2015; (ii) third enactment of this act shall become effective on July 1, 2018; and (iii) eleventh enactment of this act shall become effective on January 1, 2019.”

Acts 2016, c. 41, cl. 1 provides: “Any conservation police officer who (i) has at least 20 years of service as a conservation police officer, (ii) was a full-time sworn conservation police officer immediately prior to January 1, 2016, and (iii) was transitioned to a civilian position on January 1, 2016, by the Department of Game and Inland Fisheries shall be considered a retired law-enforcement officer for the purposes of §§ 9.1-1000 , 18.2-308 , 18.2-308.03 , and 59.1-148.3.”

At the direction of the Virginia Code Commission, “23.1-1100” was substituted for “23-14” in subsections A and D; “Article 3 (§ 23.1-809 et seq.) of Chapter 8 of Title 23.1” was substituted for “Chapter 17 (§ 23-232 et seq.) of Title 23” in subsections A and D to conform to the recodification of Title 23 by Acts 2016, c. 588, effective October 1, 2016.

The 2000 amendments.

The 2000 amendment by c. 391 substituted “officer, deputy, or any former Superintendent of the Department of State Police who leaves service after a minimum of five years” for “officer or deputy” in subsection A.

The 2002 amendments.

The 2002 amendment by c. 25, in subsection A, inserted “any regional jail board or authority” and substituted “or regional jail officer” for “or any former Superintendent of the Department of State Police who leaves service after a minimum of five years” in the first sentence, and inserted the present second sentence.

The 2003 amendments.

The 2003 amendment by c. 106 substituted “20” for “twenty” and “$1” for “one dollar” throughout the section; in subsection G, substituted “15” for “fifteen”; and added subsection H.

The 2004 amendments.

The 2004 amendment by c. 136 inserted “the Department of Conservation and Recreation, the Department of Forestry” following “the Capitol Police” in the first sentence of subsection A.

The 2005 amendments.

The 2005 amendment by c. 168 added subsection I.

The 2006 amendments.

The 2006 amendment by c. 185, in subsection F, deleted “The Department of State Police may allow” at the beginning, inserted “with a state agency listed in subsection A,” substituted “agency from which he retires” for “Department,” and made minor stylistic changes.

The 2007 amendments.

The 2007 amendment by c. 813 substituted “Hanover County” for “any county with a population between 63,000 and 65,000” in subsection G.

The 2009 amendments.

The 2009 amendment by c. 289 inserted “or who is receiving long-term disability payments for a service-incurred disability with no expectation of returning to the employment where he incurred the disability” in the first sentence of subsection A.

The 2009 amendment by c. 412 inserted “the State Lottery Department” preceding “the Marine Resources Commission” in the first sentence of subsection A.

The 2010 amendments.

The 2010 amendment by c. 590, in subsection A, in the first sentence, inserted the clause (i) and (iii) designators and inserted clause (ii).

The 2010 amendment by c. 864 inserted the third sentence in subsection A.

The 2011 amendments.

The 2011 amendment by c. 628, in subsection A, in the first sentence, inserted “or previously issued” in clause (iii), and added the second sentence.

The 2012 amendments.

The 2012 amendment by c. 218, throughout the section, substituted “15 years” for “20 years” and “listed in subsection A” for “listed above”; substituted “listed above in this subsection” for “listed above” in the next-to-last sentence of subsection A; deleted subsection E, which formerly read: “The Department of State Police may allow any full-time sworn state police law-enforcement officer who retires as a result of a service-incurred disability and who was on disability leave at the time the Department issued 10-mm semiautomatic handguns to its officers to purchase one of the 10-mm semiautomatic handguns used by the Department of State Police at a price of $1”; redesignated former subsections F through I as subsections E through H; and inserted “when the agency allows purchases of service handguns” in subsection E.

The 2013 amendments.

The 2013 amendment by c. 62, substituted “10 years of service” for “15 years of service” throughout the section; deleted “after at least 10 years of service” at the end of clause (ii) of the first sentence of subsection A; substituted “listed in this section” for “listed above” in the fourth sentence of subsection A; and substituted “5 or more years of service, but less than 10” for “10 or more years of service, but less than 15” in the first sentence of subsection B.

The 2014 amendments.

The 2014 amendment by c. 225 substituted “Virginia Lottery” for “State Lottery Department” in the first sentence of subsection A.

The 2015 amendments.

The 2015 amendments by cc. 38 and 730, effective January 15, 2018, are identical and substituted “Virginia Alcoholic Beverage Control Authority” for “Department of Alcoholic Beverage Control” in subsection A.

The 2016 amendments.

The 2016 amendments by cc. 196 and 215 are identical, and in subsection A, substituted “agencies listed in this subsection” for “Department of State Police,” and “agency head” for “Superintendent” in the last sentence; and made minor stylistic changes. In addition c. 210 inserted “and the Department of Corrections may allow any employee with internal investigations authority designated by the Department of Corrections pursuant to subdivision 11 of § 53.1-10 ” in subsection A; and made minor stylistic changes.

The 2016 amendment by c. 210 inserted “and the Department of Corrections may allow any employee with internal investigations authority designated by the Department of Corrections pursuant to subdivision 11 of § 53.1-10 ” in subsection A and made related and stylistic changes.

The 2019 amendments.

The 2019 amendment by c. 608 deleted “in accordance with written authorization or approval from the local governing body” preceding “may allow” in subsection G.

The 2020 amendments.

The 2020 amendment by c. 958 substituted “Department of Wildlife Resources” for “Department of Game and Inland Fisheries” in subsection A in the first sentence.

The 2022 amendments.

The 2022 amendments by cc. 245 and 246 are identical, and in subsections A through C, and E, deleted “full-time” preceding “sworn law-enforcement officer” throughout; and substituted “education” for “learning” in subsection A in the first sentence.

§ 59.1-148.4. Sale of firearms by law-enforcement agencies prohibited; exception.

A law-enforcement agency of this Commonwealth shall not sell or trade any firearm owned and used or otherwise lawfully in its possession except (i) to another law-enforcement agency of the Commonwealth, (ii) to a licensed firearms dealer, (iii) to the persons as provided in § 59.1-148.3 or (iv) as authorized by a court in accordance with § 19.2-386.29 .

History. 1994, c. 467; 2004, c. 995.

The 2004 amendments.

The 2004 amendment by c. 995 substituted “19.2-386.29” for “18.2-310” in clause (iv).

Chapter 12. Motor Fuels and Lubricating Oils.

§ 59.1-149. Definitions.

As used in this chapter:

“Commissioner” means the Commissioner of Agriculture and Consumer Services or his designated representative.

“Gasoline” shall be construed to include naphtha, benzine and other like liquids and fluids derived from petroleum or other sources and used, or intended to be used, for power purposes, except kerosene.

“Lubricating oil” means lubricating oils used in internal combustion engines.

“Motor fuel” means any liquid or gaseous matter used for the generation of power in an internal combustion engine.

History. Code 1950, § 59-41; 1968, c. 439; 1992, c. 885; 2009, c. 650.

The 2009 amendments.

The 2009 amendment by c. 650 substituted “or gaseous matter used for the generation of power in an internal combustion engine” for “product for the generation of power in an internal combustion or turbine engine and includes, but is not necessarily limited to, gasoline, diesel fuel, and gasoline alcohol blends” in the definition of “Motor fuel.”

§ 59.1-150. Motor fuel subject to inspection and testing.

All motor fuel used, intended to be used, sold or offered for sale or distribution in this Commonwealth, shall be subject to inspection and testing for (i) the purpose of preventing adulteration, misbranding, deception or fraud in the sale thereof or (ii) for any other purpose of assuring compliance with any requirement of this chapter or regulation adopted thereunder.

History. Code 1950, § 59-42; 1968, c. 439; 1992, c. 885.

§ 59.1-151. Statements to be filed by manufacturers, wholesalers and jobbers.

All manufacturers, wholesalers, and jobbers, before selling or offering for sale in this Commonwealth any motor fuel for the purposes above defined, shall file with the Commissioner a statement that they desire to do business in this Commonwealth, and furnish the brand name, trade name, or trademark of the motor fuel which they desire to sell.

History. Code 1950, § 59-43; 1968, c. 439; 1992, c. 885; 2009, c. 650.

The 2009 amendments.

The 2009 amendment by c. 650 substituted “motor fuel” for “gasoline.”

§ 59.1-152. Collection and analysis of samples.

The Commissioner shall have power at all times and at all places to have collected samples for inspection and testing of any motor fuel or lubricating oil for the purposes specified in § 59.1-150 and for the purpose of determining whether such motor fuel or lubricating oil is in violation of this chapter or regulation thereunder.

History. Code 1950, § 59-44; 1968, c. 439; 1992, c. 885.

§ 59.1-153. Methods of making inspection.

In making any inspection and test of a motor fuel or lubricating oil under this chapter, the Commissioner shall follow the specifications for the inspection and testing of that motor fuel or for the lubricating oil established by ASTM International, formerly the American Society for Testing and Materials, and incorporated into the ASTM specifications for motor fuels, which are adopted by the National Conference on Weights and Measures and published by the National Institute of Standards and Technology in Handbook 130, “Uniform Laws and Regulations in the Areas of Legal Metrology and Engine Fuel Quality,” as the same now are or may be hereafter amended. For purposes of this section, such specifications shall apply to methods of inspection and testing only, and shall not apply to methods of sale, including automatic temperature compensation. For cause after an informational proceeding under § 2.2-4007.01 , such specifications may be amended by the Board of Agriculture and Consumer Services.

History. Code 1950, § 59-45; 1968, c. 439; 1992, c. 885; 2007, cc. 873, 916; 2009, c. 650.

The 2007 amendments.

The 2007 amendments by cc. 873 and 916 are identical, and substituted “2.2-4007.01” for “2.2-4007.”

The 2009 amendments.

The 2009 amendment by c. 650, in the first sentence, inserted “ASTM International, formerly” and “and incorporated into the ASTM specifications . . . Areas of Legal Metrology and Engine Fuel Quality” and inserted the present next-to-last sentence.

§ 59.1-154. Inspection and testing under supervision of Commissioner.

Inspection and testing of such motor fuel or lubricating oil shall be under the direction of the Commissioner.

History. Code 1950, § 59-46; 1968, c. 439; 1992, c. 885.

§ 59.1-155. Prohibiting sale of defective motor fuel.

The Commissioner may prohibit the sale of motor fuel that does not meet the specifications as provided in this chapter or regulations adopted thereunder.

History. Code 1950, § 59-47; 1968, c. 439; 1992, c. 885; 2009, c. 650.

The 2009 amendments.

The 2009 amendment by c. 650 substituted “motor fuel” for “gasoline.”

§ 59.1-155.1. Engine coolant and antifreeze bittering agent; penalty.

  1. Any engine coolant or antifreeze manufactured after January 1, 2011, and sold within the Commonwealth that contains more than 10 percent ethylene glycol shall include not less than 30 parts per million and not more than 50 parts per million denatonium benzoate as a bittering agent in order to render the coolant or antifreeze unpalatable.
  2. A manufacturer, processor, distributor, recycler or seller of an engine coolant or antifreeze that is required to contain an aversive agent under subsection A shall not be liable to any person for any personal injury, death, property damage, damage to the environment (including natural resources), or economic loss that results from the inclusion of denatonium benzoate in any engine coolant or antifreeze, provided that the inclusion of denatonium benzoate is present in concentrations mandated by subsection A. The limitation on liability does not apply to a particular liability to the extent that the cause of such liability is unrelated to the inclusion of denatonium benzoate in any engine coolant or antifreeze.
  3. The provisions of this section shall not apply to (i) the sale of a motor vehicle that contains engine coolant or antifreeze, (ii) a wholesale container of engine coolant or antifreeze designed to contain 55 gallons or more of engine coolant or antifreeze, or (iii) engine coolant or antifreeze reformulated through on site recycling.
  4. Any person violating any provision of this section shall be assessed a civil penalty of up to $100 per violation. Each day of violation shall constitute a separate offense.
  5. This section shall not apply to engine coolant or antifreeze that is purchased pursuant to military specifications.

History. 2009, c. 681.

Editor’s note.

Acts 2009, c. 681, cl. 2, provides: “That the provisions of this act shall become effective on January 1, 2011.”

Law Review.

For annual survey article, “Animal Law,” see 44 U. Rich. L. Rev. 185 (2009).

§ 59.1-156. Rules and regulations.

  1. The Board of Agriculture and Consumer Services may make all necessary rules and regulations for (i) the inspection and testing of motor fuel and lubricating oil; (ii) assuring that motor fuels dispensed in this Commonwealth comply with any oxygenation requirement specified by the federal Clean Air Act or any other federal environmental requirement pertaining to motor fuels; and (iii) the enforcement of this chapter.
  2. Oxygenated gasoline regulations pursuant to clause (ii) of subsection A may be adopted, amended or repealed without observing the requirements of the Administrative Process Act (§ 2.2-4000 et seq.) and shall, unless a later effective date is specified in the regulation, amendment or repeal, take effect upon adoption by the Board of Agriculture and Consumer Services and filing with the Registrar of Regulations.
  3. No agency of the Commonwealth may enforce the provisions of “Regulations Governing the Oxygenation of Gasoline” (2 VAC 5-480-10 et seq.), or any successor regulation, requiring the use or sale of oxygenated gasoline, unless, and only to the extent, the regulation is required by federal law or regulation. For purposes of this subsection “oxygenated gasoline” shall have the same meaning as “Gasoline-Oxygenate Blend” as defined in Handbook 130 published by the National Institute of Standards and Technology.

History. Code 1950, § 59-48; 1968, c. 439; 1992, c. 885; 1996, cc. 638, 1012; 2009, c. 650.

Cross references.

As to exemptions, generally, to the Administrative Process Act, see § 2.2-4002 .

The 2009 amendments.

The 2009 amendment by c. 650 substituted “shall have the same meaning as ‘Gasoline-Oxygenate Blend’ as defined in Handbook 130 published by the National Institute of Standards and Technology” for “means gasoline that contains a minimum of 2.7 percent oxygen by weight” in the last sentence of subsection C.

§ 59.1-157. Complaints to Commissioner.

The Commissioner shall investigate complaints made to him concerning alleged violations of the provisions of this chapter or regulation adopted thereunder, and shall, upon his own initiative, conduct such investigations as he deems appropriate and advisable.

History. Code 1950, § 59-50; 1968, c. 439; 1992, c. 885.

§§ 59.1-158 through 59.1-161. Repealed by Acts 1992, c. 885.

§ 59.1-162. Cooperation by state agencies.

The Commonwealth Transportation Board and the Department of Motor Vehicles are authorized to cooperate, as directed by the Governor, with the Commissioner of Agriculture and Consumer Services in carrying out the provisions of this chapter.

History. Code 1950, § 59-55; 1968, c. 439.

§ 59.1-162.1. Direct fueling of commercial vehicles authorized; conditions.

Notwithstanding any other provision of law, the dispensing of diesel fuel from a tank vehicle into the fuel tank of any highway vehicle on the premises of a commercial, industrial, governmental or manufacturing establishment is permitted, provided the following conditions are met:

  1. The highway vehicle is used in connection with the business or function of the establishment;
  2. The owner or operator of the tank vehicle complies with all requirements pertaining to the collection and payment of taxes on diesel fuel pursuant to Title 58.1 and fees pursuant to Title 62.1;
  3. The owner or operator of the tank vehicle complies with all requirements pertaining to Chapter 56 (§ 3.2-5600 et seq.) of Title 3.2;
  4. Each delivery shall be metered and recorded and the customer shall be provided an invoice or delivery ticket plainly indicating the quantity of fuel dispensed, the price per gallon, the amount of tax and the total price of the fuel dispensed;
  5. The tank vehicle is designed, equipped and operated to prevent spills during fueling operations and to minimize spillage in the event of operator error or equipment malfunction;
  6. The owner of the tank vehicle has established and maintains in place a contingency plan for the cleanup of spills occurring during fueling operations, and the operator has been trained in the prevention of spills, and containment of spills should they occur, and in compliance with such spill plan; and
  7. The owner is licensed in Virginia as a distributor.

History. 2000, c. 943.

Editor’s note.

At the direction of the Virginia Code Commission, Title 3.2 references were substituted for Title 3.1 references to conform to Acts 2008, c. 860.

Acts 2000, c. 943, cl. 2 provides: “That the provisions of this act shall become effective January 1, 2001.”

§ 59.1-163. Penalty for violation.

Any person selling any motor fuel or lubricating oil which does not comply with the specifications provided in this chapter, or violating any of the provisions of the chapter, shall be guilty of a Class 1 misdemeanor. Any dealer in any motor fuel who receives motor fuel meeting the requirements of this chapter and who thereafter adulterates any such motor fuel or mixes it with inferior motor fuel, so that the resulting product does not meet the requirements of this chapter, shall be guilty of a Class 1 misdemeanor.

History. Code 1950, § 59-56; 1968, c. 439; 1992, c. 885; 2009, c. 650.

Cross references.

As to punishment for Class 1 misdemeanors, see § 18.2-11 .

The 2009 amendments.

The 2009 amendment by c. 650 deleted “firm or corporation” following “any person” in the first sentence and substituted “motor fuel” for “gasoline” in the last sentence.

§ 59.1-164. Duty of attorney for the Commonwealth.

It shall be the duty of the attorney for the Commonwealth of the respective cities and counties to prosecute all violations of the provisions of this chapter, when certified to him by the Commissioner.

History. Code 1950, § 59-57; 1968, c. 439.

§ 59.1-165. Chemical analysis as evidence.

A certificate of analysis of any motor fuel or lubricating oils shall be admitted into evidence in any case relating to such motor fuel or lubricating oil that involves an alleged violation of this chapter or regulation adopted thereunder, provided that the requirements of subsection A of § 19.2-187.1 have been satisfied and the accused has not objected to the admission of the certificate pursuant to subsection B of § 19.2-187.1 .

History. Code 1950, § 59-58; 1968, c. 439; 1972, c. 741; 1992, c. 885; 2010, c. 152.

The 2010 amendments.

The 2010 amendment by c. 152 substituted “provided that the requirements of subsection A of § 19.2-187.1 have been satisfied and the accused has not objected to the admission of the certificate pursuant to subsection B of § 19.2-187.1 ” for “if the certificate of analysis complies with requirements of §§ 19.2-187 and 19.2-187.01 ” at the end.

§ 59.1-166. Enforcement by Commissioner.

It shall be the duty of the Commissioner to enforce the provisions of this chapter.

History. Code 1950, § 59-59; 1968, c. 439; 1992, c. 885.

§ 59.1-167. Conflicting local laws and ordinances prohibited.

Cities, towns, counties and other political subdivisions of this Commonwealth are prohibited from passing any laws or ordinances relating to the inspection and testing of motor fuel and lubricating oil as defined in § 59.1-149 inconsistent with the provisions of this chapter.

History. Code 1950, § 59-60; 1968, c. 439; 1992, c. 885.

§ 59.1-167.1. Labeling of motor fuels; notification to reseller.

  1. Every dispensing device used in the retail sale of any motor fuel shall identify the motor fuel and be labeled in accordance with Section 3 of the Uniform Fuels and Automotive Lubricants Regulation published by the National Institute of Standards and Technology in Handbook 130, titled “Uniform Laws and Regulations in the Areas of Legal Metrology and Fuel Quality,” as the same now are or may be hereafter amended, unless the Board of Agriculture and Consumer Services, by regulation, amends or rejects identification or labeling requirements established in such publication.
  2. Every person delivering gasoline at wholesale to a reseller which contains one percent or more of ethanol or methanol shall provide a written manifest or invoice which conspicuously identifies the gasoline containing one percent or more of ethanol or methanol, and the percentage of ethanol or methanol contained therein. The Board of Agriculture and Consumer Services may, by regulation, establish what additional disclosure shall be made about a motor fuel by a person delivering the motor fuel at wholesale to a retailer, so that the retailer may comply with the requirements of subsection A.

History. 1986, c. 197; 1992, c. 885; 2019, c. 756.

The 2019 amendments.

The 2019 amendment by c. 756 rewrote subsection A, which read: “Every dispensing device used in the retail sale of any motor fuel shall be plainly and conspicuously labeled with: 1. The brand name, trademark or trade name of the motor fuel it contains; 2. The grade, blend or mixture of the motor fuel it contains; 3. The octane or cetane rating of the motor fuel it contains; and 4. If the product contains one percent or more ethanol or methanol, information identifying the kind of alcohol and the percentage of each at the time of blending, in letters not less than one inch in height”; and in subsection B, deleted “of this section” at the end.

§ 59.1-167.2. Civil penalties.

  1. In addition to the penalties prescribed in § 59.1-163, any person violating any provision of this chapter or regulation adopted thereunder may be assessed a civil penalty by the Board in an amount not to exceed $1,000 per violation. In determining the amount of any civil penalty, the Board shall give due consideration to (i) the history of previous violations of the person; (ii) the seriousness of the violation; and (iii) the demonstrated good faith of the person charged in attempting to achieve compliance with the chapter or regulation adopted thereunder after notification of the violation.
  2. Civil penalties assessed under this section shall be paid into the Weights and Measures Fund as established by § 3.2-5628. The Commissioner shall prescribe procedures for payment of uncontested penalties. The procedure shall include provisions for a person to consent to abatement of the alleged violation and pay a penalty or negotiated sum in lieu of such penalty without admission of civil liability arising from such alleged violation.
  3. Final orders may be recorded, enforced and satisfied as orders or decrees of a circuit court upon certification of such orders by the Commissioner. Such orders may be appealed in accordance with provisions of the Administrative Process Act (§ 2.2-4000 et seq.).

History. 1992, c. 885.

Editor’s note.

At the direction of the Virginia Code Commission, Title 3.2 references were substituted for Title 3.1 references to conform to Acts 2008, c. 860.

§ 59.1-167.3. Delegation of authority.

The Board may delegate any authority vested in it under this chapter, except the adoption of regulations, to the Commissioner.

History. 1992, c. 885.

Chapter 13. Boilers and Pressure Vessels.

§§ 59.1-168 through 59.1-176.

Repealed by Acts 1972, c. 237.

Cross references.

For current provisions as to regulation of boilers and pressure vessels, see § 40.1-51.5 et seq.

For current provisions as to standards pertaining to existing installations, see § 40.1-51.7 .

Chapter 14. Virginia Paint Law.

§§ 59.1-177 through 59.1-188.1.

Repealed by Acts 1983, c. 209.

Chapter 15. Storage Batteries.

§ 59.1-189. Labels and stamps required.

No storage batteries intended for use in connection in any manner with the operation of any machine, motor, radio or any mechanical device or in connection with the production of any artificial light shall be sold or offered for sale in this Commonwealth unless there is affixed to such batteries a label or stamp showing, or the seller of such batteries has available for customer inspection documentation that shows the name and address of the manufacturer, date on which the manufacture of such battery was completed, the size of the container and whether the container is made of rubber or a composition, the number and thickness of plates in each cell, the name of the material used as a filler for the grids in the plate, and the kind of woods or other materials used as separators between the plates.

History. Code 1950, § 59-162; 1968, c. 439; 1990, c. 592.

§ 59.1-190. Rebuilt batteries.

To every storage battery which has been rebuilt and offered for sale in this Commonwealth, there shall be, in addition to the label or stamp required by § 59.1-189, permanently affixed to the container and above label or stamp required by § 59.1-189, the word “rebuilt,” together with the name and address of the person, firm or corporation rebuilding such battery.

History. Code 1950, § 59-163; 1968, c. 439.

§ 59.1-191. Penalty for violation.

Any person, firm or corporation violating any of the provisions of this chapter shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be fined not more than $250, or punished by imprisonment in jail for not more than six months or by both fine and imprisonment.

History. Code 1950, § 59-164; 1968, c. 439.

Chapter 16. Purchase of Livestock From Unknown Person.

§ 59.1-192. “Person” defined.

As used in this chapter the term “person” shall mean any individual, partnership, corporation, or other firm or association.

History. Code 1950, § 59-165; 1968, c. 439.

§ 59.1-193. Record to be kept by purchaser of livestock delivered by motor vehicle.

It shall be unlawful for any dealer in or slaughterer of livestock to purchase any cattle, sheep, swine or other livestock from any person who is not personally known by the purchaser and who delivers such livestock to the purchaser by means of a motor truck or other motor vehicle, unless such purchaser shall first record the name and address of the person from whom such purchase is made, the date of the purchase, the license plate numbers of such truck or vehicle, the state where the same is registered, and a general description of the livestock purchased, including the kind purchased, whether cattle, sheep, swine or other livestock, the number purchased and the approximate weight of the livestock in each lot purchased.

History. Code 1950, § 59-166; 1968, c. 439.

§ 59.1-194. Record available for inspection.

The purchaser shall keep such record for a period of at least six months from the date of purchase. Every such purchaser shall also keep such record available for inspection by the law-enforcement officers of the Commonwealth and the counties, cities and towns thereof, and shall exhibit it to such officers upon their lawful demand.

History. Code 1950, § 59-167; 1968, c. 429.

§ 59.1-195. Penalty for violation.

Any person who shall violate any provision of this chapter shall be guilty of a misdemeanor, and upon conviction thereof shall be punished, for each offense, by a fine of not less than $10 nor more than $100.

History. Code 1950, § 59-168; 1968, c. 439.

Chapter 17. Virginia Consumer Protection Act.

§ 59.1-196. Title.

This chapter may be cited as the Virginia Consumer Protection Act of 1977.

History. 1977, c. 635.

Cross references.

As to conflicts between this Act and the Uniform Computer Information Transactions Act, see § 59.1-501.5.

For provision that violations of Article 7 (§§ 32.1-212 et seq.) of Chapter 6 of Title 32.1, relating to bedding and upholstered furniture, constitute a prohibited practice under § 59.1-200 and are subject to the enforcement provisions of §§ 59.1-196 et seq., see § 32.1-226 .

Law Review.

For survey of Virginia commercial law for the year 1978-1979, see 66 Va. L. Rev. 217 (1980).

For 2000 survey of Virginia antitrust and trade regulation law, see 34 U. Rich. L. Rev. 647 (2000).

For article, “Antitrust and Trade Regulation,” see 35 U. Rich. L. Rev. 453 (2001).

For article, “Property Law,” see 35 U. Rich. L. Rev. 777 (2001).

For symposium, “The Boundaries of Copyright and Trademark/Consumer Protection Law: Trademarks and the Boundary of the Firm,” see 51 Wm. and Mary L. Rev. 345 (2009).

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 1 Extra-Judicial Procedures. § 1.02 Self Help. Bryson.

Friend’s Virginia Pleading and Practice (Matthew Bender). Chapter 29 Consumer Actions and Products Liability. § 29.03 Statutory Consumer Actions, etc. Friend.

Virginia Forms (Matthew Bender). No. 8A-425 Notice of Mandatory Warranty Registration Card.

Michie’s Jurisprudence.

For related discussion, see 12A M.J. Limitation of Actions, § 24.

CASE NOTES

Election between remedies not required. —

Trial court erred in requiring a customer to elect between his remedies in an action involving the fraudulent sale of an automobile; the case involved causes of action with different elements of proof but a possibility of double recovery, and therefore the customer was entitled to recover compensatory damages on a Virginia Consumer Protection Act, §§ 59.1-196 to 59.1-207, claim, punitive damages on a common-law fraud claim, and attorney’s fees under subsection B of § 59.1-204. Wilkins v. Peninsula Motor Cars, 266 Va. 558 , 587 S.E.2d 581, 2003 Va. LEXIS 115 (2003).

Standing of Attorney General to represent interests of individual consumers. —

The Attorney General had standing to represent the interests of individual consumers to establish liability and to determine the nondischargeability of defendant debtors; the Commonwealth did not need to comply with the requirements for class actions under Federal Rules of Civil Procedure, Rule 23. In re Fravel, 143 Bankr. 1001, 1992 Bankr. LEXIS 1215 (Bankr. E.D. Va. 1992).

Limitation on liability under chapter will not be read into contract. —

A limitation on liability for violations of this chapter will not be read into a contract which does not in terms attempt to limit such liability, especially in view of the rule that such limitations of liability are not favored and are strictly construed, even if such limitation be valid and enforceable. Gill v. Rollins Protective Servs. Co., 722 F.2d 55, 1983 U.S. App. LEXIS 14959 (4th Cir. 1983).

State regulation of copying of ornamental or nonfunctional features is permissible. Sunbeam Corp. v. Equity Indus. Corp., 635 F. Supp. 625, 1986 U.S. Dist. LEXIS 25367 (E.D. Va. 1986), aff'd, 811 F.2d 1505, 1987 U.S. App. LEXIS 1645 (4th Cir. 1987).

Where product design or feature is primarily functional, it is not subject to any form of trademark protection. Sunbeam Corp. v. Equity Indus. Corp., 635 F. Supp. 625, 1986 U.S. Dist. LEXIS 25367 (E.D. Va. 1986), aff'd, 811 F.2d 1505, 1987 U.S. App. LEXIS 1645 (4th Cir. 1987).

Claim not nondischargeable in bankruptcy. —

Homeowners’ claim against bankruptcy debtors for violation of the Virginia Consumer Protection Act of 1977, § 59.1-196 et seq., was not nondischargeable under 11 U.S.C.S. § 523(a)(2)(A). The homeowners were not entitled to pierce the limited liability company veil of a contractor to hold the debtors, who were members of the limited liability company, liable for the homeowners’ dealings with the contractor, and the homeowners did not establish that the debtors made any false representations; there was no evidence that the debtors’ statements were anything more than promises that the contractor would perform. Williams v. White, 412 Bankr. 860, 2009 Bankr. LEXIS 2385 (Bankr. W.D. Va. 2009).

Failure to raise genuine dispute. —

District court properly granted summary judgment to a service contractor on a consumer’s counterclaims under the Virginia Consumer Protection Act because the consumer’s evidence was insufficient to raise a genuine dispute regarding agency where no reasonable jury could find that an automobile dealer had apparent authority to represent that the consumer’s vehicle was covered by the service contractor’s service program where the contractor’s notice bluntly stated that the vehicle was ineligible, and the consumer’s proposed counterclaims failed to meet the particularity requirements of the Federal Rules of Civil Procedure. Wynn's Extended Care, Inc. v. Bradley, 619 Fed. Appx. 216, 2015 U.S. App. LEXIS 13078 (4th Cir. 2015).

Standing. —

In a service mark infringement case seeking compensatory damages and injunctive relief in which count IV of the complaint alleged a violation of § 59.1-200 and the alleged infringer argued that the holders lacked standing to prosecute that claim, while the Supreme Court of Virginia had never squarely addressed the issue, the limiting language of § 59.1-196 and interpretative federal cases appeared to support the position that the Virginia Consumer Protection Act was limited to consumer transactions. Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., No. 3:12CV303-HEH, 2012 U.S. Dist. LEXIS 90222 (E.D. Va. June 28, 2012).

CIRCUIT COURT OPINIONS

Applicability. —

Virginia Consumer Protection Act, § 59.1-196 et seq., does not apply to a sale of a condominium unit. Millisor v. Anchor Point Ventures, L.L.C., 77 Va. Cir. 246, 2008 Va. Cir. LEXIS 278 (Hopewell Nov. 7, 2008).

Realty company’s demurrer was sustained in homeowners’ action alleging violations of the Virginia Consumer Protection Act, § 59.1-196 et seq., because the Virginia Consumer Protection Act did not apply; the company did not sell or use defective drywall, and its only involvement was as a seller’s agent, offering the completed dwelling house for sale on behalf of its principal, the owner. Seeman v. Oxfordshire, LLC, 83 Va. Cir. 442, 2011 Va. Cir. LEXIS 126 (Suffolk Oct. 12, 2011).

Supplier’s demurrer was sustained in homeowners’ action alleging violations of the Virginia Consumer Protection Act, § 59.1-196 et seq., because the Virginia Consumer Protection Act did not apply; the supplier’s transactions in the case involved non-consumer goods, not subject to the Act. Seeman v. Oxfordshire, LLC, 83 Va. Cir. 442, 2011 Va. Cir. LEXIS 126 (Suffolk Oct. 12, 2011).

When buyers sued sellers for fraud in a real estate sale, it was not error to apply the Virginia Consumer Protection Act, § 59.1-196 et seq., to double damages because (1) the evidence showed a seller was a “supplier, (2) fraud vitiated the contract, and (3) the Virginia Real Estate Property Disclosure Act, § 55-519, did not preempt the fraud claim. Buki v. Devine, 88 Va. Cir. 1, 2013 Va. Cir. LEXIS 143 (Northumberland County Mar. 8, 2013), modified, 88 Va. Cir. 1, 2013 Va. Cir. LEXIS 144 (Northumberland County Aug. 23, 2013).

In a wrongful death action in which the decedent died of fungal meningitis caused by an epidural injection of a contaminated steroid, the Virginia Consumer Protection Act applied to the aspect of the transaction at issue. None of the statutes or regulations invoked by defendants authorized a relevant aspect of the transaction in this case. Wingate v. Insight Health Corp., 87 Va. Cir. 227, 2013 Va. Cir. LEXIS 105 (Roanoke Oct. 31, 2013).

Construction. —

Circuit Court of Fairfax County, Virginia, finds the General Assembly created no gap in the statutory scheme where lenders engaging in fraud may operate with impunity, subject neither to regulatory supervision nor the disciplining balm of adjudication of a Virginia Consumer Protection Act claims in the courts; there is no gap in Virginia law through which fraudulent actors may operate in a “wild west” loan environment, unfettered from regulatory supervision or court enforcement. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

Stating a Virginia Consumer Protection Act claim. —

Although it was unlawful pursuant to the Virginia Consumer Protection Act (VCPA), § 59.1-196 et seq., to misrepresent the source, sponsorship, approval, or certification of goods or services, or misrepresent that goods or services had certain quantities, characteristics, ingredients, uses, or benefits, the home purchasers failed to state a cause of action pursuant to the VCPA for such misrepresentations, as they did not allege a misrepresentation of material fact in their action against various defendants regarding the construction of their new home. Weiss v. Cassidy Dev. Corp., 63 Va. Cir. 76, 2003 Va. Cir. LEXIS 183 (Fairfax County Aug. 18, 2003).

Car dealer’s demurrer to a buyer’s claim under the Virginia Consumer Protection Law (Lemon Law), § 59.1-196 et seq., claim was overruled as the buyer pled fraudulent concealment and recounted allegedly false statements made by a salesman; the phrase “should have known,” occurred only along with alternative language suggesting that the dealer was conscious of the alleged fraudulent misrepresentations. The conclusion that the buyer stated a claim under § 59.1-196 was bolstered by the fact that § 59.1-207 explicitly reserved remedies for individuals aggrieved as a result of an unintentional violation. Sykes v. Brady-Bushey Ford, Inc., 69 Va. Cir. 219, 2005 Va. Cir. LEXIS 323 (Charlottesville Oct. 27, 2005).

When a consumer entered into a settlement with a mechanic of the consumer’s claim that the mechanic improperly repaired her car, and this settlement required the mechanic to pay the consumer’s out-of-pocket expenses, but the mechanic did not comply with this part of the agreement, although he did comply with the other parts, the settlement barred the consumer’s claim that the mechanic violated the Virginia Consumer Protection Act, § 59.1-196 et seq. Slepin v. Colonial Chevrolet Co., 72 Va. Cir. 544, 2007 Va. Cir. LEXIS 26 (Norfolk Mar. 1, 2007).

Estate of a deceased borrower stated a cause of action under the Virginia Consumer Protection Act by alleging that defendants provided a foreclosure rescue service to the borrower and that they did not purchase her property in the contract, but rather created a usurious loan in the guise of a sell/buy-back. Estate of Curry v. Anderson, 80 Va. Cir. 39, 2010 Va. Cir. LEXIS 173 (Rockingham County Jan. 14, 2010).

In multiple actions involving allegedly defective Chinese drywall, demurrers to claims under the Virginia Consumer Protection Act, § 59.1-196 et seq., were overruled as to builders because sales of residences by builders and developers to consumers were covered by the Virginia Consumer Protection Act. In re Chinese Drywall Cases, 80 Va. Cir. 69, 2010 Va. Cir. LEXIS 43 (Norfolk Mar. 29, 2010).

Plaintiff’s Consumer Protection Act and fraud claims were predicated upon allegations that defendants made fraudulent statements to induce plaintiff to have defendants begin repair work on her new residence; the allegations were pleaded with specific particularity and the alleged false representations were significant factors in plaintiff’s decision, such that defendants’ demurrer was overruled. Van Buren v. Earl Ronald Poston & Old Meadow, LLC, 97 Va. Cir. 229, 2017 Va. Cir. LEXIS 335 (Loudoun County Nov. 30, 2017).

Particularity of claim. —

Virginia Consumer Protection Act (VCPA) claim does not need to be alleged with the same particularity as common-law fraud because a VCPA claim need only be proven to the ordinary preponderance of the evidence standard; a cause of action for fraud had different elements of proof from a VCPA claim; and increasing the burden on a consumer to bring a VCPA claim by imposing a common-law pleading requirement would be contrary to the statutory purpose to expand the remedies afforded to consumers and to relax the restrictions imposed upon them by the common law. West v. Christopher Consultants, 106 Va. Cir. 6, 2020 Va. Cir. LEXIS 82 (Loudoun County June 10, 2020).

Failure to prove actual fraud fatal to claim under the Virginia Consumer Protection Act. —

Where a contractor who was required to have a Class B contractor’s license falsely told home owners he was licensed, the owners did not prove fraud by clear and convincing evidence because (1) they did not hire the contractor solely because he said he was licensed, and (2) they did not show how his lack of a license contributed to their damages from his breach of contract. Therefore, plaintiffs failed to prove a claim under the Virginia Consumer Protection Act. Mock v. Boczar, 64 Va. Cir. 260, 2004 Va. Cir. LEXIS 159 (Loudoun County Mar. 19, 2004).

Misrepresentation of facts. —

Because the court found no misrepresentation of facts in counts II and III of a corporation’s amended motion for judgment, regarding fraud as to a penalty clause in a construction contract and fraud as to the date of the contract’s completion, the court sustained defendants’ demurrer as to counts under the Virginia Consumer Protection Act, § 59.1-196 et seq. Shirland Arms Corp. v. Hall Constr., Inc., 67 Va. Cir. 299, 2005 Va. Cir. LEXIS 178 (Norfolk May 12, 2005).

Supplier. —

The circuit court construed the Virginia Consumer Protection Act liberally in determining that a construction company, with whom the homeowners, who alleged fraud, had had no contact, was actually a supplier as defined by the act. Kieft v. Becker, 58 Va. Cir. 171, 2002 Va. Cir. LEXIS 33 (Fairfax County Jan. 31, 2002).

Real estate sales. —

When a real estate seller’s fraud was shown, and the buyers elected rescission, the buyers could not use the Virginia Consumer Protection Act (VCPA), § 59.1-196 et seq., to double the buyers’ recovery for rescission because application of the VCPA was contrary to the purpose of rescission to restore the status quo. Buki v. Devine, 88 Va. Cir. 1, 2013 Va. Cir. LEXIS 144 (Northumberland County Aug. 23, 2013).

Virginia Consumer Protection Act claim was time-barred. —

Builder’s plea in bar to the homeowners’ Virginia Consumer Protection Act (VCPA), § 59.1-196 et seq., claim was sustained as the claim was time-barred under § 59.1-204.1 as the claim was filed more than two years after the claim accrued under § 8.01-230 , at the settlement on the home; the discovery rule did not apply to claims under the VCPA, and the homeowners’ argument that the builder was equitably estopped from alleging that the claim was time-barred, was another way of asserting that the discovery rule applied. Chancler v. McCarthy Enters., 61 Va. Cir. 697, 2002 Va. Cir. LEXIS 426 (Loudoun County Nov. 26, 2002).

Accrual of action. —

Claims for violations of the Virginia Consumer Protection Act, § 59.1-196 et seq., that are based upon any misrepresentation, deception, or fraud shall be deemed to accrue when such fraud is discovered or when, by the exercise of due diligence, reasonably should have been discovered. Skibinski v. Lunger, 70 Va. Cir. 423, 2006 Va. Cir. LEXIS 158 (Arlington County June 7, 2006).

Pleading insufficient to state cause of action. —

Home buyers who contracted to have a home built failed to plead a violation of the Virginia Consumer Protection Act (VCPA), § 59.1-196 et seq., as allegations of misrepresentation of fact had to be pled with the requisite specificity, including identification of the agents, officers, and employees of the entities who were alleged to have perpetrated the fraud and the details of the time and place of the fraudulent acts; merely listing the dollar amounts of allegedly incorrect charges for utility, permit, waiver, and engineer fees was insufficient to show a VCPA violation. Weiss v. Cassidy Dev. Corp., 61 Va. Cir. 237, 2003 Va. Cir. LEXIS 22 (Fairfax County Feb. 21, 2003).

Real estate seller’s complaint failed to state a cause of action under the Virginia Consumer Protection Act for a settlement agent’s incorrect payoff of a mortgage on property that was not connected to the settlement statement where the complaint alleged that payment of the wrong loan was a mistake, which the agent attempted to correct shortly after learning of the mix-up. At most, the seller had pleaded that the agent was negligent in paying off the wrong loan, which did not rise to the level needed to sustain a claim under the Act. Koschene v. Hutchinson, 73 Va. Cir. 103, 2007 Va. Cir. LEXIS 223 (Frederick County Mar. 16, 2007).

In multiple actions involving allegedly defective Chinese drywall, demurrers to claims under the Virginia Consumer Protection Act, § 59.1-196 et seq., were sustained as to the drywall suppliers because the transactions in drywall in which the suppliers participated involved builders, contractors, and developers and fell outside the Virginia Consumer Protection Act definition of “consumer transaction.” In re Chinese Drywall Cases, 80 Va. Cir. 69, 2010 Va. Cir. LEXIS 43 (Norfolk Mar. 29, 2010).

As there was an insufficient record upon which to determine whether the customers should reasonably have discovered a violation of the Virginia Consumer Protection Act, § 59.1-196 et seq., and an agent’s alleged fraudulent misrepresentation, the customers’ plea in bar was overruled without prejudice. Craddock v. A & E Moving Storage, Inc., 82 Va. Cir. 491, 2011 Va. Cir. LEXIS 150 (Norfolk Apr. 22, 2011).

Court sustained the demurrer to Count IX alleging a violation of the Virginia Consumer Protection Act (VCPA) as the VCPA did not apply to the engineering work of the engineering firm and the engineers because a consumer had to be an actual party to a transaction; and plaintiffs never bought goods or services from the engineering firm and the engineers or any person downstream of their engineering work performed for the homeowners association. West v. Christopher Consultants, 106 Va. Cir. 6, 2020 Va. Cir. LEXIS 82 (Loudoun County June 10, 2020).

Pleading sufficient to state cause of action. —

Defendants’ demurrer to plaintiff’s claim under the Virginia Consumer Protection Act (VCPA) for damages was overruled; complaint contains sufficient allegations to withstand demurrer as to whether sales brochure for assisted living facility contained fraudulent misrepresentations or was just “sales trade talk or puffery.” Henderson v. Hickory Hill Ret. Cmty., LLC, 103 Va. Cir. 190, 2019 Va. Cir. LEXIS 466 (Nottoway County Oct. 2, 2019), aff'd, 106 Va. Cir. 506, 2019 Va. Cir. LEXIS 1580 (Nottoway County Dec. 3, 2019).

Commonwealth’s complaint against two pharmaceutical companies for violations of the Virginia Consumer Protection Act was sufficient to overcome their demurrers because the Commonwealth sufficiently alleged the misrepresentations it relied on, how those misrepresentations were disseminated, to whom the misrepresentations were made, and how they allegedly caused harm to Virginia citizens, and, although the FDA approved the the companies’ drugs and allowed the advertisement and promotion thereof, the FDA did not authorize the companies to make misrepresentations while doing so. Commonwealth ex rel. Herring v. Teva Pharms. USA, Inc., 107 Va. Cir. 44, 2020 Va. Cir. LEXIS 670 (Richmond Nov. 13, 2020).

Damages. —

In the absence of limiting language, the General Assembly intended no unusual restriction on the term “actual damages” as used in the Virginia Consumer Protection Act. Wingate v. Insight Health Corp., 87 Va. Cir. 227, 2013 Va. Cir. LEXIS 105 (Roanoke Oct. 31, 2013).

§ 59.1-197. Intent.

It is the intent of the General Assembly that this chapter shall be applied as remedial legislation to promote fair and ethical standards of dealings between suppliers and the consuming public.

History. 1977, c. 635.

CASE NOTES

Reach of Act. —

The Consumer Protection Act does not, in express terms, articulate a public policy, nor does it protect the welfare of the people in general; thus employee’s claim that he was terminated after he complained of company’s failure to disclose certain product information is beyond the reach of the limited public policy exception to Virginia’s common-law employment-at-will doctrine. Leverton v. AlliedSignal, Inc., 991 F. Supp. 486, 1998 U.S. Dist. LEXIS 355 (E.D. Va. 1998).

Burden of proof. —

Circuit court erred by instructing the jury that a buyer was required to prove her claims under the Virginia Consumer Protection Act (VCPA) by clear and convincing evidence because the VCPA created a new, statutory cause of action in addition to common-law fraud, the legislature expressly directed that the VCPA be applied as remedial legislation, and that language supported a conclusion that the legislature intended that courts apply the lower, preponderance standard. Ballagh v. Fauber Enters., 290 Va. 120 , 773 S.E.2d 366, 2015 Va. LEXIS 80 (2015).

CIRCUIT COURT OPINIONS

Construction. —

Defendant argued that § 59.1-197 requires that a Virginia Consumer Protection Act claim must be made against a consumer/producer, but a plain reading of the statute does no such thing; the controlling statute was § 59.1-200, and as plaintiff’s complaint was essentially a verbatim recitation of prohibited practices under that statute, defendant’s demurrer on this ground was overruled. Futrell v. POS Auto Sales, LLC, 100 Va. Cir. 1, 2018 Va. Cir. LEXIS 309 (Spotsylvania County Sept. 4, 2018).

Particularity of claim. —

Virginia Consumer Protection Act (VCPA) claim does not need to be alleged with the same particularity as common-law fraud because a VCPA claim need only be proven to the ordinary preponderance of the evidence standard; a cause of action for fraud had different elements of proof from a VCPA claim; and increasing the burden on a consumer to bring a VCPA claim by imposing a common law pleading requirement would be contrary to the statutory purpose to expand the remedies afforded to consumers and to relax the restrictions imposed upon them by the common law. West v. Christopher Consultants, 106 Va. Cir. 6, 2020 Va. Cir. LEXIS 82 (Loudoun County June 10, 2020).

Pleading insufficient to state cause of action. —

Court sustained the demurrer to Count IX alleging a violation of the Virginia Consumer Protection Act (VCPA) as the VCPA did not apply to the engineering work of the engineering firm and the engineers because a consumer had to be an actual party to a transaction; and plaintiffs never bought goods or services from the engineering firm and the engineers or any person downstream of their engineering work performed for the homeowners association. West v. Christopher Consultants, 106 Va. Cir. 6, 2020 Va. Cir. LEXIS 82 (Loudoun County June 10, 2020).

§ 59.1-198. Definitions.

As used in this chapter:

“Business opportunity” means the sale of any products, equipment, supplies or services which are sold to an individual for the purpose of enabling such individual to start a business to be operated out of his residence, but does not include a business opportunity which is subject to the Business Opportunity Sales Act, Chapter 21 (§ 59.1-262 et seq.) of this title.

“Children’s product” means a consumer product designed or intended primarily for children 12 years of age or younger. In determining whether a consumer product is primarily intended for a child 12 years of age or younger, the following factors shall be considered:

  1. A statement by a manufacturer about the intended use of such product, including a label on such product if such statement is reasonable;
  2. Whether the product is represented in its packaging, display, promotion, or advertising as appropriate for use by children 12 years of age or younger;
  3. Whether the product is commonly recognized by consumers as being intended for use by a child 12 years of age or younger; and
  4. The Age Determination Guidelines issued by the staff of the Consumer Products Safety Commission in September 2002, and any successor to such guidelines.“Consumer transaction” means:
  5. Transactions involving the advertisement, sale, lease, or license, or the offering for sale, lease or license, of goods or services to a church or other religious body; and
  6. Transactions involving the advertisement of legal services that contain information about the results of a state or federal survey, inspection, or investigation of a nursing home or certified nursing facility as described in subsection E of § 32.1-126 .“Cure offer” means a written offer of one or more things of value, including but not limited to the payment of money, that is made by a supplier and that is delivered to a person claiming to have suffered a loss as a result of a consumer transaction or to the attorney for such person. A cure offer shall be reasonably calculated to remedy a loss claimed by the person and it shall include a minimum additional amount equaling 10 percent of the value of the cure offer or $500, whichever is greater, as compensation for inconvenience, any attorney’s or other fees, expenses, or other costs of any kind that such person may incur in relation to such loss; provided, however that the minimum additional amount need not exceed $4,000.“Defective drywall” means drywall, or similar building material composed of dried gypsum-based plaster, that (i) as a result of containing the same or greater levels of strontium sulfide that has been found in drywall manufactured in the People’s Republic of China and imported into the United States between 2004 and 2007 is capable, when exposed to heat, humidity, or both, of releasing sulfur dioxide, hydrogen sulfide, carbon disulfide, or other sulfur compounds into the air or (ii) has been designated by the U.S. Consumer Product Safety Commission as a product with a product defect that constitutes a substantial product hazard within the meaning of § 15(a)(2) of the Consumer Product Safety Act (15 U.S.C. § 2064 (a)(2)).“Goods” means all real, personal or mixed property, tangible or intangible. For purposes of this chapter, intangible property includes but shall not be limited to “computer information” and “informational rights” in computer information as defined in § 59.1-501.2.“Person” means any natural person, corporation, trust, partnership, association and any other legal entity.“Services” includes but shall not be limited to (i) work performed in the business or occupation of the supplier, (ii) work performed for the supplier by an agent whose charges or costs for such work are transferred by the supplier to the consumer or purchaser as an element of the consumer transaction, or (iii) the subject of an “access contract” as defined in § 59.1-501.2.“Supplier” means a seller, lessor, licensor, or professional who advertises, solicits, or engages in consumer transactions, or a manufacturer, distributor, or licensor who advertises and sells, leases, or licenses goods or services to be resold, leased, or sublicensed by other persons in consumer transactions.

1. The advertisement, sale, lease, license or offering for sale, lease or license, of goods or services to be used primarily for personal, family or household purposes;

2. Transactions involving the advertisement, offer or sale to an individual of a business opportunity that requires both his expenditure of money or property and his personal services on a continuing basis and in which he has not been previously engaged;

3. Transactions involving the advertisement, offer or sale to an individual of goods or services relating to the individual’s finding or obtaining employment;

4. A layaway agreement, whereby part or all of the price of goods is payable in one or more payments subsequent to the making of the layaway agreement and the supplier retains possession of the goods and bears the risk of their loss or damage until the goods are paid in full according to the layaway agreement;

History. 1977, c. 635; 1981, c. 205; 1987, c. 464; 1988, c. 485; 1992, c. 278; 2001, cc. 741, 762; 2004, cc. 41, 90; 2009, cc. 359, 700; 2010, c. 143; 2011, c. 615; 2019, cc. 291, 292.

The 2001 amendments.

The 2001 amendment by c. 741 substituted “license or offering for sale, lease or license” for “or offering for sale, or lease” in subdivision 1 of the paragraph defining “Consumer transaction”; added the last sentence in the paragraph defining “Goods”; in the paragraph defining “Services,” substituted “(i) work” for “work (i),” substituted “(ii) work” for “or (ii),” and inserted “or (iii) the subject of an ‘access contract’ as defined in § 59.1-501.2”; and in the paragraph defining “Supplier,” substituted “lessor or licensor” for “or lessor,” substituted “distributor or licensor” for “or distributor,” substituted “leases or licenses” for “or leases,” and substituted “leased or sublicensed” for “or leased.”

The 2001 amendment by c. 762 also added the last sentence in the paragraph defining “Goods.”

The 2004 amendments.

The 2004 amendment by cc. 41 and 90 are identical, and added the paragraph defining “Cure offer.”

The 2009 amendments.

The 2009 amendments by cc. 359 and 700 are identical, and inserted the definition of “Children’s product.”

The 2010 amendments.

The 2010 amendment by c. 143, in the definition of “Consumer transaction,” added subdivision 5 and made related changes.

The 2011 amendments.

The 2011 amendment by c. 615, effective March 25, 2011, and applicable to consumer transactions occurring on or after that date, added the definition for “Defective drywall.”

The 2019 amendments.

The 2019 amendments by cc. 291 and 292 are identical, and added subdivision 6 in the definition of “Consumer transaction”; in the definition for “Supplier,” inserted “or professional”; and made stylistic changes.

Law Review.

For annual survey article discussing antitrust and trade regulation law, see 38 U. Rich. L. Rev. 39 (2003).

Michie’s Jurisprudence.

For related discussion, see 3C M.J. Commercial Law, § 3.

CASE NOTES

Consumer transaction. —

In a service mark infringement case seeking compensatory damages and injunctive relief in which count IV of the complaint alleged a violation of § 59.1-200 and the alleged infringer argued that the holders lacked standing to prosecute that claim, while the Supreme Court of Virginia had never squarely addressed the issue, the limiting language of § 59.1-196 and interpretative federal cases appeared to support the position that the Virginia Consumer Protection Act was limited to consumer transactions. Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., No. 3:12CV303-HEH, 2012 U.S. Dist. LEXIS 90222 (E.D. Va. June 28, 2012).

Where car dealer moved to dismiss car buyer’s Virginia Consumer Protection Act claim, even though dealer was remote seller, buyer’s purchase was still consumer transaction, and buyer sufficiently alleged fraud claim. Alexander v. Southeastern Wholesale Corp., 978 F. Supp. 2d 615, 2013 U.S. Dist. LEXIS 149693 (E.D. Va. 2013).

Consumer purpose not found. —

Corporation lacked standing to bring suit under the Virginia Consumer Protection Act where the corporation was not engaged in a consumer transaction because the corporation was not purchasing certificates of authenticity for a consumer purpose as intended by the act because (1) the corporation was not purchasing the certificates of authenticity to use for a personal, family, or household purpose, (2) rather, the purchases were made for investigatory purposes, namely to determine whether defendants were engaging in the sale of certificates of authenticity without the required software, and (3) the corporation’s purchases were made on its own behalf, not on behalf of potential consumers of its software. Microsoft Corp. v. # 9 Software, Inc., No. 4:05cv106, 2005 U.S. Dist. LEXIS 36710 (E.D. Va. Dec. 15, 2005).

Scope of protection. —

Borrowers lacked any possibility of establishing a Virginia Consumer Protection Act claim because appointment of defendant as substitute trustee was valid under Virginia law and the borrowers had not alleged that defendant owed them fiduciary duties under the terms of the deed of trust. McFadden v. Fannie Mae, 525 Fed. Appx. 223, 2013 U.S. App. LEXIS 10067 (4th Cir. 2013).

“Person.” —

Where plaintiff was a Washington corporation, it was clear that plaintiff was a person within the meaning of § 59.1-198. Microsoft Corp. v. # 9 Software, Inc., No. 4:05cv106, 2005 U.S. Dist. LEXIS 36710 (E.D. Va. Dec. 15, 2005).

CIRCUIT COURT OPINIONS

Applicability. —

No matter if by definition or by preemption, the Virginia Consumer Protection Act (VCPA) does not apply to legal services; therefore, a client was unable to pursue a claim under the VCPA based on legal representation that he received. Oberto v. Grogan, 88 Va. Cir. 188, 2014 Va. Cir. LEXIS 77 (Richmond Apr. 18, 2014).

Court sustained the demurrer to Count IX alleging a violation of the Virginia Consumer Protection Act (VCPA) as the VCPA did not apply to the engineering work of the engineering firm and the engineers because a consumer had to be an actual party to a transaction; and plaintiffs never bought goods or services from the engineering firm and the engineers or any person downstream of their engineering work performed for the homeowners association. West v. Christopher Consultants, 106 Va. Cir. 6, 2020 Va. Cir. LEXIS 82 (Loudoun County June 10, 2020).

Consumer transaction. —

Homebuilder’s purchase of finish from a third party, who purchased the finish from the finish manufacturer, did not involve a “consumer transaction” as required for liability under the Virginia Consumer Protection Act as a consumer transaction under it had to be one where the item purchased was bought for personal, family, or household purposes, and the homebuilder’s purchase was a commercial purchase for commercial purposes, that of constructing a house. Bindra v. Michael Bowman & Assocs., 58 Va. Cir. 47, 2001 Va. Cir. LEXIS 373 (Fairfax County Sept. 19, 2001).

Where an exterior insulation and finish system was not sold to a homeowner for personal, family, or household purposes, but was sold to either a homebuilder or his subcontractor to be included as a component part of a constructed home, and thus was not sold by the homebuilder to the homeowner for personal, family, or household purposes, but turned over to him as part of the finished home, such transaction involved non-consumer goods and was not subject to the provisions of the Virginia Consumer Protection Act. Murray v. Royal Constr. Co., 61 Va. Cir. 643, 2002 Va. Cir. LEXIS 427 (Franklin County June 10, 2002); Murray v. Dryvit Sys., 2002 Va. Cir. LEXIS 420 (Franklin County July 15, 2002).

Term “consumer transaction” can extend to nursing home services for family purposes under subdivision 1 of § 59.1-198. Evans v. Diamond Healthcare Corp., 73 Va. Cir. 502, 2007 Va. Cir. LEXIS 206 (Richmond Aug. 7, 2007).

Body shop’s demurrer to an owner’s complaint alleging a violation of the Virginia Consumer Protection Act, § 59.1-196 et seq., was overruled because the owner properly stated a Virginia Consumer Protection Act claim since the transaction at issue fit within the definition of “consumer transaction” pursuant to § 59.1-198, and the amended complaint stated facts sufficient to infer that the owner used the body shop’s services for personal, family, or household purposes; the body shop provided towing and storage services pursuant to § 46.2-1209 , understanding that it would hold the owner’s car and that the owner had to pay for the services, and the facts suggested that the owner, in her individual capacity, was forced to use the body shop’s towing services for a personal purpose, forced avoidance of an ongoing violation of § 46.2-1209 , which forbade a person from leaving a car on a roadway in a position where it could pose a hazard. Daughtry v. Gray's Body Shop, Inc., 79 Va. Cir. 539, 2009 Va. Cir. LEXIS 259 (Norfolk Nov. 25, 2009).

Although the court determined that a body shop was negligent in its failure to follow statutory procedures in auctioning an owner’s car, the lien valuation and auction procedures did not constitute a “consumer transaction” with respect to the owner, as defined in § 59.1-198 and, thus, the Virginia Consumer Protection Act, § 59.1-196 et seq., was inapplicable. Shaqwena Anjoli Daughtry v. Gray's Body Shop, Inc., 82 Va. Cir. 366, 2011 Va. Cir. LEXIS 42 (Norfolk Mar. 17, 2011).

Facts were sufficient to find that the transaction was a consumer transaction, as defined in § 59.1-198, and it fell within the Virginia Consumer Protection Act; plaintiff alleged that defendant engaged in the sale of his service as an automobile dealer to sell vehicles on consignment, and the check for the sale was made out in plaintiff’s name and he deposited it into his personal bank account. Futrell v. POS Auto Sales, LLC, 100 Va. Cir. 1, 2018 Va. Cir. LEXIS 309 (Spotsylvania County Sept. 4, 2018).

Sale of services. —

Where a contractor was sued by homeowners for damages to a house and its contents as the result of the manner in which asbestos shingles already on the house were removed constituted a sale of services for household purposes, even though the subcontractor rather than the contractor performed the services. Jenkins Servs., LLC v. Martin, 95 Va. Cir. 5, 2016 Va. Cir. LEXIS 241 (Westmoreland County Feb. 5, 2016).

Scope of protection. —

The Virginia Consumer Protection Act inarguably applies to those consumer transactions involving services and/or goods which are ultimately intended for personal use; the language of § 59.1-198 does not seem to limit protection only to those transactions that occur directly between a supplier and the ultimate consumer. Va. Beach Rehab Specialists, Inc. v. Augustine Med., Inc., 58 Va. Cir. 379, 2002 Va. Cir. LEXIS 155 (Norfolk Mar. 19, 2002).

Home inspector can be considered a seller who engages in consumer transactions because it sells its home inspection services to be used for household purposes; therefore, the Virginia Consumer Protection Act applies to a home inspector. Howie v. Atl. Home Inspection, Inc., 62 Va. Cir. 164, 2003 Va. Cir. LEXIS 298 (Norfolk June 17, 2003).

Section 59.1-199, did not render the Virginia Consumer Protection Act inapplicable to an owner’s claims against a body shop because the amended complaint pleaded facts sufficient to support a finding that the body shop did not comply with § 46.2-1209 regarding the sale of her car; though § 59.1-199 rendered the Virginia Consumer Protection Act inapplicable to certain aspects of the transaction at issue, the owner properly stated a cause of action under the Act since the amended complaint alleged misrepresentations by the body shop regarding aspects of the transaction not authorized by § 46.2-1209 , and § 46.2-1209 did not authorize the sale of the owner’s car under circumstances other than those identified in § 46.2-1209. Daughtry v. Gray's Body Shop, Inc., 79 Va. Cir. 539, 2009 Va. Cir. LEXIS 259 (Norfolk Nov. 25, 2009).

Interment rights. —

Virginia Consumer Protection Act can apply to the sale of interment rights; the interment rights purchased by plaintiff qualified as goods under the act because they were intangible interests in real property purchased as part of a consumer transaction, and the Federal Consumer Credit Protection Act did not preempt the Virginia Consumer Protection Act regarding the transaction at issue. Childers v. Woodlawn Funeral & Crematory, 99 Va. Cir. 388, 2018 Va. Cir. LEXIS 126 (Norfolk July 31, 2018).

Definition of supplier. —

Statute defines the supplier as the seller, and here, the property was sold by the company, not the owner; as an agent of the company, the statute imposed no personal liability on the owner and there was no cause of action against him under the Virginia Consumer Protection Act. Bondurant v. Marscheider Props., L.L.C., 94 Va. Cir. 323, 2016 Va. Cir. LEXIS 152 (Chesapeake Sept. 30, 2016).

Plaintiff alleged that defendants were suppliers within the meaning of the VCPA in that they offered for sale and did sell real property for residential use, and that plaintiff entered into a contract to purchase the residence from defendants and closed on the acquisition of the home; thus, the court overruled the demurrer to plaintiff’s Consumer Protection Act claim. DeLeon v. McGaha, 2022 Va. Cir. LEXIS 24 (Loudoun County Feb. 1, 2022).

§ 59.1-199. Exclusions.

Nothing in this chapter shall apply to:

  1. Any aspect of a consumer transaction which aspect is authorized under laws or regulations of this Commonwealth or the United States, or the formal advisory opinions of any regulatory body or official of this Commonwealth or the United States.
  2. Acts done by the publisher, owner, agent or employee of a newspaper, periodical, or radio or television station, or other advertising media such as outdoor advertising and advertising agencies, in the publication or dissemination of an advertisement in violation of § 59.1-200, unless it be proved that such person knew that the advertisement was of a character prohibited by § 59.1-200.
  3. Those aspects of a consumer transaction which are regulated by the Federal Consumer Credit Protection Act, 15 U.S.C. § 1601 et seq.
  4. Banks, savings institutions, credit unions, small loan companies, public service corporations, mortgage lenders as defined in § 6.2-1600 , broker-dealers as defined in § 13.1-501 , gas suppliers as defined in subsection E of § 56-235.8, and insurance companies regulated and supervised by the State Corporation Commission or a comparable federal regulating body.
  5. Any aspect of a consumer transaction which is subject to the Virginia Residential Landlord and Tenant Act (§ 55.1-1200 et seq.) or Chapter 14 (§ 55.1-1400 et seq.) of Title 55.1, unless the act or practice of a landlord constitutes a misrepresentation or fraudulent act or practice under § 59.1-200.
  6. Real estate licensees who are licensed under Chapter 21 (§ 54.1-2100 et seq.) of Title 54.1.

History. 1977, c. 635; 1987, c. 464; 1994, c. 400; 1995, c. 703; 1996, cc. 61, 77, 179; 1999, c. 494; 2000, cc. 691, 706.

Editor’s note.

Acts 1999, c. 494, cl. 3 which had provided that the provisions of c. 494 would expire July 1, 2000, was repealed by Acts 2000, cc. 691 and 706, cl. 3.

In subsection D, “§ 6.2-1600 ” was substituted for “§ 6.1-409,” effective October 1, 2010, to conform to the recodification of Title 6.1 by Acts 2010, c. 794.

To conform to the recodification of Title 55 by Acts 2019, c. 712, effective October 1, 2019, the following substitution was made at the direction of the Virginia Code Commission: substituted “the Virginia Residential Landlord and Tenant Act (§ 55.1-1200 et seq.) or Chapter 14 (§ 55.1-1400 et seq.) of Title 55.1” for “the Landlord and Tenant Act, Chapter 13 (§ 55-217 et seq.) of Title 55 or the Virginia Residential Landlord and Tenant Act, Chapter 13.2 (§ 55-248.2 et seq.) of Title 55.”

CASE NOTES

Consumer real estate transactions. —

Under 15 U.S.C. § 1603, consumer real estate transactions are covered by the Federal Consumer Protection Act. Therefore, the Virginia Consumer Protection Act is inapplicable. Smith v. United States Credit Corp., 626 F. Supp. 102, 1985 U.S. Dist. LEXIS 14128 (E.D. Va. 1985), aff'd, Smith v. Anderson, 801 F.2d 661, 1986 U.S. App. LEXIS 30850 (4th Cir. 1986).

Creditor’s failure to timely release a lien against a consumer’s residence after the underlying debt obligation was satisfied did not violate consumer protection statute since the loan was a mortgage loan which created the lien against the consumer’s residence, even though the loan proceeds were used to purchase a vehicle. Poindexter v. Mercedes-Benz Credit Corp., 792 F.3d 406, 2015 U.S. App. LEXIS 11650 (4th Cir. 2015).

Misrepresentations by banks and mortgage lenders. —

Virginia Consumer Protection Act, pursuant to subsection D of § 59.1-199, did not apply to alleged misrepresentations by banks and mortgage lenders. Feeley v. Total Realty Mgmt., 660 F. Supp. 2d 700, 2009 U.S. Dist. LEXIS 125149 (E.D. Va. 2009).

Insurance company has right to subrogation under Virginia Consumer Protection Act. —

Both Virginia common and statutory law provide for an insurance company’s right to subrogation where the insured’s loss allegedly was caused by a third party’s negligent or tortious conduct. Subsection D, while exempting insurance companies from suit under the Virginia Consumer Protection Act, is silent with respect to subrogation rights. Consequently, the act should not serve to nullify the Virginia common and statutory law permitting an insurance company a right to subrogation, in the absence of any express indication from the Virginia legislature that such a result was contemplated and desired. Gill v. Rollins Protective Servs. Co., 773 F.2d 592, 1985 U.S. App. LEXIS 23318 (4th Cir. 1985), amended, 788 F.2d 1042, 1986 U.S. App. LEXIS 37434 (4th Cir. 1986).

Nursing home not exempt as “highly regulated.” —

In a complaint based on injuries sustained by a nursing home resident alleging violations of the Virginia Consumer Protection Act (VCPA) from misrepresentations as to the quality of care and the training of the facility workers, a motion to dismiss alleging that the facility was exempt from the VCPA under subsection A of § 59.1-199 as a highly regulated industry was denied because this section did not exempt entire industries from the VCPA, but claims arising from certain transactions. Beaty v. Manor Care, Inc., No. 02-1720-A, 2003 U.S. Dist. LEXIS 25044 (E.D. Va. Feb. 10, 2003).

Act inapplicable to claims governed by Truth In Lending Act. —

The Virginia Consumer Protection Act (VCPA) exempts from coverage any aspect of a consumer transaction governed by the federal Truth In Lending Act (TILA), and since the accuracy of sales tax disclosures are governed by the TILA, a consumer may not assert a claim under the VCPA based on an alleged misrepresentation as to the amount of the sales tax. Nigh v. Koons Buick Pontiac GMC, Inc., 143 F. Supp. 2d 535, 2001 U.S. Dist. LEXIS 5374 (E.D. Va. 2001), aff'd, 319 F.3d 119, 2003 U.S. App. LEXIS 1845 (4th Cir. 2003).

CIRCUIT COURT OPINIONS

Construction. —

Requirement of licensure for non-commercial lenders doing business in Virginia is not a discriminatory restraint on trade, but rather a prudent exercise of the constitutional police power to regulate fraudulent activity; this general obligation to obtain a license to engage in the business of making personal noncommercial loans and thus be subject to the supervisory eye of the State Corporation Commission, is harmonized in subsection D of § 59.1-199. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

All the entities qualifying for exemption are already required to be subject to either licensure or regulatory oversight elsewhere in the Code. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

Subsection D of § 59.1-199 enumerates for exemption only businesses that are already licensed or regulated elsewhere in the code; independent of the prerequisite of licensure to gain benefit of the safe harbor from suit pursuant to the blanket requirement in § 6.2-1500 , subsection D of § 59.1-199 itself further accentuates the exception for small loan companies applies only if they are already regulated and supervised by the State Corporation Commission or a comparable federal regulating body. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

It would be erroneous for the court to apply the rule of the last antecedent to subsection D of § 59.1-199, and thereby find that “small loan companies” that are not regulated and supervised by the State Corporation Commission (SCC) are exempt from the Virginia Consumer Protection Act; the qualifier phrase bestowing exemption from the Act applies only to the listed entities specified in subsection D of § 59.1-199, all of which are of a financial “class,” as long as they are both regulated and supervised by the SCC or comparable body. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

Claims against a bank. —

Car buyers sued a bank, which was the assignee of a financing contract, alleging violations of the Virginia Consumer Protection Act. Though subsection D specifically exempted banks from liability under the Act, a holder clause in the financing agreement made the bank legally liable for all claims the buyers had against the car dealer; therefore, the bank’s demurrer was overruled. Carr v. Sheehy Ashland, Inc., 65 Va. Cir. 4, 2004 Va. Cir. LEXIS 224 (Richmond Mar. 24, 2004).

Preemption under Interstate Commerce Act. —

Carmack Amendment to the Interstate Commerce Act, at 42 U.S.C.S. § 14706, applied to any property damage sustained after the carriers took receipt of the property from the customer, regardless of where the damage actually occurred; therefore, the customer could not state a consumer protection claim for property damage resulting from the carriers’ transportation of property. Harlow v. Bekins A-1 Movers, Inc., 59 Va. Cir. 198, 2002 Va. Cir. LEXIS 89 (Fairfax County July 2, 2002).

No preemption by federal Truth In Lending Act. —

Where car buyers sued a car dealer for violating the Virginia Consumer Protection Act, the dealer’s plea in bar was overruled because the Virginia Consumer Protection Act was not preempted by the Federal Truth in Lending Act unless a provision of the latter contradicted the requirements of the former, and the dealer made no such allegation. Carr v. Sheehy Ashland, Inc., 65 Va. Cir. 4, 2004 Va. Cir. LEXIS 224 (Richmond Mar. 24, 2004).

Federal Consumer Credit Protection Act. —

Under subsection C of this section the Virginia Consumer Protection Act was only preempted in those specific “aspects” regulated by the Federal Consumer Credit Protection Act (FCCPA), and as defendant’s alleged activities were not governed by the FCCPA because it was not a “debt collector,” plaintiffs claims against it were not preempted by the FCCPA. Reed v. Litton Loan Servicing, L.P., 64 Va. Cir. 447, 2004 Va. Cir. LEXIS 190 (Richmond May 26, 2004).

Denial of seller’s demurrer as to home buyer’s claim that the seller violated the Virginia Consumer Protection Act, § 59.1-196 et seq., was appropriate because the buyers sufficiently pleaded that the action involved a consumer transaction and that the seller was a supplier in that the buyers pleaded that the seller sold the buyers a property which the buyers used for residential purposes. Furthermore, regulation of the transaction was not preempted by the Federal Consumer Credit Protection Act, 15 U.S.C.S. § 1601 et seq. Nazar v. Balderson, 104 Va. Cir. 173, 2020 Va. Cir. LEXIS 10 (Chesterfield County Jan. 29, 2020).

Federal Consumer Credit Protection Act and interment rights. —

Virginia Consumer Protection Act can apply to the sale of interment rights; the interment rights purchased by plaintiff qualified as goods under the act because they were intangible interests in real property purchased as part of a consumer transaction, and the Federal Consumer Credit Protection Act did not preempt the Virginia Consumer Protection Act regarding the transaction at issue. Childers v. Woodlawn Funeral & Crematory, 99 Va. Cir. 388, 2018 Va. Cir. LEXIS 126 (Norfolk July 31, 2018).

Food and Drug Administration. —

Dental patient filed a products liability suit against the manufacturer of an orthodontic device. As the sale of that device was regulated by the Food and Drug Administration, pursuant to subsection A of § 59.1-199, the patient’s claim of a violation of the Virginia Consumer Protection Act was dismissed. Hart v. Savage, 72 Va. Cir. 41, 2006 Va. Cir. LEXIS 319 (Norfolk June 7, 2006).

Consumer real estate transactions. —

Realty company’s demurrer was sustained in homeowners’ action alleging violations of the Virginia Consumer Protection Act, § 59.1-199, because the Virginia Consumer Protection Act did not apply; the company did not sell or use defective drywall, and its only involvement was as a seller’s agent, offering the completed dwelling house for sale on behalf of its principal, the owner. Seeman v. Oxfordshire, LLC, 83 Va. Cir. 442, 2011 Va. Cir. LEXIS 126 (Suffolk Oct. 12, 2011).

Tenant action. —

Tenant’s allegations that the landlord failed to provide habitable conditions at the time of leasing the unit was sufficient to state a cause of action for misrepresentation of the characteristics of the service being provided, the quality of that service, the advertisement of the service with the intent not to provide the service advertised, and fundamentally misrepresenting the landlord’s obligation because the tenant sufficiently alleged that the landlord acted willfully when he did not adequately remedy the interior mold conditions. Stith v. Liberty Pointe LP, 2022 Va. Cir. LEXIS 78 (Petersburg June 28, 2022).

Applicability in case involving compliance with unattended vehicle statute. —

Section 59.1-199, did not render the Virginia Consumer Protection Act inapplicable to an owner’s claims against a body shop because the amended complaint pleaded facts sufficient to support a finding that the body shop did not comply with § 46.2-1209 regarding the sale of her car; though § 59.1-199 rendered the Virginia Consumer Protection Act inapplicable to certain aspects of the transaction at issue, the owner properly stated a cause of action under the Act since the amended complaint alleged misrepresentations by the body shop regarding aspects of the transaction not authorized by § 46.2-1209 , and § 46.2-1209 did not authorize the sale of the owner’s car under circumstances other than those identified in § 46.2-1209. Daughtry v. Gray's Body Shop, Inc., 79 Va. Cir. 539, 2009 Va. Cir. LEXIS 259 (Norfolk Nov. 25, 2009).

Statutory regulation of contractors. —

Owners alleged sufficient facts in their counterclaim to survive a contractor’s demurrer to their claims of fraud in the inducement and violation of the Virginia Consumer Protection Act because they claimed fraud in the inducement of the contract, rather than fraud in the performance of the contract, the contractor was bound by and limited to the grounds stated in the demurrer, the statutory regulation of contractors was insufficient to exempt them from the scope of the Act, and the owners’ allegations were contemplated by and were actionable under the Act. Interbuild, Inc. v. Sayres, 94 Va. Cir. 261, 2016 Va. Cir. LEXIS 168 (Loudoun County Sept. 8, 2016).

Court could not find a current connection between the company and defendant, which would lend support to the belief the Consumer Financial Protection Bureau was currently supervising defendant’s activities in Virginia, and even if it were, it was not, by limitation of its empowering legal mandate, a “comparable federal regulating body” to the State Corporation Commission as required for exemption. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

Comparable federal regulating body. —

Language “or a comparable federal regulating body” in subsection D of § 59.1-199 was clearly intended by the General Assembly to pertain to the listed entities preceding “insurance companies” that are federally regulated, such as banks; therefore, the mere absence of a comma in this instance, cannot be the basis for concluding the phrase that follows “insurance companies” only conditions such term. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

Supervision by regulating body. —

Order could not be read to mean that defendant’s lending activity in Virginia was currently supervised by the federal Consumer Financial Protection Bureau, or was ever intended to be supervised by a consent decree between a company and the U.S. government; the court could not find a current connection between the company and defendant, which would lend support to the belief the Consumer Financial Protection Bureau was currently supervising defendant’s activities in Virginia. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

Acts not authorized by laws. —

Because the laws relied on by a nursing home did not “authorize” the acts alleged by a deceased patient’s son, the son’s Virginia Consumer Protection Act claim was not exempted under subsection A of § 59.1-199. Humphrey v. Leewood Healthcare Ctr., 73 Va. Cir. 346, 2007 Va. Cir. LEXIS 101 (Fairfax County May 31, 2007).

No exemption for entire industries. —

Defendants’ demurrer to plaintiff’s claim under the Virginia Consumer Protection Act (VCPA) for damages was overruled; in the absence of controlling precedent as to whether the VCPA applies to assisted living facilities, the court found persuasive the rationale of other state cases, which held that the statute did not exempt entire industries from the VCPA. Henderson v. Hickory Hill Ret. Cmty., LLC, 103 Va. Cir. 190, 2019 Va. Cir. LEXIS 466 (Nottoway County Oct. 2, 2019), aff'd, 106 Va. Cir. 506, 2019 Va. Cir. LEXIS 1580 (Nottoway County Dec. 3, 2019).

Transaction exempt. —

Where the thrust of a former patient’s allegations against a nursing home went to the improper disclosure of confidential information derived from his stay there for drug rehabilitation and treatment, and the services provided to the patient were arguably a “consumer transaction,” under subsection A of § 59.1-199, the Virginia Consumer Protection Act did not to apply to an aspect of a consumer transaction that was authorized under law of either the Commonwealth or the federal government. The patient was subject to rules governing disclosure under 45 C.F.R. §§ 164.501 and 164.506. Evans v. Diamond Healthcare Corp., 73 Va. Cir. 502, 2007 Va. Cir. LEXIS 206 (Richmond Aug. 7, 2007).

Transaction not exempt. —

In a wrongful death action in which the decedent died of fungal meningitis caused by an epidural injection of a contaminated steroid, the Virginia Consumer Protection Act applied to the aspect of the transaction at issue. Because none of the statutes or regulations invoked by defendants authorized a relevant aspect of the transaction in this case, § 59.1-199’s exclusion did not apply. Wingate v. Insight Health Corp., 87 Va. Cir. 227, 2013 Va. Cir. LEXIS 105 (Roanoke Oct. 31, 2013).

Section 46.2-1531 does not authorize consignment sales of automobiles, and thus the motor vehicle consignment sale in this case was a consumer transaction under the Virginia Consumer Protection Act, plaintiff’s claim was not excluded under subsection A of § 59.1-199, and the demurrer was overruled. Futrell v. POS Auto Sales, LLC, 100 Va. Cir. 1, 2018 Va. Cir. LEXIS 309 (Spotsylvania County Sept. 4, 2018).

Demurrer overruled. —

Demurrer filed by a counselor and his employer was overruled as to a patient’s claim under the Virginia Consumer Protection Act because the demurrer contended that the consumer transaction at issue was the subject of a specific exclusion contained in § 59.1-199; the argument rested on the lynchpin that the practice of psychology was heavily regulated by statute and by administrative agency regulations, but those general observations did not point to any specific provision of any statute or regulation that takes the allegations outside of the ambit of the Act. B.E.L. v. Price, 81 Va. Cir. 391, 2010 Va. Cir. LEXIS 138 (Culpeper County Dec. 2, 2010).

Demurrer sustained. —

As the Virginia Consumer Protection Act did not apply to real estate licensees, the court sustained the demurrer of defendants to this count. Pittman v. Walter, 100 Va. Cir. 57, 2018 Va. Cir. LEXIS 335 (Chesapeake Sept. 21, 2018).

Complaint against a lender by the Commonwealth of Virginia insufficiently pleaded a violation of the Virginia Consumer Protection Act, § 59.1-196 et seq., because the lender fell within a statutory exclusion to the Act as a small loan company. Commonwealth v. Allied Title Lending, LLC, 98 Va. Cir. 83, 2018 Va. Cir. LEXIS 71 (Richmond Jan. 22, 2018).

§ 59.1-200. Prohibited practices.

  1. The following fraudulent acts or practices committed by a supplier in connection with a consumer transaction are hereby declared unlawful:
    1. Misrepresenting goods or services as those of another;
    2. Misrepresenting the source, sponsorship, approval, or certification of goods or services;
    3. Misrepresenting the affiliation, connection, or association of the supplier, or of the goods or services, with another;
    4. Misrepresenting geographic origin in connection with goods or services;
    5. Misrepresenting that goods or services have certain quantities, characteristics, ingredients, uses, or benefits;
    6. Misrepresenting that goods or services are of a particular standard, quality, grade, style, or model;
    7. Advertising or offering for sale goods that are used, secondhand, repossessed, defective, blemished, deteriorated, or reconditioned, or that are “seconds,” irregulars, imperfects, or “not first class,” without clearly and unequivocally indicating in the advertisement or offer for sale that the goods are used, secondhand, repossessed, defective, blemished, deteriorated, reconditioned, or are “seconds,” irregulars, imperfects or “not first class”;
    8. Advertising goods or services with intent not to sell them as advertised, or with intent not to sell at the price or upon the terms advertised. In any action brought under this subdivision, the refusal by any person, or any employee, agent, or servant thereof, to sell any goods or services advertised or offered for sale at the price or upon the terms advertised or offered, shall be prima facie evidence of a violation of this subdivision. This paragraph shall not apply when it is clearly and conspicuously stated in the advertisement or offer by which such goods or services are advertised or offered for sale, that the supplier or offeror has a limited quantity or amount of such goods or services for sale, and the supplier or offeror at the time of such advertisement or offer did in fact have or reasonably expected to have at least such quantity or amount for sale;
    9. Making false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions;
    10. Misrepresenting that repairs, alterations, modifications, or services have been performed or parts installed;
    11. Misrepresenting by the use of any written or documentary material that appears to be an invoice or bill for merchandise or services previously ordered;
    12. Notwithstanding any other provision of law, using in any manner the words “wholesale,” “wholesaler,” “factory,” or “manufacturer” in the supplier’s name, or to describe the nature of the supplier’s business, unless the supplier is actually engaged primarily in selling at wholesale or in manufacturing the goods or services advertised or offered for sale;
    13. Using in any contract or lease any liquidated damage clause, penalty clause, or waiver of defense, or attempting to collect any liquidated damages or penalties under any clause, waiver, damages, or penalties that are void or unenforceable under any otherwise applicable laws of the Commonwealth, or under federal statutes or regulations;
    14. Using any other deception, fraud, false pretense, false promise, or misrepresentation in connection with a consumer transaction;
    15. Violating any provision of § 3.2-6509, 3.2-6512, 3.2-6513, 3.2-6513.1, 3.2-6514, 3.2-6515, 3.2-6516, or 3.2-6519 is a violation of this chapter;
    16. Failing to disclose all conditions, charges, or fees relating to:
      1. The return of goods for refund, exchange, or credit. Such disclosure shall be by means of a sign attached to the goods, or placed in a conspicuous public area of the premises of the supplier, so as to be readily noticeable and readable by the person obtaining the goods from the supplier. If the supplier does not permit a refund, exchange, or credit for return, he shall so state on a similar sign. The provisions of this subdivision shall not apply to any retail merchant who has a policy of providing, for a period of not less than 20 days after date of purchase, a cash refund or credit to the purchaser’s credit card account for the return of defective, unused, or undamaged merchandise upon presentation of proof of purchase. In the case of merchandise paid for by check, the purchase shall be treated as a cash purchase and any refund may be delayed for a period of 10 banking days to allow for the check to clear. This subdivision does not apply to sale merchandise that is obviously distressed, out of date, post season, or otherwise reduced for clearance; nor does this subdivision apply to special order purchases where the purchaser has requested the supplier to order merchandise of a specific or unusual size, color, or brand not ordinarily carried in the store or the store’s catalog; nor shall this subdivision apply in connection with a transaction for the sale or lease of motor vehicles, farm tractors, or motorcycles as defined in § 46.2-100 ;
      2. A layaway agreement. Such disclosure shall be furnished to the consumer (i) in writing at the time of the layaway agreement, or (ii) by means of a sign placed in a conspicuous public area of the premises of the supplier, so as to be readily noticeable and readable by the consumer, or (iii) on the bill of sale. Disclosure shall include the conditions, charges, or fees in the event that a consumer breaches the agreement;
  2. Nothing in this section shall be construed to invalidate or make unenforceable any contract or lease solely by reason of the failure of such contract or lease to comply with any other law of the Commonwealth or any federal statute or regulation, to the extent such other law, statute, or regulation provides that a violation of such law, statute, or regulation shall not invalidate or make unenforceable such contract or lease.

13a. Failing to provide to a consumer, or failing to use or include in any written document or material provided to or executed by a consumer, in connection with a consumer transaction any statement, disclosure, notice, or other information however characterized when the supplier is required by 16 C.F.R. Part 433 to so provide, use, or include the statement, disclosure, notice, or other information in connection with the consumer transaction;

16a. Failing to provide written notice to a consumer of an existing open-end credit balance in excess of $5 (i) on an account maintained by the supplier and (ii) resulting from such consumer’s overpayment on such account. Suppliers shall give consumers written notice of such credit balances within 60 days of receiving overpayments. If the credit balance information is incorporated into statements of account furnished consumers by suppliers within such 60-day period, no separate or additional notice is required;

17. If a supplier enters into a written agreement with a consumer to resolve a dispute that arises in connection with a consumer transaction, failing to adhere to the terms and conditions of such an agreement;

18. Violating any provision of the Virginia Health Club Act, Chapter 24 (§ 59.1-294 et seq.);

19. Violating any provision of the Virginia Home Solicitation Sales Act, Chapter 2.1 (§ 59.1-21.1 et seq.);

20. Violating any provision of the Automobile Repair Facilities Act, Chapter 17.1 (§ 59.1-207.1 et seq.);

21. Violating any provision of the Virginia Lease-Purchase Agreement Act, Chapter 17.4 (§ 59.1-207.17 et seq.);

22. Violating any provision of the Prizes and Gifts Act, Chapter 31 (§ 59.1-415 et seq.);

23. Violating any provision of the Virginia Public Telephone Information Act, Chapter 32 (§ 59.1-424 et seq.);

24. Violating any provision of § 54.1-1505 ;

25. Violating any provision of the Motor Vehicle Manufacturers’ Warranty Adjustment Act, Chapter 17.6 (§ 59.1-207.34 et seq.);

26. Violating any provision of § 3.2-5627, relating to the pricing of merchandise;

27. Violating any provision of the Pay-Per-Call Services Act, Chapter 33 (§ 59.1-429 et seq.);

28. Violating any provision of the Extended Service Contract Act, Chapter 34 (§ 59.1-435 et seq.);

29. Violating any provision of the Virginia Membership Camping Act, Chapter 25 (§ 59.1-311 et seq.);

30. Violating any provision of the Comparison Price Advertising Act, Chapter 17.7 (§ 59.1-207.40 et seq.);

31. Violating any provision of the Virginia Travel Club Act, Chapter 36 (§ 59.1-445 et seq.);

32. Violating any provision of §§ 46.2-1231 and 46.2-1233.1 ;

33. Violating any provision of Chapter 40 (§ 54.1-4000 et seq.) of Title 54.1;

34. Violating any provision of Chapter 10.1 (§ 58.1-1031 et seq.) of Title 58.1;

35. Using the consumer’s social security number as the consumer’s account number with the supplier, if the consumer has requested in writing that the supplier use an alternate number not associated with the consumer’s social security number;

36. Violating any provision of Chapter 18 (§ 6.2-1800 et seq.) of Title 6.2;

37. Violating any provision of § 8.01-40.2 ;

38. Violating any provision of Article 7 (§ 32.1-212 et seq.) of Chapter 6 of Title 32.1;

39. Violating any provision of Chapter 34.1 (§ 59.1-441.1 et seq.);

40. Violating any provision of Chapter 20 (§ 6.2-2000 et seq.) of Title 6.2;

41. Violating any provision of the Virginia Post-Disaster Anti-Price Gouging Act, Chapter 46 (§ 59.1-525 et seq.);

42. Violating any provision of Chapter 47 (§ 59.1-530 et seq.);

43. Violating any provision of § 59.1-443.2;

44. Violating any provision of Chapter 48 (§ 59.1-533 et seq.);

45. Violating any provision of Chapter 25 (§ 6.2-2500 et seq.) of Title 6.2;

46. Violating the provisions of clause (i) of subsection B of § 54.1-1115 ;

47. Violating any provision of § 18.2-239 ;

48. Violating any provision of Chapter 26 (§ 59.1-336 et seq.);

49. Selling, offering for sale, or manufacturing for sale a children’s product the supplier knows or has reason to know was recalled by the U.S. Consumer Product Safety Commission. There is a rebuttable presumption that a supplier has reason to know a children’s product was recalled if notice of the recall has been posted continuously at least 30 days before the sale, offer for sale, or manufacturing for sale on the website of the U.S. Consumer Product Safety Commission. This prohibition does not apply to children’s products that are used, secondhand or “seconds”;

50. Violating any provision of Chapter 44.1 (§ 59.1-518.1 et seq.);

51. Violating any provision of Chapter 22 (§ 6.2-2200 et seq.) of Title 6.2;

52. Violating any provision of § 8.2-317.1 ;

53. Violating subsection A of § 9.1-149.1 ;

54. Selling, offering for sale, or using in the construction, remodeling, or repair of any residential dwelling in the Commonwealth, any drywall that the supplier knows or has reason to know is defective drywall. This subdivision shall not apply to the sale or offering for sale of any building or structure in which defective drywall has been permanently installed or affixed;

55. Engaging in fraudulent or improper or dishonest conduct as defined in § 54.1-1118 while engaged in a transaction that was initiated (i) during a declared state of emergency as defined in § 44-146.16 or (ii) to repair damage resulting from the event that prompted the declaration of a state of emergency, regardless of whether the supplier is licensed as a contractor in the Commonwealth pursuant to Chapter 11 (§ 54.1-1100 et seq.) of Title 54.1;

56. Violating any provision of Chapter 33.1 (§ 59.1-434.1 et seq.);

57. Violating any provision of § 18.2-178 , 18.2-178.1 , or 18.2-200.1 ;

58. Violating any provision of Chapter 17.8 (§ 59.1-207.45 et seq.);

59. Violating any provision of subsection E of § 32.1-126 ;

60. Violating any provision of § 54.1-111 relating to the unlicensed practice of a profession licensed under Chapter 11 (§ 54.1-1100 et seq.) or Chapter 21 (§ 54.1-2100 et seq.) of Title 54.1;

61. Violating any provision of § 2.2-2001.5 ;

62. Violating any provision of Chapter 5.2 (§ 54.1-526 et seq.) of Title 54.1;

63. Violating any provision of § 6.2-312 ;

64. Violating any provision of Chapter 20.1 (§ 6.2-2026 et seq.) of Title 6.2;

65. Violating any provision of Chapter 26 (§ 6.2-2600 et seq.) of Title 6.2;

66. Violating any provision of Chapter 54 (§ 59.1-586 et seq.);

67. Knowingly violating any provision of § 8.01-27.5 ;

68. Failing to make available a conspicuous online option to cancel a recurring purchase of a good or service as required by § 59.1-207.46;

69. Selling or offering for sale to a person younger than 21 years of age any substance intended for human consumption, orally or by inhalation, that contains tetrahydrocannabinol. This subdivision shall not (i) apply to products that are approved for marketing by the U.S. Food and Drug Administration and scheduled in the Drug Control Act (§ 54.1-3400 et seq.) or (ii) be construed to prohibit any conduct permitted under Article 4.2 of Chapter 34 of Title 54.1 of the Code of Virginia;

70. Selling or offering for sale any substance intended for human consumption, orally or by inhalation, that contains tetrahydrocannabinol, unless such substance is (i) contained in child-resistant packaging, as defined in § 4.1-600 ; (ii) equipped with a label that states, in English and in a font no less than 1/16 of an inch, (a) that the substance contains tetrahydrocannabinol and may not be sold to persons younger than 21 years of age, (b) all ingredients contained in the substance, (c) the amount of such substance that constitutes a single serving, and (d) the total percentage and milligrams of tetrahydrocannabinol included in the substance and the number of milligrams of tetrahydrocannabinol that are contained in each serving; and (iii) accompanied by a certificate of analysis, produced by an independent laboratory that is accredited pursuant to standard ISO/IEC 17025 of the International Organization of Standardization by a third-party accrediting body, that states the tetrahydrocannabinol concentration of the substance or the tetrahydrocannabinol concentration of the batch from which the substance originates. This subdivision shall not (i) apply to products that are approved for marketing by the U.S. Food and Drug Administration and scheduled in the Drug Control Act (§ 54.1-3400 et seq.) or (ii) be construed to prohibit any conduct permitted under Article 4.2 of Chapter 34 of Title 54.1 of the Code of Virginia;

71. Manufacturing, offering for sale at retail, or selling at retail an industrial hemp extract, as defined in § 3.2-5145.1, a food containing an industrial hemp extract, or a substance containing tetrahydrocannabinol that depicts or is in the shape of a human, animal, vehicle, or fruit; and

72. Selling or offering for sale any substance intended for human consumption, orally or by inhalation, that contains tetrahydrocannabinol and, without authorization, bears, is packaged in a container or wrapper that bears, or is otherwise labeled to bear the trademark, trade name, famous mark as defined in 15 U.S.C. § 1125, or other identifying mark, imprint, or device, or any likeness thereof, of a manufacturer, processor, packer, or distributor of a product intended for human consumption other than the manufacturer, processor, packer, or distributor that did in fact so manufacture, process, pack, or distribute such substance.

History. 1977, c. 635; 1979, c. 304; 1981, c. 205; 1983, c. 173; 1986, c. 432; 1987, cc. 462 to 464; 1988, cc. 24, 534; 1989, cc. 689, 703; 1990, c. 584; 1991, cc. 300, 605, 608, 630, 654; 1992, cc. 278, 545, 768; 1993, cc. 455, 760; 1994, cc. 261, 400, 655; 1995, c. 10; 1998, c. 848; 2000, cc. 880, 901; 2002, cc. 217, 897; 2003, cc. 800, 1003; 2004, cc. 784, 790, 798, 817; 2005, cc. 269, 303, 640, 861; 2006, c. 399; 2008, cc. 294, 791, 842; 2009, cc. 321, 359, 376, 699, 700; 2010, cc. 477, 713; 2011, c. 615; 2014, cc. 396, 459; 2016, c. 591; 2017, cc. 11, 16, 727; 2018, cc. 299, 704; 2019, cc. 291, 292, 521; 2020, cc. 412, 438, 481, 785, 1198, 1215, 1250, 1258; 2021, Sp. Sess. I, c. 485; 2022, cc. 351, 5572022, , Sp. Sess. I, c. 2.

Cross references.

For provision that violations of Article 7 (§§ 32.1-212 et seq.) of Chapter 6 of Title 32.1, relating to bedding and upholstered furniture, constitute a prohibited practice under § 59.1-200 and are subject to the enforcement provisions of §§ 59.1-196 et seq., see § 32.1-226 .

As to investigating and restraining prohibited acts, related to qualified education loans, see §§ 6.2-2620 , 6.2-2621 .

Editor’s note.

Acts 2003, c. 1003, cl. 2, provides: “That the Board of Health shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

Acts 2003, c. 1003, cl. 3, provides: “That, in promulgating the regulations required by the second enactment clause, the Board of Health shall review the fees being charged for the services delivered by the Department of Health pursuant to Article 7 ( § 32.1-212 et seq.) of Chapter 6 of Title 32.1 as such services and fees were in effect prior to July 1, 2003, and shall revise such fees, as appropriate, consistent with the level of services required by this act.”

At the direction of the Virginia Code Commission, subdivision A 48 as added by Acts 2009, cc. 359 and 700 was renumbered as subdivision A 49. Subdivision A 48 as added by Acts 2009, c. 699 was renumbered as subdivision A 50. Also, Title 3.2 references were substituted for Title 3.1 references to conform to Acts 2008, c. 860.

At the direction of the Virginia Code Commission, subdivision A 51 as added by Acts 2010, c. 713, was renumbered as subdivision A 52. Title 6.1 references were changed to Title 6.2 references, effective October 1, 2010, to conform to recodification of Title 6.1 by Acts 2010, c. 794.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

Acts 2018, c. 704, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2019.”

At the direction of the Virginia Code Commission, “( § 54.1-526 et seq.)” was substituted for “( § 54.1-519 et seq.)” in subdivision A 62 to conform to the renumbering of §§ 54.1-519 through 54.1-525, as added by Acts 2020, c. 481, to §§ 54.1-526 through 54.1-542 .

Acts 2020, c. 481, cl. 2 provides: “That the provisions of this act may result in a net increase in periods of imprisonment or commitment. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of imprisonment in state adult correctional facilities; therefore, Chapter 854 of the Acts of Assembly of 2019 requires the Virginia Criminal Sentencing Commission to assign a minimum fiscal impact of $50,000. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of commitment to the custody of the Department of Juvenile Justice.”

Acts 2020, c. 785, cl. 2 provides: “That the provisions of the first enactment of this act shall become effective on July 1, 2021.”

Acts 2020, c. 785, cl. 3 provides: “That the State Corporation Commission shall establish a procedure, to be in effect by March 1, 2021, for any person to apply, prior to July 1, 2021, for a license to be issued pursuant to Chapter 20.1 ( § 6.2-2026 et seq.) of Title 6.2 of the Code of Virginia, as created by this act, when such chapter becomes effective. In addition, upon the effective date of the first enactment of this act, July 1, 2021, the State Corporation Commission shall monitor settlements by all licensees, specifically looking at the number of settlements made pursuant to this act, the fees charged pursuant to § 6.2-2041 of the Code of Virginia, as created by this act, and the principal amount to be paid by the consumer to satisfy the debt, and shall report to the Chairs of the House Committee on Labor and Commerce and the Senate Committee on Commerce and Labor by December 1 of each year 2023, 2024, 2025.”

Acts 2020, c. 785, cl. 4 provides: “That the provisions of this act may result in a net increase in periods of imprisonment or commitment. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of imprisonment in state adult correctional facilities; therefore, Chapter 854 of the Acts of Assembly of 2019 requires the Virginia Criminal Sentencing Commission to assign a minimum fiscal impact of $50,000. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of commitment to the custody of the Department of Juvenile Justice.”

Acts 2020, cc. 1198 and 1250, cl. 2 provides: “That the provisions of the first enactment of this act shall become effective on July 1, 2021.”

Acts 2020, cc. 1215 and 1258, cl. 5 provides: “That the provisions of the first and second enactments of this act shall become effective on January 1, 2021, except that the database required by § 6.2-1810 of the Code of Virginia, as amended by this act, shall be modified to accommodate the provisions of this first enactment of this act by January 1, 2022.”

The 2000 amendments.

The 2000 amendments by cc. 880 and 901 are identical, and deleted “and” at the end of subdivision A 32, and added “and” to subdivision A 33, and added subdivision A 34.

The 2002 amendments.

The 2002 amendment by c. 217 deleted “and” at the end of subdivision A 33, added “and” at the end of subdivision A 34, and added subdivision A 35.

The 2002 amendment by c. 897 deleted “and” at the end of subdivision A 33, added “and” at the end of subdivision A 34, and added subdivision A 36.

The 2003 amendments.

The 2003 amendment by c. 800 substituted “20” for “twenty” and “10” for “ten” in paragraph a of subdivision A 16, substituted “$5” for “five dollars,” “60” for “sixty” and “60-day” for “sixty-day” in subdivision A 16a, deleted “and” at the end of subdivision A 35, added “and” at the end of subdivision A 36, and added subdivision A 37.

The 2003 amendment by c. 1003, substituted “that” for “which” in subdivisions A 7, A 11, A 13 and A 17 and in paragraph a of subdivision A 16; in subdivision A 13, substituted “the Commonwealth” for “this Commonwealth”; in paragraph a of subdivision A 16, substituted “20” for “twenty” and “10” for “ten”; in subdivision A 16 a, substituted “$5” for “five dollars,” and twice substituted “60” for “sixty”; deleted “and” at the end of subdivision A 35; inserted “and” at the end of subdivision A 36; and added present subdivision A 38.

The 2004 amendments.

The 2004 amendment by c. 784 deleted “and” at the end of subdivision A 37; added “; and” at the end of subdivision A 38; and added subdivision A 39.

The 2004 amendment by c. 790 deleted “and” at the end of subdivision A 38; added “; and” at the end of subdivision A 39; and added subdivision A 40.

The 2004 amendments by cc. 798 and 817 are identical, and deleted “and” at the end of subdivision A 39; added “; and” at the end of subdivision A 40; and added subdivision A 41.

The 2005 amendments.

The 2005 amendments by cc. 269 and 303 are identical, and added subdivision A 42 and made minor stylistic changes.

The 2005 amendment by c. 640 inserted subdivision A 43 and made minor stylistic changes.

The 2005 amendment by c. 861 inserted subdivision A 44 and made minor stylistic changes.

The 2006 amendments.

The 2006 amendment by c. 399, effective January 1, 2007, added subdivision A 45 and made related changes.

The 2008 amendments.

The 2008 amendment by c. 294 added subdivision A 46; and made related changes.

The 2008 amendments by cc. 791 and 842 are identical, and added subdivision A 47 and made related changes.

The 2009 amendments.

The 2009 amendments by cc. 321 and 376 are identical, and added subdivision A 48 and made a related change.

The 2009 amendments by cc. 359 and 700 are identical, and added subdivision A 49 and made a related change.

The 2009 amendment by c. 699 added subdivision A 50 and made related changes.

The 2010 amendments.

The 2010 amendment by c. 477, effective October 1, 2010, added subdivision A 51 and made related changes.

The 2010 amendment by c. 713 added subdivision A 51 and made related changes.

The 2011 amendments.

The 2011 amendment by c. 615, effective March 25, 2011, and applicable to consumer transactions occurring on or after that date, added subdivision A 53 and made a related change.

The 2014 amendments.

The 2014 amendment by c. 396 added subdivision A 53, redesignated former subdivision A 53 as A 54, and made related changes.

The 2014 amendment by c. 459 substituted “Club” for “Spa” in subdivision A 18.

The 2016 amendments.

The 2016 amendment by c. 591 added subdivision A 13a.

The 2017 amendments.

The 2017 amendments by cc. 11 and 16 are identical, added subdivision A 55 and made minor stylistic changes throughout.

The 2017 amendment by c. 727, effective January 1, 2018, added subdivision A 56 and made minor stylistic changes.

The 2018 amendments.

The 2018 amendment by c. 299 added subdivision A 57 and made related changes.

The 2018 amendment by c. 704, effective January 1, 2019, added subdivision A 58 and made related changes.

The 2019 amendments.

The 2019 amendments by cc. 291 and 292 are identical, and added subdivision A 59 and made related changes.

The 2019 amendment by c. 521 added subdivision A 60; and made related changes.

The 2020 amendments.

The 2020 amendment by c. 412 rewrote subdivision A 15, which read: “Violating any provision of § 3.2-6512, 3.2-6513, or 3.2-6516, relating to the sale of certain animals by pet dealers which is described in such sections, is a violation of this chapter.”

The 2020 amendment by c. 438 added subdivision A 61 and made stylistic changes.

The 2020 amendment by c. 481 added subdivision A 61, which was subsequently redesignated as A 62 by the Virginia Code Commission, and made related changes.

The 2020 amendment by c. 785, effective July 1, 2021, added subdivision A 61, which was subsequently redesignated as A 64 by the Virginia Code Commission, and made related changes.

The 2020 amendments by cc. 1198 and 1250, effective July 1, 2021, are identical, and added subdivision A 61, which was subsequently redesignated as A 65 by the Virginia Code Commission, and made related changes.

The 2020 amendments by cc. 1215 and 1258, effective January 1, 2021, are identical, and added subdivision A 61, which was subsequently redesignated as A 63 by the Virginia Code Commission, and made related changes.

The 2021 Sp. Sess. I amendments.

The 2021 amendment by Sp. Sess. I, c. 485, effective July 1, 2021, added subdivision A 66 and made stylistic changes.

The 2022 amendments.

The 2022 amendment by c. 351 added subdivision A 67; and made stylistic changes.

The 2022 amendment by c. 557, added subdivision A 67, renumbered subdivision A 68 at the direction of the Virginia Code Commission, and made stylistic changes.

The 2022 Sp. Sess. I amendments.

The 2022 amendment by Sp. Sess. I, c. 2 added subdivisions A 67, A 68, A 69 and A 70.

Michie’s Jurisprudence.

For related discussion, see 3C M.J. Commercial Law, § 2; 4A M.J. Contracts, § 44.

CASE NOTES

Showing of reliance for private causes of action. —

Virginia Consumer Protection Act (VCPA), § 59.1-200 et seq., specifically § 59.1-204, as consistently construed by the courts, requires that a private VCPA claimant show that he relied on the alleged misrepresentations claimed to constitute the prohibited practice, and thus that his loss was caused by the prohibited practice. Accordingly, the bankruptcy court correctly concluded that a debtor was required to prove reliance on the alleged misrepresentations of his creditors to recover under the VCPA. Cooper v. GGGR Invs., LLC, 334 Bankr. 179, 2005 U.S. Dist. LEXIS 32333 (E.D. Va. 2005).

No private suit for injunctive relief. —

Because the Virginia Consumer Protection Act (VCPA) did not permit a private suit for injunctive relief, the district court’s dismissal of plaintiffs’ claims for injunctive relief was affirmed; the VCPA contained a bifurcated remedy scheme, whereby government officials could seek to enjoin violative conduct and individuals could seek damages. Physicians Comm. for Responsible Med. v. General Mills, Inc., 283 Fed. Appx. 139, 2008 U.S. App. LEXIS 13020 (4th Cir. 2008).

Excess late charge need not be hidden or misrepresented. —

There is no requirement that a consumer show that a late charge in excess of the amount allowed by statute was misrepresented or hidden in order to establish a violation of this section. Alston v. Crown Auto, Inc., 224 F.3d 332, 2000 U.S. App. LEXIS 15081 (4th Cir. 2000).

Seller’s intent seldom appropriate for summary judgment. —

Under former subdivision H (now subdivision A 8) the question of seller’s intent not to sell its product as advertised is an issue that is seldom appropriate for resolution on a motion for summary judgment. Gill v. Rollins Protective Servs. Co., 773 F.2d 592, 1985 U.S. App. LEXIS 23318 (4th Cir. 1985), amended, 788 F.2d 1042, 1986 U.S. App. LEXIS 37434 (4th Cir. 1986).

Solicitors committed numerous violations of this section. —

Among the false representations shown, they misrepresented their membership in several bureaus, as well as the characteristics, benefits and quality of their product as being “completely safe, all biodegradable, nonpolluting, made to comply with federal regulations and made from the finest of active ingredients.” They also used numerous other misrepresentations and a plan of deceit in enticing consumers to engage in a purchase of soap products from them. The techniques included a flyer, demonstrations and other sales talk that contained false representations. In re Fravel, 143 Bankr. 1001, 1992 Bankr. LEXIS 1215 (Bankr. E.D. Va. 1992).

Statements in seller’s brochure that its fire protection system was “virtually foolproof” and that it “automatically notifies the proper authorities” in the event of fire were not, by themselves, sufficient to constitute a per se violation of Virginia’s consumer protection statute, where other statements, pictures and diagrams in the brochure qualified and explained the system so that there existed a genuine issue of material fact as to whether the brochure misrepresented the system. Gill v. Rollins Protective Servs. Co., 773 F.2d 592, 1985 U.S. App. LEXIS 23318 (4th Cir. 1985), amended, 788 F.2d 1042, 1986 U.S. App. LEXIS 37434 (4th Cir. 1986).

Statement of opinion not actionable. —

A plaintiff asserting a claim under subdivision A 14 must still prove a false representation of an existing fact, not a mere expression of an opinion. Nigh v. Koons Buick Pontiac GMC, Inc., 143 F. Supp. 2d 535, 2001 U.S. Dist. LEXIS 5374 (E.D. Va. 2001), aff'd, 319 F.3d 119, 2003 U.S. App. LEXIS 1845 (4th Cir. 2003).

Merely stating that property is in excellent condition, without more, is clearly a matter of opinion in the manner of puffing and is not actionable under the common law or the Consumer Protection Act. Lambert v. Downtown Garage, Inc., 262 Va. 707 , 553 S.E.2d 714, 2001 Va. LEXIS 124 (2001).

Consumer did not show violation of the Virginia Consumer Protection Act by auto dealer’s agent’s statement that the agent would see what the agent could do about getting a lower interest rate for the consumer, as this statement expressed an opinion, not a fact. Graham v. RRR, LLC, 202 F. Supp. 2d 483, 2002 U.S. Dist. LEXIS 9131 (E.D. Va. 2002), aff'd, 55 Fed. Appx. 135, 2003 U.S. App. LEXIS 859 (4th Cir. 2003).

Creditor’s statement in a letter soliciting a debtor that the proposed financial restructuring transaction would entail “little if any risk,” could not be regarded as a misrepresentation, because the statement could not be regarded as one of fact, but was merely an act of puffery. Cooper v. GGGR Invs., LLC, 334 Bankr. 179, 2005 U.S. Dist. LEXIS 32333 (E.D. Va. 2005).

No “catch-all” provision. —

The Virginia Consumer Protection Act (VCPA) does not contain a “catch-all” provision providing that a violation of any consumer statute in the Virginia Code also constitutes a violation of the VCPA. Stith v. Thorne, 247 F.R.D. 89, 2007 U.S. Dist. LEXIS 88136 (E.D. Va. 2007).

Strict pleading rule not applicable. —

The misrepresentations providing the basis of a Virginia Consumer Protection Act claim need not be pled with the same kind of particularity as common-law fraud claims. Nigh v. Koons Buick Pontiac GMC, Inc., 143 F. Supp. 2d 535, 2001 U.S. Dist. LEXIS 5374 (E.D. Va. 2001), aff'd, 319 F.3d 119, 2003 U.S. App. LEXIS 1845 (4th Cir. 2003).

Lack of standing. —

Corporation lacked standing to bring suit under the Virginia Consumer Protection Act where the corporation was not engaged in a consumer transaction because the corporation was not purchasing certificates of authenticity for a consumer purpose as intended by the act because (1) the corporation was not purchasing the certificates of authenticity to use for a personal, family, or household purpose, (2) rather, the purchases were made for investigatory purposes, namely to determine whether defendants were engaging in the sale of certificates of authenticity without the required software, and (3) the corporation’s purchases were made on its own behalf, not on behalf of potential consumers of its software. Microsoft Corp. v. # 9 Software, Inc., No. 4:05cv106, 2005 U.S. Dist. LEXIS 36710 (E.D. Va. Dec. 15, 2005).

Under Washington law, an insurer had no duty to defend against a claim that the insured, a storage company, breached the Virginia Consumer Protection Act, § 59.1-200 et seq., by misrepresenting that the insured would conduct an internal investigation and report the findings regarding the wrongful disbursement of the property because an expected or intended injury exclusion operated to relieve the insurer of the duty to defend this claim because willful conduct was a necessary element. Zurich Am. Ins. Co. v. Public Storage, 743 F. Supp. 2d 525, 2010 U.S. Dist. LEXIS 97807 (E.D. Va. 2010).

In a service mark infringement case seeking compensatory damages and injunctive relief in which count IV of the complaint alleged a violation of § 59.1-200 and the alleged infringer argued that the holders lacked standing to prosecute that claim, while the Supreme Court of Virginia had never squarely addressed the issue, the limiting language of § 59.1-196 and interpretative federal cases appeared to support the position that the Virginia Consumer Protection Act was limited to consumer transactions. Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., No. 3:12CV303-HEH, 2012 U.S. Dist. LEXIS 90222 (E.D. Va. June 28, 2012).

Pharmaceutical company lacked standing to sue a drug distributor under the Virginia Consumer Protection Act because the company did not allege that it was a consumer of a the distributor’s pharmaceutical services, but instead alleged that the distributor was a competitor engaging in unfair competition. Concordia Pharms., Inc. v. Method Pharms., LLC, No. 3:14CV00016, 2016 U.S. Dist. LEXIS 41904 (W.D. Va. Mar. 29, 2016).

Duty to defend. —

Under Washington law, an insurer had a duty to defend against a claim that the insured, a storage company, breached the Virginia Consumer Protection Act, § 59.1-200 et seq., by misrepresenting the provision and implementation of security measures to secure the premises and to prevent the loss of property because the underlying complaint, broadly construed, included the allegation that the customer relied on the various representations concerning security measures in renting the space and in providing the insured with the key. Further, the falsity of those representations proximately caused the destruction of the customer’s property. Moreover, under Virginia law, the insured may have been liable for the claim even if the misrepresentation about its security measures was non-willful. Zurich Am. Ins. Co. v. Public Storage, 743 F. Supp. 2d 525, 2010 U.S. Dist. LEXIS 97807 (E.D. Va. 2010).

Allegations sufficient. —

Owner of trademark “glass doctor” was granted summary judgment against an alleged infringer, because the infringer created a substantial likelihood of confusion between the owner’s mark and its own mark, “windshield doctor.” The infringer intentionally blurred the distinction between the names because she thought it would get her business; the owner was forced to overcome at least four years of confusion of its name when it entered the Virginia Beach market. Synergistic Int'l, LLC v. Korman, 402 F. Supp. 2d 651, 2005 U.S. Dist. LEXIS 31370 (E.D. Va. 2005), aff'd in part, vacated in part, 470 F.3d 162, 2006 U.S. App. LEXIS 29400 (4th Cir. 2006) (rev’d as to damages).

Trial court did not err in allowing the buyers to pursue a claim under the Virginia Consumer Protection Act, § 59.1-196 et seq., where subsection A of § 59.1-199 exempted only those aspects of a consumer transaction that were sanctioned by statute or regulation and thus the dealer was not entitled to exemption from the claim on the sole ground that motor vehicle dealer advertising was regulated by other statutory provisions and regulations. Manassas Autocars, Inc. v. Couch, 274 Va. 82 , 645 S.E.2d 443, 2007 Va. LEXIS 88 (2007).

Based on the plain language of the Virginia Consumer Protection Act (VCPA), § 59.1-196 et seq., it was unlawful to misrepresent that goods were of a particular standard, quality, grade, style, or model, under subdivision A 6 of § 59.1-200; that duty not to misrepresent the quality, grade, or style of goods is a statutory duty that existed independent of the contracts entered into between the parties to the litigation, the duty was not one existing between the parties solely by virtue of the contract. Because the purchasers alleged that the company breached a duty existing independent of the contracts, the trial court erred when it sustained the company’s demurrers to the purchasers’ VCPA claims. Abi-Najm v. Concord Condominium, LLC, 280 Va. 350 , 699 S.E.2d 483, 2010 Va. LEXIS 229 (2010).

Where car dealer moved to dismiss car buyer’s Virginia Consumer Protection Act claim, even though dealer was remote seller, buyer’s purchase was still consumer transaction, and buyer sufficiently alleged fraud claim. Alexander v. Southeastern Wholesale Corp., 978 F. Supp. 2d 615, 2013 U.S. Dist. LEXIS 149693 (E.D. Va. 2013).

No misrepresentation shown. —

Bankruptcy court’s finding that no misrepresentation occurred with respect to the nature of a transaction for a financial restructuring was not clearly erroneous because the debtor was furnished with all the transaction documents prior to consummation of the deal, which on their face, plainly described the nature of the transaction as a sale with a lease-back and an option to purchase and because the record reflected that the documents were correctly explained to the debtor by the creditor’s attorney. Cooper v. GGGR Invs., LLC, 334 Bankr. 179, 2005 U.S. Dist. LEXIS 32333 (E.D. Va. 2005).

Lawsuit by failed doctoral candidate did not allege fraud in violation of Virginia Consumer Protection Act with required specificity under Fed. R. Civ. P. 9(b) particularly as complaint did not allege specific facts that constituted misrepresentation under this law or other conduct that rose to level of violation of this law. Murphy v. Capella Educ. Co., 589 Fed. Appx. 646, 2014 U.S. App. LEXIS 22936 (4th Cir. 2014).

Reliance on misrepresentation not shown. —

Although a creditor’s failure to disclose the interests of another entity until settlement of a restructured financing deal and the failure of the creditor to disclose his interest in that entity was, in fact, a misrepresentation, the debtor did not contend that the use of another name in the solicitation or the failure to disclose the creditor’s interest would have affected his decision; therefore, the bankruptcy court’s factual finding that the debtor did not rely on the misrepresented identity of the organization with whom he was doing business was not clearly erroneous. Cooper v. GGGR Invs., LLC, 334 Bankr. 179, 2005 U.S. Dist. LEXIS 32333 (E.D. Va. 2005).

Does not provide a public policy basis for a wrongful termination claim. —

Although the Virginia Consumer Protection Act (VCPA) generally protects the public at large from unfair and unethical transactions by suppliers, it does not provide a public policy basis for a wrongful discharge claim because it does not protect property rights, personal freedoms, health, safety, or welfare; therefore, a former employee, who was terminated for refusing to participate in an allegedly fraudulent sales scheme, failed to state a claim for wrongful termination because the VCPA did not provide a public policy basis for such a claim and, even if it did, the employee was not within the protective reach of the VCPA since he was an employee and not a consumer. Lucker v. Cole Vision Corp., No. 7:05CV00126, 2005 U.S. Dist. LEXIS 25118 (W.D. Va. Oct. 26, 2005).

Judgment nondischargeable in bankruptcy. —

Elements of a misrepresentation claim under the Virginia Consumer Protection Act, as set forth in subdivision A 14 of § 59.1-200(A)(14), were congruent with those required for nondischargeability under 11 U.S.C.S. § 523(a)(2)(A). To the extent that the Act could be violated by conduct short of a willful intent to deceive, that element was supplied by an award of enhanced damages under subsection A of § 59.1-204, which required that the violation be willful. Grey-Theriot v. Quansah (In re Quansah), No. 10-12304-SSM, No. 10-1260, 2011 Bankr. LEXIS 1319 (Bankr. E.D. Va. Apr. 9, 2011).

CIRCUIT COURT OPINIONS

Commercial purposes. —

Statute that stated that a supplier was liable in connection with a consumer transaction that involved specified fraudulent acts or practices did not apply to homebuilder’s purchase of finish from third party as that purchase did not involve a consumer transaction, but instead was a commercial transaction for commercial purposes. Bindra v. Michael Bowman & Assocs., 58 Va. Cir. 47, 2001 Va. Cir. LEXIS 373 (Fairfax County Sept. 19, 2001).

Fraudulent misrepresentation of fact must be alleged. —

Although it was unlawful to misrepresent the source, sponsorship, approval, or certification of goods or services, or misrepresent that goods or services had certain quantities, characteristics, ingredients, uses, or benefits, the home purchasers failed to state a cause of action for such misrepresentations, as they did not allege a misrepresentation of material fact in their action against various defendants regarding the construction of their new home. Weiss v. Cassidy Dev. Corp., 63 Va. Cir. 76, 2003 Va. Cir. LEXIS 183 (Fairfax County Aug. 18, 2003).

Unsubstantiated allegations of misrepresentations lacked merit. —

There was no violation of the Virginia Consumer Protection Act, § 59.1-200 A 5, 10, and 14, where homeowners’ claims that a heating system repairer misrepresented his hours and the success of his work were unsubstantiated. Bowman Plumbing, Heating, & Elec., Inc. v. Logan, 59 Va. Cir. 446, 2002 Va. Cir. LEXIS 362 (Rockingham County Sept. 12, 2002).

Misrepresentation, not misunderstanding, required. —

Although the Virginia Consumer Protection Act does not require proof of an intentional misrepresentation, it does require proof of a misrepresentation; an innocent misunderstanding or miscommunication normally does not rise to the level of a misrepresentation, and there was no misrepresentation under the facts present, as the situation more closely demonstrated a miscommunication between the parties rather than a misrepresentation by defendant. Childers v. Woodlawn Funeral & Crematory, 99 Va. Cir. 388, 2018 Va. Cir. LEXIS 126 (Norfolk July 31, 2018).

Particularity of claim. —

Virginia Consumer Protection Act (VCPA) claim does not need to be alleged with the same particularity as common-law fraud because a VCPA claim need only be proven to the ordinary preponderance of the evidence standard; a cause of action for fraud had different elements of proof from a VCPA claim; and increasing the burden on a consumer to bring a VCPA claim by imposing a common-law pleading requirement would be contrary to the statutory purpose to expand the remedies afforded to consumers and to relax the restrictions imposed upon them by the common law. West v. Christopher Consultants, 106 Va. Cir. 6, 2020 Va. Cir. LEXIS 82 (Loudoun County June 10, 2020).

Allegations sufficient. —

Where car buyers sued a car dealer for violating the Virginia Consumer Protection Act, the buyers’ allegations that the dealer falsely stated that the car had never been repaired or had paintwork and that the dealer did not receive any part of the finance cost were sufficient and the dealer’s demurrer was overruled. Carr v. Sheehy Ashland, Inc., 65 Va. Cir. 4, 2004 Va. Cir. LEXIS 224 (Richmond Mar. 24, 2004).

Misrepresenting that repairs or services have been performed or parts installed is prohibited under subdivision A 10 of § 59.1-200 of the Virginia Consumer Protection Act. As a husband and wife’s complaint against a subcontractor set forth sufficient allegations to state a claim for violation of subdivision A 10, the subcontractor’s demurrer to this claim was overruled. Schaefer v. Tectonics, II, Ltd., 77 Va. Cir. 1, 2008 Va. Cir. LEXIS 94 (Nelson County Feb. 26, 2008).

Tenants stated a claim against the landlord and owner of an apartment for violation of the Virginia Consumer Protection Act, subdivision A 14 of § 59.1-200, and for breach of contract and fraud, based on defendants’ allegedly knowingly leasing them an apartment infested with bedbugs. They did not state a claim for negligence, nuisance, or intentional infliction of emotional distress. Yong Su Park v. Gates Hudson & Assoc., 83 Va. Cir. 45, 2011 Va. Cir. LEXIS 76 (Fairfax County May 24, 2011).

Owners alleged sufficient facts in their counterclaim to survive a contractor’s demurrer to their claims of fraud in the inducement and violation of the Virginia Consumer Protection Act because they claimed fraud in the inducement of the contract, rather than fraud in the performance of the contract, the contractor was bound by and limited to the grounds stated in the demurrer, the statutory regulation of contractors was insufficient to exempt them from the scope of the Act, and the owners’ allegations were contemplated by and were actionable under the Act. Interbuild, Inc. v. Sayres, 94 Va. Cir. 261, 2016 Va. Cir. LEXIS 168 (Loudoun County Sept. 8, 2016).

Complaint sufficiently alleged that defendant misrepresented by its affirmative statements regarding its relationship to Utah that its loans are not subject to Virginia law, and that defendant’s Virginia lending activity was regulated by Utah; the complaint sufficiently alleged unlawful misrepresentations under the Virginia Consumer Protection Act. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

Individual’s demurrer to the Attorney General’s Virginia Consumer Protection Act, § 59.1-198 et seq., claims was denied as actions brought on behalf of the Commonwealth were intended to be broader in scope and remedy than private causes of action, and the complaint adequately alleged that the actions of the corporation were those of the individual, both directly and as an active participant in the corporation. Commonwealth ex rel. Herring v. Serv. Dogs by Warren Retrievers, Inc., 107 Va. Cir. 333, 2021 Va. Cir. LEXIS 104 (Madison County Mar. 9, 2021).

Plaintiff alleged that defendants were suppliers within the meaning of the VCPA in that they offered for sale and did sell real property for residential use, and that plaintiff entered into a contract to purchase the residence from defendants and closed on the acquisition of the home; thus, the court overruled the demurrer to plaintiff’s Consumer Protection Act claim. DeLeon v. McGaha, 2022 Va. Cir. LEXIS 24 (Loudoun County Feb. 1, 2022).

Allegations insufficient. —

Plaintiffs, husband and wife, failed to set out a cause of action for violation of the Virginia Consumer Protection Act. Because the wife failed to identify the misrepresentation defendant allegedly made or allege that defendant made the representation to her, the wife failed to allege a misrepresentation with the requisite specificity. Reese v. Priority Auto Grp., Inc., 97 Va. Cir. 427, 2014 Va. Cir. LEXIS 178 (Chesapeake Oct. 8, 2014).

Homeowners did not allege facts, which if true, supported a claim of violation of the Virginia Consumer Protection Act because the fact that the contractor orally agreed to provide a scope of work and did not do so was not a misrepresentation constituting actionable fraud in the inducement to enter into the agreement. Jenkins Servs., LLC v. Martin, 95 Va. Cir. 5, 2016 Va. Cir. LEXIS 241 (Westmoreland County Feb. 5, 2016).

Complaint against a lender by the Commonwealth of Virginia insufficiently pleaded a violation of the Virginia Consumer Protection Act, § 59.1-196 et seq., because the lender fell within a statutory exclusion to the Act as a small loan company. Commonwealth v. Allied Title Lending, LLC, 98 Va. Cir. 83, 2018 Va. Cir. LEXIS 71 (Richmond Jan. 22, 2018).

Merely alleging that defendant used deception, fraud, false pretense, false promise or misrepresentation, which was simply a recitation of a prohibited practice under the statute without factual allegations to support it, was insufficient to state a cause of action. Futrell v. POS Auto Sales, LLC, 100 Va. Cir. 1, 2018 Va. Cir. LEXIS 309 (Spotsylvania County Sept. 4, 2018).

Plaintiff’s Virginia Consumer Protection Act claim was not adequately pleaded because, although she adequately alleged that the hospital acted with an intent to deceive as she claimed that it knew plaintiff did not owe it money but nevertheless relayed inaccurate information to the debt collector in an effort to collect payment, there was no allegation in plaintiff’s complaint asserting that the alleged misrepresentation was directed at plaintiff or that she relied upon the misrepresentation; and plaintiff did not sufficiently plead the nature of the alleged misrepresentation connected to a consumer transaction. Adams v. Children's Hosp. of the King's Daughters, 100 Va. Cir. 68, 2018 Va. Cir. LEXIS 343 (Norfolk Sept. 21, 2018).

Liquidated damages provision. —

Buyers’ complaint against a seller under the Virginia Consumer Protection Act filed five years after the agreement was signed was filed within the two-year statute of limitations, § 59.1-204.1, because the claim arose out of the seller’s 2008 invocation of a liquidated damages provision pursuant to subdivision A 13 of § 59.1-200. Kearney v. Robinson Land Trust, 80 Va. Cir. 467, 2010 Va. Cir. LEXIS 162 (Charlottesville June 29, 2010).

Applicability. —

Defendant argued that § 59.1-197 requires that a Virginia Consumer Protection Act claim must be made against a consumer/producer, but a plain reading of the statute does no such thing; the controlling statute was § 59.1-200, and as plaintiff’s complaint was essentially a verbatim recitation of prohibited practices under that statute, defendant’s demurrer on this ground was overruled. Futrell v. POS Auto Sales, LLC, 100 Va. Cir. 1, 2018 Va. Cir. LEXIS 309 (Spotsylvania County Sept. 4, 2018).

Not applicable to legal services. —

No matter if by definition or by preemption, the Virginia Consumer Protection Act (VCPA) does not apply to legal services; therefore, a client was unable to pursue a claim under the VCPA based on legal representation that he received. Oberto v. Grogan, 88 Va. Cir. 188, 2014 Va. Cir. LEXIS 77 (Richmond Apr. 18, 2014).

Virginia Consumer Protection Act inapplicable. —

Realty company’s demurrer was sustained in homeowners’ action alleging violations of the Virginia Consumer Protection Act, § 59.1-200, because the Virginia Consumer Protection Act did not apply; the company did not sell or use defective drywall, and its only involvement was as a seller’s agent, offering the completed dwelling house for sale on behalf of its principal, the owner. Seeman v. Oxfordshire, LLC, 83 Va. Cir. 442, 2011 Va. Cir. LEXIS 126 (Suffolk Oct. 12, 2011).

Supplier’s demurrer was sustained in homeowners’ action alleging violations of the Virginia Consumer Protection Act, § 59.1-200, because the Virginia Consumer Protection Act did not apply; the supplier’s transactions in the case involved non-consumer goods, not subject to the Act. Seeman v. Oxfordshire, LLC, 83 Va. Cir. 442, 2011 Va. Cir. LEXIS 126 (Suffolk Oct. 12, 2011).

Court sustained the demurrer to Count IX alleging a violation of the Virginia Consumer Protection Act (VCPA) as the VCPA did not apply to the engineering work of the engineering firm and the engineers because a consumer had to be an actual party to a transaction; and plaintiffs never bought goods or services from the engineering firm and the engineers or any person downstream of their engineering work performed for the homeowners association. West v. Christopher Consultants, 106 Va. Cir. 6, 2020 Va. Cir. LEXIS 82 (Loudoun County June 10, 2020).

Negligent home inspection. —

As a homeowner had a remedy for a home inspector’s failure to discover a structural defect in the home he was buying, since he could recover the entire cost of the contract he made with the inspector if the inspection was faulty, provisions in the parties’ contract disclaiming the inspector’s liability for consequential damages did not violate the Virginia Consumer Protection Act. Howie v. Atl. Home Inspection, Inc., 62 Va. Cir. 164, 2003 Va. Cir. LEXIS 298 (Norfolk June 17, 2003).

When act not preempted by federal consumer protection law. —

Plaintiff’s Virginia Consumer Protection Act (VCPA) claim was not preempted by federal consumer protection law because neither the Federal Consumer Credit Protection Act (FCCPA) nor the Federal Credit Reporting Act (FCRA), which was part of the FCCPA, preempted the VCPA claim because the hospital was not subject to regulation under the FCCPA; and the hospital was not a consumer reporting agency (CRA), a user of consumer information, or a furnisher of information to a CRA. Adams v. Children's Hosp. of the King's Daughters, 100 Va. Cir. 68, 2018 Va. Cir. LEXIS 343 (Norfolk Sept. 21, 2018).

Plaintiff adequately pled cause of action. —

By alleging that defendant wrongfully and deceitfully charged plaintiffs fees that were not due under the loan documents and required them to pay such fees under the threat of foreclosure, plaintiffs adequately pled causes of action for fraud under subdivision 14 of § 59.11-200 of the Virginia Consumer Protection Act and at common law. Reed v. Litton Loan Servicing, L.P., 64 Va. Cir. 447, 2004 Va. Cir. LEXIS 190 (Richmond May 26, 2004).

Attorney fee award. —

Auto buyers could recover attorney fees based on the auto sellers’ deceptive advertisement that violated subdivision 8 of § 59.1-200 of the Virginia Consumer Protection Act (VCPA). The VCPA expressly contained a provision, § 59.1-204 B, allowing for an attorney fee award, so long as the fees awarded were reasonable. Couch v. Manassas Autocars, Inc., 77 Va. Cir. 30, 2008 Va. Cir. LEXIS 130 (Prince William County July 17, 2008).

OPINIONS OF THE ATTORNEY GENERAL

Car rental companies may not lawfully assess and collect a “vehicle licensing fee,”

which is not governmentally mandated, as a separately stated additional charge on consumer car rental transactions. See opinion of Attorney General to The Honorable Martin E. Williams, Member, Senate of Virginia, 05-070, (10/12/05).

Disclosure by car rental companies of separate and nonmandatory charges,

which were not included in the advertised rental rates, at the point of sale for rental transactions does not constitute adequate disclosure pursuant to the Virginia Consumer Protection Act of 1977. See opinion of Attorney General to The Honorable Martin E. Williams, Member, Senate of Virginia, 05-070, (10/12/05).

§ 59.1-200.1. Prohibited practices; foreclosure rescue.

  1. In addition to the provisions of § 59.1-200, the following fraudulent acts or practices committed by a supplier, as defined in § 59.1-198, in a consumer transaction involving residential real property owned and occupied as the primary dwelling unit of the owner, are prohibited:
    1. The supplier of service to avoid or prevent foreclosure charges or receives a fee (i) prior to the full and complete performance of the services it has agreed to perform, if the transaction does not involve the sale or transfer of residential real property, or (ii) prior to the settlement on the sale or transfer of residential real property, if the transaction involves the sale or transfer of such residential real property;
    2. The supplier of such services (i) fails to make payments under the mortgage or deed of trust that is a lien on such residential real property as the payments become due, where the supplier has agreed to do so, regardless of whether the purchaser is obligated on the loan, and (ii) applies rents received from such dwellings for his own use;
    3. The supplier of such services represents to the seller of such residential real property that the seller has an option to repurchase such residential real property, after the supplier of such services takes legal or equitable title to such residential real property, unless there is a written contract providing such option to repurchase on terms and at a price stated in such contract; or
    4. The supplier advertises or offers such services as are prohibited by this section.
  2. This section shall not apply to any mortgage lender or servicer regularly engaged in making or servicing mortgage loans that is subject to the supervisory authority of the State Corporation Commission, a comparable regulatory authority of another state, or a federal banking agency.
  3. In connection with any consumer transaction covered by subsection A, any provision in an agreement between the supplier of such services and the owner of such residential real property that requires the owner to submit to mandatory arbitration shall be null and void, and notwithstanding any such provisions, the owner of such residential real property shall have the rights and remedies under this chapter.

History. 2008, c. 485; 2009, cc. 203, 272.

The 2009 amendments.

The 2009 amendments by cc. 203 and 272 are identical, and rewrote subdivision A 1, which read: “The supplier of service to avoid or prevent foreclosure is to be paid a fee prior to the settlement on a sale of such residential real property, regardless of whether the fee is charged or collected as part of the transaction involving a sale of such residential real property”; and in subsection C, substituted “In connection with any consumer transaction covered by subsection A, any” for “Any” and “between the supplier of such services and” for “with.”

CIRCUIT COURT OPINIONS

Allegations sufficient. —

Individual’s demurrer to the Attorney General’s Virginia Consumer Protection Act, § 59.1-198 et seq., claims was denied as actions brought on behalf of the Commonwealth were intended to be broader in scope and remedy than private causes of action, and the complaint adequately alleged that the actions of the corporation were those of the individual, both directly and as an active participant in the corporation. Commonwealth ex rel. Herring v. Serv. Dogs by Warren Retrievers, Inc., 107 Va. Cir. 333, 2021 Va. Cir. LEXIS 104 (Madison County Mar. 9, 2021).

§ 59.1-201. Civil investigative orders.

  1. Whenever the attorney for the Commonwealth or the attorney for a county, city, or town has reasonable cause to believe that any person has engaged in, or is engaging in, or is about to engage in, any violation of § 59.1-200 or 59.1-200.1, the attorney for the Commonwealth or the attorney for a county, city, or town if, after making a good faith effort to obtain such information, is unable to obtain the data and information necessary to determine whether such violation has occurred, or that it is impractical for him to do so, he may apply to the circuit court within whose jurisdiction the person having information resides, or has its principal place of business, for an investigative order requiring such person to furnish to the attorney for the Commonwealth or attorney for a county, city, or town such data and information as is relevant to the subject matter of the investigation.
  2. The circuit courts are empowered to issue investigative orders, authorizing discovery by the same methods and procedures as set forth for civil actions in the Rules of the Supreme Court of Virginia, in connection with investigations of violations of § 59.1-200 or 59.1-200.1 by the attorney for the Commonwealth or the attorney for a county, city, or town. An application for an investigative order shall identify:
    1. The specific act or practice alleged to be in violation of § 59.1-200 or 59.1-200.1;
    2. The grounds which shall demonstrate reasonable cause to believe that a violation of § 59.1-200 or 59.1-200.1 may have occurred, may be occurring or may be about to occur;
    3. The category or class of data or information requested in the investigative order; and
    4. The reasons why the attorney for the Commonwealth or attorney for a county, city, or town is unable to obtain such data and information, or the reason why it is impractical to do so, without a court order.
  3. Within 21 days after the service upon a person of an investigative order, or at any time before the return date specified in such order, whichever is later, such person may file a motion to modify or set aside such investigative order or to seek a protective order as provided by the Rules of the Supreme Court of Virginia. Such motion shall specify the grounds for modifying or setting aside the order, and may be based upon the failure of the application or the order to comply with the requirements of this section, or upon any constitutional or other legal basis or privilege of such person.
  4. Where the information requested by an investigative order may be derived or ascertained from the business records of the person upon whom the order is served, or from an examination, audit or inspection of such business records, or from a compilation, abstract or summary thereof, and the burden of deriving or ascertaining the information is substantially the same for the attorney for the Commonwealth or attorney for a county, city, or town as for the person from whom such information is requested, it shall be sufficient for that person to specify the records from which the requested information may be derived or ascertained, and to afford the attorney for the Commonwealth or attorney for the county, city, or town reasonable opportunity to examine, audit or inspect such records and to make copies, compilations, abstracts or summaries thereof.
  5. It shall be the duty of the attorney for the Commonwealth or attorney for a county, city, or town, his assistants, employees and agents, to maintain the secrecy of all evidence, documents, data and information obtained through the use of investigative orders or obtained as a result of the voluntary act of the person under investigation and it shall be unlawful for any person participating in such investigations to disclose to any other person not participating in such investigation any information so obtained. Any person violating this subsection shall be guilty of a Class 2 misdemeanor and shall be punished in accordance with § 18.2-11 . Notwithstanding the foregoing, this section shall not preclude the presentation and disclosure of any information obtained pursuant to this section in any suit or action in any court of this Commonwealth wherein it is alleged that a violation of § 59.1-200 or 59.1-200.1 has occurred, is occurring or may occur, nor shall this section prevent the disclosure of any such information by the attorney for the Commonwealth or attorney for a county, city, or town to any federal or state law-enforcement authority that has restrictions governing confidentiality and the use of such information similar to those contained in this subsection; however, such disclosures may only be made as to information obtained after July 1, 1979.
  6. Upon the failure of a person without lawful excuse to obey an investigative order under this section, the attorney for the Commonwealth or attorney for the county, city, or town may initiate contempt proceedings in the circuit court that issued the order to hold such person in contempt.
  7. No information, facts or data obtained through an investigative order shall be admissible in any civil or criminal proceeding other than for the enforcement of this chapter and the remedies provided herein.

History. 1977, c. 635; 1979, c. 493; 1982, c. 13; 1987, c. 464; 1995, c. 703; 2008, c. 485.

The 2008 amendments.

The 2008 amendment by c. 485 inserted “or 59.1-200.1” following “§ 59.1-200” throughout this section; and substituted “21 days” for “twenty-one days” in subsection C.

Law Review.

For article, “Determining the Deception of Sexual Orientation Change Efforts,” see 58 Wm. & Mary L. Rev. 641 (2016).

CASE NOTES

Reasonable cause less than probable cause. —

An application for an investigative order must show that there is “reasonable cause to believe” that a violation of the act has occurred, is occurring or will occur; this “reasonable cause” standard requires less than the probable cause standard and does not require a showing that a violation has in fact occurred. Paramount Builders, Inc. v. Commonwealth, 260 Va. 22 , 530 S.E.2d 142, 2000 Va. LEXIS 85 (2000).

Showing required for civil investigative order. —

Subsection A of this statute describes the circumstances under which an application for a civil investigative order is appropriate and subsection B incorporates those circumstances into conditions which must be identified in the application before a circuit court can issue a civil investigative order; this statutory scheme does not impose a two-step compliance process and the commonwealth is not required to make a factual showing under subsection A that it had reasonable cause to believe that a violation of the consumer protection act had occurred, was occurring or would occur, and that it had made a good faith effort to acquire the desired information and was unsuccessful, or that it was impractical to seek the information without a court order in order to obtain a civil investigative order. Paramount Builders, Inc. v. Commonwealth, 260 Va. 22 , 530 S.E.2d 142, 2000 Va. LEXIS 85 (2000).

Unable or impractical to obtain information without order. —

Subsection B 4 is intended to require the application to identify one of two mutually exclusive circumstances, either of which will support the need for a court order. The first circumstance is that, even though the commonwealth made good faith efforts, it was “unable to obtain” the information and the second is that such good faith efforts to obtain the information were not made because to do so would have been “impractical.” Paramount Builders, Inc. v. Commonwealth, 260 Va. 22 , 530 S.E.2d 142, 2000 Va. LEXIS 85 (2000).

§ 59.1-201.1. Attorney General empowered to issue civil investigative demands.

Whenever the Attorney General has reasonable cause to believe that any person has engaged in, or is engaging in, or is about to engage in, any violation of this chapter, the Attorney General is empowered to issue a civil investigative demand. The provisions of § 59.1-9.10 shall apply mutatis mutandis to civil investigative demands issued pursuant to this section.

History. 1995, c. 703.

§ 59.1-202. Assurances of voluntary compliance.

  1. The Attorney General, the attorney for the Commonwealth, or the attorney for a county, city, or town may accept an assurance of voluntary compliance with this chapter from any person subject to the provisions of this chapter. Any such assurance shall be in writing and be filed with and be subject on petition to the approval of the appropriate circuit court. Such assurance of voluntary compliance shall not be considered an admission of guilt or a violation for any purpose. Such assurance of voluntary compliance may at any time be reopened by the Attorney General, or the attorney for the Commonwealth, or attorney for the county, city, or town respectively, for additional orders or decrees to enforce the assurance of voluntary compliance.
  2. When an assurance is presented to the circuit court for approval, the Attorney General, the attorney for the Commonwealth, or the attorney for the appropriate county, city, or town shall file, in the form of a motion for judgment or complaint, the allegations which form the basis for the entry of the assurance. The assurance may provide by its terms for any relief which an appropriate circuit court could grant, including but not limited to restitution, arbitration of disputes between the supplier and its customers, investigative expenses, civil penalties and costs; provided, however, that nothing in this chapter shall be construed to authorize or require the Commonwealth, the Attorney General, an attorney for the Commonwealth or the attorney for any county, city or town to participate in arbitration of violations under this section.

History. 1977, c. 635; 1981, c. 423; 1982, c. 13; 1988, c. 850.

§ 59.1-203. Restraining prohibited acts.

  1. Notwithstanding any other provisions of law to the contrary, the Attorney General, any attorney for the Commonwealth, or the attorney for any city, county, or town may cause an action to be brought in the appropriate circuit court in the name of the Commonwealth, or of the county, city, or town to enjoin any violation of § 59.1-200 or 59.1-200.1. The circuit court having jurisdiction may enjoin such violations notwithstanding the existence of an adequate remedy at law. In any action under this section, it shall not be necessary that damages be proved.
  2. Unless the Attorney General, any attorney for the Commonwealth, or the attorney for any county, city, or town determines that a person subject to the provisions of this chapter intends to depart from this Commonwealth or to remove his property herefrom, or to conceal himself or his property herein, or on a reasonable determination that irreparable harm may occur if immediate action is not taken, he shall, before initiating any legal proceedings as provided in this section, give notice in writing that such proceedings are contemplated, and allow such person a reasonable opportunity to appear before said attorney and show that a violation did not occur or execute an assurance of voluntary compliance, as provided in § 59.1-202.
  3. The circuit courts are authorized to issue temporary or permanent injunctions to restrain and prevent violations of § 59.1-200 or 59.1-200.1.
  4. The Commissioner of the Department of Agriculture and Consumer Services, or his duly authorized representative, shall have the power to inquire into possible violations of subdivisions A 18, 28, 29, 31, 39, and 41, as it relates to motor fuels, of § 59.1-200 and § 59.1-335.12, and, if necessary, to request, but not to require, an appropriate legal official to bring an action to enjoin such violation.

History. 1977, c. 635; 1982, c. 13; 1988, c. 485; 2008, c. 485; 2012, cc. 803, 835.

Editor’s note.

Acts 2012, cc. 803 and 835, cl. 16 provides: “That the Governor may transfer an appropriation or any portion thereof within a state agency established, abolished, or otherwise affected by the provisions of the 13th enactment of this act, or from one such agency to another, to support the changes in organization or responsibility resulting from or required by the provisions of the 13th enactment of this act, provided that any such transfer shall be limited to salary and fringe benefits for any personnel transferred and reasonable administrative overhead and costs.”

The 2008 amendments.

The 2008 amendment by c. 485 inserted “or 59.1-200.1” following “§ 59.1-200” throughout this section.

The 2012 amendments.

The 2012 amendments by cc. 803 and 835, cl. 13, are identical, and substituted “subdivisions A 18, 28, 29, 31, 39, and 41, as it relates to motor fuels, of § 59.1-200 and § 59.1-335.12” for “§ 59.1-200 or 59.1-200.1” in subsection D.

CASE NOTES

Restitution. —

When § § 59.1-203 and 59.1-205 of the Virginia Consumer Protection Act (VCPA) are read together, the statutes implicitly authorize the Attorney General to request an award of restitution when pursuing a VCPA enforcement action on behalf of the Commonwealth. NC Fin. Sols. of Utah, LLC v. Commonwealth ex rel Herring, 299 Va. 452 , 854 S.E.2d 642, 2021 Va. LEXIS 8, cert. denied, 142 S. Ct. 582, 211 L. Ed. 2d 363, 2021 U.S. LEXIS 5882 (2021).

No private suit for injunctive relief. —

Because the Virginia Consumer Protection Act (VCPA) did not permit a private suit for injunctive relief, the district court’s dismissal of plaintiffs’ claims for injunctive relief was affirmed; the VCPA contained a bifurcated remedy scheme, whereby government officials could seek to enjoin violative conduct and individuals could seek damages. Physicians Comm. for Responsible Med. v. General Mills, Inc., 283 Fed. Appx. 139, 2008 U.S. App. LEXIS 13020 (4th Cir. 2008).

CIRCUIT COURT OPINIONS

Not required to plead reliance damages. —

Statutory language and interpretive precedent respecting the Virginia Consumer Protection Act make clear the Commonwealth was not required to plead reliance damages in its complaint against the company. Commonwealth v. NC Fin. Solutions of Utah, LLC, 100 Va. Cir. 232, 2018 Va. Cir. LEXIS 602 (Fairfax County Oct. 28, 2018).

§ 59.1-204. Individual action for damages or penalty.

  1. Any person who suffers loss as the result of a violation of this chapter shall be entitled to initiate an action to recover actual damages, or $500, whichever is greater. If the trier of fact finds that the violation was willful, it may increase damages to an amount not exceeding three times the actual damages sustained, or $1,000, whichever is greater. Any person who accepts a cure offer under this chapter may not initiate or maintain any other or additional action based on any cause of action arising under any other statute or common law theory if such other action is substantially based on the same allegations of fact on which the action initiated under this chapter is based.
  2. Notwithstanding any other provision of law to the contrary, in addition to any damages awarded, such person also may be awarded reasonable attorneys’ fees and court costs.
  3. No cure offer shall be admissible in any proceeding initiated under this section, unless the cure offer is delivered by a supplier to the person claiming loss or to any attorney representing such person, prior to the filing of the supplier’s initial responsive pleading in such proceeding. If the cure offer is timely delivered by the supplier, then the supplier may introduce the cure offer into evidence at trial. The supplier shall not be liable for such person’s attorneys’ fees and court costs incurred following delivery of the cure offer unless the actual damages found to have been sustained and awarded, without consideration of attorneys’ fees and court costs, exceed the value of the cure offer.
  4. In any action which the parties desire to settle all matters in dispute, the question of whether the plaintiff shall be awarded reasonable attorneys’ fees and court costs in accordance with subsections B and C may be tendered to the court for consideration of the amount of such an award, if any.

History. 1977, c. 635; 1995, cc. 703, 726; 2004, cc. 41, 90; 2005, c. 250; 2006, c. 453.

Cross references.

As to definition of cure offer, see § 59.1-198.

The 2004 amendments.

The 2004 amendments by cc. 41 and 90 are nearly identical, and added subsection C. Subsection C is set out in the form above at the direction of the Virginia Code Commission.

The 2005 amendments.

The 2005 amendment by c. 250 added subsection D and made minor stylistic changes.

The 2006 amendments.

The 2006 amendment by c. 453 added the last sentence in subsection A.

Law Review.

For article, “Determining the Deception of Sexual Orientation Change Efforts,” see 58 Wm. & Mary L. Rev. 641 (2016).

Michie’s Jurisprudence.

For related discussion, see 5A M.J. Costs, § 3; 20 M.J. Witnesses, § 2.

CASE NOTES

Election between remedies not required. —

Trial court erred in requiring a customer to elect between his remedies in an action involving the fraudulent sale of an automobile; the case involved causes of action with different elements of proof but a possibility of double recovery, and therefore the customer was entitled to recover compensatory damages on a Virginia Consumer Protection Act, §§ 59.1-196 to 59.1-207, claim, punitive damages on a common-law fraud claim, and attorney’s fees under subsection B of § 59.1-204. Wilkins v. Peninsula Motor Cars, 266 Va. 558 , 587 S.E.2d 581, 2003 Va. LEXIS 115 (2003).

Must allege loss to state claim under act. —

A plaintiff could not recover on a claim that an automobile dealer charged him an unlawfully excessive ten percent fee for late payments where it was undisputed that the plaintiff never made a late payment and therefore never paid the excessive ten percent late fee that he argued constituted the violation of the act. Polk v. Crown Auto, Inc., 228 F.3d 541, 2000 U.S. App. LEXIS 15201 (4th Cir. 2000).

Under the Virginia Consumer Protection Act (VCPA), one may initiate an act under the VCPA only if he or she has suffered loss. Nigh v. Koons Buick Pontiac GMC, Inc., 143 F. Supp. 2d 535, 2001 U.S. Dist. LEXIS 5374 (E.D. Va. 2001), aff'd, 319 F.3d 119, 2003 U.S. App. LEXIS 1845 (4th Cir. 2003).

Plaintiff purchaser’s Virginia Consumer Protection Act (VCPA), §§ 59.1-196 through 59.1-207, claim survived defendant car dealer’s motion for judgment on the pleadings because, under the Supreme Court of Virginia’s definition of “actual damages,” the VCPA authorized recovery for emotional distress. Barnette v. Brook Rd., Inc., 429 F. Supp. 2d 741, 2006 U.S. Dist. LEXIS 28555 (E.D. Va. 2006).

Although the debtors, whose personal information was published by the creditor in its form of proof of claim, stated claims for relief under the Virginia Consumer Protection Act and the Virginia Personal Information Privacy Act, and the Virginia Health Records Privacy Act, but were not entitled to sanctions under 11 U.S.C.S. §§ 105 and 107, and Fed. R. Bankr. P. 9011(b) and 9037. Maple v. Colonial Orthopaedics, Inc., 434 Bankr. 363, 2010 Bankr. LEXIS 2497 (Bankr. E.D. Va. 2010).

Failure to prove loss resulting from violation. —

A borrower had not shown that she suffered a loss as a result of a lender’s violation of the act and, therefore, was not entitled to initiate an action for damages under this provision where, although the borrower did pay in excess of the amount allowed by statute in late charges, the lender had reimbursed her for the excess late fees, plus interest. Alston v. Crown Auto, Inc., 224 F.3d 332, 2000 U.S. App. LEXIS 15081 (4th Cir. 2000).

Showing of reliance for private causes of action. —

Virginia Consumer Protection Act (VCPA), § 59.1-200 et seq., and specifically this section, as consistently construed by the courts, requires that a private VCPA claimant show that he relied on the alleged misrepresentations claimed to constitute the prohibited practice, and thus that his loss was caused by the prohibited practice. Accordingly, the bankruptcy court correctly concluded that a debtor was required to prove reliance on the alleged misrepresentations of his creditors to recover under the VCPA. Cooper v. GGGR Invs., LLC, 334 Bankr. 179, 2005 U.S. Dist. LEXIS 32333 (E.D. Va. 2005).

Antique automobile buyers’ claim against a mechanic for violation of the Virginia Consumer Protection Act, Va. Code Ann. § 59.1-196 et seq., was insufficient to go to the jury because the buyers failed to produce evidence of misrepresentations concerning the purchase price of a donor car, which the mechanic purchased to provide parts for the buyers’ antique car, as the buyers did not show reliance and resulting damages. Owens v. DRS Auto. Fantomworks, Inc., 288 Va. 489 , 764 S.E.2d 256, 2014 Va. LEXIS 152 (2014).

No private suit for injunctive relief. —

Because the Virginia Consumer Protection Act (VCPA) did not permit a private suit for injunctive relief, the district court’s dismissal of plaintiffs’ claims for injunctive relief was affirmed; the VCPA contained a bifurcated remedy scheme, whereby government officials could seek to enjoin violative conduct and individuals could seek damages. Physicians Comm. for Responsible Med. v. General Mills, Inc., 283 Fed. Appx. 139, 2008 U.S. App. LEXIS 13020 (4th Cir. 2008).

Reliance on misrepresentation not shown. —

Although a creditor’s failure to disclose the interests of another entity until settlement of a restructured financing deal and the failure of the creditor to disclose his interest in that entity was, in fact, a misrepresentation that violated subdivision A 1 or A 14 of § 59.1-200, the debtor did not contend that the use of another name in the solicitation or the failure to disclose the creditor’s interest would have affected his decision; therefore, the bankruptcy court’s factual finding that the debtor did not rely on the misrepresented identity of the organization with whom he was doing business was not clearly erroneous. Cooper v. GGGR Invs., LLC, 334 Bankr. 179, 2005 U.S. Dist. LEXIS 32333 (E.D. Va. 2005).

No standing where transaction lacked a consumer purpose. —

Corporation lacked standing to bring suit under the Virginia Consumer Protection Act where the corporation was not engaged in a consumer transaction because the corporation was not purchasing certificates of authenticity for a consumer purpose as intended by the act because (1) the corporation was not purchasing the certificates of authenticity to use for a personal, family, or household purpose, (2) rather, the purchases were made for investigatory purposes, namely to determine whether defendants were engaging in the sale of certificates of authenticity without the required software, and (3) the corporation’s purchases were made on its own behalf, not on behalf of potential consumers of its software. Microsoft Corp. v. # 9 Software, Inc., No. 4:05cv106, 2005 U.S. Dist. LEXIS 36710 (E.D. Va. Dec. 15, 2005).

Where lender’s charge of broker’s fee for placing loan with its president was, at the least, a “technical” wrong and where the Federal Consumer Credit Protection Act had nothing to do with the type of wrongful conduct engaged in by the lender, an award of attorney’s fees was proper. Valley Acceptance Corp. v. Glasby, 230 Va. 422 , 337 S.E.2d 291, 1985 Va. LEXIS 296 (1985).

Granting of damages condition precedent to attorney’s fees. —

Granting of damages after an adjudication on the merits of a claim is a condition precedent to an award of attorney’s fees under the Virginia Consumer Protection Act. Pitchford v. Oakwood Mobile Homes, Inc., 212 F. Supp. 2d 613, 2002 U.S. Dist. LEXIS 13847 (W.D. Va. 2002).

There was a likelihood of confusion between two trademarks, “glass doctor” and “windshield doctor” and therefore the “glass doctor” mark owner was granted summary judgment in its trademark infringement action under 15 U.S.C.S. §§ 1114, 1125(a) because: (1) the owner’s mark was strong enough to support franchising 133 locations and to generate sales of several million dollars; (2) the similarity of the marks was likely to cause confusion; (3) the parties offered the same services, windshield repair via mobile facilities; (5) the infringer had advertised in the phone book using both “windshield doctor” and “glass doctor;” and (6) the infringer intended for customers to view “glass doctor” and “windshield doctor” as the same. Synergistic Int'l, LLC v. Korman, 402 F. Supp. 2d 651, 2005 U.S. Dist. LEXIS 31370 (E.D. Va. 2005), aff'd in part, vacated in part, 470 F.3d 162, 2006 U.S. App. LEXIS 29400 (4th Cir. 2006) (rev’d as to damages).

Sufficiency of award. —

In a case involving the sale of a truck, because the buyer could not prove a willful violation of the Virginia Consumer Practices Act, pursuant to § 59.1-204, his damages were limited to actual damages and attorney’s fees; since the buyer had already received actual damages and attorney’s fees on his breach of contract claim, he was not entitled to more relief. Nelson v. Cowles Ford, Inc., 77 Fed. Appx. 637, 2003 U.S. App. LEXIS 20371 (4th Cir. 2003).

Attorney fees and costs can be awarded to the prevailing party. —

Car buyer was entitled to attorney fees for trial and appeals phase because he was the prevailing party in a case where a car dealership was found to have violated the Truth-in-Lending Act and the Virginia Consumer Protection Act, both of which gave the court authority to award attorney fees. Nigh v. Koons Buick Pontiac GMC, Inc., 384 F. Supp. 2d 915, 2005 U.S. Dist. LEXIS 23568 (E.D. Va. 2005), aff'd in part, vacated in part, 478 F.3d 183, 2007 U.S. App. LEXIS 3750 (4th Cir. 2007).

Court held that it served the interests of justice and the purposes of the mandatory attorney’s fees provision in the Truth-in-Lending Act (TILA) to deny a car dealership’s request for the assessment of costs for the appellate proceedings against the consumer against whom it had been found liable for violations of both the Virginia Consumer Protection Act and the TILA. Nigh v. Koons Buick Pontiac GMC, Inc., 384 F. Supp. 2d 915, 2005 U.S. Dist. LEXIS 23568 (E.D. Va. 2005), aff'd in part, vacated in part, 478 F.3d 183, 2007 U.S. App. LEXIS 3750 (4th Cir. 2007).

Fees awarded must be reasonable. —

Where a court carefully reviewed detailed billing records of attorneys for a prevailing party under the Virginia Consumer Practices Act (VCPA), § 59.1-200 et seq., and heard testimony as to the attorneys’ billing practices, and rejected almost one-third of the fees as duplicative or unrelated to the VCPA claim, the court conducted a proper detailed analysis before awarding reasonable fees. Peter Farrell Supercars, Inc. v. Monsen, 82 Fed. Appx. 293, 2003 U.S. App. LEXIS 24338 (4th Cir. 2003), cert. denied, 541 U.S. 1064, 124 S. Ct. 2399, 158 L. Ed. 2d 965, 2004 U.S. LEXIS 3719 (2004).

Used car buyer, who was awarded recovery from the sellers for actual fraud and consumer fraud, was entitled to attorney’s fees under the Virginia Consumer Protection Act, § 59.1-204, but the amount of fees awarded was an amount determined to be reasonable and thus, the buyer was awarded fees of $7,500, which was less than she had sought, because (1) the case was relatively simple and straightforward, (2) although the attorney provided valuable services in obtaining recovery for the buyer, and (3) although the hourly fee amount sought was reasonable and (4) the hours claimed were fully documented, (5) not all of the services performed by the attorney were necessary to buyer’s case. Kelley v. Little Charlie's Auto Sales, No. 4:04CV00083, 2006 U.S. Dist. LEXIS 59171 (W.D. Va. Aug. 22, 2006).

Award of enhanced damages supplied willful element. —

Elements of a misrepresentation claim under the Virginia Consumer Protection Act, § 59.1-196 et seq., as set forth in subdivision A 14 of § 59.1-200, were congruent with those required for nondischargeability under 11 U.S.C.S. § 523(a)(2)(A). To the extent that the Act could be violated by conduct short of a willful intent to deceive, that element was supplied by an award of enhanced damages under subsection A of § 59.1-204, which required that the violation be willful. Grey-Theriot v. Quansah (In re Quansah), No. 10-12304-SSM, No. 10-1260, 2011 Bankr. LEXIS 1319 (Bankr. E.D. Va. Apr. 9, 2011).

Where a bankruptcy court determined that an award of actual damages, enhanced damages, and attorney’s fees under the Virginia Consumer Protection Act was nondischargeable under 11 U.S.C.S. § 523(a)(2)(A), it lacked jurisdiction to award the creditor attorney’s fees over and above those awarded by the state court pursuant to subsection B of § 59.1-204. Grey-Theriot v. Quansah (In re Quansah), No. 10-12304-SSM, No. 10-1260, 2011 Bankr. LEXIS 1319 (Bankr. E.D. Va. Apr. 9, 2011).

CIRCUIT COURT OPINIONS

“Actual damages” not limited to pecuniary losses. —

“Actual damages” under subsection A of § 59.1-207 are not limited to out-of-pocket pecuniary losses. Humphrey v. Leewood Healthcare Ctr., 73 Va. Cir. 346, 2007 Va. Cir. LEXIS 101 (Fairfax County May 31, 2007).

“Actual damages.” —

In the absence of limiting language, the General Assembly intended no unusual restriction on the term “actual damages” as used in the Virginia Consumer Protection Act. Wingate v. Insight Health Corp., 87 Va. Cir. 227, 2013 Va. Cir. LEXIS 105 (Roanoke Oct. 31, 2013).

In a case arising out of the alleged wrongful sale of plaintiffs’ car, plaintiffs were entitled under the Virginia Consumer Protection Act to recover actual damages or $500, whichever was greater. Hughes v. Robert Young Auto & Truck, Inc., 97 Va. Cir. 92, 2017 Va. Cir. LEXIS 303 (Roanoke Oct. 19, 2017).

No evidence of actual loss. —

Even if plaintiff had proved that defendants made a misrepresentation upon which she relied, plaintiff failed to provide any evidence of the actual loss she suffered as a result of her reliance; it was plaintiff’s burden to prove her actual damages with reasonable certainty, which she failed to do. Childers v. Woodlawn Funeral & Crematory, 99 Va. Cir. 388, 2018 Va. Cir. LEXIS 126 (Norfolk July 31, 2018).

Fees awarded must be reasonable. —

Because the nature of the fraud and the passage of time, it took a considerable amount of time to investigate, locate witnesses, and prepare for trial, the company vigorously defended the case, and the jury found that the injured person was entitled to not only the actual damages she claimed but also increased damages based on a willful violation of the Virginia Consumer Protection Act and actual fraud by the company, the injured person was granted an attorney fee award of $65,481 plus court costs of $349 for a total of $65,830, even though the jury verdict was $17,350. Haram v. BTB Dev. Int'l, Inc., 84 Va. Cir. 511, 2012 Va. Cir. LEXIS 46 (Loudoun County June 6, 2012).

Penalties for violation of Lease-Purchase-Agreement Act. —

Although reference was made in an appliance lease purchase agreement to a payment plan of 24 months, the “initial period” was the first month, so the agreement came under the Virginia Lease-Purchase-Agreement Act and the tenant could recover at least $500 in damages as provided under the enforcement provisions of the Virginia Consumer Protection Act. Washington v. Edwin C. Hall Assocs., 64 Va. Cir. 274, 2004 Va. Cir. LEXIS 51 (Roanoke Mar. 23, 2004).

Hearing on fees and costs to be held after trial on merits. —

Trial court found that it was appropriate for the trial judge to make a determination on attorney’s fees and costs after trial rather than for the jury to consider the issues; fees and costs may not have been practical to determine during trial, and § 59.1-204 did not require a finding by a trier of fact. Gibson v. Gibson, 70 Va. Cir. 433, 2001 Va. Cir. LEXIS 541 (Greene County Dec. 6, 2001).

Attorney fee award. —

Auto buyers could recover attorney fees based on the auto sellers’ deceptive advertisement that violated subdivision 8 of § 59.1-200 of the Virginia Consumer Protection Act (VCPA). Subsection B of this section expressly contains a provision allowing for an attorney fee award, so long as the fees awarded were reasonable. Couch v. Manassas Autocars, Inc., 77 Va. Cir. 30, 2008 Va. Cir. LEXIS 130 (Prince William County July 17, 2008).

Allegations insufficient. —

Plaintiffs, husband and wife, failed to set out a cause of action for violation of the Virginia Consumer Protection Act. Because the wife failed to identify the misrepresentation defendant allegedly made or allege that defendant made the representation to her, the wife failed to allege a misrepresentation with the requisite specificity. Reese v. Priority Auto Grp., Inc., 97 Va. Cir. 427, 2014 Va. Cir. LEXIS 178 (Chesapeake Oct. 8, 2014).

Home buyers failed to sufficiently plead a claim for a violation of the Virginia Consumer Protection Act, § 59.1-196 et seq., because the buyers’ complaint against a contractor alleged numerous misrepresentations made by the contractor following closing on the buyers’ home, including the provision of incorrect second-floor plans in response to a request. Still missing, however, was the requisite particularity with regard to the alleged statements, or resulting damages. Suits v. Stephen Alexander Homes, L.L.C., 98 Va. Cir. 177, 2018 Va. Cir. LEXIS 29 (Chesapeake Feb. 27, 2018).

Homeowner failed to sufficiently plead violations of the Virginia Consumer Protection Act, § 59.1-196 et seq., because the allegations of a general contractor’s misrepresentations did not specify with any particularity by whom, when, or any other specific circumstances under which the alleged misrepresentations occurred. Furthermore, there were no factual allegations to support the homeowner’s claims of the contractor’s misrepresentations as to the construction and mold remediation of the owner’s home. Kerlavage v. America's Home Place, Inc., 101 Va. Cir. 301, 2019 Va. Cir. LEXIS 39 (Spotsylvania County Mar. 11, 2019), modified, No. CL16-1181, 2019 Va. Cir. LEXIS 1187 (Spotsylvania County Dec. 23, 2019).

Court sustained the demurrer to Count IX alleging a violation of the Virginia Consumer Protection Act (VCPA) as the VCPA did not apply to the engineering work of the engineering firm and the engineers because a consumer had to be an actual party to a transaction; and plaintiffs never bought goods or services from the engineering firm and the engineers or any person downstream of their engineering work performed for the homeowners association. West v. Christopher Consultants, 106 Va. Cir. 6, 2020 Va. Cir. LEXIS 82 (Loudoun County June 10, 2020).

§ 59.1-204.1. Tolling of limitation.

  1. Any individual action pursuant to § 59.1-204 for which the right to bring such action first accrues on or after July 1, 1995, shall be commenced within two years after such accrual. The cause of action shall accrue as provided in § 8.01-230 .
  2. When any of the authorized government agencies files suit under this chapter, the time during which such governmental suit and all appeals therefrom is pending shall not be counted as any part of the period within which an action under § 59.1-204 shall be brought.

History. 1988, c. 241; 1995, cc. 703, 726.

Michie’s Jurisprudence.

For related discussion, see 12A M.J. Limitation of Actions, §§ 24, 35, 53.

CASE NOTES

Discovery of fact. —

While a customer was displeased with the work of an automobile modification business from the time the customer received the automobile, the customer’s claims were timely asserted after the customer discovered that the engine was replaced with a defective engine rather than simply modified; the customer had no reason to suspect that the engine was replaced, and the customer was diligent and continued to have the car inspected by other mechanics. Peter Farrell Supercars, Inc. v. Monsen, 82 Fed. Appx. 293, 2003 U.S. App. LEXIS 24338 (4th Cir. 2003), cert. denied, 541 U.S. 1064, 124 S. Ct. 2399, 158 L. Ed. 2d 965, 2004 U.S. LEXIS 3719 (2004).

Where car dealer moved to dismiss car buyer’s Virginia Consumer Protection Act (VCPA) and common-law fraud claims, dealer unsuccessfully argued that claims were time-barred. Both VCPA and common-law fraud claims were subject to two-year statute of limitations, and either type of cause of action accrued when it was discovered or by the exercise of due diligence reasonably should have been discovered, which was essentially same requirement as federal discovery rule. Alexander v. Southeastern Wholesale Corp., 978 F. Supp. 2d 615, 2013 U.S. Dist. LEXIS 149693 (E.D. Va. 2013).

Statute of limitations barred claim. —

Borrower’s claim against a finance company for an alleged violation of the Virginia Consumer Protection Act, § 59.1-196 et seq., was barred by the two-year statute of limitations under subsection A of § 59.1-204.1 because the borrower signed the mortgage loan documents more than two and one-half years before the borrower first filed an action against the finance company. Schmidt v. Household Fin. Corp., II, 276 Va. 108 , 661 S.E.2d 834, 2008 Va. LEXIS 75 (2008).

Buyer of sellers’ assets and trademark was precluded from claiming false advertising by the sellers under the Virginia Consumer Protection Act, § 59.1-196 et seq., based on the sellers’ use of the trademark in violation of the sale agreement, since the two-year limitations period for asserting the claims after the sellers began using the trademark expired, and the sellers’ new line of products using the trademark within the limitations period was not shown to edge closer to the buyer in product similarity to warrant a new period of limitations. East West, LLC v. Rahman, 873 F. Supp. 2d 721, 2012 U.S. Dist. LEXIS 78205 (E.D. Va. 2012).

CIRCUIT COURT OPINIONS

Accrual of cause of action. —

Ongoing nature of the relationship between the parties dictated that plaintiffs’ cause of action accrued when they had a right of action, namely, at the time plaintiffs received equity ownership of the house in 1999; prior to settlement in 1999, plaintiffs could not have discovered any alleged misrepresentations made by defendants in violation of the Virginia Consumer Protection Act, § 59.1-196 et seq. Fix v. Eakin/Youngtob Assocs., 61 Va. Cir. 604, 2002 Va. Cir. LEXIS 95 (Alexandria Feb. 15, 2002).

Builder’s plea in bar to the homeowners’ Virginia Consumer Protection Act (VCPA) claim was sustained as the claim was time-barred under § 59.1-204.1, because the claim was filed more than two years after the claim accrued under § 8.01-230 , at the settlement on the home; the discovery rule did not apply to claims under the VCPA, and the homeowners’ argument that the builder was equitably estopped from alleging that the claim was time-barred, was another way of asserting that the discovery rule applied. Chancler v. McCarthy Enters., 61 Va. Cir. 697, 2002 Va. Cir. LEXIS 426 (Loudoun County Nov. 26, 2002).

Because the buyers’ claim for violations of the Virginia Consumer Protection Act, § 59.1-196 et seq., was based on the seller’s alleged misrepresentations and fraudulent conduct, the claim was subject to the fraud exception for accrual based on discovery in § 8.01-249 and was not barred by the two-year statute of limitations period in § 59.1-204.1.Skibinski v. Lunger, 70 Va. Cir. 423, 2006 Va. Cir. LEXIS 158 (Arlington County June 7, 2006).

Under § 8.01-249(1) , a claim of a violation of the Virginia Consumer Protection Act accrues when the violation is discovered. As a husband and wife sued a subcontractor for violating the Act within two years of their discovery of the alleged violation, the subcontractor’s plea in bar based on the statute of limitations, subsection A of § 59.1-204.1, was overruled. Schaefer v. Tectonics, II, Ltd., 77 Va. Cir. 1, 2008 Va. Cir. LEXIS 94 (Nelson County Feb. 26, 2008).

Buyers’ complaint against a seller under the Virginia Consumer Protection Act filed five years after the agreement was signed was filed within the two-year statute of limitations, § 59.1-204.1, because the claim arose out of the seller’s 2008 invocation of a liquidated damages provision pursuant to subdivision A 13 of § 59.1-200. Kearney v. Robinson Land Trust, 80 Va. Cir. 467, 2010 Va. Cir. LEXIS 162 (Charlottesville June 29, 2010).

Church’s Virginia Consumer Protection Act claim was barred by the two-year statute of limitations because the church discovered, or should have discovered, that the construction company failed to perform the roofing work in a workmanlike manner once the church realized that the roof continued to leak after the roof repair was completed in October 2015, but the church did not file its complaint until October 1, 2018; and the church contacted the construction company shortly after the work was completed to correct the work it had performed, implying that the church was aware that the construction company had improperly performed at least some of the contracted roof work. Hyde Park Free Will Baptist Church v. Skye-Brynn Enters., 102 Va. Cir. 180, 2019 Va. Cir. LEXIS 163 (Norfolk May 24, 2019).

Limitations period for fraud claims. —

Because an amendment was not evidence that the Virginia Consumer Protection Act claims based on fraud or mistake were not previously included under § 8.01-249 , the buyers’ claim was subject to the fraud exception pursuant to § 8.01-249 , and was not barred by the two-year statute of limitations period under § 59.1-204.1.Skibinski v. Lunger, 71 Va. Cir. 389, 2006 Va. Cir. LEXIS 243 (Arlington County Aug. 18, 2006).

Claims based on fraud and misrepresentation under the Virginia Consumer Protection Act and negligence were barred by the statute of limitations because the injuries were sustained in October 2012. It was sufficient that the injured party simply attributed her ailments to the condition of the contaminated well water, as she did in October 2012; the record was not incomplete as to the beginning of her travails nor was a ruling on this matter premature. Isle v. Martin, 91 Va. Cir. 149, 2015 Va. Cir. LEXIS 193 (Chesterfield County Sept. 10, 2015).

§ 59.1-205. Additional relief.

The circuit court may make such additional orders or decrees as may be necessary to restore to any identifiable person any money or property, real, personal, or mixed, tangible or intangible, which may have been acquired from such person by means of any act or practice declared to be unlawful in § 59.1-200 or 59.1-200.1, provided, that such person shall be identified by order of the court within 180 days from the date of the order permanently enjoining the unlawful act or practice.

History. 1977, c. 635; 2008, c. 485.

The 2008 amendments.

The 2008 amendment by c. 485 inserted “or 59.1-200.1” following “§ 59.1-200” near the end of this section.

CASE NOTES

Restitution. —

When § § 59.1-203 and 59.1-205 of the Virginia Consumer Protection Act (VCPA) are read together, the statutes implicitly authorize the Attorney General to request an award of restitution when pursuing a VCPA enforcement action on behalf of the Commonwealth. NC Fin. Sols. of Utah, LLC v. Commonwealth ex rel Herring, 299 Va. 452 , 854 S.E.2d 642, 2021 Va. LEXIS 8, cert. denied, 142 S. Ct. 582, 211 L. Ed. 2d 363, 2021 U.S. LEXIS 5882 (2021).

Section 59.1-205 refers to the remedy of restitution, even though it fails to expressly use that particular term. NC Fin. Sols. of Utah, LLC v. Commonwealth ex rel Herring, 299 Va. 452 , 854 S.E.2d 642, 2021 Va. LEXIS 8, cert. denied, 142 S. Ct. 582, 211 L. Ed. 2d 363, 2021 U.S. LEXIS 5882 (2021).

CIRCUIT COURT OPINIONS

Authority to litigate. —

Existence of an arbitration agreement between the lender and individual borrowers did not preclude the Commonwealth from bringing an action against the lender for violation of the Virginia Consumer Protection Act because this section provided the Commonwealth with statutory authority to pursue the claims through litigation. Commonwealth ex rel. Herring v. Net Credit Fin. Sols. Utah, LLC, 102 Va. Cir. 114, 2019 Va. Cir. LEXIS 102 (Fairfax County May 1, 2019), aff'd, 299 Va. 452 , 854 S.E.2d 642, 2021 Va. LEXIS 8 (2021).

§ 59.1-206. Civil penalties; attorney’s fees.

  1. In any action brought under this chapter, if the court finds that a person has willfully engaged in an act or practice in violation of § 59.1-200 or 59.1-200.1, the Attorney General, the attorney for the Commonwealth, or the attorney for the county, city, or town may recover for the Literary Fund, upon petition to the court, a civil penalty of not more than $2,500 per violation. For purposes of this section, prima facie evidence of a willful violation may be shown when the Attorney General, the attorney for the Commonwealth, or the attorney for the county, city, or town notifies the alleged violator by certified mail that an act or practice is a violation of § 59.1-200 or 59.1-200.1, and the alleged violator, after receipt of said notice, continues to engage in the act or practice.
  2. Any person who willfully violates the terms of an assurance of voluntary compliance or an injunction issued under § 59.1-203 shall forfeit and pay to the Literary Fund a civil penalty of not more than $5,000 per violation. For purposes of this section, the circuit court issuing an injunction shall retain jurisdiction, and the cause shall be continued, and in such cases the Attorney General, the attorney for the Commonwealth, or the attorney for the county, city, or town may petition for recovery of civil penalties.
  3. In any action pursuant to subsection A or B and in addition to any other amount awarded, the Attorney General, the attorney for the Commonwealth, or the attorney for the county, city, or town may recover any applicable civil penalty or penalties, costs, reasonable expenses incurred by the state or local agency in investigating and preparing the case not to exceed $1,000 per violation, and attorney’s fees. Such civil penalty or penalties, costs, reasonable expenses, and attorney’s fees shall be paid into the general fund of the Commonwealth or of the county, city, or town which such attorney represented.
  4. Nothing in this section shall be construed as limiting the power of the court to punish as contempt the violation of any order issued by the court, or as limiting the power of the court to enter other orders under § 59.1-203 or 59.1-205.
  5. The right of trial by jury as provided by law shall be preserved in actions brought under this section.

History. 1977, c. 635; 1980, c. 171; 1982, c. 13; 1991, c. 156; 1995, c. 703; 2008, c. 485.

The 2008 amendments.

The 2008 amendment by c. 485 inserted “or 59.1-200.1” following “§ 59.1-200” in the first sentence in subsection A and made a minor stylistic change.

CIRCUIT COURT OPINIONS

Scope. —

Individual’s demurrer to the Attorney General’s Virginia Consumer Protection Act, § 59.1-198 et seq., claims was denied as actions brought on behalf of the Commonwealth were intended to be broader in scope and remedy than private causes of action, and the complaint adequately alleged that the actions of the corporation were those of the individual, both directly and as an active participant in the corporation. Commonwealth ex rel. Herring v. Serv. Dogs by Warren Retrievers, Inc., 107 Va. Cir. 333, 2021 Va. Cir. LEXIS 104 (Madison County Mar. 9, 2021).

Right to jury trial. —

In the State’s action defendants alleging violations of the Virginia Consumer Protection Act (VCPA) and the Virginia Solicitation of Contributions law, the court held that defendants were entitled to a jury on the issue of civil penalties under the (VCPA) because civil penalties required the possible assessment of monetary damages but not on the issues of injunctive relief, including restitution and attorney’s fees. Commonwealth v. Serv. Dogs by Warren Retrievers, 101 Va. Cir. 275, 2019 Va. Cir. LEXIS 37 (Madison County Mar. 10, 2019).

In the State’s action defendants alleging violations of the Virginia Consumer Protection Act (VCPA) and the Virginia Solicitation of Contributions law (VSOC), the court held that restitution and injunctive relief under the VCPA and VSOC was an equitable principle and defendant was not entitled to a jury trial on that issue. Commonwealth v. Serv. Dogs by Warren Retrievers, 101 Va. Cir. 275, 2019 Va. Cir. LEXIS 37 (Madison County Mar. 10, 2019).

Insurer not liable for attorney fees in absence of bad faith. —

Homeowners who succeeded in obtaining a judgment by confession from an insurer who defaulted on their complaint alleging breach of contract and other matters in regard to the insurer’s failure to pay more than the policy limits after their home was destroyed by fire were not entitled to attorney fees under either the Virginia Consumer Protection Act or § 38.2-209 because the insurer did not act in bad faith or committ fraud by paying just the policy limits, even though the homeowners were ultimately awarded a damage judgment against the insurer. Le Morzellec v. Loudoun Mut. Ins. Co., 2004 Va. Cir. LEXIS 218 (Fairfax County July 26, 2004).

§ 59.1-207. Unintentional violations.

In any case arising under this chapter, no liability shall be imposed upon a supplier who shows by a preponderance of the evidence that (i) the act or practice alleged to be in violation of § 59.1-200 or 59.1-200.1 was an act or practice of the manufacturer or distributor to the supplier over which the supplier had no control or (ii) the alleged violation resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid a violation; however, nothing in this section shall prevent the court from ordering restitution and payment of reasonable attorney’s fees and court costs pursuant to § 59.1-204 B to individuals aggrieved as a result of an unintentional violation of this chapter.

History. 1977, c. 635; 1995, cc. 703, 726; 2008, c. 485.

The 2008 amendments.

The 2008 amendment by c. 485 inserted “or 59.1-200.1” following “§ 59.1-200” in clause (i).

CASE NOTES

This chapter exculpates a supplier if a misrepresentation was made despite the supplier’s best efforts to prevent such an occurrence. Gill v. Rollins Protective Servs. Co., 836 F.2d 194, 1987 U.S. App. LEXIS 16617 (4th Cir. 1987).

Evidence of improper placement of smoke detectors in plaintiff’s household held relevant to misrepresentations alleged under the Consumer Protection Act. Gill v. Rollins Protective Servs. Co., 836 F.2d 194, 1987 U.S. App. LEXIS 16617 (4th Cir. 1987).

CIRCUIT COURT OPINIONS

Demurrer overruled. —

Car dealer’s demurrer to a buyer’s claim under the Virginia Consumer Protection Law (Lemon Law), § 59.1-196 et seq., claim was overruled as the buyer pled fraudulent concealment and recounted allegedly false statements made by a salesman; the phrase “should have known,” occurred only along with alternative language suggesting that the dealer was conscious of the alleged fraudulent misrepresentations. The conclusion that the buyer stated a claim under § 59.1-196 was bolstered by the fact that § 59.1-207 explicitly reserved remedies for individuals aggrieved as a result of an unintentional violation. Sykes v. Brady-Bushey Ford, Inc., 69 Va. Cir. 219, 2005 Va. Cir. LEXIS 323 (Charlottesville Oct. 27, 2005).

Chapter 17.1. Automobile Repair Facilities Act.

§ 59.1-207.1. Title of chapter.

This chapter may be cited as the Automobile Repair Facilities Act.

History. 1979, c. 506.

Law Review.

For survey of Virginia commercial law for the year 1978-1979, see 66 Va. L. Rev. 217 (1980).

§ 59.1-207.2. Definitions.

As used in this chapter:

  1. “Motor vehicle” shall mean every vehicle which is self-propelled or designed for self-propulsion and every vehicle drawn by or designed to be drawn by a motor vehicle and includes every device in, upon or by which any property is or can be transported or drawn upon a highway, whether or not required to be licensed by the Commonwealth, but shall not include devices moved by human or animal power or devices used exclusively upon stationary rails or tracks. Nor shall it include those parts of a manufactured home which do not affect the ability of the manufactured home to be safely upon a highway.
  2. “Person” shall include any natural person, firm, partnership, association or corporation.
  3. “Automobile repair facility” shall mean any person who for profit diagnoses or corrects malfunctions of, or damage to, a motor vehicle.

History. 1979, c. 506; 1999, c. 77.

§ 59.1-207.3. Written estimate for repair work required upon request; charge in excess of estimate; conditions; display of sign required; limitations on liability for delay; exception.

  1. Upon request by a customer, prior to the commencement of any repair work on a motor vehicle for which a customer may be charged more than $25, every automobile repair facility doing business in the Commonwealth shall provide the customer a written statement of (i) the estimated cost of labor necessary to complete the work, (ii) the estimated cost of parts necessary to complete work, (iii) a description of the problem or work as described or authorized by the customer, and (iv) the estimated completion time. An automobile repair facility shall have no obligation to provide such written statements prior to 10:00 a.m. or after 4:00 p.m. during a working day.
  2. Where a written estimate is requested, no repair work on the motor vehicle may be undertaken, other than such diagnostic work as may be necessary for the preparation of an estimate, until the written estimate has been provided the customer and the customer has authorized the work, either in writing or orally, and no charge for repair work in excess of the written estimate by more than 10 percent or, in the case of any motor vehicle which is at least 25 model years old, 20 percent or extension of the time for the work may be made unless the additional work represented by such excess charge or the time extension has been authorized, in writing or orally, by the customer.
  3. An automobile repair facility may impose reasonable conditions for its obligations to provide written estimates to a customer, including the imposition of a reasonable fee for the preparation of a written estimate and related diagnostic work; provided that any such conditions shall be disclosed to the customer at the time of his request by writing or by sign conspicuously posted at the entrance of the automobile repair facility.Each automobile repair facility shall display in a conspicuous place at any point where vehicles are normally received for repairs, a sign which states that:
    1. The customer may receive a written estimate on request;
    2. No repair work charge may exceed the written estimate by more than 10 percent unless the additional work represented by the excess charge has been authorized by the customer;
    3. Any conditions imposed by the automobile repair facility in providing written estimates, such as the limited hours when written estimates will be prepared or the amount of the reasonable fee charged for preparing a written estimate and for related diagnostic work;
    4. The facility shall offer to return all replaced parts except warranty, core charge or trade-in parts required to be returned to a manufacturer or distributor; and
    5. Any complaints can be made to the Division of Consumer Counsel of the Department of Law.The sign heading “Customer Rights” shall be in letters at least one and one-half inches high and the remaining print shall be in letters at least one-fourth inch high with spacing between letters, words and lines so as to be clearly legible.
  4. An automobile repair facility shall not be liable for breach of the written estimated completion date for a repair if the delay is occasioned by (i) an act of God or (ii) an unexpected shortage of labor or parts or (iii) other causes beyond the control of the automobile repair facility.
  5. Nothing in this section shall require an automobile repair facility to give a written estimate if the facility is unwilling to perform the requested repair work.
  6. The provisions of this section shall not apply to the repair of any motor vehicle which is any car listed in the Official Judging Manual of the Antique Automobile Club of America.

History. 1979, c. 506; 1995, c. 110; 2012, cc. 803, 835.

Editor’s note.

Acts 2012, cc. 803 and 835, cl. 16 provides: “That the Governor may transfer an appropriation or any portion thereof within a state agency established, abolished, or otherwise affected by the provisions of the 13th enactment of this act, or from one such agency to another, to support the changes in organization or responsibility resulting from or required by the provisions of the 13th enactment of this act, provided that any such transfer shall be limited to salary and fringe benefits for any personnel transferred and reasonable administrative overhead and costs.”

The 2012 amendments.

The 2012 amendments by cc. 803 and 835, cl. 13, are identical, and substituted “Division of Consumer Counsel of the Department of Law” for “Virginia Office of Consumer Affairs” in subdivision C 5; and made stylistic changes.

§ 59.1-207.4. Offer to return replaced parts required; customer’s right to inspect parts.

An automobile repair facility shall offer at the time the repair work is authorized to return to the customer any parts which are removed from the motor vehicle and replaced during the process of repair; provided that any part which is required to be returned to a manufacturer or distributor under a warranty agreement, trade-in agreement or core charge agreement for a reconditioned part need not be returned to the customer. If the customer wishes the return of replaced parts subject to core charge or other trade-in agreements, customer agrees to pay the facility the additional core charge or other trade-in fee. The customer retains the right to inspect requested returned parts even if custody is refused.

History. 1979, c. 506.

§ 59.1-207.5. Written invoice required upon completion of repair work.

Upon completion of any repair work on a motor vehicle, including work performed pursuant to any warranty, an automobile repair facility shall provide the customer a written invoice which clearly indicates the work performed and the charges for parts and labor, separately stated, and which separately identifies those parts provided under warranty and not under warranty, and identifies those parts, if any, which are used, rebuilt or reconditioned. The provisions of this section shall not apply to work performed which was done on an advertised single price basis.

History. 1979, c. 506.

§ 59.1-207.5:1. Sale or installation of motor vehicle glass; prohibited conduct.

No person selling or engaged in the sale, installation, or replacement of motor vehicle glass shall advertise, promise to provide, or offer any coupon, credit, or rebate to pay all or part of an insurance deductible under a policy of motor vehicle insurance, as defined in § 38.2-124 , unless such person charges no more than the prevailing market rate for such services.

History. 2003, c. 707.

§ 59.1-207.6. Enforcement; penalties.

Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of Chapter 17 (§ 59.1-196 et seq.) of this title.

History. 1979, c. 506.

Chapter 17.2. Agricultural Equipment Warranties.

§ 59.1-207.7. Definitions.

As used in this chapter unless the context requires otherwise:

“Agricultural equipment” shall mean any self-propelled vehicle designed primarily for and used in the occupation or business of farming.

“Consumer” shall mean a purchaser, other than for purposes of resale, of new agricultural equipment or any subsequent purchaser, other than for purpose of resale, to whom such equipment is transferred during the duration of a manufacturer’s express written warranty applicable to such equipment.

History. 1984, c. 503.

§ 59.1-207.8. Protection against defective agricultural equipment; applicability of chapter.

  1. If agricultural equipment does not conform to all applicable express written warranties, and the consumer reports the nonconformity to the manufacturer, its agent, or its authorized dealer during the term of such express written warranties or during the period of one year following the date of original delivery of the equipment to the first consumer, whichever is the later date, the manufacturer, its agent, or its authorized dealers shall make such repairs as are necessary to conform the equipment to such express written warranties, notwithstanding the fact that such repairs are made after the expiration of such term or such one-year period.
  2. If the manufacturer or its authorized dealers do not conform the equipment to any applicable express written warranty by repairing or correcting any defect or condition which substantially impairs the use and market value of the equipment to the consumer after a reasonable number of attempts, the manufacturer or its authorized dealer shall replace the equipment with comparable equipment acceptable to the consumer, charging the consumer only a reasonable allowance for the consumer’s prior use of the equipment, or accept the return of the equipment from the consumer and refund to the consumer the cash purchase price, including sales tax, license fees, registration fees, and any similar governmental charges, less such a reasonable allowance for prior use. Refunds shall be made to the consumer and lien holder or holder of a security interest, if any, as their interests may appear.The reasonable allowance for prior use, which shall be no less than the fair rental value of the equipment, shall be the sum of (i) that amount attributable to use by the consumer or others prior to the consumer’s first report of the nonconformity to the manufacturer or its authorized dealers, (ii) that amount attributable to use by the consumer or others during any period subsequent to such report when the vehicle is not out of service by reason of repair of the reported nonconformity, and (iii) that amount attributable to use by the consumer of equipment provided by the manufacturer or its authorized dealers while the equipment is out of service by reason of repair of the reported nonconformity.
  3. For purposes of this chapter, it shall be presumed that a reasonable number of attempts have been undertaken to conform equipment to the applicable express written warranties if, within the express written warranty term or during the period of one year following the date of the original delivery of the equipment to the first consumer, whichever is the later date, (i) the same nonconformity has been subject to repair four or more times by the manufacturer or its authorized dealers, but such nonconformity continues to exist or (ii) the equipment is out of service by reason of repair for a cumulative total of 30 or more calendar days. However, those days shall not be counted when the consumer has been provided by the manufacturer or its authorized dealers with the use of other equipment which performs the same function or has been offered the use of such equipment.The term of an express written warranty, such one-year period, and such 30-day period shall be extended by any period of time during which repair services are not available to the consumer because of war, invasion, strike, fire, flood, or other natural disasters.
  4. In no event shall the presumption provided in this section apply against a manufacturer unless the manufacturer has received prior direct written notification from or on behalf of the consumer and been offered an opportunity to cure the alleged defect. If the address of the manufacturer is not readily available to the consumer, such written notification shall be mailed to an authorized dealer. The authorized dealer shall upon receipt forward such notification to the manufacturer.
  5. It shall be an affirmative defense to any claim under this chapter that (i) an alleged nonconformity does not substantially impair such use and market value or (ii) a nonconformity is the result of abuse or neglect, or of modifications or alterations of the equipment not authorized by the manufacturer.
  6. Any action brought under this chapter shall be commenced within six months following (i) expiration of the express written warranty term or (ii) 18 months following the date of the original delivery of the equipment to the consumer, whichever is the later date.
  7. This chapter shall apply to agricultural equipment sold after January 1, 1985.
  8. Nothing in this chapter shall in any way limit or impair the rights or remedies which are otherwise available to a consumer under any other law.
  9. Any consumer who suffers a loss by reason of a violation of any provision of this chapter may bring a civil action to enforce such provision.

History. 1984, c. 503; 2019, c. 752.

The 2019 amendments.

The 2019 amendment by c. 752, in subsections A and C, substituted “later” for “earlier”; and made stylistic changes.

Chapter 17.3. Motor Vehicle Warranty Enforcement Act.

§ 59.1-207.9. Short title.

This chapter may be cited as the Virginia Motor Vehicle Warranty Enforcement Act.

History. 1984, c. 773.

The numbers of §§ 59.1-207.9 through 59.1-207.14 were assigned by the Virginia Code Commission, the numbers in the 1984 act having been 59.1-207.7 through 59.1-207.12.

Law Review.

For comment, “Virginia’s Lemon Law: The Best Treatment for Car Owner’s Canker,” see 19 U. Rich. L. Rev. 405 (1985).

For 1985 survey of Virginia commercial law, see 19 U. Rich. L. Rev. 717 (1985).

Michie’s Jurisprudence.

For related discussion, see 2B M.J. Automobiles, § 132; 3C M.J. Commercial Law, § 13.

§ 59.1-207.10. Intent.

The General Assembly recognizes that a motor vehicle is a major consumer purchase, and there is no doubt that a defective motor vehicle creates a hardship for the consumer. It is the intent of the General Assembly that a good faith motor vehicle warranty complaint by a consumer should be resolved by the manufacturer, or its agent, within a specified period of time. It is further the intent of the General Assembly to provide the statutory procedures whereby a consumer may receive a replacement motor vehicle, or a full refund, for a motor vehicle which cannot be brought into conformity with the express warranty issued by the manufacturer. However, nothing in this chapter shall in any way limit the rights or remedies which are otherwise available to a consumer under any other law.

History. 1984, c. 773.

Law Review.

For comment, “Virginia’s Lemon Law: The Best Treatment for Car Owner’s Canker,” see 19 U. Rich. L. Rev. 405 (1985).

CASE NOTES

Act applies to purchase of used and new vehicles. —

See Subaru of Am., Inc. v. Peters, 256 Va. 43 , 500 S.E.2d 803, 1998 Va. LEXIS 93 (1998).

§ 59.1-207.11. Definitions.

As used in this chapter, the following terms shall have the following meanings:

“Collateral charges” means any sales-related or lease-related charges including but not limited to sales tax, license fees, registration fees, title fees, finance charges and interest, transportation charges, dealer preparation charges or any other charges for service contracts, undercoating, rust proofing or installed options, not recoverable from a third party. If a refund involves a lease, “collateral charges” means, in addition to any of the above, capitalized cost reductions, credits and allowances for any trade-in vehicles, fees to another to obtain the lease, and insurance or other costs expended by the lessor for the benefit of the lessee.

“Comparable motor vehicle” means a motor vehicle that is identical or reasonably equivalent to the motor vehicle to be replaced, as the motor vehicle to be replaced existed at the time of purchase or lease with an offset from this value for a reasonable allowance for its use.

“Consumer” means the purchaser, other than for purposes of resale, or the lessee, of a motor vehicle used in substantial part for personal, family, or household purposes, and any person to whom such motor vehicle is transferred for the same purposes during the duration of any warranty applicable to such motor vehicle, and any other person entitled by the terms of such warranty to enforce the obligations of the warranty.

“Incidental damages ” shall have the same meaning as provided in § 8.2-715 .

“Lemon law rights period” means the period ending 18 months after the date of the original delivery to the consumer of a new motor vehicle. This shall be the period during which the consumer can report any nonconformity to the manufacturer and pursue any rights provided for under this chapter.

“Lien” means a security interest in a motor vehicle.

“Lienholder” means a person, partnership, association, corporation or entity with a security interest in a motor vehicle pursuant to a lien.

“Manufacturer” means a person, partnership, association, corporation or entity engaged in the business of manufacturing or assembling motor vehicles, or of distributing motor vehicles to motor vehicle dealers.

“Manufacturer’s express warranty” means the written warranty, so labeled, of the manufacturer of a new automobile, including any terms or conditions precedent to the enforcement of obligations under that warranty.

“Motor vehicle” means only passenger cars, pickup or panel trucks, motorcycles, autocycles, self-propelled motorized chassis of motor homes and mopeds as those terms are defined in § 46.2-100 and demonstrators or leased vehicles with which a warranty was issued.

“Motor vehicle dealer” shall have the same meaning as provided in § 46.2-1500 .

“Nonconformity” means a failure to conform with a warranty, a defect or a condition, including those that do not affect the driveability of the vehicle, which significantly impairs the use, market value, or safety of a motor vehicle.

“Notify” or “notification” means that the manufacturer shall be deemed to have been notified under this chapter if a written complaint of the defect or defects has been mailed to it or it has responded to the consumer in writing regarding a complaint, or a factory representative has either inspected the vehicle or met with the consumer or an authorized dealer regarding the nonconformity.

“Reasonable allowance for use” shall not exceed one-half of the amount allowed per mile by the Internal Revenue Service, as provided by regulation, revenue procedure, or revenue ruling promulgated pursuant to § 162 of the Internal Revenue Code, for use of a personal vehicle for business purposes, plus an amount to account for any loss to the fair market value of the vehicle resulting from damage beyond normal wear and tear, unless the damage resulted from nonconformity to any warranty.

“Serious safety defect” means a life-threatening malfunction or nonconformity that impedes the consumer’s ability to control or operate the new motor vehicle for ordinary use or reasonable intended purposes or creates a risk of fire or explosion.

“Significant impairment” means to render the new motor vehicle unfit, unreliable or unsafe for ordinary use or reasonable intended purposes.

“Warranty” means any implied warranty or any written warranty of the manufacturer, or any affirmations of fact or promise made by the manufacturer in connection with the sale or lease of a motor vehicle that become part of the basis of the bargain. The term “warranty” pertains to the obligations of the manufacturer in relation to materials, workmanship, and fitness of a motor vehicle for ordinary use or reasonable intended purposes throughout the duration of the lemon law rights period as defined under this section.

History. 1984, c. 773; 1988, c. 603; 1990, c. 772; 1998, c. 671; 2022, c. 411.

The 2022 amendments.

The 2022 amendment by c. 411 made a stylistic change.

CASE NOTES

Subsequent transferee who was “downstream” from business buyer qualifies as a “consumer.” Subaru of Am., Inc. v. Peters, 256 Va. 43 , 500 S.E.2d 803, 1998 Va. LEXIS 93 (1998).

Definition of “manufacturer.” —

Because the manufacturer did not assemble the self-propelled motorized chassis of the motor homes it manufactured and distributed, it was not a “manufacturer” and could not be held liable under the Virginia lemon law and was entitled to summary judgment on the buyers’ claim. Parks v. Newmar Corp., 384 F. Supp. 2d 966, 2005 U.S. Dist. LEXIS 18839 (W.D. Va. 2005).

Definition of “motor vehicles.” —

Motor homes were not “motor vehicles.” Parks v. Newmar Corp., 384 F. Supp. 2d 966, 2005 U.S. Dist. LEXIS 18839 (W.D. Va. 2005).

Definition of “pickup truck.” —

In a case in which a truck buyer alleged that the truck manufacturer violated the Virginia Motor Vehicle Warranty Enforcement Act, §§ 59.1-207.9 through 59.1-207.16:1, and the manufacturer moved for summary judgment, the buyer could not maintain that claim because the registered gross weight of the truck exceeded 7,500 pounds; that was a bright-line requirement that his truck could not satisfy. By its reference to § 46.2-100 , the statute defined pickup or panel trucks to include only vehicles having a registered gross weight of 7,500 pounds or less. Eversole v. Ford Motor Co., No. 3:11cv428-DJN, 2012 U.S. Dist. LEXIS 49166 (E.D. Va. Apr. 6, 2012).

Motor home. —

Both the plain language of the lemon law’s list of motor vehicles and a logical analysis of the applicable definitions result in the conclusion that the lemon law applies to the self-propelled motorized chassis of a motor home, but no other portion of that vehicle. Burke v. THOR Motor Coach, Inc., 113 F. Supp. 3d 863, 2015 U.S. Dist. LEXIS 89980 (E.D. Va. 2015).

Claim related back. —

Court rejected chassis manufacturer’s argument that because it did not receive notice of a Lemon Law claim, an amended complaint should not relate back because it failed to recognize that the “limitations period” referred to in the relation back context included the allowable time for service of process. Under Virginia law, the statute of limitations was tolled upon the filing of the lawsuit, not upon the time of service on the defendant, and the manufacturer was served both within the Fed. R. Civ. P. 4(m) service deadline and the Virginia one-year deadline, Va. Sup. Ct. R. 3:5(e). Hoffman v. Daimler Trucks N. Am., LLC, 940 F. Supp. 2d 347, 2013 U.S. Dist. LEXIS 53118 (W.D. Va. 2013).

Relation back of amended pleading. —

Where RV buyer filed his original complaint against the manufacturer in state court just a few days before expiration of the 18-month statute of limitations under § 59.1-207.11 (the Lemon law) but amended his complaint to change the named defendant to the chassis manufacturer, the amendment was not barred by the statute of limitations because it related back under Fed. R. Civ. P. 15(c)(1)(A) under the pertinent state statute, § 8.01-6.1 , as the amendment consisted of the same conduct, transaction, or occurrence as in the original pleading; because the buyer’s less than two-month delay in filing the amended claim was not sufficient grounds for finding a lack of reasonable diligence; and because the chassis manufacturer would not be prejudiced in defending the Lemon Law claim on the merits, as it received notice of the Lemon Law claim at the exact same time it received notice of a warranty claim. Hoffman v. Daimler Trucks N. Am., LLC, 940 F. Supp. 2d 347, 2013 U.S. Dist. LEXIS 53118 (W.D. Va. 2013).

Liability of motor home manufacturer. —

Because the drafters of the Virginia lemon law decided to distinguish between manufacturers of “motor homes” and manufacturers of the “self-propelled motorized chassis” of motor homes, it is clear that the Virginia legislature did not intend to subject final stage manufacturers, such as defendant to liability under the Virginia Motor Vehicle Warranty Enforcement Act, § 59.1-207.9 et seq. Parks v. Newmar Corp., 384 F. Supp. 2d 966, 2005 U.S. Dist. LEXIS 18839 (W.D. Va. 2005).

CIRCUIT COURT OPINIONS

“Manufacturer.” —

Dealership’s demurrer was sustained because a purchaser’s attorney stipulated that the dealership was not a “manufacturer”; the attorney ave no satisfactory reason for naming the dealership in the complaint or the amended complaint. Nikolov v. Ford Motor Co., 104 Va. Cir. 327, 2020 Va. Cir. LEXIS 67 (Norfolk Mar. 12, 2020).

Failure to properly notify. —

Claim under Virginia Motor Vehicle Warranty Enforcement Act, § 59.1-207.9 et seq. was not timely filed, because car buyer failed to properly notify the corporation of alleged nonconformities as required; having the car repaired by a dealer and having the manufacturer reimburse the dealer was not proper notification. Kniska v. Subaru of Am., Inc., 62 Va. Cir. 23, 2003 Va. Cir. LEXIS 77 (Fairfax County Apr. 24, 2003).

§ 59.1-207.12. Conformity to all warranties.

If a new motor vehicle does not conform to all warranties, and the consumer reports the nonconformity to the manufacturer, its agents, or its authorized dealer during the manufacturer’s warranty period, the manufacturer, its agent or its authorized dealer shall make such repairs as are necessary to conform the vehicle to such warranties, notwithstanding the fact that such repairs are made after the expiration of such manufacturer’s warranty period.

History. 1984, c. 773; 1988, c. 603.

§ 59.1-207.13. Nonconformity of motor vehicles.

  1. If the manufacturer, its agents or authorized dealers do not conform the motor vehicle to any applicable warranty by repairing or correcting any defect or condition, including those that do not affect the driveability of the vehicle, which significantly impairs the use, market value, or safety of the motor vehicle to the consumer after a reasonable number of attempts during the lemon law rights period, the manufacturer shall:
    1. Replace the motor vehicle with a comparable motor vehicle acceptable to the consumer, or
    2. Accept return of the motor vehicle and refund to the consumer, lessor, and any lienholder as their interest may appear the full contract price, including all collateral charges, incidental damages, less a reasonable allowance for the consumer’s use of the vehicle up to the date of the first notice of nonconformity that is given to the manufacturer, its agents or authorized dealer. Refunds or replacements shall be made to the consumer, lessor or lienholder, if any, as their interests may appear. The consumer shall have the unconditional right to choose a refund rather than a replacement vehicle and to drive the motor vehicle until he receives either the replacement vehicle or the refund. The subtraction of a reasonable allowance for use shall apply to either a replacement or refund of the motor vehicle. Mileage, expenses, and reasonable loss of use necessitated by attempts to conform such motor vehicle to the express warranty may be recovered by the consumer.
  2. It shall be presumed that a reasonable number of attempts have been undertaken to conform a motor vehicle to any warranty and that the motor vehicle is significantly impaired if during the lemon law rights period either:
    1. The same nonconformity has been subject to repair three or more times by the manufacturer, its agents or its authorized dealers and the same nonconformity continues to exist;
    2. The nonconformity is a serious safety defect and has been subject to repair one or more times by the manufacturer, its agent or its authorized dealer and the same nonconformity continues to exist; or
    3. The motor vehicle is out of service due to repair for a cumulative total of 30 calendar days, unless such repairs could not be performed because of conditions beyond the control of the manufacturer, its agents or authorized dealers, including war, invasion, strike, fire, flood or other natural disasters.
  3. The lemon law rights period shall be extended if the manufacturer has been notified but the nonconformity has not been effectively repaired by the manufacturer, or its agent, by the expiration of the lemon law rights period.
  4. The manufacturer shall clearly and conspicuously disclose to the consumer, in the warranty or owner’s manual, that written notification of the nonconformity to the manufacturer is required before the consumer may be eligible for a refund or replacement of the vehicle under this chapter. The manufacturer shall include with the warranty or owner’s manual the name and address to which the consumer shall send such written notification.
  5. It shall be the responsibility of the consumer, or his representative, prior to availing himself of the provisions of this section, to notify the manufacturer of the need for the correction or repair of the nonconformity, unless the manufacturer has been notified as defined in § 59.1-207.11. If the manufacturer or factory representative has not been notified of the conditions set forth in subsection B and any of the conditions set forth in subsection B already exists, the manufacturer shall be given an additional opportunity, not to exceed 15 days, to correct or repair the nonconformity. If notification shall be mailed to an authorized dealer, the authorized dealer shall upon receipt forward such notification to the manufacturer.
  6. Nothing in this chapter shall be construed to limit or impair the rights and remedies of a consumer under any other law.
  7. It is an affirmative defense to any claim under this chapter that:
    1. An alleged nonconformity does not significantly impair the use, market value, or safety of the motor vehicle; or
    2. A nonconformity is the result of abuse, neglect or unauthorized modification or alteration of a motor vehicle by a consumer.

A1. In the case of a replacement of or refund for a leased vehicle, in addition to any other damages provided in this chapter, the motor vehicle shall be returned to the manufacturer and the consumer’s written lease shall be terminated by the lessor without penalty to the consumer. The lessor shall transfer title to the manufacturer as necessary to effectuate the consumer’s rights pursuant to this chapter, whether the consumer chooses vehicle replacement or a refund.

History. 1984, c. 773; 1987, c. 607; 1988, c. 603; 1990, c. 772; 1998, c. 671; 2022, c. 411.

The 2022 amendments.

The 2022 amendment by c. 411 substituted “lemon law rights period” for “period of eighteen months following the date of original delivery of the motor vehicle to the consumer” in subsection B in the introductory language; in subsection E, deleted “of this section” following “subsection B” twice; and made stylistic changes.

Law Review.

For comment, “Virginia’s Lemon Law: The Best Treatment for Car Owner’s Canker,” see 19 U. Rich. L. Rev. 405 (1985).

CASE NOTES

Relevance of repair completed after expiration of 18-month period for such repairs. —

In consumers’ action against a manufacturer for alleged violations of the Virginia Motor Vehicle Warranty Enforcement Act (Act), arising from an allegedly defective valve in a motor home, the court would not reconsider its discovery order that directed the manufacturer to remove and replace the valve for testing purposes because the replacement of the valve was not prohibited by the Act. In fact, whether the valve was replaced was irrelevant to the consumers’ claim under the Act because the 18-month period for the manufacturer to repair the motor home had expired; thus, if the consumers proved that the manufacturer violated the Act, even if the replacement of the valve repaired the motor home, the consumers’ remedy under the Act was fixed. Parks v. Newmar Corp., No. 6:04-CV-00013, 2005 U.S. Dist. LEXIS 18373 (W.D. Va. Aug. 26, 2005).

Motion to dismiss was not proper method of determining notice. —

Motion to dismiss was a premature stage in which to address the factual issue of whether a chassis supplier was given the required notice of an RV’s defects under §§ 8.2-607(3)(a) (the Virginia Uniform Commercial Code) and 59.1-207.13 (the Lemon law). Hoffman v. Daimler Trucks N. Am., LLC, 940 F. Supp. 2d 347, 2013 U.S. Dist. LEXIS 53118 (W.D. Va. 2013).

Attorney’s fees not recoverable under subdivision A 2. —

Virginia legislature did not intend to include attorney’s fees as recoverable expenses under subdivision A 2. Wolf v. Ford Motor Co., 829 F.2d 1277, 1987 U.S. App. LEXIS 10739 (4th Cir. 1987).

Damages under jurisdictional amount. —

Regardless of the section used to calculate damages, plaintiff’s claims fell short of the jurisdictional amount; the total Magnuson-Moss Warranty Act claim could not reach the required $50,000 jurisdictional requirement on the contract price alone. Therefore, the court did not have subject-matter jurisdiction over the action. Burtt v. Ford Motor Co., No. 4:07CV00038, 2008 U.S. Dist. LEXIS 9657 (W.D. Va. Feb. 11, 2008).

CIRCUIT COURT OPINIONS

Failure to properly notify. —

Claim under Virginia Motor Vehicle Warranty Enforcement Act, § 59.1-207.9 et seq. was not timely filed, because car buyer failed to properly notify the corporation of alleged nonconformities as required; having the car repaired by a dealer and having the manufacturer reimburse the dealer was not proper notification. Kniska v. Subaru of Am., Inc., 62 Va. Cir. 23, 2003 Va. Cir. LEXIS 77 (Fairfax County Apr. 24, 2003).

§ 59.1-207.14. Action to enforce provisions of chapter.

Any consumer who suffers loss by reason of a violation of any provision of this chapter may bring a civil action to enforce such provision. Any consumer who is successful in such an action or any defendant in any frivolous action brought by a consumer shall recover reasonable attorney’s fees, expert witness fees and court costs incurred by bringing such actions.

History. 1984, c. 773; 1988, c. 603.

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 14 Costs. § 14.02 Items Included. Bryson.

CASE NOTES

“Successful party.” —

Car purchaser and car manufacturer entered into a settlement agreement due to the purchaser’s car having had numerous mechanical difficulties, which settlement resolved all issues except as to attorney’s fees and costs, and thereafter, the trial court entered judgment in favor of the manufacturer, denying the purchaser’s claim for attorney’s fees and costs as the “successful party” in the action pursuant to § 59.1-207:14; such a denial was proper, as the action, as that term was defined in subdivision 1 of § 8.01-2 , did not end in favor of the consumer, and the fact that she maintained that she achieved the remedies that she sought did not change the conclusion that in the court action, she was not the “successful party” because the order terminating the action was in favor of the manufacturer. Chase v. DaimlerChrysler Corp., 266 Va. 544 , 587 S.E.2d 521, 2003 Va. LEXIS 116 (2003).

Where prior owner had employed vehicle for business purpose. —

A buyer experiencing a “significant impairment,” as defined in the Act, during the balance of the express factory warranty qualifies as a “consumer,” whether or not a prior owner had employed the vehicle for business purposes. Subaru of Am., Inc. v. Peters, 256 Va. 43 , 500 S.E.2d 803, 1998 Va. LEXIS 93 (1998).

CIRCUIT COURT OPINIONS

Recoverable costs. —

Consumer who prevailed in “lemon law” action against an automobile manufacturer was entitled to recover attorney fees and certain other costs, including travel costs incurred by his attorney, but could not recover costs associated with the attempt to obtain an award of attorney fees, paralegal time, or costs incurred for fees from court reporters, general mileage reimbursement, or costs associated with copying and mailing of documents. O'Neil v. Chrysler Corp., 54 Va. Cir. 64, 2000 Va. Cir. LEXIS 543 (Loudoun County 2000).

Pursuant to Virginia’s Motor Vehicle Warranty Enforcement Act, § 59.1-207.14, consumers, who prevailed in their suit against a car manufacturer for an allegedly defective vehicle, and who were entitled to recover attorney’s fees, were also entitled to recover their reasonable costs, including an expert witness fee incurred in prosecuting the attorney fee claim and other costs incurred in the lawsuit. Nedelka v. KIA Motors of Am., Inc., 77 Va. Cir. 379, 2009 Va. Cir. LEXIS 94 (Norfolk Feb. 10, 2009).

Attorney’s fees. —

Violation of Va. Sup. Ct. R. pt. 6, § II, R. 1.5(c), which required that contingency fee agreements be in writing, was not a bar to recovery of attorney’s fees under § 59.1-207.14 of the Motor Vehicle Warranty Enforcement Act as the manufacturer did not have standing in a collateral proceeding to argue reduction of attorney’s fees to the vehicle purchasers’ counsel on that basis. Dickerson v. Ford Motor Co., 74 Va. Cir. 509, 2008 Va. Cir. LEXIS 4 (Roanoke Feb. 14, 2008).

Pursuant to Virginia’s Motor Vehicle Warranty Enforcement Act, § 59.1-207.14, consumers, who prevailed in their suit against a car manufacturer for an allegedly defective vehicle, were entitled to recover attorney’s fees and costs, although the amount requested was reduced in light of the fact that the case was not complex. Nedelka v. KIA Motors of Am., Inc., 77 Va. Cir. 379, 2009 Va. Cir. LEXIS 94 (Norfolk Feb. 10, 2009).

§ 59.1-207.15. Informal dispute settlement procedure.

  1. If a manufacturer provides an informal dispute settlement procedure, it shall be the consumer’s choice whether or not to use it prior to availing himself of his rights under this chapter.
  2. If a dispute settlement procedure is resorted to by the consumer and the decision is for a refund or a comparable motor vehicle, the manufacturer shall have forty days from its receipt of the consumer’s acceptance of the decision or from the date of a court order to comply with the terms of the decision.
  3. In any action brought because of the manufacturer’s failure to comply with the decision, within the scope of the procedure’s authority, rendered as a result of a dispute resolution proceeding or a court order, the court may triple the value of the award stipulated in the decision as provided for in this chapter, plus award other equitable relief the court deems appropriate, including additional attorney’s fees.

History. 1988, c. 603; 1990, c. 772.

CIRCUIT COURT OPINIONS

Dispurte settlement procedure. —

Company’s plea in bar was sustained because a purchaser was advised of its “Dispute Settlement Board,” but the letter the purchaser’s attorney sent the company did not seek a resolution through that Board; rather, it was a notice of non-conformity, a claim for a full refund less an allowance for use, and a notice of intent to file suit if the company did not respond in ten days. Nikolov v. Ford Motor Co., 104 Va. Cir. 327, 2020 Va. Cir. LEXIS 67 (Norfolk Mar. 12, 2020).

Informal dispute settlement procedure under Virginia law need not be as detailed as 16 C.F.R. Part 703; however, at a minimum, it must have some agreed upon submission to the decision of a neutral person selected by the manufacturer. Nikolov v. Ford Motor Co., 104 Va. Cir. 327, 2020 Va. Cir. LEXIS 67 (Norfolk Mar. 12, 2020).

§ 59.1-207.16. Action to be brought within certain time.

Any action brought under this chapter shall be commenced within the lemon law rights period. However, any consumer whose good faith attempts to settle the dispute pursuant to the informal dispute settlement provisions of § 59.1-207.15 have not resulted in the satisfactory resolution of the matter shall have (i) 12 months from the date of the final action taken by the manufacturer in its dispute settlement procedure, if such procedure was resorted to within the lemon law rights period, or (ii) the original lemon law rights period, whichever is longer, to file an action in the proper court.

History. 1988, c. 603; 1990, c. 772; 1999, c. 387; 2022, c. 411.

The 2022 amendments.

The 2022 amendment by c. 411 substituted “the lemon law rights period” for “eighteen months following the date of original delivery of the motor vehicle to the consumer” in the first sentence; in the second sentence, substituted “lemon law rights period” for “eighteen months of delivery” in clause (i) and “lemon law rights period” for “eighteen-month period” in clause (ii); and made a stylistic change.

CIRCUIT COURT OPINIONS

Failure to properly notify. —

Claim under Virginia Motor Vehicle Warranty Enforcement Act, § 59.1-207.9 et seq. was not timely filed, because car buyer failed to properly notify the corporation of alleged nonconformities as required; having the car repaired by a dealer and having the manufacturer reimburse the dealer was not proper notification. Kniska v. Subaru of Am., Inc., 62 Va. Cir. 23, 2003 Va. Cir. LEXIS 77 (Fairfax County Apr. 24, 2003).

§ 59.1-207.16:1. Disclosure of returned vehicles; penalty.

  1. If a motor vehicle that is returned to the manufacturer or distributor either under this chapter or by judgment, decree, or arbitration award in this or any other state and is then transferred by a manufacturer or distributor to a dealer, licensed under Chapter 15 (§ 46.2-1500 et seq.) of Title 46.2, in Virginia, the manufacturer or distributor shall disclose this information to the Virginia dealer.
  2. If the returned vehicle is then made available for resale or for another lease, the manufacturer shall, prior to sale or lease, disclose in writing in a clear and conspicuous manner, on a separate piece of paper in ten-point capital type, to the Virginia dealer that this motor vehicle was returned to the manufacturer, distributor or factory branch, the nature of the defect which resulted in the return, and the condition of the motor vehicle at the time of transfer to the Virginia dealer. It shall be the responsibility of the dealer that receives this disclosure to give notice of its contents to any prospective purchaser or lessee prior to sale or lease, and to transfer the disclosure, or a copy thereof, to the next purchaser or lessee. A dealer’s responsibility under this section shall cease upon the sale or lease of the affected motor vehicle to the first purchaser or lessee not for resale or lease.
  3. Any manufacturer or distributor who violates this section of the Motor Vehicle Warranty Enforcement Act shall be guilty of a Class 3 misdemeanor.

History. 1994, c. 578; 1998, c. 671.

Cross references.

As to punishment for Class 3 misdemeanors, see § 18.2-11 .

Chapter 17.4. Virginia Lease-Purchase Agreement Act.

§ 59.1-207.17. Title.

This chapter may be cited as the “Virginia Lease-Purchase Agreement Act.”

History. 1988, c. 24.

Michie’s Jurisprudence.

For related discussion, see 3C M.J. Commercial Law, § 95.

CIRCUIT COURT OPINIONS

Applicability. —

Although reference was made in an appliance lease-purchase agreement to a payment plan of 24 months, the “initial period” was the first month, so the agreement came under the Virginia Lease-Purchase Agreement Act and the tenant could recover at least $500 in damages as provided under the enforcement provisions of the Virginia Consumer Protection Act, § 59.1-207.27.Washington v. Edwin C. Hall Assocs., 64 Va. Cir. 274, 2004 Va. Cir. LEXIS 51 (Roanoke Mar. 23, 2004).

§ 59.1-207.18. Definitions.

As used in this chapter:

“Advertisement” means a commercial message in any medium that aids, promotes, or assists, directly or indirectly, a lease-purchase agreement.

“Cash price” means the price at which the lessor would have sold the property to the consumer for cash on the date of the lease-purchase agreement.

“Consumer” means a natural person who rents personal property under a lease-purchase agreement to be used primarily for personal, family or household purposes.

“Consummation” means the time a consumer becomes contractually obligated on a lease-purchase agreement.

“Lessor” means a person who regularly provides the use of property through lease-purchase agreements and to whom lease payments are initially payable on the face of the lease-purchase agreement.

“Lease-purchase agreement” means an agreement for the use of personal property by a natural person primarily for personal, family, or household purposes, for an initial period of four months or less that is automatically renewable with each payment after the initial period, but does not obligate or require the consumer to continue leasing or using the property beyond the initial period, and that permits the consumer to become the owner of the property.

History. 1988, c. 24.

CASE NOTES

“Lease-purchase agreement.” —

Agreements were lease-purchase agreements and not security interests under Virginia law where agreements were for an initial period of a month, were automatically renewable with each payment, could be terminated at any time without paying any charges other than previously due, and permitted the debtors to become the owners of the subject property; accordingly, the bankruptcy court sustained the creditor’s objection to the debtors’ Chapter 13 plan that treated the agreements as security interests rather than as leases that were required to be either affirmed or rejected under 11 U.S.C.S. § 365. In re Muse, No. 02-62169-T, 2002 Bankr. LEXIS 1807 (Bankr. E.D. Va. Sept. 30, 2002).

CIRCUIT COURT OPINIONS

Initial period of agreement. —

Although reference was made in an appliance lease-purchase agreement to a payment plan of 24 months, the “initial period” was the first month, so the agreement came under the Virginia Lease-Purchase Agreement Act and the tenant could recover at least $500 in damages as provided under the enforcement provisions of the Virginia Consumer Protection Act, § 59.1-207.27.Washington v. Edwin C. Hall Assocs., 64 Va. Cir. 274, 2004 Va. Cir. LEXIS 51 (Roanoke Mar. 23, 2004).

§ 59.1-207.19. Inapplicability of other laws; exempted transactions.

  1. Lease-purchase agreements that comply with this chapter are not governed by the laws relating to:
    1. A home solicitation sale as defined in § 59.1-21.2;
    2. A transaction described in § 6.2-311 ; or
    3. A security interest as defined in subdivision (35) of § 8.1A-201 .
  2. This chapter does not apply to the following:
    1. Lease-purchase agreements primarily for business, commercial, or agricultural purposes, or those made with governmental agencies or instrumentalities or with organizations;
    2. A lease of a safe deposit box;
    3. A lease or bailment of personal property which is incidental to the lease of real property, and which provides that the consumer has no option to purchase the leased property; or
    4. A lease of an automobile.

History. 1988, c. 24; 2003, c. 353; 2010, c. 794.

The 2003 amendments.

The 2003 amendment by c. 353, in subdivision A 3, substituted “subdivision (35) of § 8.1A-201 ” for “subdivision (37) of § 8.1-201,” and made a stylistic change.

The 2010 amendments.

The 2010 amendment by c. 794, effective October 1, 2010, rewrote subdivision A 2, which formerly read: “A consumer transaction as discussed in § 6.1-330.77; or.”

§ 59.1-207.20. General requirements of disclosure.

  1. The lessor shall disclose to the consumer the information required by this chapter. In a transaction involving more than one lessor, only one lessor need make the disclosures, but all lessors shall be bound by such disclosures.
  2. The disclosures shall be made at or before consummation of the lease-purchase agreement.
  3. The disclosures shall be made clearly and conspicuously in writing and a copy of the lease-purchase agreement provided to the consumer. The disclosures required under subsection A of § 59.1-207.19 shall be made on the face of the contract above the line for the consumer’s signature.
  4. If a disclosure becomes inaccurate as the result of any act, occurrence, or agreement by the consumer after delivery of the required disclosures, the resulting inaccuracy is not a violation of this chapter.

History. 1988, c. 24.

§ 59.1-207.21. Disclosures.

  1. For each lease-purchase agreement, the lessor shall disclose in the agreement the following items, as applicable:
    1. The total number, total amount and timing of all payments necessary to acquire ownership of the property;
    2. A statement that the consumer will not own the property until the consumer has made the total payment necessary to acquire ownership;
    3. A statement that the consumer is responsible for the fair market value of the property if, and as of the time, it is lost, stolen, damaged, or destroyed;
    4. A brief description of the leased property, sufficient to identify the property to the consumer and the lessor, including an identification number, if applicable, and a statement indicating whether the property is new or used, but a statement that indicates new property is used is not a violation of this chapter;
    5. A brief description of any damages to the leased property;
    6. A statement of the cash price of the property. Where the agreement involves a lease of five or more items as a set, in one agreement, a statement of the aggregate cash price of all items shall satisfy this requirement;
    7. The total of initial payments paid or required at or before consummation of the agreement or delivery of the property, whichever is later;
    8. A statement that the total of payments does not include other charges, such as late payment, default, pickup, and reinstatement fees, which fees shall be separately disclosed in the contract;
    9. A statement clearly summarizing the terms of the consumer’s option to purchase, including a statement that the consumer has the right to exercise an early purchase option and the price, formula or method for determining the price at which the property may be so purchased;
    10. A statement identifying the party responsible for maintaining or servicing the property while it is being leased, together with a description of that responsibility, and a statement that if any part of a manufacturer’s express warranty covers the lease property at the time the consumer acquires ownership of the property, it shall be transferred to the consumer, if allowed by the terms of the warranty;
    11. The date of the transaction and the identities of the lessor and consumer;
    12. A statement that the consumer may terminate the agreement without penalty by voluntarily surrendering or returning the property in good repair upon expiration of any lease term along with any past due rental payments; and
    13. Notice of the right to reinstate an agreement as herein provided.
  2. With respect to matters specifically governed by the Federal Consumer Credit Protection Act, compliance with such Act satisfies the requirements of this section.

History. 1988, c. 24.

§ 59.1-207.22. Prohibited practices.

A lease-purchase agreement may not contain:

  1. A confession of judgment;
  2. A negotiable instrument;
  3. A security interest or any other claim of a property interest in any goods except those goods delivered by the lessor pursuant to the lease-purchase agreement;
  4. A wage assignment;
  5. A waiver by the consumer of claims or defenses; or
  6. A provision authorizing the lessor or a person acting on the lessor’s behalf to enter upon the consumer’s premises or to commit any breach of the peace in the repossession of goods.

History. 1988, c. 24.

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 1 Extra-Judicial Procedures. § 1.03 Joint Action of Both Parties. Bryson.

§ 59.1-207.23. Reinstatement.

  1. A consumer who fails to make a timely rental payment may reinstate the agreement, without losing any rights or options which exist under the agreement, by the payment of (i) all past due rental charges, (ii) if the property has been picked up, the reasonable costs of pickup and redelivery, and (iii) any applicable late fee, within five days of the renewal date if the consumer pays monthly, or within two days of the renewal date if the consumer pays more frequently than monthly.
  2. In the case of a consumer who has paid less than two-thirds of the total of payments necessary to acquire ownership and where the consumer has returned or voluntarily surrendered the property, other than through judicial process, during the applicable reinstatement period set forth in subsection A of this section, the consumer may reinstate the agreement during a period of not less than twenty-one days after the date of the return of the property.
  3. In the case of a consumer who has paid two-thirds or more of the total of payments necessary to acquire ownership, and where the consumer has returned or voluntarily surrendered the property, other than through judicial process, during the applicable period set forth in subsection A of this section, the consumer may reinstate the agreement during a period of not less than forty-five days after the date of the return of the property.
  4. Nothing in this section shall prevent a lessor from attempting to repossess property during the reinstatement period, but such a repossession shall not affect the consumer’s right to reinstate. Upon reinstatement, the lessor shall provide the consumer with the same property or substitute property of comparable quality and condition.

History. 1988, c. 24.

§ 59.1-207.24. Receipts and accounts.

A lessor shall provide the consumer a written receipt for each payment made by cash or money order.

History. 1988, c. 24.

§ 59.1-207.25. Renegotiations and extensions.

  1. A renegotiation shall occur when an existing lease-purchase agreement is satisfied and replaced by a new agreement undertaken by the same lessor and consumer. A renegotiation shall be considered a new agreement requiring new disclosures. However, events such as the following shall not be treated as renegotiations:
    1. The addition or return of property in a multiple-item agreement or the substitution of the lease property, if in either case the average payment allocable to a payment period is not changed by more than twenty-five percent;
    2. A deferral or extension of one or more periodic payments, or portions of a periodic payment;
    3. A reduction in charges in the lease or agreement; and
    4. A lease or agreement involved in a court proceeding.
  2. No disclosures are required for any extension of a lease-purchase agreement.

History. 1988, c. 24.

§ 59.1-207.26. Advertising.

  1. If an advertisement for a lease-purchase agreement refers to or states the dollar amount of any payment and the right to acquire ownership for any one specific item, the advertisement shall also clearly and conspicuously state the following items, as applicable:
    1. That the transaction advertised is a lease-purchase agreement;
    2. The total of payments necessary to acquire ownership; and
    3. That the consumer acquires no ownership rights if the total amount necessary to acquire ownership is not paid.
  2. Any owner or personnel of any medium in which an advertisement appears or through which it is disseminated shall not be liable under this section.
  3. The provisions of subsection A of this section shall not apply to an advertisement which does not refer to or state the amount of any payment, or which is published in the yellow pages of a telephone directory or in any similar directory of business.

History. 1988, c. 24.

§ 59.1-207.27. Enforcement; penalties.

Any violation of this chapter shall constitute a prohibited practice under the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of Chapter 17 (§ 59.1-196 et seq.) of this title.

History. 1988, c. 24.

Chapter 17.5. Collision Damage Waiver Act.

§ 59.1-207.28. Title of chapter.

This chapter shall be known and may be cited as the “Collision Damage Waiver Act.”

History. 1988, c. 349.

§ 59.1-207.29. Scope.

This chapter shall apply (i) to all persons in the business of leasing rental motor vehicles from locations in the Commonwealth under an agreement that imposes upon the lessee an obligation to pay for any damages caused to the leased vehicle and (ii) to all peer-to-peer vehicle sharing platforms in the Commonwealth facilitating peer-to-peer vehicle sharing under a vehicle sharing platform agreement that imposes upon the shared vehicle driver an obligation to pay for any damages caused to the shared vehicle. The provisions of this chapter apply solely to the collision damage waiver portion of the rental agreement or vehicle sharing platform agreement. The definitions in § 46.2-1408 apply, mutatis mutandis, to this section.

History. 1988, c. 349; 2020, c. 1266.

The 2020 amendments.

The 2020 amendment by c. 1266, in the first sentence, added clause (ii); in the second sentence, added “or vehicle sharing platform agreement”; added the last sentence; and made a stylistic change.

§ 59.1-207.30. Definitions.

As used in this chapter, the following terms shall have the following meanings:

“Collision damage waiver” means any contract or contractual provision, whether separate from or a part of a motor vehicle rental agreement, whereby the lessor agrees, for a charge, to waive any and all claims against the lessee for any damages to the rental motor vehicle during the term of the rental agreement.

“Lessor” means any person or organization in the business of providing rental motor vehicles to the public.

“Lessee” means any person or organization obtaining the use of a rental motor vehicle from a lessor under the terms of a rental agreement.

“Rental agreement” means any written agreement setting forth the terms and conditions governing the use of the rental motor vehicle by the lessee.

“Rental motor vehicle” means a private passenger type vehicle or commercial type vehicle which, upon execution of a rental agreement, is made available to a lessee for its use.

History. 1988, c. 349.

§ 59.1-207.31. Required notice.

  1. The definitions in § 46.2-1408 apply, mutatis mutandis, to this section.
  2. No lessor or peer-to-peer vehicle sharing platform shall sell or offer to sell to a lessee a collision damage waiver as a part of a rental agreement or vehicle sharing platform agreement unless the lessor or peer-to-peer vehicle sharing platform first provides the lessee or shared vehicle driver the following written notice:NOTICE: THIS CONTRACT OFFERS, FOR AN ADDITIONAL CHARGE, A COLLISION DAMAGE WAIVER TO COVER YOUR RESPONSIBILITY FOR DAMAGE TO THE VEHICLE. BEFORE DECIDING WHETHER TO PURCHASE THE COLLISION DAMAGE WAIVER, YOU MAY WISH TO DETERMINE WHETHER YOUR OWN VEHICLE INSURANCE AFFORDS YOU COVERAGE FOR DAMAGE TO THE RENTAL VEHICLE AND THE AMOUNT OF THE DEDUCTIBLE UNDER YOUR OWN INSURANCE COVERAGE. THE PURCHASE OF THIS COLLISION DAMAGE WAIVER IS NOT MANDATORY AND MAY BE WAIVED.
  3. Such notice shall be made on the face of the rental agreement or vehicle sharing platform agreement either by stamp, label, or as part of the written contract, shall be set apart in boldface type and in no smaller print than 10-point type, and shall include a space for the lessee or shared vehicle driver, as defined in § 46.2-1408 , to acknowledge his receipt of the notice.

History. 1988, c. 349; 2020, c. 1266.

The 2020 amendments.

The 2020 amendment by c. 1266 added subsection A and redesignated accordingly; in subsection B, inserted “or peer-to-peer vehicle sharing platform” twice, “or vehicle sharing platform agreement” and “or shared vehicle driver”; in subsection C, inserted “or vehicle sharing platform agreement” and “or shared vehicle driver, as defined in § 46.2-1408 ” and made stylistic changes.

§ 59.1-207.32. Prohibited exclusion.

No collision damage waiver subject to this chapter shall contain an exclusion from the waiver for damages caused by the ordinary negligence of the lessee or shared vehicle driver, as defined in § 46.2-1408 . Any such exclusion in violation of this section shall be void. This section shall not be deemed to prohibit an exclusion from the waiver for damages caused intentionally by the lessee or shared vehicle driver or as a result of his willful or wanton misconduct or gross negligence, driving while intoxicated or under the influence of any drug or alcohol, or damages caused while engaging in any speed contest.

History. 1988, c. 349; 2020, c. 1266.

The 2020 amendments.

The 2020 amendment by c. 1266, in the first sentence, added “or shared vehicle driver, as defined in § 46.2-1408 ” at the end; and in the last sentence, inserted “or shared vehicle driver.”

§ 59.1-207.33. Enforcement; penalties.

Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.) of this title.

History. 1988, c. 349.

Chapter 17.6. Motor Vehicle Manufacturers’ Warranty Adjustment Act.

§ 59.1-207.34. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Adjustment program” means any extended policy program under which a manufacturer undertakes to pay for all or any part of the cost of repairing, or to reimburse purchasers for all or any part of the cost of repairing, any condition that may substantially affect vehicle durability, reliability or performance, other than service provided under a safety or emission-related recall program. This term shall not include ad hoc adjustments made by a manufacturer on a case-by-case basis.

“Consumer” means the purchaser, other than for purposes of resale, or the lessee of a motor vehicle and shall also include any person to whom such motor vehicle is transferred and any other person entitled by the terms of adjustment program to enforce its obligations.

“Dealer” means any motor vehicle dealer as defined in § 46.2-1500 .

“Division” means the Division of Consumer Counsel in the Department of Law.

“Manufacturer” means any person, whether resident or nonresident, who manufactures, assembles, or imports motor vehicles for sale or distribution in this Commonwealth.

“Motor vehicle” means any motor vehicle as defined in § 46.2-100 , but shall not include any motorcycle or motor home.

History. 1991, c. 300; 2012, cc. 803, 835.

Editor’s note.

Acts 2012, cc. 803 and 835, cl. 16 provides: “That the Governor may transfer an appropriation or any portion thereof within a state agency established, abolished, or otherwise affected by the provisions of the 13th enactment of this act, or from one such agency to another, to support the changes in organization or responsibility resulting from or required by the provisions of the 13th enactment of this act, provided that any such transfer shall be limited to salary and fringe benefits for any personnel transferred and reasonable administrative overhead and costs.”

The 2012 amendments.

The 2012 amendments by cc. 803 and 835, cl. 13, are identical, and deleted the definition of “Board,” which read: “‘Board’ means the Board of Agriculture and Consumer Services.”; and added the paragraph defining “Division.”

Michie’s Jurisprudence.

For related discussion, see 3C M.J. Commercial Law, § 13.

§ 59.1-207.35. Requirements of manufacturers.

Every manufacturer shall:

  1. Inform a consumer of any adjustment program applicable to his motor vehicle and, upon request, furnish the consumer with any document issued by a manufacturer pertaining to any adjustment program or to any condition that may substantially affect vehicle durability, reliability or performance;
  2. Notify, by first-class mail, all owners of motor vehicles eligible under any adjustment program of the condition giving rise to and the principal terms and conditions of such program within ninety days of the adoption of the program; and
  3. Notify its dealers, in writing, of all the terms and conditions of any adjustment program within thirty days of its adoption.

History. 1991, c. 300.

§ 59.1-207.36. Required disclosures.

  1. Every manufacturer or distributor, either directly or through its authorized agent, shall cause a notice to be given to the consumer which outlines the provisions of this chapter and the rights and remedies thereunder. The written notice shall state at minimum: “Sometimes (insert manufacturer’s name) offers a special adjustment program to pay all or part of the cost of certain repairs beyond the terms of the warranty. Check with your dealer to determine whether any adjustment program is applicable to your motor vehicle.”
  2. Every dealer shall disclose to a consumer seeking repairs for a particular condition, the principal terms and conditions of any manufacturer’s adjustment program covering such condition provided the dealer has been notified of the adjustment program pursuant to § 59.1-207.35.

History. 1991, c. 300.

§ 59.1-207.37. Adjustment program reimbursement.

  1. Every manufacturer who establishes any adjustment program shall implement and follow procedures to ensure reimbursement for each consumer eligible under any such program who incurred expenses for repair of the condition subject to the program prior to acquiring knowledge thereof.  Such reimbursement shall be consistent with the terms and conditions of the adjustment program.
  2. Any claim for reimbursement pursuant to this section shall be made in writing to the manufacturer within two years of the date of the consumer’s payment of repairs for the condition. The manufacturer shall notify the consumer in writing within twenty-one business days of receiving a claim for reimbursement whether the claim will be allowed or denied.  If the claim is denied, the specific reasons for such denial shall be stated in writing.

History. 1991, c. 300.

§ 59.1-207.38. Enforcement; penalties.

Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.) of this title. Notwithstanding any other provision to the contrary, it shall not be a violation of this chapter if the manufacturer within thirty days after the conclusion of the notice period required by subdivision 2 of § 59.1-207.35, upon notice from a consumer of the consumer’s eligibility under an adjustment program, repairs or causes to be repaired the consumer’s motor vehicle in accordance with the terms and conditions of the adjustment program.

History. 1991, c. 300; 1996, c. 63.

§ 59.1-207.39. Regulations.

The Division is authorized to promulgate reasonable regulations in order to implement the provisions of this chapter. These regulations shall be adopted, amended, or repealed in accordance with the Administrative Process Act (§ 2.2-4000 et seq.).

History. 1991, c. 300; 2012, cc. 803, 835.

Editor’s note.

Acts 2012, cc. 803 and 835, cl. 16 provides: “That the Governor may transfer an appropriation or any portion thereof within a state agency established, abolished, or otherwise affected by the provisions of the 13th enactment of this act, or from one such agency to another, to support the changes in organization or responsibility resulting from or required by the provisions of the 13th enactment of this act, provided that any such transfer shall be limited to salary and fringe benefits for any personnel transferred and reasonable administrative overhead and costs.”

The 2012 amendments.

The 2012 amendments by cc. 803 and 835, cl. 13, are identical, and substituted “Division” for “Board” near the beginning of the first sentence.

Chapter 17.7. Comparison Price Advertising Act.

§ 59.1-207.40. Definitions.

In addition to the definitions listed in § 59.1-198, as used in this chapter, the following terms shall have the following meanings:

“Former price” or “comparison price” means the direct or indirect comparison in any advertisement whether or not expressed wholly or in part in dollars, cents, fractions, or percentages, and whether or not such price is actually stated in the advertisement.

“Substantial sales” means a substantial aggregate volume of sales of identical or comparable goods or services at or above the advertised comparison price in the supplier’s trade area.

History. 1992, c. 768.

Research References.

The Law of Advertising (Matthew Bender). Rosden and Rosden.

§ 59.1-207.41. Advertising former price of goods or services.

No supplier shall in any manner knowingly advertise a former price of any goods or services unless:

  1. Such former price is the price at or above which substantial sales were made in the recent regular course of business; or
  2. Such former price was the price at which such goods or services or goods or services of substantially the same kind, quality, or quantity and with substantially the same service were openly and actively offered for sale for a reasonably substantial period of time in the recent regular course of business honestly, in good faith and not for the purpose of establishing a fictitious higher price on which a deceptive comparison might be based; or
  3. Such former price is based on a markup that does not exceed the supplier’s cost plus the usual and customary markup used by the supplier in the actual sale of such goods or services or goods or services of substantially the same kind, quality, or quantity and with substantially the same service, in the recent regular course of business; or
  4. The date on which substantial sales were made, or the goods or services were openly and actively offered for sale for a reasonably substantial period of time at the former price is advertised in a clear and conspicuous manner.

History. 1992, c. 768.

§ 59.1-207.42. Advertising comparison price of goods or services.

No supplier shall in any manner knowingly advertise a comparison price which is based on another supplier’s price unless:

  1. The supplier can substantiate that the comparison price is the price offered for sale by another supplier in the regular course of business for goods or services of substantially the same kind and quality, and with substantially the same service in the defined trade area;
  2. The trade area to which the advertisement refers is clearly defined and disclosed; and
  3. A clear and conspicuous disclosure is made in the advertisement that the price used as a basis of comparison is another supplier’s price, and not the supplier’s own price.

History. 1992, c. 768.

§ 59.1-207.43. Use of certain terms in advertising former or comparison prices.

  1. No supplier shall advertise a former or comparison price in terms of “market value,” “valued at” or words of similar import unless such price is the price at which the goods or services, or goods or services of substantially the same kind, quality or quantity, are offered for sale by a reasonable number of suppliers in the supplier’s trade area.
  2. A supplier may advertise a former or comparison price in terms of “manufacturer’s suggested price,” “suggested retail price,” “list price,” or words of similar import provided that, with regard to such advertising, the use of the former or comparison price complies with 15 U.S.C. § 45 (a) (1) and the regulations of the Federal Trade Commission adopted thereunder.

History. 1992, c. 768.

§ 59.1-207.44. Enforcement; penalties.

Any violation of this chapter shall constitute a prohibited practice under the provisions of § 59.1-200 and shall be subject to the enforcement provisions of Chapter 17 (§ 59.1-196 et seq.). It shall be the responsibility of any supplier who uses a comparison price to be able to substantiate the basis for any price comparisons made by the supplier. Upon the request of the Attorney General, any attorney for the Commonwealth, or the attorney of any county, city, or town, a supplier shall provide documentation to substantiate the basis for any comparison price utilized by the supplier in any advertisement governed by this chapter. No provision of this chapter shall be construed to apply to any supplier whose advertising practices are governed by § 46.2-1581 .

History. 1992, c. 768; 2012, cc. 803, 835.

Editor’s note.

Acts 2012, cc. 803 and 835, cl. 16 provides: “That the Governor may transfer an appropriation or any portion thereof within a state agency established, abolished, or otherwise affected by the provisions of the 13th enactment of this act, or from one such agency to another, to support the changes in organization or responsibility resulting from or required by the provisions of the 13th enactment of this act, provided that any such transfer shall be limited to salary and fringe benefits for any personnel transferred and reasonable administrative overhead and costs.”

The 2012 amendments.

The 2012 amendments by cc. 803 and 835, cl. 13, are identical, and deleted “of this title” at the end of the first sentence; and deleted “or the Commissioner of the Virginia Department of Agriculture and Consumer Services” following “city, or town” in the third sentence and made a related change.

Chapter 17.8. Automatic Renewal Offers and Continuous Service Offers.

§ 59.1-207.45. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Automatic renewal” means a plan or arrangement in which a paid subscription or purchasing agreement is automatically renewed at the end of a definite term for a subsequent term.

“Automatic renewal offer terms” means the following clear and conspicuous disclosures:

  1. That the subscription or purchasing agreement will continue until the consumer cancels;
  2. The description of the cancellation policy that applies to the offer;
  3. The recurring charges that will be charged to the consumer’s credit or debit card or payment account with a third party as part of the automatic renewal plan or arrangement and that the amount of the charge may change, if that is the case, and the amount to which the charge will change, if known;
  4. The length of the automatic renewal term or that the service is continuous, unless the length of the term is chosen by the consumer; and
  5. The minimum purchase obligation, if any.

    “Clear and conspicuous” or “clearly and conspicuously” means in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. In the case of an audio disclosure, “clear and conspicuous” or “clearly and conspicuously” means in a volume and cadence sufficient to be readily audible and understandable.

    “Consumer” means any individual who seeks or acquires, by purchase or lease, any goods, services, money, or credit for personal, family, or household purposes.

    “Continuous service” means a plan or arrangement in which a subscription or purchasing agreement continues until the consumer cancels the service.

    “Supplier” has the same meaning ascribed thereto in § 59.1-198.

History. 2018, c. 704.

Editor’s note.

Acts 2018, c. 704, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2019.”

§ 59.1-207.46. Making automatic renewal or continuous service offer to consumer; affirmative consent required; disclosures; prohibited conduct.

  1. No supplier making an automatic renewal or continuous service offer to a consumer in the Commonwealth shall do any of the following:
    1. Fail to present the automatic renewal offer terms or continuous service offer terms in a clear and conspicuous manner before the consumer becomes obligated on the automatic renewal or continuous service offer and in visual proximity, or in the case of an offer conveyed by voice, in temporal proximity, to the request for consent to the offer.
    2. Charge the consumer’s credit or debit card or the consumer’s account with a third party for an automatic renewal or continuous service without first obtaining the consumer’s affirmative consent to the agreement containing the automatic renewal offer terms or continuous service offer terms.
    3. Fail to provide an acknowledgment that includes the automatic renewal or continuous service offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer. If the offer includes a free trial, the supplier shall also disclose in the acknowledgment how to cancel the free trial before the consumer pays or becomes obligated to pay for the goods or services.
  2. A supplier making automatic renewal or continuous service offers shall provide a toll-free telephone number, an electronic mail address, a postal address only when the supplier directly bills the consumer, or another cost-effective, timely, and easy-to-use mechanism for cancellation that shall be described in the acknowledgment specified in subdivision A 3. Each supplier making automatic renewal or continuous service offers through an online website shall make available a conspicuous online option to cancel a recurring purchase of a good or service.
  3. In the case of a material change in the terms of the automatic renewal or continuous service offer that has been accepted by a consumer in the Commonwealth, the supplier shall provide the consumer with a clear and conspicuous notice of the material change and provide information regarding how to cancel in a manner that is capable of being retained by the consumer.
  4. The requirements of this section shall apply only prior to the completion of the initial order for the automatic renewal or continuous service, except:
    1. The requirement in subdivision A 3 may be fulfilled after completion of the initial order; and
    2. The requirement in subsection C shall be fulfilled prior to implementation of the material change.

History. 2018, c. 704; 2022, c. 557.

Editor’s note.

Acts 2018, c. 704, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2019.”

The 2022 amendments.

The 2022 amendment by c. 557, substituted “cancel the free trial” for “cancel and allow the consumer to cancel” in subdivision A 3; and added the last sentence of subsection B.

§ 59.1-207.47. When goods, wares, merchandise, or products deemed a gift.

In any case in which a supplier sends any goods, wares, merchandise, or products to a consumer under a continuous service agreement or automatic renewal of a purchase without first obtaining the consumer’s affirmative consent as described in § 59.1-207.46, the goods, wares, merchandise, or products shall for all purposes be deemed an unconditional gift to the consumer, who may use or dispose of the same in any manner he sees fit without any obligation whatsoever on the consumer’s part to the supplier, including any obligation or responsibility for shipping any goods, wares, merchandise, or products to the supplier.

History. 2018, c. 704.

Editor’s note.

Acts 2018, c. 704, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2019.”

§ 59.1-207.48. Exemptions.

This chapter shall not apply to:

  1. Any service provided by a supplier or its affiliate where either the supplier or its affiliate is doing business pursuant to a franchise issued by a political subdivision of the Commonwealth or a license, franchise, certificate, or other authorization issued by the State Corporation Commission to a public service company or public utility pursuant to Title 56;
  2. Any service provided by a supplier or its affiliate where either the supplier or its affiliate is regulated by the State Corporation Commission, the Federal Communications Commission, or the Federal Energy Regulatory Commission;
  3. Alarm company operators that are regulated pursuant to § 15.2-911 ;
  4. A bank, bank holding company, or the subsidiary or affiliate of either, or a credit union or other financial institution, licensed under federal or state law;
  5. Any home protection company regulated by the State Corporation Commission pursuant to Chapter 26 (§ 38.2-2600 et seq.) of Title 38.2;
  6. Any home service contract provider regulated by the Department of Agriculture and Consumer Services pursuant to Chapter 33.1 (§ 59.1-434.1 et seq.); or
  7. Any health club registered pursuant to the Virginia Health Club Act (59.1-294 et seq.).

History. 2018, c. 704.

Editor’s note.

Acts 2018, c. 704, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2019.”

§ 59.1-207.49. Enforcement; penalties.

Any violation of this chapter shall constitute a prohibited practice under the provisions of § 59.1-200 and shall be subject to the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.). However, if a supplier makes a good faith effort to comply with the requirements of this chapter, the supplier shall not be subject to either a civil penalty under § 59.1-206 or damages under § 59.1-204.

History. 2018, c. 704.

Editor’s note.

Acts 2018, c. 704, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2019.”

Chapter 18. Regulation of Invention Development Services.

§ 59.1-208. Definitions.

As used in this chapter, the following terms shall have the following meanings, unless a different meaning clearly appears from the context:

  1. “Contract for invention development services” means a contract by which an invention developer undertakes invention development services for a customer.
  2. “Customer” means any person, firm, partnership, corporation, or other entity that enters into a contract for invention development services with an invention developer.
  3. “Invention development” means the evaluation, perfection, marketing, brokering, or promotion of an invention by an invention developer, including a patent search, preparation of a patent application, or any other act done by an invention developer for consideration toward the end of procuring or attempting to procure a license, buyer or patent for an invention, but shall not include those acts undertaken by attorneys in the practice of their profession, other persons duly registered to practice before the U.S. Patent and Trademark Office, or persons rendering services to such attorneys or registered persons.
  4. “Invention developer” means any person, firm, partnership, corporation, and any agent, employee, officer, partner or independent contractor thereof, that advertises invention development services in media of general circulation or that contracts with customers procured as a result of such advertisement.
  5. “Invention development service” means acts of invention development required or promised to be performed, or actually performed, or both, by an invention developer for a customer.
  6. “Invention” means a discovery, process, machine, design, formulation, product, concept or idea or any combination thereof.

History. 1977, c. 649.

The numbers of §§ 59.1-208 through 59.1-215 were assigned by the Virginia Code Commission, the numbers in the 1977 act having been 59.1-196 through 59.1-203.

Law Review.

For survey of Virginia commercial law for the year 1976-1977, see 63 Va. L. Rev. 1377 (1977).

For an article, “State Street Bank in the Context of the Software Patent Saga,” see 8 Geo. Mason L. Rev. 307 (1999).

§ 59.1-209. Contracting requirements.

  1. Every contract for invention development services shall be in writing and shall be subject to the provisions of this chapter. A copy of the written contract shall be given to the customer at the time he signs the contract.
  2. If it is the invention developer’s normal practice to seek more than one contract in connection with an invention, or if the invention developer normally seeks to perform services in connection with an invention in more than one phase with the performance of each phase covered in one or more subsequent contracts, at the time the customer signs the first contract, the invention developer shall so state in writing and shall supply to the customer such writing together with a written summary of the developer’s normal terms, if any, of such subsequent contracts, including the amount of the developer’s normal fees or other consideration, if any, that may be required from the customer.
  3. Notwithstanding any contractual provision to the contrary, no payment for invention development services shall be required, made or received until the expiration of a four-working-day period commencing on the date on which the customer receives a copy of the contract for invention development services signed by the invention developer. Delivery of a promissory note, check, bill of exchange or negotiable instrument of any kind to the invention developer or to a third party, irrespective of the date or dates appearing on such instrument, shall be deemed payment for the purpose of this section.
  4. Until the payment specified in this section is made, the parties shall have the option to terminate the contract, which option may be exercised as follows: (i) the customer may exercise the option by refraining from making payment to the invention developer, (ii) the invention developer may exercise the option to terminate by giving to the customer a written notice of its exercise of the option, which written notice shall become effective upon receipt thereof by the customer.

History. 1977, c. 649.

§ 59.1-210. Standard provisions for cover notice.

Every contract for invention development services shall have a conspicuous and legible cover sheet attached with the following notice imprinted thereon in boldface type of not less than 10-point size:

  1. “This contract between you and an invention developer is regulated by Chapter 18 (§ 59.1-208 et seq.) of Title 59.1. You are not permitted or required to make any payments under this contract until four working days after you sign this contract and receive a completed copy of it.”
  2. A statement that the contract is a fee-for-service contract and that the invention developer makes no guarantees as to the success of the invention.
  3. Information as to how a customer who feels that his rights have been violated pursuant to this chapter may lodge a complaint with the Consumer Protection Division at the Office of the Attorney General, including the Division’s telephone number and directions as to how to file an online consumer complaint.Such cover sheet shall contain only the notice required by this section.

History. 1977, c. 649; 2014, c. 759.

The 2014 amendments.

The 2014 amendment by c. 759, substituted “10-point” for “ten-point” in the introductory paragraph; designated the second paragraph as subdivision 1; and added subdivisions 2 and 3.

§ 59.1-211. Interest in inventions prohibited.

No invention developer shall acquire any interest, partial or whole, in the title to the customer’s invention or patent rights, unless the invention developer contracts to manufacture the invention and acquires such interest for such purpose at or about the time the contract for manufacture is executed. Nothing in this section shall be construed to prohibit an invention developer from receiving a portion of any proceeds accruing to the customer as a result of performance of invention development services by the invention developer.

History. 1977, c. 649.

§ 59.1-212. Reports to customer required.

With respect to every contract for invention development services, the invention developer shall deliver to the customer at the address specified in the contract at least at quarterly intervals throughout the term of the contract a written report which identifies the contract and which includes:

  1. A full, clear and concise description of the services performed to the date of the report and of the services yet to be performed; and
  2. A full accounting of the application of the proceeds of the fee referred to in subdivision 6 of § 59.1-213 to the date of the report; and
  3. The name and address of each and every person, firm or corporation to whom the subject matter of the contract has been disclosed, the reason for each and every disclosure, and copies of all responses received as a result of such disclosures.

History. 1977, c. 649.

§ 59.1-213. Mandatory contract terms.

Every contract for invention development services shall set forth in boldface type of not less than ten-point size all of the following:

  1. The terms and conditions of payment required by § 59.1-209.
  2. A full, clear and concise description of the specific acts or services that the invention developer undertakes to perform for the customer; and, to the extent that the description of the specific acts or services affords discretion in the invention developer as to what specific acts or services will be performed, the invention developer shall be deemed a fiduciary.
  3. A statement as to whether the invention developer undertakes to construct, sell or distribute one or more prototypes, models or devices embodying the customer’s invention.
  4. The full name and principal place of business of the invention developer and the name and principal place of business of any parent, subsidiary or affiliated company that may engage in performing any of the invention development services.
  5. The names and addresses of the persons and organizations, other than employees of the invention developer, that may perform any of the invention development services.
  6. A statement of the fee charged, and the proposed specific application of the proceeds of such fee by the invention developer, including but not limited to the approximate portion that will be expended for services relating to patent matters, and all portions of the fee that represent sales commissions, incentive payments, finder’s fees, or any amounts intended to compensate any agent, employee, salesman or other person for procuring the customer.
  7. A statement as to whether the invention developer intends to expend more for the invention development services than the cash fee charged the customer.
  8. If any oral or written representation of estimated or projected customer earnings is given by the invention developer, a statement of such projection or estimation and a description of the data upon which it is based.
  9. A statement as to whether or not the invention developer or any officer thereof is licensed to practice law in any jurisdiction or is a registered patent agent with the United States Patent and Trademark Office.
  10. The name and address of the custodian of all records and correspondence pertaining to the contracted for invention development services, and a statement that the invention developer is required to maintain all records and correspondence relating to performance of the invention development services for that customer for a period of not less than two years after expiration of the term of the contract for invention development services, which records and correspondence will be made available to the customer or his representative for review and copying at the customer’s reasonable expense on the invention developer’s premises during normal business hours upon seven days’ written notice.
  11. A statement setting forth a time schedule for performance of the invention development services, including an estimated date by which performance of the invention development services is expected to be completed.

History. 1977, c. 649.

§ 59.1-214. Remedies.

  1. Any contract for invention development services which does not substantially comply with the applicable provisions of this chapter may be voidable at the option of the customer. Any contract for invention development services entered into in reliance upon any false, fraudulent or misleading information, representation, notice or advertisement of the invention developer may be voidable at the option of the customer. Any waiver by the customer of any of the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
  2. In addition, any customer who has been injured by a violation of this chapter by an invention developer or by any false or fraudulent statement, representation or omission of material fact by an invention developer, or by failure of an invention developer to make all the disclosures required by this chapter, may recover in a civil action against the invention developer, in addition to reasonable costs and attorneys’ fees, the greater of: (i) $1,000, or (ii) the amount of actual damages, if any, sustained by the customer.
  3. For the purpose of this section, substantial violation of any provision of this chapter by an invention developer or execution by the customer of a contract for invention development services in reliance on any such false or fraudulent statements, representations, or material omissions shall establish a rebuttable presumption of injury.

History. 1977, c. 649.

§ 59.1-215. Enforcement; civil penalty; restraint of violations.

  1. For the purpose of enforcing this chapter, the Attorney General is hereby authorized to conduct investigations and hold hearings and compel the attendance of witnesses and the production of accounts, books and documents by the issuance of subpoenas.
  2. The Attorney General shall enforce the provisions of this chapter, and shall have the right to recover a civil penalty not to exceed $10,000 for each and every violation of any provisions of this chapter, and to seek equitable relief to restrain any such violation.

History. 1977, c. 649; 2014, c. 759.

The 2014 amendments.

The 2014 amendment by c. 759, in subsection B, substituted “not to exceed $10,000” for “of not to exceed $3,000.”

Chapter 18.1. Bad Faith Assertions of Patent Infringement.

§ 59.1-215.1. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Assertion of patent infringement” means (i) sending or delivering a demand letter to a target; (ii) threatening a target with litigation asserting, alleging, or claiming that the target has engaged in patent infringement; (iii) sending or delivering a demand letter to the customers of a target; or (iv) otherwise making claims or allegations, other than those made in litigation against a target, that a target has engaged in patent infringement or that a target should obtain a license to a patent in order to avoid litigation.

“Demand letter” means a letter, email, or other communication asserting, alleging, or claiming that the target has engaged in patent infringement, or that a target should obtain a license to a patent in order to avoid litigation, or any similar assertion.

“Patent infringement” means any conduct that constitutes infringement pursuant to applicable law, including 35 U.S.C. § 271, as amended.

“Target” means a person residing in, conducting substantial business in, or having its principal place of business in the Commonwealth and with respect to whom an assertion of patent infringement is made.

History. 2014, cc. 810, 819.

Law Review.

For article, “Patent Trolls and Preemption,” see 101 Va. L. Rev. 1579 (2015).

§ 59.1-215.2. Bad faith assertions of patent infringement.

  1. A person shall not make, in bad faith, an assertion of patent infringement.
  2. The following shall constitute indicia that a person’s assertion of patent infringement was made in bad faith:
    1. The demand letter does not contain:
      1. The number of the patent that is asserted, alleged, or claimed to have been infringed; or
      2. The name and address of the patent’s owner or owners and assignee or assignees, if any.
  3. The following shall constitute indicia that a person’s assertion of patent infringement was not made in bad faith, but the absence of such indicia shall not constitute evidence of bad faith:
    1. The person engages in a reasonable effort under the circumstances to establish that the target has infringed the patent and to negotiate an appropriate remedy.
    2. The person makes a substantial investment in the use of the patent or in the development, production, or sale of a product or item covered by the patent.
    3. The person has:
      1. Demonstrated good faith in previous efforts to enforce the patent or a substantially similar patent; or
      2. Successfully enforced the patent, or a substantially similar patent, through litigation.
  4. The lists of indicia in this section are non-exclusive, and all indicia need not be present for a finding of bad faith or good faith.

2. The person sends a demand letter to a target without first making a reasonable effort under the circumstances to conduct an analysis comparing the claims in the patent to the target’s products, services, and technology, or to identify specific areas in which the products, services, or technology are covered by the claims in the patent.

3. The demand letter does not identify specific areas in which the products, services, and technology are covered by the claims in the patent.

4. The person offers to license the patent for an amount that is not based on a reasonable estimation of the value of a license to the patent.

5. The person making an assertion of patent infringement acts in subjective bad faith, or a reasonable actor in the person’s position would know or reasonably should know that such assertion is baseless.

6. The assertion of patent infringement is deceptive, or the person threatens legal action that cannot legally be taken or that is not intended to be taken.

7. The person or its subsidiaries or affiliates have previously filed or threatened to file one or more lawsuits based on the same or similar assertion of patent infringement, the person attempted to enforce the assertion of patent infringement in litigation, and a court found the assertion to be objectively baseless or imposed sanctions for the assertion.

8. The patent alleged to be infringed was not in force at the time the allegedly infringing conduct occurred, or the patent claims alleged to be infringed have previously been held to be invalid.

4. The person is an institution of higher education or a technology transfer office organization owned by or affiliated with an institution of higher education.

History. 2014, cc. 810, 819.

§ 59.1-215.3. Enforcement; remedies; civil investigative demands; assurances of voluntary compliance; restraining prohibited acts.

  1. Whenever the Attorney General has reasonable cause to believe that any person has engaged in, or is engaging in, or is about to engage in, any violation of this chapter, the Attorney General is empowered to issue a civil investigative demand. The provisions of § 59.1-9.10 shall apply mutatis mutandis to civil investigative demands issued pursuant to this section.
  2. The Attorney General or any attorney for the Commonwealth may accept an assurance of voluntary compliance with this chapter from any person subject to the provisions of this chapter. Any such assurance shall be in writing and be filed with and be subject on petition to the approval of the appropriate circuit court. Such assurance of voluntary compliance shall not be considered an admission of guilt or a violation for any purpose. Such assurance of voluntary compliance may at any time be reopened by the Attorney General or the attorney for the Commonwealth for additional orders or decrees to enforce the assurance of voluntary compliance. When an assurance is presented to the circuit court for approval, the Attorney General or the attorney for the Commonwealth shall file, in the form of a complaint, the allegations that form the basis for the entry of the assurance. The assurance may provide by its terms for any relief that an appropriate circuit court could grant, including but not limited to arbitration of disputes between a person subject to the provisions of this chapter and any targets, investigative expenses, civil penalties, and costs, provided, however, that nothing in this chapter shall be construed to authorize or require the Commonwealth, the Attorney General, or any attorney for the Commonwealth to participate in arbitration of violations under this section.
  3. Notwithstanding any other provisions of law to the contrary, the Attorney General or any attorney for the Commonwealth may cause an action to be brought in the appropriate circuit court in the name of the Commonwealth to enjoin any violation of this chapter. The circuit court having jurisdiction may enjoin such violations notwithstanding the existence of an adequate remedy at law. In any action under this section, it shall not be necessary that damages be proved. Unless the Attorney General or the attorney for the Commonwealth determines that a person subject to the provisions of this chapter intends to depart from the Commonwealth or to remove his property from the Commonwealth, or to conceal himself or his property within the Commonwealth, or on a reasonable determination that irreparable harm may occur if immediate action is not taken, the Attorney General or the attorney for the Commonwealth shall, before initiating any legal proceedings as provided in this section, give notice in writing that such proceedings are contemplated and allow such person a reasonable opportunity to show that a violation did not occur or execute an assurance of voluntary compliance as provided in subsection B. The circuit courts are authorized to issue temporary or permanent injunctions to restrain and prevent violations of this chapter. The circuit court also may award to the Commonwealth a civil penalty of not more than $2,500 for each violation, reasonable expenses incurred in investigating and preparing the case, and attorneys’ fees.
  4. Any person outside the Commonwealth asserting patent infringement to a target shall be deemed to be transacting business within the Commonwealth within the meaning of subdivision A 1 of § 8.01-328.1 and shall thereby be subject to the jurisdiction of the courts of the Commonwealth.
  5. The enforcement provisions of this section shall be exercised solely by the Attorney General or an attorney for the Commonwealth. Nothing in this chapter shall create a private cause of action in favor of any person aggrieved by a violation of this chapter.
  6. Nothing in this chapter authorizes the courts of the Commonwealth, the Attorney General, or any attorney for the Commonwealth to exercise jurisdiction over a claim for relief arising under an Act of Congress relating to patents.

History. 2014, cc. 810, 819.

§ 59.1-215.4. Exemptions.

A demand letter or assertion of patent infringement that includes a claim for relief arising under 35 U.S.C. § 271(e)(2) or 42 U.S.C. § 262 shall not be subject to the provisions of this chapter.

History. 2014, cc. 810, 819.

Chapter 19. Horse Racing and Pari-Mutuel Betting.

§§ 59.1-216 through 59.1-254.

Defeated at referendum.

Editor’s note.

This chapter, relating to horse racing and pari-mutuel betting, was enacted by Acts 1978, c. 600. The 1978 act, which also enacted § 18.2-334.1 , was made subject to referendum held Nov. 7, 1978, and provided that, if approved, the act would become effective Jan. 1, 1979. The act was defeated at the referendum, and therefore never went into effect.

Chapter 20. Virginia Motion Picture Fair Competition Act.

§ 59.1-255. Short title.

This chapter may be known and cited as the “Virginia Motion Picture Fair Competition Act.”

History. 1978, c. 764.

The numbers of §§ 59.1-255 through 59.1-261 were assigned by the Virginia Code Commission, the numbers in the 1978 act having been 59.1-216 through 59.1-222.

Law Review.

For survey of Virginia commercial law for the year 1977-1978, see 64 Va. L. Rev. 1383 (1978).

§ 59.1-256. Purpose of chapter.

The purpose of this chapter is to establish fair and open procedures for the bidding and negotiation for the right to exhibit motion pictures within the Commonwealth in order to prevent unfair and deceptive acts or practices and unreasonable restraints of trade in the business of motion picture distribution within the Commonwealth, to promote fair and effective competition in that business, and to ensure that exhibitors have the opportunity to view a motion picture and know its contents before committing themselves to exhibiting it in their communities.

History. 1978, c. 764.

§ 59.1-257. Definitions.

As used in this chapter:

  1. The term “person” means and includes one or more individuals, partnerships, associations, societies, trusts, organizations, or corporations;
  2. The term “theater” means any establishment in which motion pictures are exhibited to the public regularly for a charge;
  3. The term “distributor” means any person engaged in the business of distributing or supplying motion pictures to exhibitors by rental, sale or licensing;
  4. The term “exhibitor” means any person engaged in the business of operating one or more theaters;
  5. The term “exhibit” or “exhibition” means showing a motion picture to the public for a charge;
  6. The term “invitation to bid” means a written or oral solicitation or invitation by a distributor to one or more exhibitors to bid for the right to exhibit a motion picture;
  7. The term “bid” means a written offer or proposal by an exhibitor to a distributor in response to an invitation to bid for the right to exhibit a motion picture, stating the terms under which the exhibitor will agree to exhibit a motion picture;
  8. The term “license agreement” means any contract, agreement, understanding or condition between a distributor and an exhibitor relating to the licensing or exhibition of a motion picture by the exhibitor;
  9. The term “trade screening” means the showing of a motion picture by a distributor at some location within the Commonwealth or the District of Columbia or Prince Georges and Montgomery Counties, Maryland, which is open to any exhibitor from whom the distributor intends to solicit bids or with whom the distributor intends to negotiate for the right to exhibit the motion picture;
  10. The term “blind bidding” means the bidding for, negotiating for, or offering or agreeing to terms for the licensing or exhibition of a motion picture at any time before such motion picture has either been trade screened within the Commonwealth or the District of Columbia or Prince Georges and Montgomery Counties, Maryland, or before such motion picture, at the option of the distributor, otherwise has been made available for viewing within the Commonwealth, or the District of Columbia or Prince Georges and Montgomery Counties, Maryland, by all exhibitors from whom the distributor is soliciting bids or with whom the distributor is negotiating for the right to exhibit such motion picture; and
  11. The term “run” means the continuous exhibition of a motion picture in a defined geographic area for a specified period of time. A “first run” is the first exhibition of a picture in the designated area; a “second run” is the second exhibition; and “subsequent runs” are subsequent exhibitions after the second run. “Exclusive run” is any run limited to a single theater in a defined geographic area and a “nonexclusive run” is any run in more than one theater in a defined geographic area.

History. 1978, c. 764.

§ 59.1-258. “Blind bidding” prohibited.

  1. Blind bidding is hereby prohibited within the Commonwealth. No bids shall be returnable, no negotiations for the exhibition or licensing of a motion picture shall take place, and no license agreement or any of its terms shall be agreed to, for the exhibition of any motion picture within the Commonwealth before the motion picture has either been trade screened within the Commonwealth or the District of Columbia or Prince Georges and Montgomery Counties, Maryland, or before such motion picture, at the option of the distributor, otherwise has been made available for viewing within the Commonwealth or the District of Columbia or Prince Georges and Montgomery Counties, Maryland, by all exhibitors from whom the distributor is soliciting bids or with whom the distributor is negotiating for the right to exhibit the motion picture.
  2. A distributor shall provide reasonable and uniform notice of the trade screening of any motion picture to those exhibitors within the Commonwealth from whom he intends to solicit bids or with whom he intends to negotiate for the right to exhibit that motion picture.
  3. Any purported waiver of the prohibition against blind bidding in this chapter shall be void and unenforceable.

History. 1978, c. 764.

§ 59.1-259. Bidding procedures.

If bids are solicited from exhibitors for the licensing of a motion picture within the Commonwealth, then:

  1. The invitation to bid shall specify (i) whether the run for which the bid is being solicited is a first, second or subsequent run; (ii) whether the run is an exclusive or nonexclusive run; (iii) the geographic area for the run; (iv) the names of all exhibitors who are being solicited; (v) the date and hour the invitation to bid expires; and (vi) the time, date and the location, including the address, where the bids will be opened, which shall be within the Commonwealth or the District of Columbia or Prince Georges and Montgomery Counties, Maryland.
  2. All bids shall be submitted in writing and shall be opened at the same time and in the presence of those exhibitors, or their agents, who submitted bids and are present at such time.
  3. Immediately upon being opened, the bids shall be subject to examination by exhibitors, or their agents, who submitted bids, and who are present at the opening. Within ten business days after the bids are opened, the distributor shall notify each exhibitor who submitted a bid either the name of the winning bidder or the fact that none of the bids was acceptable.
  4. Once bids are solicited, the distributor shall license the picture only by bidding and may solicit rebids if he does not accept any of the submitted bids.

History. 1978, c. 764.

§ 59.1-260. Civil enforcement; injunction.

Any person who suffers loss or pecuniary damage resulting from a violation of the provisions of this chapter shall be entitled to bring an individual action to recover damages and reasonable attorney’s fees. The provisions of this chapter may be enforced by injunction or any other available equitable or legal remedy.

History. 1978, c. 764.

§ 59.1-261. Repealed by Acts 2015, c. 709, cl. 2.

Editor’s note.

Former § 59.1-261, pertaining to severability, derived from 1978, c. 764.

Chapter 21. Business Opportunity Sales Act.

§ 59.1-262. Short title.

This chapter shall be known and may be cited as the “Business Opportunity Sales Act.”

History. 1979, c. 523.

Law Review.

For survey of Virginia law on business associations for the year 1978-1979, see 66 Va. L. Rev. 205 (1980).

§ 59.1-263. Definitions.

  1. For purposes of this chapter, “business opportunity” means the sale of any products, equipment, supplies or services which are sold to a purchaser upon payment of an initial required consideration exceeding $500 for the purpose of enabling such purchaser to start a business, and in which the seller:
    1. Represents that the seller will provide locations or assist the purchaser in finding locations for the use or operation of vending machines, racks, display cases or other similar devices, or currency-operated amusement machines or devices, on premises neither owned nor leased by the purchaser or seller; or
    2. Represents that it will purchase any or all products made, produced, fabricated, grown, bred or modified by the purchaser using in whole or in part the supplies, services or chattels sold by the seller to the purchaser; or
    3. Guarantees that the purchaser will derive income from the business opportunity which exceeds the price paid for the business opportunity, or that the seller will refund all or part of the price paid for the business opportunity, or repurchase any of the products, equipment, supplies or chattels supplied by the seller, if the purchaser is not satisfied with the business opportunity; or
    4. Represents that the seller will provide a sales program or marketing program which will enable the purchaser to derive income from the business opportunity which exceeds the price paid for the business opportunity.
  2. Exclusions. — Such definition of “business opportunity” shall not include the following:
    1. A security as defined by § 13.1-501 ; or
    2. A franchise as defined in subsection A of § 13.1-559 or § 59.1-21.10; or
    3. A license granted by a general merchandise retailer which allows the licensee to sell goods, equipment, supplies, products or services to the general public under the retailer’s trademark, trade name or service mark, provided that such general merchandise retailer has been doing business in the Commonwealth continuously for five years prior to the granting of such license and such general merchandise retailer also sells the same goods, equipment, supplies, products or services directly to the general public; or
    4. A newspaper distribution system; or
    5. The sale of an on-going business. An “on-going business” as used herein is one which for at least twelve months previous to the sale: (i) has been operated from a specific location, (ii) has been open for business to the general public and (iii) has had all equipment and supplies necessary for operating the business located at such specific location; or
    6. The sale of sales demonstration equipment and materials furnished at cost for use in making sales and not for resale; or
    7. A contract or agreement by which a retailer of goods or services is granted the right to sell goods or services within, or appurtenant to, a retail business establishment as a department or division thereof.

History. 1979, c. 523; 1985, c. 242.

CASE NOTES

Debtor violated the Business Opportunity Act by failing to provide the required disclosure statement and by using untrue and misleading statements in selling the business opportunity. Therefore, plaintiffs were entitled to default judgment for return of the purchase price, compensatory damages, costs, and attorney’s fees. Toothman v. Miller, 145 Bankr. 845, 1991 Bankr. LEXIS 2129 (Bankr. E.D. Va. 1991).

§ 59.1-264. Written disclosure statement required.

  1. At least forty-eight hours prior to the time the purchaser signs a business opportunity contract, or at least forty-eight hours prior to the receipt of any consideration therefor by the seller, whichever occurs first, the seller shall provide the prospective purchaser with a written document, the cover sheet of which is entitled in at least ten-point boldface capital letters “DISCLOSURES REQUIRED BY VIRGINIA LAW.” Under this title shall appear the following statement in at least ten-point type: “The Commonwealth of Virginia has not reviewed and does not approve, recommend, endorse or sponsor any business opportunity. The information contained in this disclosure has not been verified by the Commonwealth. If you have any questions about this investment, see an attorney before you sign a contract or agreement.” Nothing except the title and required statement shall appear on the cover sheet. The disclosure document shall also contain the following:
    1. The name of the seller; whether the seller is doing business as an individual, partnership, or corporation; the names under which the seller has done, is doing or intends to do business in Virginia; and the name of any parent or affiliated company which is legally obligated to engage in business transactions with purchasers.
    2. The names, addresses and titles of the seller’s officers, directors, trustees, general partners, general managers, principal executives, and any other person charged with responsibility for the seller’s business activities relating to the sale of business opportunities.
    3. The length of time the seller has:a. Sold business opportunities;b. Sold business opportunities involving the product, products, equipment, supplies, or services currently being offered to the purchaser.
    4. A full and detailed description of the actual services that the business opportunity seller agrees to perform for the purchaser.
    5. A copy of a financial statement of the seller, which shall not be older than thirteen months, which shall be updated to reflect any material changes in the seller’s financial condition.
    6. The following statement:“If the seller fails to deliver the product, products, equipment or supplies necessary to begin substantial operation of the business within forty-five days of the delivery date stated in your contract, you may notify the seller in writing of your termination of the contract.”
  2. If training of any type is promised by the seller, the disclosure statement shall set forth a complete description of the training and the length of the training.
  3. If the seller promises services to be performed in connection with the placement of the equipment, product, products, or supplies at any location or at various locations, the disclosure statement must set forth the full nature of those services as well as the nature of the agreements to be made with the owners or managers of the location or locations where the purchaser’s equipment, product, products or supplies will be placed.
  4. If the business opportunity seller is required to secure a bond or establish a trust deposit pursuant to § 59.1-265, the document shall state in at least ten-point type, either:
    1. “As required by Virginia law, the seller has secured a bond issued by (name and address of surety company), a surety company authorized to do business in this State. Before signing a contract to purchase this business opportunity, you should check with the surety company to determine the bond’s current status,” or 2. “As required by Virginia law, the seller has established a trust account with (name and address of bank or savings institution). Before signing a contract to purchase this business opportunity, you should check with the bank or savings institution to determine the current status of the trust account.”

      Click to view

  5. If the seller makes any statement concerning sales or earnings or any range of sales or earnings that the purchaser may reasonably expect to be made through this business opportunity, the document shall disclose:
    1. The total number of purchasers of business opportunities within the United States involving the product, products, equipment, supplies or services being offered who, to the seller’s knowledge, have actually received earnings in the amount or range specified, within three years prior to the date of the disclosure statement, and
    2. The total number of purchasers of business opportunities within the United States involving the product, products, equipment, supplies, or services being offered within three years prior to the date of the disclosure statement.

History. 1979, c. 523.

§ 59.1-265. Seller required to obtain bond or establish escrow account; action for damages against bond or account; limitation on liability of surety or escrow agent.

Before the business opportunity seller makes any of the representations set forth in § 59.1-263, the seller shall either have obtained a surety bond issued by a surety company authorized to do business in this Commonwealth or have established an escrow account with any credit union or any licensed and insured commercial bank or savings institution located in the Commonwealth of Virginia. The amount of the bond or escrow account shall be an amount not less than $50,000. Any person who is damaged by any violation of this chapter or by the business opportunity seller’s breach of the contract for the business opportunity sale or of any obligation arising therefrom may bring an action against the bond or escrow account to recover damages suffered; provided, however, that the aggregate escrow liability of the surety or escrow agents under any such bond or escrow account shall be only for actual damages and in no event shall exceed the amount of the bond or escrow account.

History. 1979, c. 523; 1996, c. 77.

§ 59.1-266. Prohibited acts.

No business opportunity seller shall:

  1. Represent that the business opportunity provides income or earning potential of any kind unless the seller has documented data to substantiate the claims of income or earning potential and discloses such data to the prospective purchaser at the time such representations are made; or
  2. Use the trademark, service mark, trade names, logotype, advertising or other commercial symbol of any business which does not either control the ownership interest in the seller or is not legally obligated for all representations made by the seller in regard to the business opportunity, unless it is clear from the circumstances that the owner of the commercial symbol is not involved in the sale of the business opportunity; or
  3. Make or authorize the making of any reference to its compliance with this chapter in any advertisement or other contact with prospective purchasers.

History. 1979, c. 523.

§ 59.1-267. Contracts required to be in writing; contents.

  1. Every business opportunity sales contract shall be in writing and a copy shall be given to the purchaser at the time he signs the contract.
  2. Every contract for the sale of a business opportunity shall include the following:
    1. The terms and conditions of payment;
    2. A full and detailed description of the acts or services that the business opportunity seller undertakes to perform for the purchaser;
    3. The seller’s principal business address and the name and address of its agent in the Commonwealth of Virginia authorized to receive service of process;
    4. A full and detailed description of any product, products, equipment or supplies the business opportunity seller is to deliver to the purchaser;
    5. The approximate delivery date of any product, products, equipment, or supplies the business opportunity seller is to deliver to the purchaser.

History. 1979, c. 523.

§ 59.1-268. Purchaser’s remedies.

If a business opportunity seller (i) uses any untrue or misleading statements in the sale of a business opportunity, (ii) fails to give the proper disclosures in the manner required by § 59.1-264, or (iii) fails to deliver the equipment, supplies, product or products necessary to begin substantial operation of the business within forty-five days of the delivery date stated in the business opportunity contract, or if the contract does not comply with the requirements of § 59.1-267, then, within one year of the date of the contract, upon written notice to seller, the purchaser may void the contract and shall be entitled to receive from the business opportunity seller all sums paid to the business opportunity seller. Upon receipt of such sums, the purchaser shall make available to the seller at the purchaser’s address or at the places at which they are located at the time such notice is given, all product, products, equipment and supplies received by the purchaser. No purchaser shall be entitled to any unjust enrichment by exercise of the remedies provided in this subsection.

Any purchaser injured by (i) a violation of this chapter, (ii) the business opportunity seller’s breach of a contract subject to this chapter, or (iii) by any obligation arising therefrom may bring a civil action for recovery of damages, including reasonable attorney’s fees.

Upon complaint of any person that a business opportunity seller has violated the provisions of this chapter, the circuit court wherein the violation is alleged to have occurred shall have jurisdiction to enjoin such seller from further violations of this chapter.

The remedies provided herein shall be in addition to any other remedies provided for by law or in equity.

History. 1979, c. 523.

CASE NOTES

Debtor violated the Business Opportunity Act by failing to provide the required disclosure statement and by using untrue and misleading statements in selling the business opportunity. Therefore, plaintiffs were entitled to default judgment for return of the purchase price, compensatory damages, costs, and attorney’s fees. Toothman v. Miller, 145 Bankr. 845, 1991 Bankr. LEXIS 2129 (Bankr. E.D. Va. 1991).

§ 59.1-269. Penalty; limitation.

  1. Any person who shall knowingly and willfully make, or cause to be made, any false statement in any disclosure statement or contract subject to the provisions of this chapter, or who shall knowingly and willfully commit any act prohibited by § 59.1-266 with the intent to defraud or to deceive a purchaser as to any material fact shall be guilty of a Class 4 felony.
  2. Any person who shall knowingly make or cause to be made any false statement in any disclosure statement or contract subject to the provisions of this chapter or who shall commit any act prohibited by § 59.1-266 shall be guilty of a Class 1 misdemeanor.
  3. No prosecution under this section shall be begun more than three years from the date of the alleged offense.

History. 1979, c. 523.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

As to punishment for Class 1 misdemeanors, see § 18.2-11 .

Chapter 22. Enterprise Zone Act.

§§ 59.1-270, 59.1-271. Expired.

Editor’s note.

These sections were enacted by Acts 1982, c. 275 and expired July 1, 2005, pursuant to Acts 1995, c. 792 and § 59.1-284.01.

§§ 59.1-272 through 59.1-278. Repealed by Acts 2005, cc. 863 and 884, cl. 2.

§ 59.1-279. Eligibility.

  1. Any business firm may be designated a “qualified business firm” for purposes of this chapter if:
      1. It establishes within an enterprise zone a trade or business not previously conducted in the Commonwealth by such taxpayer and (ii) 25 percent or more of the employees employed at the business firm’s establishment or establishments located within the enterprise zone either have incomes below 80 percent of the median income for the jurisdiction prior to employment or are residents of an enterprise zone. 1. (i) It establishes within an enterprise zone a trade or business not previously conducted in the Commonwealth by such taxpayer and (ii) 25 percent or more of the employees employed at the business firm’s establishment or establishments located within the enterprise zone either have incomes below 80 percent of the median income for the jurisdiction prior to employment or are residents of an enterprise zone.
    1. It (i) is actively engaged in the conduct of a trade or business in an area immediately prior to such an area being designated as an enterprise zone and (ii) increases the average number of full-time employees employed at the business firm’s establishment or establishments located within the enterprise zone by at least 10 percent over the lower of the preceding two years’ employment with no less than 25 percent of such increase being employees who either have incomes below 80 percent of the median income for the jurisdiction prior to employment or are residents of an enterprise zone. Current employees of the business firm that are transferred directly to the enterprise zone facility from another site within the state resulting in a net loss of employment at that site shall not be included in calculating the increase in the average number of full-time employees employed by the business firm within the enterprise zone.
    2. It (i) is actively engaged in the conduct of a trade or business in the Commonwealth and relocates to begin operation of a trade or business within an enterprise zone and (ii) increases the average number of full-time employees employed at the business firm’s establishment or establishments within the enterprise zone by at least ten percent over the lower of the preceding two years’ employment of the business firm prior to relocation with no less than 25 percent of such increase being employees who either have incomes below eighty percent of the median income for the jurisdiction prior to employment or are residents of an enterprise zone. Current employees of the business firm that are transferred directly to the enterprise zone facility from another site within the state resulting in a net loss of employment at that site shall not be included in calculating the increase in the average number of full-time employees employed by the business firm within the enterprise zone.
    3. For the purposes of this section, the term “full-time employee” means (i) an individual employed by a business firm and who works the normal number of hours a week as required by the firm or (ii) two or more individuals who together share the same job position and together work the normal number of hours a week as required by the business firm for that one position. For the purposes of this section, the term “jurisdiction” means the county, city or town which made the application under § 59.1-274 to have the enterprise zone. In the case of a joint application, jurisdiction means all parties making such application.
  2. After designation as a qualified business firm pursuant to this section, each business firm in an enterprise zone shall submit annually to the Department a statement requesting one or more of the tax incentives provided in § 59.1-280 or 59.1-282. Such a statement shall be accompanied by an approved form supplied by the Department and completed by an independent certified public accountant licensed by the Commonwealth which states that the business firm met the definition of a “qualified business firm” and continues to meet the requirements for eligibility as a qualified business firm in effect at the time of its designation. A copy of the statement submitted by each business firm to the Department shall be forwarded to the zone administrator.
  3. The form referred to in subsection B of this section, prepared by an independent certified public accountant licensed by the Commonwealth, shall be prima facie evidence of the eligibility of a business firm for the purposes of this section, but the evidence of eligibility shall be subject to rebuttal. The Department or the Department of Taxation or State Corporation Commission, as applicable, may at its discretion require any business firm to provide supplemental information regarding the firm’s eligibility (i) as a qualified business firm or (ii) for a tax credit claimed pursuant to this chapter.
  4. The provisions of this section shall apply only as follows:
    1. To those qualified business firms that have initiated use of enterprise zone tax credits pursuant to this section on or before July 1, 2005;
    2. To those small qualified business firms and large qualified business firms that have signed agreements with the Commonwealth regarding the use of enterprise zone tax credits in accordance with this section on or before July 1, 2005; provided that in the case of small qualified business firms, the signed agreements must be based on proposals developed by the Commonwealth prior to November 1, 2004.

History. 1982, c. 275; 1983, c. 572; 1988, cc. 236, 374; 1995, c. 792; 1997, cc. 497, 517, 808; 2005, cc. 863, 884.

Cross references.

As to the expiration provision for this chapter, see § 59.1-284.01.

As to regulation of the Enterprise Zone Grant Program by the Department of Housing and Community Development, see 13 VAC 5-112-10 et seq.

Editor’s note.

Sections 59.1-274 and 59.1-282, referred to in subdivision A 4 and subsection B, respectively, were repealed effective July 1, 2005, by Acts 2005, cc. 863 and 884, cl. 2.

Acts 2005, cc. 863 and 884, cl. 3, provides: “That the Board shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

The 2005 amendments.

The 2005 amendments by cc. 863 and 884 are identical, and substituted “25 percent” for “twenty-five percent” in subdivisions A 1, A 2 and A 3, “80 percent” for “eighty percent” in subdivisions A 1 and A 2, “10 percent” for “ten percent” in subdivision A 2, added subdivision D and made a minor stylistic change.

§ 59.1-279.1. Repealed by Acts 2005, cc. 863 and 884, cl. 2.

§ 59.1-280. Enterprise zone business tax credit.

  1. As used in this section:“Business tax credit” means a credit against any tax due under Articles 2 (§ 58.1-320 et seq.) and 10 (§ 58.1-400 et seq.) of Chapter 3, Chapter 12 (§ 58.1-1200 et seq.), Article 1 (§ 58.1-2500 et seq.) of Chapter 25, or Article 2 (§ 58.1-2620 et seq.) of Chapter 26 of Title 58.1 due from a business firm.“Large qualified business firm” means a qualified business firm making qualified zone investments in excess of $15 million when such qualified zone investments result in the creation of at least 50 permanent full-time positions. “Qualified zone investment” and “permanent full-time position” shall have the meanings provided in subsection A of § 59.1-280.1.“Small qualified business firm” means any qualified business firm other than a large qualified business firm.
  2. The Department shall certify annually to the Commissioner of the Department of Taxation, or in the case of business firms subject to tax under Article 2 (§ 58.1-2620 et seq.) of Chapter 26 of Title 58.1 to the Director of Public Service Taxation for the State Corporation Commission, the applicability of the business tax credit provided herein for a qualified business firm. Any certification by the Department pursuant to this section shall not impair the authority of the Department of Taxation or State Corporation Commission to deny in whole or in part any claimed tax credit if the Department of Taxation or State Corporation Commission determines that the qualified business firm is not entitled to such tax credit. The Department of Taxation or State Corporation Commission shall notify the Department in writing upon determining that a business firm is ineligible for such tax credit.
  3. Small qualified business firms shall be allowed a business tax credit in an amount equal to 80 percent of the tax due to the Commonwealth for the first tax year and 60 percent of the tax due the Commonwealth for the second tax year through the tenth tax year.
  4. Large qualified business firms shall be allowed a business tax credit in a percentage amount determined by agreement between the Department and the large qualified business firm, provided such percentage amounts shall not exceed the percentages provided for small qualified business firms as set forth in subsection C.
  5. Any business tax credit not usable may not be applied to future tax years.
  6. When a partnership or a small business corporation making an election pursuant to Subchapter S of the Internal Revenue Code is eligible for a tax credit under this section, each partner or shareholder shall be eligible for the tax credit provided for in this section on his individual income tax in proportion to the amount of income received by that partner from the partnership, or shareholder from his corporation, respectively.
  7. Tax credits provided for in this section shall only apply to taxable income of a qualified business firm attributable to the conduct of business within the enterprise zone. Any qualified business firm having taxable income from business activity both within and without the enterprise zone shall allocate and apportion its Virginia taxable income attributable to the conduct of business as follows:
    1. The portion of a qualified business firm’s Virginia taxable income allocated and apportioned to business activities within an enterprise zone shall be determined by multiplying its Virginia taxable income by a fraction, the numerator of which is the sum of the property factor and the payroll factor, and the denominator of which is two.
      1. The property factor is a fraction. The numerator is the average value of real and tangible personal property of the business firm which is used in the enterprise zone. The denominator is the average value of real and tangible personal property of the business firm used everywhere in the Commonwealth.
      2. The payroll factor is a fraction. The numerator is the total amount paid or accrued within the enterprise zone during the taxable period by the business firm for compensation. The denominator is the total compensation paid or accrued everywhere in the Commonwealth during the taxable period by the business firm for compensation.
  8. Tax credits awarded under this section and under § 59.1-280.1 shall not exceed $7.5 million annually until the end of fiscal year 2019.
  9. The provisions of this section shall apply only as follows:
    1. To those qualified business firms that have initiated use of enterprise zone tax credits pursuant to this section on or before July 1, 2005;
    2. To those small qualified business firms and large qualified business firms that have signed agreements with the Commonwealth regarding the use of enterprise zone tax credits in accordance with this section on or before July 1, 2005; provided that in the case of small qualified business firms, the signed agreements must be based on proposals developed by the Commonwealth prior to November 1, 2004.

2. The property factor and the payroll factor shall be determined in accordance with the procedures established in §§ 58.1-409 through 58.1-413 for determining the Virginia taxable income of a corporation having income from business activities which is taxable both within and without the Commonwealth, mutatis mutandis.

3. If a qualified business firm believes that the method of allocation and apportionment hereinbefore prescribed as administered has operated or will operate to allocate or apportion to an enterprise zone a lesser portion of its Virginia taxable income than is reasonably attributable to business conducted within the enterprise zone, it shall be entitled to file with the Department of Taxation a statement of its objections and of such alternative method of allocation or apportionment as it believes to be appropriate under the circumstances with such detail and proof and within such time as the Department of Taxation may reasonably prescribe. If the Department of Taxation concludes that the method of allocation or apportionment employed is in fact inequitable or inapplicable, it shall redetermine the taxable income by such other method of allocation or apportionment as best seems calculated to assign to an enterprise zone the portion of the qualified business firm’s Virginia taxable income reasonably attributable to business conducted within the enterprise zone.

History. 1982, c. 275; 1983, c. 572; 1988, c. 236; 1992, c. 301; 1995, c. 792; 1996, c. 77; 1997, c. 517; 1998, c. 759; 2003, c. 676; 2005, cc. 863, 884; 2009, cc. 207, 271; 2011, c. 850.

Cross references.

As to the expiration provision for this chapter, see § 59.1-284.01.

Editor’s note.

Acts 1992, c. 301, cl. 2, as amended by Acts 1995, c. 792, cl. 2, provides: “That the provisions of this act shall apply to qualified business firms which begin operations within an enterprise zone on or after July 1, 1992, or which are first designated as qualified business firms on or after July 1, 1995.”

Acts 2005, cc. 863 and 884, cl. 3, provides: “That the Board shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

The 2003 amendments.

The 2003 amendment by c. 676, in subsection A, added the paragraph defining “High investment/limited job creation qualified business firm”; in the paragraph defining “Large qualified business firm,” substituted “50” for “fifty”; and in the paragraph defining “Small qualified business firm,” added “or a high investment/limited job creation qualified business firm”; in subsection C, substituted “80” for “eighty” and “60” for “sixty”; in the second sentence of subsection D, inserted present clause (ii), redesignated former clause (ii) as present clause (iii), and substituted “$3 million” for “three million dollars”; inserted present subsection E; and redesignated former subsections E through G as present subsections F through H.

The 2005 amendments.

The 2005 amendments by cc. 863 and 884 are identical, and deleted the last sentence in subsection C relating to “tax credits granted to small business firms and qualified zone residents,” deleted the last sentence in subsection D relating to “tax credits granted to large business firms, high investment/limited job creation and large qualified zone residents,” deleted the last sentence in subsection F relating to “tax credits granted for qualified business firms prior to July 1, 1995” and added subsections I and J.

The 2009 amendments.

The 2009 amendments by cc. 207 and 271 are identical, and in subsection A, deleted the paragraph defining “High investment/limited job creation qualified business firm” and “or a high investment/limited job creation qualified business firm” at the end of the paragraph defining “Small qualified business firm”; deleted subsection E; and redesignated former subsections F through J as subsections E through I.

The 2011 amendments.

The 2011 amendment by c. 850, effective for the taxable year commencing on or after January 1, 2013, deleted “(i) business firms subject to tax under Article 1 (§ 58.1-2500 et seq.) of Chapter 25 of Title 58.1 to the Commissioner of Insurance for the State Corporation Commission, or (ii)” following “or in the case of” in the first sentence in subsection B.

Law Review.

For an article, “Taxation,” see 31 U. Rich. L. Rev. 1221 (1997).

For survey article on developments in the law affecting Virginia taxation, see 38 U. Rich. L. Rev. 267 (2003).

§ 59.1-280.1. Enterprise zone real property investment tax credit.

  1. As used in this section:“Large qualified zone resident” means a qualified zone resident making qualified zone investments in excess of $100 million when such qualified zone investments result in the creation of at least 200 permanent full-time positions.“Permanent full-time position” means a job of an indefinite duration at a business firm located within an enterprise zone requiring the employee to report for work within the enterprise zone, and requiring either (i) a minimum of 35 hours of an employee’s time a week for the entire normal year of the business firm’s operations, which “normal year” must consist of at least 48 weeks, (ii) a minimum of 35 hours of an employee’s time a week for the portion of the taxable year in which the employee was initially hired for, or transferred to, the business firm, or (iii) a minimum of 1,680 hours per year if the standard fringe benefits are paid by the business firm for the employee. Seasonal or temporary positions, or a position created when a job function is shifted from an existing location in the Commonwealth to a business firm located within an enterprise zone shall not qualify as permanent full-time positions.“Qualified zone improvements” means the amount expended for improvements to rehabilitate or expand depreciable real property placed in service during the taxable year within an enterprise zone, provided that the total amount of such improvements equals or exceeds (i) $50,000 and (ii) the assessed value of the original facility immediately prior to the rehabilitation or expansion. “Qualified zone expenditures” includes any such expenditure regardless of whether it is considered properly chargeable to a capital account or deductible as a business expense under federal Treasury Regulations.Qualified zone improvements include expenditures associated with any exterior, structural, mechanical, or electrical improvements necessary to expand or rehabilitate a building for commercial or industrial use and excavations, grading, paving, driveways, roads, sidewalks, landscaping, or other land improvements. Qualified zone improvements shall include, but not be limited to, costs associated with demolition, carpentry, sheetrock, plaster, painting, ceilings, fixtures, doors, windows, fire suppression systems, roofing and flashing, exterior repair, cleaning, and cleanup.Qualified zone improvements shall not include:
    1. The cost of acquiring any real property or building; however, the cost of any newly constructed depreciable nonresidential real property (excluding land, land improvements, paving, grading, driveways, and interest) shall be considered to be a qualified zone improvement eligible for the credit if the total amount of such expenditure is at least $250,000 with respect to a single facility.
      1. The cost of furnishings; (ii) any expenditure associated with appraisal, architectural, engineering and interior design fees; (iii) loan fees, points, or capitalized interest; (iv) legal, accounting, realtor, sales and marketing, or other professional fees; (v) closing costs, permits, user fees, zoning fees, impact fees, and inspection fees; (vi) bids, insurance, signage, utilities, bonding, copying, rent loss, or temporary facilities incurred during construction; (vii) utility hook-up or access fees; (viii) outbuildings; or (ix) the cost of any well or septic or sewer system. 2. (i) The cost of furnishings; (ii) any expenditure associated with appraisal, architectural, engineering and interior design fees; (iii) loan fees, points, or capitalized interest; (iv) legal, accounting, realtor, sales and marketing, or other professional fees; (v) closing costs, permits, user fees, zoning fees, impact fees, and inspection fees; (vi) bids, insurance, signage, utilities, bonding, copying, rent loss, or temporary facilities incurred during construction; (vii) utility hook-up or access fees; (viii) outbuildings; or (ix) the cost of any well or septic or sewer system.
    2. The basis of any property: (i) for which a credit under this section was previously granted; (ii) which was previously placed in service in Virginia by the taxpayer, a related party as defined by Internal Revenue Code § 267 (b), or a trade or business under common control as defined by Internal Revenue Code § 52 (b); or (iii) which was previously in service in Virginia and has a basis in the hands of the person acquiring it, determined in whole or in part by reference to the basis of such property in the hands of the person from whom acquired or Internal Revenue Code § 1014 (a).“Qualified zone investments” means the sum of qualified zone improvements and the cost of machinery, tools and equipment used in manufacturing tangible personal property within an enterprise zone. For purposes of this section, machinery, tools and equipment shall only be deemed to include the cost of such property which is placed in service in the enterprise zone on or after July 1, 1995. Machinery, tools and equipment shall not include the basis of any property: (i) for which a credit under this section was previously granted; (ii) which was previously placed in service in Virginia by the taxpayer, a related party as defined by Internal Revenue Code § 267 (b), or a trade or business under common control as defined by Internal Revenue Code § 52 (b); or (iii) which was previously in service in Virginia and has a basis in the hands of the person acquiring it, determined in whole or part by reference to the basis of such property in the hands of the person from whom acquired, or Internal Revenue Code § 1014 (a).“Qualified zone resident” means an owner or tenant of real property located in an enterprise zone who expands or rehabilitates such real property to facilitate the conduct of a trade or business within the enterprise zone.“Real property investment tax credit” means a credit against the taxes imposed by Articles 2 (§ 58.1-320 et seq.) and 10 (§ 58.1-400 et seq.) of Chapter 3, Chapter 12 (§ 58.1-1200 et seq.), Article 1 (§ 58.1-2500 et seq.) of Chapter 25, or Article 2 (§ 58.1-2620 et seq.) of Chapter 26 of Title 58.1.“Small qualified zone resident” means any qualified zone resident other than a large qualified zone resident.
  2. For all taxable years beginning on and after July 1, 1995, but before July 1, 2005, a qualified zone resident shall be allowed a real property investment tax credit as set forth in this section.
  3. For any small qualified zone resident, a real property investment tax credit shall be allowed in an amount equaling 30 percent of the qualified zone improvements. Any tax credit granted pursuant to this subsection is refundable; however, in no event shall the cumulative credit allowed to a small qualified zone resident pursuant to this subsection exceed $125,000 in any five-year period.
  4. For any large qualified zone resident, a real property investment tax credit shall be allowed in an amount of up to five percent of such qualified zone investments. The percentage amount of the real property investment tax credit granted to a large qualified zone resident shall be determined by agreement between the Department and the large qualified zone resident, provided such percentage amount shall not exceed five percent. The real property investment tax credit provided by this subsection shall not exceed the tax imposed for such taxable year, but any credit not usable for the taxable year generated may be carried over until the full amount of such credit has been utilized.
  5. The Department shall certify the nature and amount of qualified zone improvements and qualified zone investments eligible for a real property investment tax credit in any taxable year. Only qualified zone improvements and qualified zone investments that have been properly certified shall be eligible for the credit. Any form filed with the Department of Taxation or State Corporation Commission for the purpose of claiming the credit shall be accompanied by a copy of the certification furnished to the taxpayer by the Department. Any certification by the Department pursuant to this section shall not impair the authority of the Department of Taxation or State Corporation Commission to deny in whole or in part any claimed tax credit if the Department of Taxation or State Corporation Commission determines that the taxpayer is not entitled to such tax credit. The Department of Taxation or State Corporation Commission shall notify the Department in writing upon determining that a taxpayer is ineligible for such tax credit.
  6. In the case of a partnership, limited liability company or S corporation, the term “qualified zone resident” as used in this section means the partnership, limited liability company or S corporation. Credits granted to a partnership, limited liability company or S corporation shall be passed through to the partners, members or shareholders, respectively.
  7. The Tax Commissioner shall have the authority to issue regulations relating to the computation and carryover of the credit provided under this section.
  8. In the first taxable year only, the credit provided in this section shall be prorated equally against the taxpayer’s estimated payments made in the third and fourth quarters and the final payment, if such taxpayer is required to make quarterly payments.
  9. Tax credits awarded under this section and under § 59.1-280 shall not exceed $7.5 million annually until the end of fiscal year 2019.
  10. The provisions of this section shall apply only as follows:
    1. To those large qualified zone residents that have initiated use of enterprise zone tax credits pursuant to this section on or before July 1, 2005;
    2. To those large qualified zone residents that have signed agreements with the Commonwealth regarding the use of enterprise zone tax credits in accordance with this section on or before July 1, 2005.

History. 1995, c. 792; 1997, cc. 517, 634, 669; 1998, c. 759; 2005, cc. 863, 884; 2017, c. 451.

Cross references.

As to the expiration provision for this chapter, see § 59.1-284.01.

Editor’s note.

Acts 2005, cc. 863 and 884, cl. 3, provides: “That the Board shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

The 2005 amendments.

The 2005 amendments by cc. 863 and 884 are identical, and deleted “by such owner or tenant” preceding “within” in the paragraph defining “Qualified zone resident,” deleted the last sentence in subsection C relating to “tax credits granted to small qualified zone residents and business firms,” deleted the former third sentence in subsection D relating to “tax credits granted to large qualified zone residents and business firms,” added subsections I and J and made minor stylistic changes.

The 2017 amendments.

The 2017 amendment by c. 451, in the definition of “Qualified zone improvements” in subsection A, substituted “expended” for “properly chargeable to a capital account” in the first sentence and added the second sentence.

§ 59.1-280.2. Repealed by Acts 2005, cc. 863 and 884, cl. 2.

§ 59.1-281. Repealed by Acts 1983, c. 572.

§ 59.1-282. Repealed by Acts 2005, cc. 863 and 884, cl. 2.

§§ 59.1-282.1, 59.1-282.2.

Repealed by Acts 2009, cc. 207 and 271, cl. 3.

Editor’s note.

Former §§ 59.1-282.1 and 59.1-282.2, pertaining to grants for creating permanent full-time positions, eligibility, and the Enterprise Zone Grant Fund, was derived from Acts 1995, c. 792; 1997, cc. 634, 669; 2005, cc. 863, 884.

§§ 59.1-282.3 through 59.1-284.

Repealed by Acts 2005, cc. 863 and 884, cl. 2.

§ 59.1-284.01. Expiration of chapter; exceptions.

  1. All provisions of this chapter except §§ 59.1-279, 59.1-280, 59.1-280.1, 59.1-282.1, 59.1-282.2 and this section shall expire on July 1, 2005, unless extended by an act of the General Assembly.
  2. All enterprise zones designated pursuant to §§ 59.1-274, 59.1-274.1, and 59.1-274.2 as those were in effect prior to July 1, 2005 shall continue in effect until the end of their 20-year designation period. Such zones shall be governed by the provisions of Chapter 49 (§ 59.1-538 et seq.).

History. 1995, c. 792; 2005, cc. 863, 884.

Editor’s note.

Acts 2005, cc. 863 and 884, cl. 3, provides: “That the Board shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

Subsection A of this section refers to §§ 59.1-282.1 and 59.1-282.2, which were repealed by Acts 2009, cc. 207 and 271, cl. 3.

The 2005 amendments.

The 2005 amendments by cc. 863 and 884 are identical, and in the first paragraph, inserted the A designation at the beginning, “except §§ 59.1-279, 59.1-280, 59.1-280.1, 59.1-282.1, 59.1-282.2 and this section,” added subsection B and made a minor stylistic change.

Chapter 22.1. The Virginia Economic Development Revolving Fund.

§§ 59.1-284.1 through 59.1-284.6.

Repealed by Acts 2005, c. 624, cl. 2.

Editor’s note.

Repealed § 59.1-284.5 was previously repealed by Acts 1995, c. 128.

Acts 2005, c. 624, cl. 3, provides: “That the Secretary of Commerce and Trade is hereby authorized to approve the transfer of the assets and associated records of the Virginia Economic Development Revolving Fund established under the provisions of Chapter 22.1 (§ 59.1-284.1 et seq.) of Title 59.1 of the Code of Virginia, from the Small Business Financing Authority to an eligible qualifying community development financial institution (“CDFI”). An eligible qualifying CDFI shall be a community development bank or community development credit union that the Secretary of Commerce and Trade finds is (i) established to conduct business legally within the Commonwealth; (ii) subject to oversight by federal or state financial institution or insurance regulatory agencies, as appropriate; and (iii) eligible for certification by the U.S. Department of Treasury as a community development financial institution. The transferred funds shall be used for the purpose of providing a portion of the initial capitalization of the community development bank or community development credit union that is designated as the eligible qualifying CDFI. The community development bank or community development credit union is intended to be a source of targeted lending and investment with the capacity to provide a high degree of leveraging for economic development and housing activities within distressed communities throughout the Commonwealth. These activities may include mortgage financing for first-time buyers, financing for needed community facilities, commercial loans and investments to start or expand small businesses, loans to rehabilitate rental housing, and financial services needed by low-income households and local businesses. The CDFI may also provide services that help ensure that credit is used effectively, such as technical assistance to small businesses and credit counseling to consumers.”

Acts 2005, c. 624, cl. 4, provides: “That on or before December 1, 2005, the Secretary of Commerce and Trade shall report to the General Assembly on the implementation of this act.”

Chapter 22.2. The Blue Ridge Economic Development Revolving Fund.

§§ 59.1-284.7 through 59.1-284.12.

Repealed by Acts 2004, c. 872.

Chapter 22.3. Semiconductor Manufacturing Performance Grant Programs.

§§ 59.1-284.13 through 59.1-284.15.1.

Repealed by Acts 2015, c. 761, cl. 3, effective July 1, 2016.

Editor’s note.

Former § 59.1-284.13, pertaining to the Semiconductor Manufacturing Performance Grant Program; eligible counties, derived from Acts 1996, cc. 642, 652; 2007, c. 813. Former § 59.1-284.14, pertaining to Semiconductor Memory or Logic Wafer Manufacturing Performance Grant Program; eligible cities, derived from Acts 1996, cc. 645, 651; 2001, c. 863; 2007, c. 813. Former § 59.1-284.14:1, pertaining to grants for capital investments made and jobs created by qualified semiconductor manufacturers, derived from Acts 2001, c. 863; 2005, c. 392. Former § 59.1-284.15, pertaining to Semiconductor Memory or Logic Wafer Manufacturing Performance Grant Program II, derived from Acts 1997, c. 789; 2001, c. 863; 2007, c. 813. Former § 59.1-284.15:1, pertaining to grants for additional employment and new capital investment, derived from Acts 2001, c. 863; 2005, c. 392.

Chapter 22.4. Information Technology Employment Performance Grant Program.

§§ 59.1-284.16 through 59.1-284.19.

Repealed by Acts 2004, c. 872, cl. 13, effective May 4, 2005.

Editor’s note.

Acts 2004, c. 872, cl. 13, provides: “That notwithstanding the revisions of the first enactment and the second enactment, Chapter 22.4 (§§ 59.1-284.16 through 59.1-284.19) of Title 59.1 of the Code of Virginia is repealed if no specific appropriation has been made to the Information Technology Employment Performance Grant Program for fiscal year 2004 or fiscal year 2005.” No appropriation was made for fiscal years 2004 and 2005.

Repealed § 59.1-284.17 was amended by Acts 2005, cc. 863 and 884.

Former § 59.1-284.19 was previously repealed by Acts 2004, c. 872, cl. 2.

Chapter 22.5. Aerospace Engine Manufacturing Performance Grant Program.

§ 59.1-284.20. Aerospace Engine Manufacturing Performance Grant Program; eligible county.

  1. As used in this section:“Affiliate” means with respect to any person, any other person directly or indirectly controlling, controlled by, or under common control with such person. For purposes of this definition, “control” (including “controlled by” and “under common control with”) shall mean the power, directly or indirectly, to direct or cause the direction of the management and policies of such person whether through ownership or voting securities or by contract or otherwise.“Capital investment” means an investment in real property, tangible personal property, or both, within the Commonwealth that is capitalized.“Eligible county” means Prince George County.“Grant” means the aerospace engine manufacturing performance grant as described in this section.“Manufacture of aerospace engines” means (i) the manufacture or assembly and test of aircraft engines and engine parts; (ii) the design or development of aircraft engines and engine parts; or (iii) the manufacturing activities of a private company described under 2007 index number 336412 of the North American Industry Classification System.“Memorandum of understanding” means a performance agreement entered into accordance with a memorandum of understanding entered into on November 20, 2007, among a qualified manufacturer, the Commonwealth, and others setting forth the requirements for capital investment and the creation of new full-time jobs that will make the qualified manufacturer eligible for a grant under this section.“New full-time job” means employment of an indefinite duration in an eligible county, created as the direct result of new capital investment, for which the average annual wage is at least equal to the prevailing average annual wage in an eligible county and for which the standard fringe benefits are paid by the qualified manufacturer, requiring a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of such manufacturer’s operations, which “normal year” must consist of at least 48 weeks or (ii) 1,680 hours per year. Seasonal or temporary positions, and positions created when a job function is shifted from an existing location in the Commonwealth shall not qualify as new full-time jobs under this section. Other positions, which may or may not be of indefinite duration, including supplemental employees of affiliates, subsidiaries, joint ventures, contractors, or subcontractors may be considered new full-time jobs, if so designated in the memorandum of understanding between such manufacturer, the Commonwealth, and others as such memorandum of understanding was in effect on November 20, 2007.“Qualified manufacturer” means a manufacturer that (i) is expected to make a capital investment of at least $500 million by June 30, 2023, in an eligible county related to the manufacture of aerospace engines and (ii) is expected to create at least 540 jobs in an eligible county for the manufacture of aerospace engines or activities ancillary or supportive of such manufacture.“Secretary” means the Secretary of Commerce and Trade or his designee.
  2. Any qualified manufacturer that, after July 1, 2008, first begins operations in an eligible county shall be eligible to receive a grant each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2013, and ending with the Commonwealth’s fiscal year starting on July 1, 2022, unless such time frame is extended in accordance with subsection E. The grants under this section (i) shall be paid, subject to appropriation by the General Assembly, from a fund entitled the Aerospace Engine Manufacturing Performance Grant Fund, which Fund is hereby established on the books of the Comptroller, (ii) shall not exceed $35 million in the aggregate, and (iii) shall be paid to the qualified manufacturer during each fiscal year contingent upon the qualified manufacturer meeting the requirements for the aggregate (a) number of new full-time jobs created and the substantial retention of the same and (b) amount of the capital investment made and substantially retained as set forth in the memorandum of understanding.
  3. If grants to be paid to qualified manufacturers under this section in a fiscal year exceed the aggregate amount available in the Aerospace Engine Manufacturing Performance Grant Fund for that year, each qualified manufacturer’s grants for the year shall equal the amount of grants to which the qualified manufacturer would otherwise be eligible multiplied by a fraction. The numerator of the fraction shall equal the aggregate amount available for payment from the Aerospace Engine Manufacturing Performance Grant Fund for that fiscal year, and the denominator shall equal the aggregate dollar amount of grants to which all qualified manufacturers otherwise would be eligible for such fiscal year.The aggregate amount of the grants payable under this section shall be subject to the following requirements and limitations:
    1. Grants shall be awarded after July 1, 2013, and before July 1, 2023, unless such time frame is extended in accordance with subsection E.
    2. The amount of the grant to be paid in each fiscal year shall be conditional upon the qualified manufacturer meeting the requirements for the (i) aggregate number of new full-time jobs created and the substantial retention of the same throughout the calendar year that immediately precedes the end of such fiscal year, and (ii) aggregate amount of the capital investment made and substantially retained as of the last day of the calendar year that immediately precedes the end of such fiscal year as set forth in the memorandum of understanding entered into on November 20, 2007. Grants shall be paid based upon such requirements as agreed to on November 20, 2007, regardless if such memorandum of understanding is later modified, amended, superseded, or otherwise changed.
    3. The aggregate amount of grants that may be awarded in a particular fiscal year shall not exceed the following:
      1. $5.5 million for the Commonwealth’s fiscal year beginning July 1, 2013;
      2. $11 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2014;
      3. $14 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2015;
      4. $17 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2016;
      5. $20 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2017;
      6. $23 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2018;
      7. $26 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2019;
      8. $29 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2020;
      9. $32 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2021; and
      10. $35 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2022.
  4. Any qualified manufacturer applying for a grant under this section shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs created and the substantial retention of the same throughout the calendar year that immediately precedes the end of the fiscal year in which the grant is to be paid, and (ii) the aggregate amount of the capital investment made and substantially retained as of the last day of the calendar year that immediately precedes the end of the fiscal year in which the grant is to be paid. The application and evidence shall be filed with the Secretary in person or by mail no later than April 1 each year following the calendar year in which the qualified manufacturer meets such aggregate new full-time job requirements and aggregate capital investment. Failure to meet the filing deadline shall result in a deferral of a scheduled grant payment set forth in subsection C. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  5. The memorandum of understanding may provide that if a grant payment has been deferred for any reason, including the initial failure to meet the aggregate capital investment and the aggregate new full-time job requirements set forth in the memorandum of understanding or the occurrence of any substantial reduction in such new full-time job requirements or capital investment requirements after such requirements have been met but before the grant payment has been made, payment in a subsequent fiscal year for which such requirements have been met for the immediately preceding calendar year shall include both the deferred payment and the scheduled grant payment as provided in subsection C.
  6. Within 30 days after the filing deadline in subsection D, the Secretary shall certify to (i) the Comptroller and (ii) each qualified manufacturer the amount of the grant to which such qualified manufacturer is entitled under this section for payment in the current fiscal year. Payment of such grant shall be made by check issued by the Treasurer of Virginia on warrant of the Comptroller by June 30 of such fiscal year.
  7. As a condition of receipt of a grant, a qualified manufacturer shall make available to the Secretary or his designee for inspection upon his request all relevant and applicable documents to determine whether the qualified manufacturer has met the requirements for the receipt of grants as set forth in this section and subject to the memorandum of understanding. The Comptroller shall not draw any warrants to issue checks for the grant program under this section without a specific appropriation for the same. All such documents appropriately identified by the qualified manufacturer shall be considered confidential and proprietary.

4. Grants provided by this section shall not exceed $35 million in the aggregate.

History. 2008, cc. 256, 630.

§ 59.1-284.21. Aerospace Engine Manufacturing Supplier Cluster Bonus Performance Grant Program; eligible county.

  1. As used in this section:“Affiliate” means the same as such term is defined in § 59.1-284.20.“Capital investment” means the same as such term is defined in § 59.1-284.20.“Eligible county” means Prince George County.“Grant” means the aerospace engine manufacturing supplier cluster bonus performance grant as described in this section.“Memorandum of understanding” means a performance agreement entered into accordance with a memorandum of understanding entered into on November 20, 2007, among a qualified manufacturer, the Commonwealth, and others setting forth the requirements for capital investment and the creation of new full-time jobs by qualified suppliers that will make the qualified manufacturer eligible for a grant under this section.“New full-time job” means employment of an indefinite duration in the Commonwealth, created as the direct result of new capital investment, for which the average annual wage is at least equal to the prevailing average annual wage in the applicable locality and for which the standard fringe benefits are paid by the qualified supplier, requiring a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of such supplier’s operations, which “normal year” must consist of at least 48 weeks or (ii) 1,680 hours per year. Seasonal or temporary positions, and positions created when a job function is shifted from an existing location in the Commonwealth shall not qualify as new full-time jobs under this section.“Qualified manufacturer” means the same as such term is defined in § 59.1-284.20.“Qualified supplier” means a manufacturer, assembler, distributor, or service provider on a qualified supplier list that (i) first begins doing business at a location within the Commonwealth or (ii) expands its business at a location within the Commonwealth subsequent to a qualified manufacturer commencing construction of a manufacturing, assembly, and testing facility in an eligible county. A “qualified supplier” shall deliver or provide ancillary parts, tools, or other components used by the qualified manufacturer within the Commonwealth or provide ancillary services within the Commonwealth for such qualified manufacturer. A qualified supplier shall not be an affiliate of a qualified manufacturer.“Qualified supplier cluster” means the aggregate of qualified suppliers.“Qualified supplier list” means a list of prospective qualified suppliers submitted by a qualified manufacturer to the Secretary no less frequently than annually.“Secretary” means the Secretary of Commerce and Trade or his designee.
    1. Any qualified manufacturer who attracted a qualified supplier on its qualified supplier list (i) first beginning to do business at a location within the Commonwealth subsequent to the qualified manufacturer commencing construction in an eligible county or (ii) expanding its business at a location within the Commonwealth subsequent to the qualified manufacturer commencing construction in an eligible county shall be eligible for a grant under this section. However, no grant shall be paid to the qualified manufacturer unless the qualified supplier cluster (all of which qualified suppliers are on the qualified supplier list) subsequent to the qualified manufacturer commencing construction in an eligible county makes the aggregate capital investment and meets the new full-time job requirements as set forth in this section. The grants under this section (a) shall be paid, subject to appropriation by the General Assembly, from a fund entitled the Aerospace Engine Manufacturing Supplier Cluster Grant Fund, which Fund is hereby established on the books of the Comptroller, (b) shall not exceed $5 million in the aggregate, and (c) shall be paid, as provided in this section, to the qualified manufacturer subject to the conditions of this section being met. B. 1. Any qualified manufacturer who attracted a qualified supplier on its qualified supplier list (i) first beginning to do business at a location within the Commonwealth subsequent to the qualified manufacturer commencing construction in an eligible county or (ii) expanding its business at a location within the Commonwealth subsequent to the qualified manufacturer commencing construction in an eligible county shall be eligible for a grant under this section. However, no grant shall be paid to the qualified manufacturer unless the qualified supplier cluster (all of which qualified suppliers are on the qualified supplier list) subsequent to the qualified manufacturer commencing construction in an eligible county makes the aggregate capital investment and meets the new full-time job requirements as set forth in this section. The grants under this section (a) shall be paid, subject to appropriation by the General Assembly, from a fund entitled the Aerospace Engine Manufacturing Supplier Cluster Grant Fund, which Fund is hereby established on the books of the Comptroller, (b) shall not exceed $5 million in the aggregate, and (c) shall be paid, as provided in this section, to the qualified manufacturer subject to the conditions of this section being met.
    2. If the qualified supplier cluster has, subsequent to the qualified manufacturer commencing construction in an eligible county, (i) created and substantially retained at least 150 new full-time jobs within the Commonwealth, (ii) made and substantially retained at least $25 million worth of capital investment within the Commonwealth, and (iii) made a written certification to the Secretary that its decision to create such new full-time jobs and make such capital investment was based in part by the location of the qualified manufacturer and was in part for a purpose of providing ancillary parts, tools, or other components used by the qualified manufacturer within the Commonwealth or for providing ancillary services within the Commonwealth for such qualified manufacturer, then a grant payment in the amount of $2.5 million shall be paid to the qualified manufacturer as provided in subsection E. If the qualified supplier cluster has, subsequent to the qualified manufacturer commencing construction in an eligible county, (a) created and substantially retained at least 300 new full-time jobs within the Commonwealth, (b) made and substantially retained at least $50 million worth of capital investment within the Commonwealth, and (c) made a written certification to the Secretary that its decision to create such new full-time jobs and make such capital investment was based in part by the location of the qualified manufacturer and was in part for a purpose of providing ancillary parts, tools, or other components used by the qualified manufacturer within the Commonwealth or for providing ancillary services within the Commonwealth for such qualified manufacturer, then an aggregate amount of $5 million in grants shall be paid to the qualified manufacturer as provided in subsection E. In no case, however, shall the aggregate amount of grants payable to all qualified manufacturers pursuant to this section exceed $5 million and in no case shall more than $2.5 million in grants pursuant to this section be paid in a fiscal year. Upon receipt of such written certification by the qualified supplier cluster, the Secretary shall promptly notify the qualified manufacturer of the same for purposes of applying for a grant under this section.The memorandum of understanding may provide that a qualified manufacturer shall be eligible for a reduced grant payment if at least 100 new full-time jobs have been created and substantially retained and at least one-third of the full $50 million capital investment has been made and substantially retained by the qualified supplier cluster. As described in the memorandum of understanding, in such case the reduction in the grant payments shall be proportional to the reduction in the new full-time jobs created and substantially retained and the reduction in the capital investment. Further, the memorandum of understanding may provide for deferred grant payments if the capital investment and the new full-time jobs have been met, but a substantial reduction occurs in the capital investment or new full-time job requirements between the date such requirements were met and the date the grant payment is to be made.
  2. If grants to be paid to qualified manufacturers under this section exceed the aggregate amount of grants payable in a fiscal year, each eligible qualified manufacturer’s grant for the year shall equal the amount of the grant to which the qualified manufacturer would otherwise be entitled multiplied by a fraction. The numerator of the fraction shall equal the amount of the grant payable in the fiscal year, and the denominator shall equal the aggregate dollar amount of requests for grants to which all qualified manufacturers otherwise would be eligible for such fiscal year.
  3. Any qualified manufacturer applying for a grant under this section shall provide evidence, satisfactory to the Secretary, of (i) the number of new full-time jobs created and substantially retained by a qualified supplier on a qualified supplier list as described in subdivision B 2, and (ii) the aggregate capital investment made and substantially retained by a qualified supplier on a qualified supplier list as described in subdivision B 2. The application and evidence shall be filed with the Secretary in person or by mail by between July 1 and August 31.
  4. Within 30 days after filing of the application described in subsection D, the Secretary shall certify to (i) the Comptroller and (ii) each qualified manufacturer the amount of the grant to which such qualified manufacturer is entitled under this section. Payment of such grant shall be made by check issued by the Treasurer of Virginia on warrant of the Comptroller, and such payment shall be made in the fiscal year that immediately follows the fiscal year in which the qualified manufacturer had applied for the grant.
  5. As a condition of receipt of a grant, a qualified manufacturer shall make available to the Secretary or his designee for inspection upon his request all relevant and applicable documents to determine the aggregate number of new full-time jobs created by the qualified supplier cluster as described in subdivision B 2, the average wages paid for such jobs, the prevailing average wage in the localities in which such jobs are located, and the aggregate amount of capital investment made by the qualified supplier cluster as described in subdivision B 2.The Comptroller shall not draw any warrants to issue checks for any grant under this section without a specific legislative appropriation. All such documents appropriately identified by the qualified manufacturer shall be considered confidential and proprietary.

History. 2008, cc. 256, 630.

§ 59.1-284.22. Aerospace Engine Manufacturer Workforce Training Grant Fund; eligible county.

  1. As used in this section:“Affiliate” means the same as that term is defined in § 59.1-284.20.“Capital investment” means the same as that term is defined in § 59.1-284.20.“Eligible county” means Prince George County.“Full-time” means employment of an indefinite duration for which the standard fringe benefits are paid, requiring a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of the employer’s operations, which “normal year” shall consist of at least 48 weeks, or (ii) 1,680 hours per year. The term “full-time” shall not include seasonal or temporary positions or positions created when a job function is shifted from an existing location in the Commonwealth.“Grant” means the special training grant or supplemental training grant as described in this section.“Qualified employee” means an individual hired in the Commonwealth on or after November 20, 2007, by an entity that is a qualified manufacturer or by an affiliate thereof, who (i) is employed by the qualified manufacturer or by an affiliate for at least 90 days, and (ii) works on a full-time basis for the qualified manufacturer or for an affiliate for at least such 90-day period.“Qualified manufacturer” means the same as such term is defined in § 59.1-284.20.“Secretary” means the Secretary of Commerce and Trade or his designee.“Special training grant” means a $9,000 allocation from the Aerospace Engine Manufacturer Workforce Training Grant Fund per new qualified employee, as described in this section. The aggregate amount of special training grants under this section shall not exceed $5,778,000.“Supplemental training grant” means a one-time $3 million allocation from the Aerospace Engine Manufacturer Workforce Training Grant Fund, as described in this section.
  2. Grants paid to the qualified manufacturer pursuant to this section are intended to be used for workforce development, instructional, or training purposes so as to enhance the skill sets of qualified employees.
  3. Any qualified manufacturer that is eligible to receive a special training grant shall (i) report to the Secretary quarterly the number of new qualified employees hired and trained who have been employed for at least 90 days and for whom a special training grant has not been previously paid pursuant to this section, and (ii) provide evidence of the hiring and training of the new qualified employees described in clause (i). The application and evidence shall be filed with the Secretary in person or by mail. For filings by mail, the postmark cancellation shall govern the date of the filing determination. Within 30 days after such evidence has been provided by the qualified manufacturer, the Secretary shall certify to (a) the Comptroller and (b) each qualified manufacturer the amount of the special training grant to which such qualified manufacturer is entitled under this section for payment within 60 days after such certification. Payment of such grant shall be made by check issued by the Treasurer of Virginia on warrant of the Comptroller.The special training grants under this section (1) shall be paid, subject to appropriation by the General Assembly, from a fund entitled the Aerospace Engine Manufacturer Workforce Training Grant Fund, which Fund is hereby established on the books of the Comptroller, (2) shall not exceed $5,778,000 in the aggregate, and (3) shall be paid to or for the benefit of the qualified manufacturer on a quarterly basis.
  4. A supplemental training grant shall be paid to any qualified manufacturer that has made an aggregate capital investment of at least $153.9 million in the eligible county and has hired at least 176 new qualified employees, excluding any qualified employee who has been rehired by the qualified manufacturer or an affiliate thereof or who is employed in a different position with the qualified manufacturer or an affiliate thereof. On or before June 30, 2010, and on or before each June 30 thereafter until the supplemental training grant has been paid, the qualified manufacturer shall provide written notification to the Secretary whether it has met or expects to meet the aggregate capital investment and employee requirements by the end of the current calendar year. If it has met or expects to meet such requirements by the end of the calendar year, the qualified manufacturer shall provide evidence of the same, satisfactory to the Secretary, with the written notification. The written notification and evidence shall be filed with the Secretary in person or by mail. For filings by mail, the postmark cancellation shall govern the date of the filing determination. Within 10 days after such notification and evidence have been provided by the qualified manufacturer, the Secretary shall certify to (i) the Comptroller and (ii) each qualified manufacturer the amount of the supplemental training grant to which such qualified manufacturer is entitled under this section for payment in the current fiscal year. Payment of such grant shall be made by check issued by the Treasurer of Virginia on warrant of the Comptroller.The supplemental training grant shall not be paid prior to July 1, 2010. The supplemental training grant (a) shall be paid, subject to appropriation by the General Assembly, from the Aerospace Engine Manufacturer Workforce Training Grant Fund, (b) shall be equal to $3 million, and (c) shall, subject to appropriation by the General Assembly, be paid to the qualified manufacturer by the end of the applicable fiscal year, as described herein. No more than $3 million in supplemental training grants shall be paid pursuant to this section.
  5. If grants to be paid to qualified manufacturers under this section in a fiscal year exceed the aggregate amount available in the Aerospace Engine Manufacturer Workforce Training Grant Fund for that year, each qualified manufacturer’s grants for the year shall equal the amount of grants to which the qualified manufacturer would otherwise be eligible multiplied by a fraction. The numerator of the fraction shall equal the aggregate amount available for payment from the Aerospace Engine Manufacturer Workforce Training Grant Fund for that fiscal year, and the denominator shall equal the aggregate dollar amount of grants to which all qualified manufacturers otherwise would be eligible for such fiscal year.
  6. Notwithstanding any other provision of this section, in lieu of payment of special training grants by check to qualified manufacturers, the Secretary may determine that such special training grants shall be administered in a manner similar to existing training grant programs such as those permitted by § 2.2-2240.3 .
  7. As a condition of receipt of a grant, a qualified manufacturer shall make available to the Secretary or his designee for inspection upon his request all relevant and applicable documents to determine the aggregate number of new qualified employees hired and the aggregate amount of capital investment. The Comptroller shall not draw any warrants to issue checks for a special training grant or a supplemental training grant under this section without a specific appropriation for the same. All such documents appropriately identified by the qualified manufacturer shall be considered confidential and proprietary.

History. 2008, cc. 256, 630; 2013, c. 482; 2014, cc. 41, 464.

The 2013 amendments.

The 2013 amendment by c. 482, effective January 1, 2014, substituted “shall consist” for “must consist” in clause (i) in the paragraph defining “Full-time” in subsection A; and substituted “§ 2.2-1605 ” for “§ 2.2-902” in subsection F.

The 2014 amendments.

The 2014 amendments by cc. 41 and 464 are identical, and substituted “2.2-2240.3” for “2.2-1605” in subsection F.

Chapter 22.6. Advanced Shipbuilding Training Facility Grant Program.

§ 59.1-284.23. Advanced Shipbuilding Training Facility Grant Program; eligible city.

  1. As used in this section:“Advanced shipbuilding” means (i) the manufacture, construction, assembly, overhaul, repair, and test of nuclear vessels and submarines for the U.S. Navy; (ii) the design or development of nuclear vessels and submarines for the U.S. Navy; or (iii) the manufacturing activities of a private company described under 2007 index number 336611 of the North American Industry Classification System.“Base training expense” means the total expenditures made by a qualified shipbuilder in 2008 that directly and indirectly support training activities.“Capital investment” means an investment in real property, tangible personal property, or both, within the Commonwealth.“Eligible city” means the City of Newport News or its industrial development authority.“Grant” means the advanced shipbuilding training facility grant as described in this section.“Memorandum of understanding” means a performance agreement entered into on or before August 31, 2011, among a qualified shipbuilder, the Commonwealth, and others as appropriate, such as the eligible city, setting forth the requirements for capital investment, training costs, and the creation of new full-time jobs that will make the qualified shipbuilder eligible for a grant under this section.“New full-time job” means employment of an indefinite duration in an eligible city, created as the direct result of capital investment, for which the average annual wage is at least equal to the prevailing average annual wage in an eligible city and for which the standard fringe benefits are paid by the qualified shipbuilder, requiring a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of such qualified shipbuilder’s operations, which “normal year” must consist of at least 48 weeks, or (ii) 1,680 hours per year. Seasonal or temporary positions and positions created when a job function is shifted from an existing location in the Commonwealth shall not qualify as new full-time jobs under this section. Other positions, which may or may not be of indefinite duration, including supplemental employees of affiliates, subsidiaries, joint ventures, contractors, or subcontractors of the qualified shipbuilder, may be considered new full-time jobs, if so designated as such in the memorandum of understanding between such qualified shipbuilder, the Commonwealth, and others.“New training facility” means a facility that, pursuant to a Memorandum of Agreement with the Secretary, is to be operated by the qualified shipbuilder for use by the shipbuilding industry, primarily to provide education, training and retraining of workers in the shipbuilding industry. Such training facility may be owned by the qualified shipbuilder, or may be operated by the qualified shipbuilder through a lease agreement with the eligible city, a local industrial development authority, or a private developer.“Qualified shipbuilder” means a shipbuilder located in an eligible city that (i) makes a new capital investment of at least $300 million from January 1, 2009 through December 31, 2011, related to advanced shipbuilding in an eligible city; (ii) creates at least 1,000 new full-time jobs in an eligible city for advanced shipbuilding or activities ancillary to or supportive of advanced shipbuilding; (iii) maintains an apprenticeship program accredited by the Council for Occupational Education with an average annual enrollment of at least 750 and articulation agreements with local comprehensive community colleges that allow its graduates to qualify for accredited associate degrees from those institutions; and (iv) maintains a level of expenditures directly or indirectly supporting training activities, which level is at least equal to the base training expense.“Secretary” means the Secretary of Commerce and Trade or his designee.
  2. Any qualified shipbuilder located in an eligible city shall be eligible to receive a grant each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2012, and ending with the Commonwealth’s fiscal year starting on July 1, 2016, unless such time frame is extended in accordance with subsection C or D. The grants under this section (i) shall be paid, subject to appropriation by the General Assembly, from a fund entitled the Advanced Shipbuilding Training Facility Fund, which Fund is hereby established on the books of the Comptroller; (ii) shall not exceed $25 million in the aggregate; (iii) shall be paid to a qualified shipbuilder during each fiscal year contingent upon the qualified shipbuilder meeting the requirements for the aggregate of (a) number of new full-time jobs created and the substantial retention of the same, (b) maintenance of base training expenses, and (c) amount of the capital investment made and substantially retained, as set forth in the memorandum of understanding; and (iv) shall be expended by the qualified shipbuilder on training costs or to pay the capital or lease cost of any new training facility to provide that training.
    1. The amount of the grant to be paid in each fiscal year shall be conditional upon the qualified shipbuilder meeting the requirements for (i) the aggregate number of new full-time jobs created and the substantial retention of the same throughout the calendar year that immediately precedes the beginning of such fiscal year; (ii) the aggregate amount of the capital investment made and substantially retained as of the last day of the calendar year that immediately precedes the beginning of such fiscal year; and (iii) maintaining a level of expenditures directly or indirectly supporting training activities, which level is at least equal to the base training expense. If the qualified shipbuilder has not fully met the grant requirements by December 31, 2011, the period of eligibility may be extended for up to three years, provided that the grants in any given fiscal year shall not exceed $5 million, plus any amounts deferred in accordance with subsection C or D. Grants shall be paid based upon such requirements as agreed to on or before August 31, 2011, regardless if such memorandum of understanding is later modified, amended, superseded, or otherwise changed;
    2. The aggregate amount of grants that may be awarded in a particular fiscal year shall not exceed the following:
      1. $5 million for the Commonwealth’s fiscal year beginning July 1, 2012;
      2. $10 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2013;
      3. $15 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2014;
      4. $20 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2015; and
      5. $25 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2016; and
  3. Any qualified shipbuilder applying for a grant under this section shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs created and the substantial retention of the same throughout the calendar year that immediately precedes the beginning of the fiscal year in which the grant is to be paid; (ii) the aggregate amount of the capital investment made and substantially retained as of the last day of the calendar year that immediately precedes the beginning of the fiscal year in which the grant is to be paid; and (iii) the aggregate amount of base training expenses as of the last day of the calendar year that immediately precedes the beginning of the fiscal year in which the grant is to be paid. The application and evidence shall be filed with the Secretary in person or by mail no later than April 1 each year following the calendar year in which the qualified shipbuilder meets such aggregate new full-time job requirements and aggregate capital investments. Failure to meet the filing deadline shall result in a deferral of a scheduled grant payment set forth in subsection B. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  4. The memorandum of understanding may provide that if a grant payment has been deferred for any reason, including the initial failure to meet the aggregate capital investment or the aggregate new full-time job requirements or the aggregate base training expenses set forth in the memorandum of understanding or the occurrence of any substantial reduction in such new full-time job requirements or capital investment requirements after such requirements have been met but before the grant payment has been made, payment in a subsequent fiscal year for which such requirements have been met for the immediately preceding calendar year shall include both the deferred payment and the scheduled grant payment as provided in subsection B or that a proportional payment, based on the proportional share of the required additional full-time jobs, be made.
  5. As a condition of receipt of a grant, a qualified shipbuilder shall make available to the Secretary or his designee for inspection upon his request relevant and applicable documents to determine whether the qualified shipbuilder has met the requirements for the receipt of grants as set forth in this section and subject to the memorandum of understanding. The Comptroller shall not draw any warrants to issue checks for the grant program under this section without a specific appropriation for the same. All such documents appropriately identified by the qualified shipbuilder shall be considered confidential and proprietary.
  6. An eligible city shall be eligible to receive a grant from the Advanced Shipbuilding Training Facility Fund established under subsection B each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2012. The grants under this subsection may be paid to the eligible city subject to a memorandum of understanding between the Secretary, the eligible city, and the qualified shipbuilder that provides that (i) the eligible city or a private developer will build a new training facility for use by the qualified shipbuilder and the qualified shipbuilder will use the new training facility during the grant period; (ii) the new training facility is part of a development plan approved by the eligible city and the qualified shipbuilder that includes additional private capital investment adjacent to the new training facility that is equal to or greater than the cost of the facility; and (iii) the qualified shipbuilder waives its right to apply for grants under subsection B. Grants to an eligible city may be used only for the construction, lease, or lease-purchase of the new training facility, including related debt service or repayment of any loans whose proceeds are used for such costs. The memorandum of understanding may provide for a total amount of grants under this subsection of not more than $42 million, subject to appropriation by the General Assembly, and for a period of eligibility of up to 10 years, unless such time frame is extended in accordance with subsection C or D, and may provide for a contractual agreement for payments by the Commonwealth. At the conclusion of the grant period, the qualified shipbuilder shall have the right to assume ownership of the new training facility.

3. Grants provided by this section shall not exceed $25 million in the aggregate or the aggregate total of training costs expended by a qualified shipbuilder during the period, whichever is less.

History. 2009, cc. 798, 850; 2011, c. 749.

Editor’s note.

Acts 2009, cc. 798 and 850, cl. 2 provides: “That a copy of the executed memorandum of understanding, as defined in § 59.1-284.23 of the Code of Virginia, shall be provided by July 30, 2009, to the chairmen of the House Committee on Appropriations and the Senate Committee on Finance, with any analysis by the Virginia Economic Development Partnership of the economic impact of the expected capital investment and new full-time jobs described in the memorandum of understanding. Any subsequent changes to the memorandum of understanding shall be submitted to the chairmen of the House Committee on Appropriations and the Senate Committee on Finance not later than 30 days after being executed by the Secretary.”

Acts 2009, cc. 798 and 850, cl. 3 provides: “That the memorandum of understanding, as defined in § 59.1-284.23 of the Code of Virginia, may state that the requirement to create and maintain new full-time jobs may be met entirely within the Virginia Class Submarine program. No full-time jobs or capital investments that are subject to any other performance agreement with the Commonwealth or a locality may be counted under the memorandum of understanding pursuant to the grant program established pursuant to Chapter 22.6 (§ 59.1-284.23) of Title 59.1 of the Code of Virginia.”

Acts 2009, cc. 798 and 850, cl. 4 provides: “That no later than 90 days following the application for payment of the fifth installment of training facility grants under the first enactment of this act, the Secretary shall provide a report to the chairmen of the House Committee on Appropriations and the Senate Committee on Finance detailing the performance of the qualified shipbuilder under the training facility grant program. Such review shall include, but not be limited to, an evaluation of (i) return on investment, (ii) the time frame for return on investment to the Commonwealth, (iii) average wages of the new full-time jobs created by the qualified shipbuilder, (iv) the additional capital investment made by the qualified shipbuilder, and (v) the status of the apprenticeship program and facilities. If the Secretary finds the qualified shipbuilder has met the terms of the program, he may recommend eligibility for an additional $25 million in grants for additional training activities by the qualified shipbuilder payable over a subsequent five-year period.”

Acts 2009, cc. 798 and 850, cl. 5, as added by Acts 2011, c. 749, cl. 2, provides: “That a copy of the executed memorandum of understanding, as defined in § 59.1-284.23 of the Code of Virginia pursuant to enactments of the 2011 Session of the General Assembly, shall be provided by August 31, 2011, to the Chairmen of the House Committee on Appropriations and the Senate Committee on Finance, with any analysis by the Virginia Economic Development Partnership of the economic impact of the expected capital investment and new full-time jobs described in the memorandum of understanding. Any subsequent changes to the memorandum of understanding shall be submitted to the Chairmen of the House Committee on Appropriations and the Senate Committee on Finance not later than 30 days after being executed by the Secretary. All matters, including but not limited to any memorandum of agreement, or any other agreement, necessary to effectuate the purposes of this act shall be finalized on or before October 31, 2011. The Governor shall include in the Budget Bill he submits to the General Assembly in 2011 pursuant to § 2.2-1509 of the Code of Virginia all appropriations necessary to fulfill the obligations of the Commonwealth pursuant to such final agreements.”

At the direction of the Virginia Code Commission, “comprehensive community colleges” was substituted for “community colleges” in the definition of “Qualified shipbuilder” in subsection A to conform to Acts 2016, c. 588.

The 2011 amendments.

The 2011 amendment by c. 749 substituted “in 2008” for “in the year prior to entering into a memorandum of understanding” in the second paragraph of subsection A; added “or its industrial development authority” to the end of the fourth paragraph; substituted “August 31, 2011” for “June 30, 2009” in the sixth paragraph of subsection A; substituted “expenditures directly or indirectly supporting training activities, which level is at least equal to the base training expense” for “base training expenditures no less than that spent in calendar year 2008 as set forth in the memorandum of understanding” at the end of the ninth paragraph of subsection A; in subdivision B 1, substituted “maintaining a level of expenditures directly or indirectly supporting training activities, which level is at least equal to the base training expense” for “the expenditure of base training expenses as set forth in the memorandum of understanding entered into on or before June 30, 2009,” “August 31, 2011” for “June 30, 2009” in the first and last sentences; and added subsection F.

Chapter 22.7. Specialized Biotechnology Research Performance Grant Program.

§ 59.1-284.24. Repealed by Acts 2015, c. 761, cl. 4.

Editor’s note.

Former § 59.1-284.24, which established the Specialized Biotechnology Research Performance Grant Program, derived from 2010, cc. 482, 562.

Chapter 22.8. Clean Energy Manufacturing Incentive Grant Program.

§§ 59.1-284.25 through 59.1-284.27.

Repealed by Acts 2015, c. 761, cl. 4.

Editor’s note.

Former §§ 59.1-284.25 through 59.1-284.27, which established the Clean Energy Manufacturing Incentive Grant Program, derived from 2011, cc. 815, 864.

Chapter 22.9. Pulp, Paper, and Fertilizer Advanced Manufacturing Performance Grant Program.

§ 59.1-284.28. Pulp, Paper, and Fertilizer Advanced Manufacturing Performance Grant Program and Fund.

  1. As used in this section:“Capital investment” means an investment in real property, tangible personal property, or both, made or caused to be made by a qualified entity in a facility.“Eligible county” means Chesterfield County.“Facility” means any facility that, pursuant to a memorandum of understanding, is to be owned or leased by the qualified entity and operated by the qualified entity for the manipulation and manufacture of pulp, paper, and fertilizer products.“Grant” means an installment of the pulp, paper, and fertilizer advanced manufacturing performance grant paid in a particular fiscal year as described in this section.“Memorandum of understanding” means a performance agreement to be entered into by July 31, 2015, by a qualified entity and the Commonwealth setting forth the requirements for capital investment, the creation of new full-time jobs, and other criteria that will make the qualified entity eligible for grants under this section.“New full-time job” means employment of an indefinite duration in a facility, for which the average annual wage is at least equal to the prevailing average annual wage in an eligible county and for which the standard fringe benefits are provided by the qualified entity, requiring a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of such qualified entity’s operations, which “normal year” must consist of at least 48 weeks, or (ii) 1,680 hours per year. Seasonal or temporary positions and positions created when a job function is shifted from an existing location in the Commonwealth shall not qualify as new full-time jobs under this section. Other positions, which may or may not be of indefinite duration, including supplemental employees of affiliates, subsidiaries, joint ventures, contractors, or subcontractors of the qualified entity, may be considered new full-time jobs if designated as such in the memorandum of understanding.“Qualified entity” means a for-profit corporation or other entity that is or will be engaged in the manipulation and manufacture of pulp, paper, and fertilizer products and that will commit itself in the memorandum of understanding to (i) make or cause to be made a new capital investment of at least $2 billion on or after July 1, 2014, at a facility; (ii) create or cause to be created, on or after July 1, 2014, at least 2,000 new full-time jobs related to the qualified entity’s operations; and (iii) meet the other criteria set forth in the memorandum of understanding.“Secretary” means the Secretary of Commerce and Trade or his designee.
    1. Any qualified entity shall be eligible to receive a grant each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2016, and ending with the Commonwealth’s fiscal year starting on July 1, 2022, unless such time frame is extended in accordance with this section. The grants under this section (i) shall be paid, subject to appropriation by the General Assembly, from a nonreverting fund entitled the Pulp, Paper, and Fertilizer Advanced Manufacturing Performance Grant Program Fund, which Fund is hereby established on the books of the Comptroller; (ii) shall not exceed $20 million in the aggregate; (iii) shall be paid to a qualified entity during each fiscal year contingent upon the qualified entity’s meeting the requirements for the creation of new full-time jobs, new capital investment, and other criteria set forth in the memorandum of understanding; and (iv) shall be expended by or for the benefit of the qualified entity on the costs of developing a facility or establishing or maintaining the qualified entity’s operations. B. 1. Any qualified entity shall be eligible to receive a grant each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2016, and ending with the Commonwealth’s fiscal year starting on July 1, 2022, unless such time frame is extended in accordance with this section. The grants under this section (i) shall be paid, subject to appropriation by the General Assembly, from a nonreverting fund entitled the Pulp, Paper, and Fertilizer Advanced Manufacturing Performance Grant Program Fund, which Fund is hereby established on the books of the Comptroller; (ii) shall not exceed $20 million in the aggregate; (iii) shall be paid to a qualified entity during each fiscal year contingent upon the qualified entity’s meeting the requirements for the creation of new full-time jobs, new capital investment, and other criteria set forth in the memorandum of understanding; and (iv) shall be expended by or for the benefit of the qualified entity on the costs of developing a facility or establishing or maintaining the qualified entity’s operations.
    2. The amount of the grant to be paid in each fiscal year shall be conditioned upon the qualified entity’s meeting the requirements for (i) the aggregate number of new full-time jobs created throughout the calendar year that immediately precedes the beginning of such fiscal year, (ii) the aggregate amount of the capital investment made throughout the calendar year that immediately precedes the beginning of such fiscal year, and (iii) other criteria described in the memorandum of understanding. If the qualified entity has not met the grant requirements set forth in the memorandum of understanding by December 31, 2020, the period of eligibility may be extended for up to three years, provided that the grants paid in any given fiscal year shall not exceed $3 million, plus any amounts deferred in accordance with subsection C or D. Grants shall be paid based upon such requirements as agreed to on or before July 31, 2015, regardless if such memorandum of understanding is later modified, amended, superseded, or otherwise changed.
    3. The aggregate amount of grants that may be awarded in a particular fiscal year shall not exceed the following:
      1. $2 million for the Commonwealth’s fiscal year beginning July 1, 2016;
      2. $5 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2017;
      3. $8 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2018;
      4. $11 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2019;
      5. $14 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2020;
      6. $17 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2021; and
      7. $20 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2022.
  2. Any qualified entity applying for a grant under this section shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs created and the substantial retention of the same throughout the calendar year that immediately precedes the fiscal year in which the grant is to be paid, (ii) the aggregate amount of the capital investment made and substantially retained as of the last day of the calendar year that immediately precedes the fiscal year in which the grant is to be paid, and (iii) progress toward meeting all other requirements described in the memorandum of understanding. The application and evidence shall be filed with the Secretary in person or by mail no later than April 1 of each year following the calendar year in which the qualified entity meets such aggregate new full-time job requirements, aggregate capital investments, and other requirements described in the memorandum of understanding. Failure to meet the filing deadline shall result in a deferral of a scheduled grant payment set forth in subsection B. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  3. The memorandum of understanding may provide that if a grant payment has been deferred for any reason, including any failure to meet the aggregate capital investment or the aggregate new full-time job requirements or any other requirement set forth in the memorandum of understanding, payment in a subsequent fiscal year for which such requirements have been met for the immediately preceding calendar year (i) shall include both the deferred payment and the scheduled grant payment as provided in subsection B or (ii) that a proportional payment be made, based on the proportional share of the required capital investment, new additional full-time jobs, or other applicable criteria.
  4. As a condition of receipt of a grant, a qualified entity shall make available to the Secretary for inspection upon his request relevant and applicable documents to determine whether the qualified entity has met the requirements for the receipt of grants as set forth in this section and the memorandum of understanding. The Comptroller shall not draw any warrants to issue checks for the grant program under this section without a specific appropriation for the same. All such documents appropriately identified by the qualified entity shall be considered confidential and proprietary.

History. 2015, c. 207.

Chapter 22.10. Advanced Shipbuilding Production Facility Grant Program.

§ 59.1-284.29. Advanced Shipbuilding Production Facility Grant Program.

  1. As used in this section:“Advanced shipbuilding” means (i) the manufacture, construction, assembly, overhaul, repair, and testing of nuclear vessels and submarines for the United States Navy; (ii) the design or development of nuclear vessels and submarines for the United States Navy; or (iii) the manufacturing activities of a private company described under 2007 index number 336611 of the North American Industry Classification System.“Capital investment” means an investment in real property, tangible personal property, or both, within the eligible city.“Eligible city” means the City of Newport News or its industrial development authority.“Foundry” means a facility and equipment used to cast metal components used in advanced shipbuilding.“Grant” means the advanced shipbuilding production facility grant as described in this section.“Memorandum of understanding” means a performance agreement entered into on or before August 31, 2016, among a qualified shipbuilder, the Commonwealth, and others as appropriate, such as the eligible city, setting forth the requirements for capital investment and the creation of new full-time jobs that will make the qualified shipbuilder eligible for a grant under this section.“New full-time job” means employment of an indefinite duration in an eligible city, and engaged in the construction of a class of vessel or submarine not being built in that eligible city prior to January 1, 2016, for which the average annual wage is at least equal to the prevailing average annual wage in that eligible city and for which the standard fringe benefits are paid by the qualified shipbuilder, requiring a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of such qualified shipbuilder’s operations, which “normal year” must consist of at least 48 weeks, or (ii) 1,680 hours per year. Seasonal or temporary positions and positions created when a job function is shifted from an existing location in the Commonwealth shall not qualify as new full-time jobs under this section. Other positions, which may or may not be of indefinite duration, including supplemental employees of affiliates, subsidiaries, joint ventures, contractors, or subcontractors of the qualified shipbuilder, may be considered new full-time jobs if designated as such in the memorandum of understanding between such qualified shipbuilder, the Commonwealth, and others.“New production facility” means a facility or equipment that, pursuant to a memorandum of understanding with the Secretary, is constructed or purchased after January 1, 2016, and operated by the qualified shipbuilder for use in the construction of or manufacture of components for a class of nuclear vessels or submarines not being built in that eligible city as of January 1, 2016. Such new production facility may be owned by the qualified shipbuilder or may be operated by the qualified shipbuilder through a lease agreement with the eligible city or a local industrial development authority.“Qualified shipbuilder” means a shipbuilder located in an eligible city that (i) makes a new capital investment of at least $750 million from January 1, 2015, through December 31, 2020, related to advanced shipbuilding in an eligible city; (ii) creates at least 1,000 new full-time jobs in an eligible city for advanced shipbuilding or activities ancillary to or supportive of advanced shipbuilding; and (iii) builds a new production facility.“Secretary” means the Secretary of Commerce and Trade or his designee.
  2. Any qualified shipbuilder located in an eligible city or the eligible city shall be eligible to receive a grant each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2020, and ending with the Commonwealth’s fiscal year starting on July 1, 2024, unless such time frame is extended in accordance with subsection C or D. The grants under this section (i) shall be paid, subject to appropriation by the General Assembly, from the fund entitled the Advanced Shipbuilding Production Facility Grant Fund established in subsection G; (ii) shall not exceed $40 million in the aggregate; (iii) shall be paid to a qualified shipbuilder or eligible city during each fiscal year contingent upon the qualified shipbuilder’s meeting the requirements for the aggregate of (a) number of new full-time jobs created and the substantial retention of the same and (b) amount of the capital investment made, as set forth in the memorandum of understanding; and (iv) shall be expended by the qualified shipbuilder or the eligible city on the capital or lease cost of a new production facility or a new or existing foundry.
    1. The amount of the grant to be paid in each fiscal year shall be conditional upon the qualified shipbuilder’s meeting the requirements for (i) the aggregate number of new full-time jobs created and the substantial retention of the same throughout the calendar year that immediately precedes the beginning of such fiscal year and (ii) the aggregate amount of the capital investment made as of the last day of the calendar year that immediately precedes the beginning of such fiscal year. If the qualified shipbuilder has not fully met the grant requirements by December 31, 2020, the period of eligibility may be extended for up to three years, provided that the grants in any given fiscal year shall not exceed $8 million, plus any amounts deferred in accordance with subsection C or D.
    2. The aggregate amount of grants that may be awarded in a particular fiscal year shall not exceed the following:
      1. $8 million for the Commonwealth’s fiscal year beginning July 1, 2020;
      2. $16 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2021;
      3. $24 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2022;
      4. $32 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2023; and
      5. $40 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2024.
  3. Any qualified shipbuilder or eligible city applying for a grant under this section shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs created and the substantial retention of the same throughout the calendar year that immediately precedes the beginning of the fiscal year in which the grant is to be paid and (ii) the aggregate amount of the capital investment made as of the last day of the calendar year that immediately precedes the beginning of the fiscal year in which the grant is to be paid. The application and evidence shall be filed with the Secretary in person or by mail no later than April 1 each year following the calendar year in which the qualified shipbuilder meets such aggregate new full-time job requirements and aggregate capital investments. Failure to meet the filing deadline shall result in a deferral of a scheduled grant payment set forth in subsection B. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  4. The memorandum of understanding may provide that if a grant payment has been deferred for any reason, including the initial failure to meet the aggregate capital investment or the aggregate new full-time job requirements set forth in the memorandum of understanding or the occurrence of any substantial reduction in such new full-time job requirements after such requirements have been met but before the grant payment has been made, payment in a subsequent fiscal year for which such requirements have been met for the immediately preceding calendar year shall include both the deferred payment and the scheduled grant payment as provided in subsection B or that a proportional payment, based on the proportional share of the required additional full-time jobs, be made.
  5. The memorandum of understanding may also provide that a shipbuilder or eligible city that has qualified for and received grants under § 59.1-284.23 may qualify for up to a separate and additional $6 million in one or more grants payable after July 1, 2016, but before July 1, 2022, to be used in the construction, lease, expansion, or renovation of a foundry in the eligible city. The memorandum of understanding shall require that the total amount of grants received pursuant to this subsection shall not exceed 25 percent of the total cost of improvements needed to meet standards for making castings for the construction of a class of vessel or submarine not being built in that eligible city prior to January 1, 2016, and that those standards are subsequently met. The memorandum of understanding may also set forth requirements for certain employment levels at the foundry. For clarification, such grants are not included in and shall not be subject to the overall limitation of the aggregate grant amount set forth in subsection B.
  6. As a condition of receipt of a grant, a qualified shipbuilder shall make available to the Secretary or his designee for inspection upon his request relevant and applicable documents to determine whether the qualified shipbuilder has met the requirements for the receipt of grants as set forth in this section and subject to the memorandum of understanding. The Comptroller shall not draw any warrants to issue checks for the grant program under this section without a specific appropriation for the same. All such documents appropriately identified by the qualified shipbuilder shall be considered confidential and proprietary.
  7. There is hereby created in the state treasury a special nonreverting fund to be known as the Advanced Shipbuilding Production Facility Grant Fund (the Fund). The Fund shall be established on the books of the Comptroller. Interest earned on moneys in the Fund shall remain in the Fund and be credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used for the purposes stated in this section.

History. 2016, c. 723; 2019, cc. 36, 114.

The 2019 amendments.

The 2019 amendments by cc. 36 and 114 are identical, and in subsection B, substituted “2020” for “2022” and “2024” for “2026” in the first sentence; in subdivision B 2 a, substituted “2020” for “2022”; in subdivision B 2 b, substituted “2021” for “2023”; in subdivision B 2 c, substituted “2022” for “2024”; in subdivision B 2 e, substituted “2023” for “2025”; and in subdivision B 2 e, substituted “2024” for “2026.”

Chapter 22.11. Special Workforce Grant Fund.

§ 59.1-284.30. Special Workforce Grant Fund created.

  1. As used in this section, unless the context requires a different meaning:“Capital investment” means an investment on or after May 1, 2017, in real property, tangible personal property, or both, at a facility within an eligible county that has been capitalized or is subject to being capitalized. “Capital investment” may include (i) a capital expenditure related to a leasehold interest in real property; (ii) the purchase or lease of furniture, fixtures, machinery, and equipment, including under an operating lease; and (iii) necessary changes to facilities to accommodate specific business needs and tenant improvements made by or on behalf of the qualified company.“Eligible county” means Fairfax County.“Facility” means the building, group of buildings, or corporate campus, including any related machinery, furniture, fixtures, and equipment, that is owned, leased, licensed, occupied, or otherwise operated by the qualified company for use in the administration, management, and operation of its business.“Fund” means the Special Workforce Grant Fund.“Grant” means a grant from the Special Workforce Grant Fund awarded to a qualified company for up to $5,600 per new full-time job, and $25,000 per $1 million of capital investment, not to exceed a total aggregate award of $10.5 million. Grants are intended to pay or to reimburse the qualified company for the costs of workforce development, workforce recruitment, and instructional or training purposes. The qualified company may use the award for any lawful purpose.“Memorandum of understanding” means a performance agreement or related document entered into on or before August 1, 2018, between a qualified company and the Commonwealth that sets forth the requirements for capital investment and the creation of new full-time jobs for the qualified company to be eligible for a grant from the Fund.“New full-time job” means employment of an indefinite duration at the facility for which wages and standard fringe benefits are paid, for which the annual average wage is at least equal to the prevailing average wage of the eligible county, and requiring a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of the employer’s operations, which “normal year” must consist of at least 48 weeks, or (ii) 1,680 hours per year. A new full-time job shall be a job position in which an employee, an employee of an employee leasing company, or a combination of such employees work at the facility. Seasonal or temporary positions and positions created when a job function is shifted from an existing location in the Commonwealth shall not qualify as new full-time jobs under this section. Other positions, which may or may not be of indefinite duration, including supplemental employees of affiliates, joint ventures, contractors, or subcontractors of the qualified company, may be considered new full-time jobs if designated as such in a memorandum of understanding. “New full-time job” does not include any existing full-time positions at the facility prior to May 1, 2017. The Commonwealth may gauge compliance with the new full-time jobs requirements for the qualified company by reference to the new payroll generated by a qualified company, as indicated in a memorandum of understanding.“Qualified company” means an e-commerce company, including its affiliates, that between May 1, 2017, and December 31, 2022, is expected to (i) make a capital investment at a facility of at least $84 million and (ii) create at least 1,500 new full-time jobs at the facility related to, or supportive of, its e-commerce business.“Secretary” means the Secretary of Commerce and Trade or his designee.
  2. There is hereby created in the state treasury a special nonreverting fund to be known as the Special Workforce Grant Fund. The Fund shall be established on the books of the Comptroller. All funds appropriated for such Fund shall be paid into the state treasury and credited to the Fund. Interest earned on moneys in the Fund shall remain in the Fund and be credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used solely for the purpose to pay grants. Expenditures and disbursements from the Fund shall be made by the State Treasurer on warrants issued by the Comptroller pursuant to subsection F.
  3. A qualified company shall be eligible to receive grants each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2021, and ending with the Commonwealth’s fiscal year starting on July 1, 2026, unless such timeframe is extended in accordance with the memorandum of understanding. The grants under this section shall be paid to the qualified company from the Fund, subject to appropriation by the General Assembly, during each such fiscal year, contingent upon the qualified company’s meeting the requirements set forth in the memorandum of understanding for the number of new full-time jobs created and maintained and the amount of capital investment made. No grant shall be awarded until the qualified company has made a preliminary capital investment of at least $20 million and has created at least 600 new full-time jobs, and the amount of the grant that may be awarded in a particular fiscal year shall depend on the amount of capital investment and creation of new full-time jobs created to date.
  4. The aggregate amount of grants payable under this section shall be calculated in accordance with the memorandum of understanding, estimated to not exceed the following:
    1. $5.31 million for the Commonwealth’s fiscal year beginning July 1, 2021;
    2. $8.21 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2022; and
    3. $10.5 million, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2023.
  5. A qualified company applying for a grant under this section shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs created and maintained as of the last day of the calendar year that immediately precedes the beginning of the fiscal year in which the grant installment is to be paid and (ii) the aggregate amount of the capital investment made as of the last day of the calendar year that immediately precedes the beginning of the fiscal year in which the grant installment is to be paid. The application and evidence shall be filed with the Secretary in person, by mail, or as otherwise agreed upon in the memorandum of understanding, by no later than April 1 each year following the end of the prior calendar year upon which the evidence set forth above is based. Failure to meet the filing deadline shall result in a deferral of a scheduled grant installment payment set forth in subsection D. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  6. Within 30 days of receiving the application and evidence pursuant to subsection E, the Secretary shall certify to the Comptroller and the qualified company the amount of grants to which such qualified company is entitled for payment in the following fiscal year. Payment of such grants shall be made by check issued by the State Treasurer on warrant of the Comptroller in the Commonwealth’s fiscal year following the submission of such application. The Comptroller shall not draw any warrants to issue checks for the grants under this section without a specific appropriation for the same.
  7. As a condition of receipt of the grants, a qualified company shall make available for inspection to the Secretary or his designee, upon request, all documents relevant and applicable to determining whether the qualified company has met the requirements for the receipt of a grant as set forth in this section and subject to the memorandum of understanding. All such documents appropriately identified by the qualified company shall be considered confidential and proprietary.

History. 2018, c. 744.

Chapter 22.12. Major Headquarters Workforce Grant Fund.

§ 59.1-284.31. Major Headquarters Workforce Grant Fund.

  1. As used in this chapter, unless the context requires a different meaning:“Affiliate” means an entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with a qualified company.“Capital investment” means an investment by or on behalf of a qualified company on or after November 1, 2018, in real property, tangible personal property, or both, at a facility that is properly chargeable to a capital account or would be so chargeable with a proper election. “Capital investment” may include (i) a capital expenditure related to a leasehold interest in a property; (ii) the purchase or lease of furniture, fixtures, machinery, and equipment, including under an operating lease; and (iii) building up-fit and tenant improvements made by or on behalf of a qualified company.“Eligible county” means Arlington County.“Facility” means the building, group of buildings, or corporate campus located in the eligible county, including any related machinery, furniture, fixtures, and equipment, that is owned, leased, licensed, occupied, or otherwise operated by a qualified company as a major headquarters facility for use in the administration, management, and operation of its business.“Fund” means the Major Headquarters Workforce Grant Fund.“Grant” means a grant from the Fund awarded to a qualified company in an amount of $22,000 per new full-time job for the first 25,000 new full-time jobs, for a maximum aggregate amount of $550 million, and $15,564 per new full-time job for up to 12,850 additional new full-time jobs, for an additional maximum aggregate amount of $200 million, as calculated in accordance with the memorandum of understanding. The grant is intended to pay or to reimburse the qualified company for the costs of workforce development, workforce recruitment, and workforce instruction or training. The qualified company may use the proceeds of the grant for any lawful purpose, including but not limited to those outlined in subsection D of § 2.2-115 .“Memorandum of understanding” means the memorandum of understanding entered into on or about November 12, 2018, among a qualified company, the Commonwealth, and the Virginia Economic Development Partnership Authority that sets forth the requirements for the creation of new full-time jobs for the qualified company to be eligible for grant payments from the Fund. The memorandum of understanding shall contain criteria for the average annual wages for the new full-time jobs to qualify for a grant payment, starting at $150,000 for calendar year 2019 and escalating at 1.5 percent per year.“New full-time job” means a position in which employees of a qualified company are principally located at the facility and are expected to work a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of the employer’s operations, which “normal year” must consist of at least 48 weeks, or (ii) 1,680 hours per year. Seasonal or temporary positions shall not qualify as new full-time jobs. A position created when a job function is shifted from an existing location in the Commonwealth shall qualify as a new full-time job if the qualified company certifies that it has hired a new employee to fill substantially the same job at the existing location as that held by the transferred position.“Qualified company” means a company, including its affiliates, that between November 1, 2018, and December 31, 2038, is expected to (i) make or cause to be made a capital investment at a facility of at least $2 billion, (ii) create at least 25,000 new full-time jobs, and (iii) potentially create an additional 12,850 jobs.“Secretary” means the Secretary of Commerce and Trade or his designee.
  2. There is hereby created in the state treasury a special nonreverting fund to be known as the Major Headquarters Workforce Grant Fund. The Fund shall be established on the books of the Comptroller. All funds appropriated for such Fund shall be paid into the state treasury and credited to the Fund. Interest earned on moneys in the Fund shall remain in the Fund and be credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used solely for the purpose of making grant payments pursuant to this chapter. Expenditures and disbursements from the Fund shall be made by the State Treasurer on warrants issued by the Comptroller pursuant to subsection F.
  3. A qualified company shall be eligible to receive grant payments for each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2023, and ending with the Commonwealth’s fiscal year starting on July 1, 2042. The grant payments under this section shall be paid to the qualified company from the Fund, subject to appropriation by the General Assembly, during each such fiscal year, contingent upon the qualified company meeting the requirements for receiving grant payments set forth in the memorandum of understanding.
  4. For the first 25,000 new full-time jobs, the aggregate amount of grant payments payable under this chapter shall not exceed $550 million and shall be calculated in accordance with the memorandum of understanding. For the next 12,850 new full-time jobs, the aggregate amount of grant payments payable under this chapter shall not exceed $200 million and shall be calculated in accordance with the memorandum of understanding. The memorandum of understanding shall contain criteria for the average annual wages paid for the new full-time jobs to qualify for a grant payment, and contain other criteria for a new full-time job to qualify for a grant payment. The memorandum of understanding shall contain restrictions on the maximum aggregate amount of grant payments that may be paid to the qualified company through any fiscal year as follows:$200 million through fiscal year 2024;$300 million through fiscal year 2025;$350 million through fiscal year 2026;$400 million through fiscal year 2027;$450 million through fiscal year 2028;$500 million through fiscal year 2029;$550 million through fiscal year 2030;$600 million through fiscal year 2031;$650 million through fiscal year 2032;$700 million through fiscal year 2033; and$750 million through fiscal year 2034 and later fiscal years.
  5. A qualified company applying for a grant payment pursuant to this chapter shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs created and maintained as of the last day of the calendar year that immediately precedes the date of the application and (ii) the average annual wage paid for those new full-time jobs. Similar evidence shall be provided each year until the new full-time jobs become new full-time jobs that qualify for a grant payment. The application and evidence shall be filed with the Secretary in person, by mail, or as otherwise agreed upon in the memorandum of understanding, by no later than April 1 of each year following the end of the calendar year upon which the evidence set forth is based. Failure to meet the filing deadline shall result in a deferral of a scheduled grant payment. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  6. Within 60 days of receiving the application and evidence pursuant to subsection E, the Secretary shall certify to the Comptroller and the qualified company the verification of the information contained in the application and the resulting amount of the grant payments to which the qualified company may be entitled for payment. Such grant payments shall be made by check or electronic payment issued by the State Treasurer on warrant of the Comptroller in the Commonwealth’s fourth or later fiscal year following the submission of such application, as provided in the memorandum of understanding. The Comptroller shall not draw any warrants to issue checks or electronic payments for grant payments under this chapter without a specific appropriation for the same.
  7. As a condition for the receipt of a grant payment, a qualified company shall make available for inspection to the Secretary, upon request, all documents relevant and applicable to determining whether the qualified company has met the requirements for the receipt of a grant payment as set forth in this chapter and subject to the memorandum of understanding.

History. 2019, cc. 1, 482.

Cross references.

As to the Virginia Economic Development Partnership Act, see § 2.2-2234 et seq.

Chapter 22.13. Semiconductor Manufacturing Grant Fund.

§ 59.1-284.32. Semiconductor Manufacturing Grant Fund created.

  1. As used in this chapter, unless the context requires a different meaning:“Capital investment” means an expenditure, or an asset transfer from a different qualified company site outside of the eligible city to a facility within an eligible city, by or on behalf of the qualified company on or after April 1, 2018, in real property, tangible personal property, or both, at a facility within an eligible city that has been capitalized or is subject to being capitalized. “Capital investment” may include (i) the purchase of land and the cost of infrastructure development and land improvements, (ii) a capital expenditure related to a leasehold interest in real property, and (iii) the purchase or lease of furniture, fixtures, machinery, and equipment, including under an operating lease.“Eligible city” means the City of Manassas.“Facility” means the building, group of buildings, or manufacturing, distribution, and research and development campus, including any related machinery and tools, furniture, fixtures, and equipment, in an eligible city that is owned, leased, licensed, occupied, or otherwise operated by the qualified company for use in the manufacture of, or research and development for, semiconductors and other electronic devices.“Fund” means the Semiconductor Manufacturing Grant Fund.“Grant” means a grant from the Fund awarded to a qualified company in an aggregate amount of up to $70,000,000. Grant proceeds are intended to be used by the qualified company to pay or reimburse the costs of site preparation and infrastructure related to the facility.“Memorandum of understanding” means a performance agreement or related document entered into on or before August 1, 2019, between a qualified company and the Commonwealth that sets forth the requirements for capital investment and the creation of new jobs for the qualified company.“New job” means full-time employment at the facility measured at any time following June 30, 2018, for which the annual average wage is at least $92,000, with an escalation factor for each year, that requires a minimum of 38 hours of an employee’s time per week for the entire normal year, consisting of at least 48 weeks, of the qualified company’s operations. Seasonal or temporary positions and positions created when a job function is shifted from an existing location in the Commonwealth shall not qualify as new jobs. Any new job must be in addition to the baseline number of existing full-time positions at the qualified company’s facilities in the eligible city.“Qualified company” means a semiconductor manufacturing company, and its affiliates, that manufactures and distributes semiconductors, that between April 1, 2018, and June 30, 2033, is expected to (i) make or cause to be made a capital investment at a facility of at least $2.98 billion; (ii) create and maintain at least 1,106 new jobs at the facility related to, or supportive of, its manufacturing, distribution, and research and development functions; and (iii) establish and operate a research and development facility for research and product development in areas of interest to a semiconductor manufacturer, including research regarding unmanned systems and the “Internet of things.”“Secretary” means the Secretary of Commerce and Trade or his designee.
  2. There is hereby created in the state treasury a nonreverting fund to be known as the Semiconductor Manufacturing Grant Fund. The Fund shall be established on the books of the Comptroller. All funds appropriated to the Fund shall be paid into the state treasury and credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used solely for the purpose to pay grant installments. Payment of such grant installments shall be made by check issued by the State Treasurer on warrant of the Comptroller. The Comptroller shall not draw any warrants to issue checks for Grant installments under this section without a specific appropriation for the same.
  3. Subject to appropriation by the General Assembly, a qualified company shall be eligible to receive grant installments of $50 million in fiscal year 2020 and $20 million in fiscal year 2021. Such grant installments shall be paid to the qualified company from the Fund during each such fiscal year, contingent upon the qualified company’s meeting the requirements set forth in the memorandum of understanding to provide security for any potential repayment of the grant, including a cash escrow.
  4. A qualified company receiving a grant installment pursuant to this section shall provide evidence, satisfactory to the Secretary, annually of (i) the aggregate number of new jobs created and maintained as of the last day of the fiscal year, the payroll paid by the qualified company during the fiscal year, and the average annual wage of the new jobs in the fiscal year and (ii) the aggregate amount of the capital investment made during the fiscal year, including the extent to which such capital investment was or was not subject to the Virginia Retail Sales and Use Tax (§ 58.1-600 et seq.). The report and evidence shall be filed with the Secretary in person, by mail, or as otherwise agreed upon in the memorandum of understanding, by no later than October 1 each year following the end of the prior fiscal year upon which the evidence is based.
  5. The memorandum of understanding shall provide that if any annual report and evidence provided pursuant to subsection D indicates that the qualified company failed to meet certain targets for capital investment that is or is not subject to the Virginia retail sales and use tax, the average annual wage for new jobs, the number of new jobs, or the payroll paid for new jobs, the qualified company may be required to repay the Commonwealth a portion of the grant in an amount that reflects the value of the shortfall in the applicable target.
  6. As a condition of receipt and retention of the grant, a qualified company shall make available to the Secretary for inspection all documents relevant and applicable to determining whether the qualified company has met the requirements for the receipt and retention of the grant as set forth herein and subject to the memorandum of understanding. All such documents appropriately identified by the qualified company shall be considered confidential and proprietary, and shall not be subject to disclosure pursuant to the Virginia Freedom of Information Act (§ 2.2-3700 et seq.).

History. 2019, cc. 34, 41.

The numbers of this article and section were assigned by the Virginia Code Commission, the numbers in the 2019 acts having been Article 22.12 and § 59.1-284.31.

Chapter 22.14. Truck Manufacturing Grant Fund.

§ 59.1-284.33. Truck Manufacturing Grant Fund.

  1. As used in this section, unless the context requires a different meaning:“Capital investment” means an expenditure or an asset transfer from a site of a qualified company located outside of an eligible county to the facility, by or on behalf of the qualified company, on or after October 1, 2018, in real property, tangible personal property, or both, at a facility located in an eligible county that is properly chargeable to a capital account or would be so chargeable with a proper election. The purchase or lease of furniture; fixtures; business personal property; machinery and tools, including under an operating lease; and expected building expansion and up-fit by or on behalf of a qualified company shall qualify as a capital investment.“Eligible county” means the County of Pulaski.“Facility” means a truck manufacturing facility to be expanded, equipped, improved, or operated by a qualified company in an eligible county.“Fund” means the Truck Manufacturing Grant Fund.“Grants” means grants from the Fund awarded to a qualified company, in an aggregate not to exceed $16.5 million, intended to be used to pay or reimburse a qualified company for costs related to construction and renovation of a facility. A qualified company may use the grant payment for any lawful purpose.“Memorandum of understanding” means a performance agreement or related document entered into on or before August 1, 2020, by a qualified company, the Commonwealth, and VEDP that sets forth the requirements for capital investments and the creation of new full-time jobs by a qualified company in order for a qualified company to be eligible for grants from the Fund.“New full-time job” means a job position, in which position the employee of a qualified company works at a facility, for which the average annual wage is at least equal to the wage required by the memorandum of understanding, and for which a qualified company provides standard fringe benefits. Such position shall require a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of a qualified company’s operations, which “normal year” shall consist of at least 48 weeks, or (ii) 1,680 hours per year. Seasonal or temporary positions, and positions created when a job function is shifted from an existing location in the Commonwealth, shall not qualify as new full-time jobs. Other positions, including employees of affiliates and certain suppliers, may be considered new full-time jobs if designated as such in a memorandum of understanding. New full-time jobs shall be in addition to the baseline of 3,219 full-time employees at a facility. The Commonwealth may gauge compliance with the new full-time job requirements for a qualified company by reference to the new payroll generated by a qualified company, as set forth in a memorandum of understanding.“Qualified company” means a truck manufacturer, including its affiliates, that engages in truck manufacturing in an eligible county, that between October 1, 2018, and September 30, 2029, is expected to (i) make or cause to be made a capital investment at a facility of at least $397 million, which shall include at least $93.6 million of investments related to the construction or renovation of real property at a facility, and (ii) create at least 777 new full-time jobs related to, or supportive of, its business.“Secretary” means the Secretary of Commerce and Trade or his designee.“VEDP” means the Virginia Economic Development Partnership Authority.
  2. There is hereby created in the state treasury a special nonreverting fund to be known as the Truck Manufacturing Grant Fund. The Fund shall be established on the books of the Comptroller. All funds appropriated to the Fund shall be paid into the state treasury and credited to it. Interest earned on moneys in the Fund shall remain in the Fund and be credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used to pay grants pursuant to this section. Expenditures and disbursements from the Fund shall be made by the State Treasurer on warrants issued by the Comptroller pursuant to subsection F.
  3. A qualified company shall be eligible to receive grants each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2020, and ending with the Commonwealth’s fiscal year starting on July 1, 2029, unless such timeframe is extended in accordance with a memorandum of understanding. Grants paid pursuant to this chapter shall be subject to appropriation by the General Assembly during each such fiscal year, and contingent on a qualified company meeting the requirements set forth in this chapter and the memorandum of understanding for the number of new full-time jobs created and maintained and the amount of capital investment made related to the construction or renovation of a facility. The first grant installment of $2 million shall not be awarded until a qualified company has made a capital investment related to the construction and renovation of a facility of at least $46.8 million and has retained at least 2,700 full-time positions at the facility.
  4. The aggregate amount of grants payable under this section shall not exceed $16.5 million. Grants are expected to be paid in 10 annual installments, calculated in accordance with a memorandum of understanding, with the grants that may be awarded in a particular fiscal year not to exceed the following:
    1. $2,000,000 for the Commonwealth’s fiscal year beginning July 1, 2020;
    2. $4,000,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2021;
    3. $4,300,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2022;
    4. $6,042,857, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2023;
    5. $7,785,714, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2024;
    6. $9,528,571, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2025;
    7. $11,271,428, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2026;
    8. $13,014,285, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2027;
    9. $14,757,142, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2028; and
    10. $16,500,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2029.
  5. A qualified company applying for a grant installment under this section shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs in place in the grant year that immediately precedes the expected date on which the grant installment is to be paid and (ii) the aggregate amount of capital investment, and the capital investment related to the construction and renovation of a facility, made as of the last day of the grant year that immediately precedes the expected date on which the grant installment is to be paid. The application and evidence shall be filed with the Secretary in person, by mail, or as otherwise agreed upon in a memorandum of understanding, by no later than October 31 of each year reflecting performance in and through the prior grant year. Failure to meet the filing deadline shall result in a deferral of a scheduled grant installment payment. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  6. Within 30 days of receiving an application and evidence pursuant to subsection E, the Secretary shall certify to the Comptroller and the qualified company the amount of grants to which such qualified company is entitled for payment. Payment of such grant shall be made by check issued by the State Treasurer on warrant of the Comptroller by the end of the calendar year of the submission of the application and evidence. The Comptroller shall not draw any warrant to issue checks for grants under this chapter without a specific appropriation for the same.
  7. As a condition of receipt of grants, a qualified company shall make available to the Secretary for inspection, upon request, of all documents relevant and applicable to determining whether a qualified company has met the requirements for receipt of grants as set forth in this chapter and subject to a memorandum of understanding. All such documents appropriately identified by a qualified company shall be considered confidential and proprietary.

History. 2020, cc. 265, 604.

Chapter 22.15. Advanced Production Grant Program and Fund.

§ 59.1-284.34. Advanced Production Grant Program and Fund.

  1. As used in this section:“Capital investment” means an expenditure by or on behalf of a qualified company on or after October 1, 2019, in real property, tangible personal property, or both, at a facility within an eligible county that is properly chargeable to capital account or would be so chargeable with a proper election. The purchase or lease of furniture, fixtures, business personal property, machinery, and equipment, including under an operating lease, and expected building up-fit and improvements by or on behalf of a qualified company shall qualify as capital investment.“Eligible county” means the County of Pittsylvania.“Facility” means an advanced production and development facility to be purchased, equipped, improved, and operated by the qualified company in the eligible county.“Fund” means the Advanced Production Grant Fund created under subsection B.“Grants” means grants from the Advanced Production Grant Fund awarded to a qualified company in an aggregate amount not to exceed $7.0 million. A qualified company may use the proceeds of the grants for any lawful purpose.“Memorandum of understanding” means a performance agreement or related document entered into on or before August 1, 2020, among a qualified company, the Commonwealth, and VEDP that sets forth the requirements for capital investment and the creation of new full-time jobs for the qualified company to be eligible for grants from the Fund.“New full-time job” means a job position in which the employee of the qualified company works at the facility and for which the average annual wage is at least equal to $34,274, the qualified company provides standard fringe benefits, and the position requires a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of the qualified company’s operations, which “normal year” must consist of at least 48 weeks, or (ii) 1,680 hours per year. Seasonal or temporary positions, positions created when a job function is shifted from an existing location in the Commonwealth, and positions with construction contractors, vendors, suppliers, and similar multiplier or spin-off jobs shall not qualify as new full-time jobs. The Commonwealth may gauge compliance with the new full-time jobs requirements for a qualified company by reference to the new payroll generated by a qualified company, as indicated in a memorandum of understanding.“Qualified company” means a business transportation manufacturer and producer, including its affiliates, that engages in the production of business trucks in the eligible county, that between October 1, 2019, and December 31, 2027, is expected (i) to make or cause to be made a capital investment at a facility of at least $57,837,356 and (ii) to create at least 703 new full-time jobs at the facility related to, or supportive of, its business.“Secretary” means the Secretary of Commerce and Trade or his designee.“VEDP” means the Virginia Economic Development Partnership Authority.
  2. There is hereby created in the state treasury a special nonreverting fund to be known as the Advanced Production Grant Fund, referred to in this section as “the Fund.” The Fund shall be established on the books of the Comptroller. All funds appropriated for the Fund shall be paid into the state treasury and credited to it. Interest earned on moneys in the Fund shall remain in the Fund and be credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used for the purpose to pay grants pursuant to this chapter. Expenditures and disbursements from the Fund shall be made by the State Treasurer on warrants issued by the Comptroller pursuant to subsection F.
  3. A qualified company shall be eligible to receive grants each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2021, and ending with the Commonwealth’s fiscal year starting on July 1, 2026, unless such time frame is extended in accordance with the memorandum of understanding. The grants under this section shall be paid to a qualified company from the Fund, subject to appropriation by the General Assembly, during each such fiscal year, contingent upon the qualified company’s meeting the requirements set forth in the memorandum of understanding for the number of new full-time jobs created and maintained and the amount of capital investment made and retained. The first grant installment of $500,000 shall not be awarded until the qualified company has made a capital investment of at least $40,800,000 and has created at least 373 new full-time jobs at the facility.
  4. The aggregate amount of grants payable under this section shall not exceed $7.0 million, and grants are expected to be paid in six annual installments, calculated in accordance with the memorandum of understanding, with the grants that may be awarded in a particular fiscal year not exceeding the following:
    1. $500,000 for the Commonwealth’s fiscal year beginning July 1, 2021;
    2. $1,800,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2022;
    3. $3,100,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2023;
    4. $4,400,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2024;
    5. $5,700,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2025; and
    6. $7,000,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2026.
  5. A qualified company applying for a grant installment under this section shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs in place in the calendar year that immediately precedes the expected date on which the grant installment is to be paid and (ii) the aggregate amount of the capital investment made as of the last day of the calendar year that immediately precedes the expected date on which the grant installment is to be paid. The application and evidence shall be filed with the Secretary in person, by mail, or as otherwise agreed upon in the memorandum of understanding by no later than April 1 each year reflecting performance in and through the prior calendar year. Failure to meet the filing deadline shall result in a deferral of a scheduled grant installment payment set forth in subsection D. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  6. Within 60 days of receiving the application and evidence pursuant to subsection E, the Secretary shall certify to the Comptroller and the qualified company the amount of grants to which such qualified company is entitled for payment. Payment of such grants shall be made by check issued by the State Treasurer on warrant of the Comptroller by the September 1 succeeding the submission of such timely filed application. The Comptroller shall not draw any warrants to issue checks for the grants under this section without a specific appropriation for the same.
  7. As a condition of receipt of the grants, a qualified company shall make available to the Secretary for inspection, upon request, all documents relevant and applicable to determining whether the qualified company has met the requirements for the receipt of grants as set forth in this section and subject to the memorandum of understanding. All such documents appropriately identified by the qualified company shall be considered confidential and proprietary.

History. 2020, cc. 267, 763.

The number of this chapter was assigned by the Virginia Code Commission, the chapter in Acts 2020, cc. 267 and 763 having been enacted as Chapter 22.14.

The number of this section was assigned by the Virginia Code Commission, the number in Acts 2020, cc. 267 and 763 having been § 59.1-284.33.

Chapter 22.16. Pharmaceutical Manufacturing Grant Program.

§ 59.1-284.35. Definitions.

  1. As used in this section, unless the context requires a different meaning:“Capital investment” means an expenditure by or on behalf of a qualified company on or after March 1, 2019, in real property, tangible personal property, or both, at a facility in an eligible county that is properly chargeable to a capital account or would be so chargeable with a proper election. The purchase or lease of furniture; fixtures; business personal property; machinery and tools, including under an operating lease; and expected building expansion and up-fit by or on behalf of a qualified company shall qualify as capital investment.“Eligible county” means Rockingham County.“Facility” means the building, group of buildings, or corporate campus, including any related machinery and tools, furniture, fixtures, and business personal property, that is located at or near a qualified company’s existing operations in an eligible county and is owned, leased, licensed, occupied, or otherwise operated by a qualified company for use in the administration, management, and operation of its business.“Fund” means the Pharmaceutical Manufacturing Grant Fund.“Grants” means grants from the Fund awarded to a qualified company in an aggregate not to exceed $7.5 million, intended to be used to pay or reimburse a qualified company for the costs of workforce recruitment, development, and training, and for stormwater management. A qualified company may use the grant payment for any lawful purpose.“Memorandum of understanding” means a performance agreement or related document entered into on or before August 1, 2020, by a qualified company, the Commonwealth, and VEDP, that sets forth the requirements for capital investment and the creation of new full-time jobs by a qualified company in order for a qualified company to be eligible for grants from the Fund.“New full-time job” means a job position, in which the employee of a qualified company works at a facility, for which the average annual wage is at least $100,000 and the qualified company provides standard fringe benefits. Such position shall require a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of the qualified company’s operations, which “normal year” shall consist of at least 48 weeks, or (ii) 1,680 hours per year. Seasonal or temporary positions, and positions created when a job function is shifted from an existing location in the Commonwealth, shall not qualify as new full-time jobs. “New full-time job” shall not include any existing full-time positions at the facility as of March 1, 2019. The Commonwealth may gauge compliance with the new full-time job requirements for a qualified company by reference to the new payroll generated by a qualified company, as indicated in the memorandum of understanding.“Qualified company” means a company, including its affiliates, that engages in pharmaceutical manufacturing in an eligible county and that, between March 1, 2019, and February 28, 2025, is expected to make (i) a capital investment of at least $1 billion and (ii) create at least 152 new full-time jobs related to, or supportive of, its business.“Secretary” means the Secretary of Commerce and Trade or his designee.“VEDP” means the Virginia Economic Development Partnership Authority.

History. 2020, cc. 275, 758.

The number of this chapter was assigned by the Virginia Code Commission, the chapter in Acts 2020, cc. 275 and 758 having been enacted as Chapter 22.14.

The number of this section was assigned by the Virginia Code Commission, the number in Acts 2020, cc. 275 and 758 having been § 59.1-284.33.

§ 59.1-284.36. Pharmaceutical Manufacturing Grant Fund created.

  1. There is hereby created in the state treasury a special nonreverting fund to be known as the Pharmaceutical Manufacturing Grant Fund. The Fund shall be established on the books of the Comptroller. All funds appropriated to the Fund shall be paid into the state treasury and credited to the Fund. Interest earned on moneys in the Fund shall remain in the Fund and be credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used to pay grants pursuant to this section. Expenditures and disbursements from the Fund shall be made by the State Treasurer on warrants issued by the Comptroller pursuant to subsection E.
  2. A qualified company shall be eligible to receive grants each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2020, and ending with the Commonwealth’s fiscal year starting on July 1, 2022, unless such timeframe is extended in accordance with a memorandum of understanding. Grants paid pursuant to this section shall be subject to appropriation by the General Assembly during each such fiscal year and are contingent on a qualified company meeting the requirements set forth in this chapter and the memorandum of understanding for the number of new full-time jobs created and maintained and the amount of capital investment made. The first grant payment of $2.5 million shall not be awarded until a qualified company has made a capital investment of at least $420 million and has created at least 85 new full-time jobs.
  3. The aggregate amount of grants payable under this section shall not exceed $7.5 million and such grants are expected to be paid in three annual installments of $2.5 million each, calculated in accordance with a memorandum of understanding as follows:
    1. $2.5 million for the Commonwealth’s fiscal year beginning July 1, 2020;
    2. $2.5 million for the Commonwealth’s fiscal year beginning July 1, 2021; and
    3. $2.5 million for the Commonwealth’s fiscal year beginning July 1, 2022.
  4. A qualified company applying for a grant installment under this section shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs created and maintained as of the last day of February in the fiscal year that immediately precedes the fiscal year in which the grant installment is to be paid and (ii) the aggregate amount of capital investment made as of the last day of February in the fiscal year that immediately precedes the fiscal year in which the grant installment is to be paid. The application and evidence shall be filed with the Secretary in person, by mail, or as otherwise agreed upon in a memorandum of understanding no later than June 1 each year reflecting performance through the last day of the prior February. Failure to meet the filing deadline shall result in a deferral of a scheduled grant installment payment set forth in subsection C. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  5. Within 60 days of receiving an application and evidence pursuant to subsection D, the Secretary shall certify to the Comptroller and the qualified company the amount of grants to which such qualified company is entitled for payment. Payment of such grants shall be made by check issued by the State Treasurer on warrant of the Comptroller in the Commonwealth’s fiscal year following the submission of an application. The Comptroller shall not draw any warrant to issue checks for grants without a specific appropriation for the same.
  6. As a condition of receipt of grants under this section, a qualified company shall make available to the Secretary for inspection, upon request, all documents relevant and applicable to determining whether the qualified company has met the requirements for receipt of a grant as set forth in this section and subject to a memorandum of understanding. All such documents appropriately identified by a qualified company shall be considered confidential and proprietary.

History. 2020, cc. 275, 758.

The number of this section was assigned by the Virginia Code Commission, the number in Acts 2020, cc. 275 and 758 having been § 59.1-284.34.

§ 59.1-284.37. Resources for public institutions of higher education.

  1. To support the needs of a qualified company, and other manufacturers and companies engaged in research and development in and near a qualified county, up to $2,525,000 shall be made available to a comprehensive community college and a baccalaureate public institution of higher education in or near an eligible county. Subject to appropriation, such funds are expected to be available in the Commonwealth’s fiscal years beginning July 1, 2020, through July 1, 2024, as follows:
    1. $730,000 for the Commonwealth’s fiscal year beginning July 1, 2020;
    2. $493,750 for the Commonwealth’s fiscal year beginning July 1, 2021;
    3. $493,750 for the Commonwealth’s fiscal year beginning July 1, 2022;
    4. $493,750 for the Commonwealth’s fiscal year beginning July 1, 2023; and
    5. $313,750 for the Commonwealth’s fiscal year beginning July 1, 2024.
  2. Funds awarded pursuant to this section shall be used for (i) enhanced soft-skilled training; (ii) collaboration to ensure an effective workforce development program; (iii) equipment, maintenance, and personnel needs for bioscience training and education; and (iv) increased educational opportunities in science, technology, engineering, and math.
  3. Decisions regarding the application and awarding of funds shall be determined annually by the Secretary of Commerce and Trade, upon the recommendation of the President and Chief Executive Officer of VEDP, the Chancellor of the Virginia Community College System or his designee, and the Director of the State Council of Higher Education for Virginia or his designee. Such officials may request from applicant institutions, and base decisions upon, annual reports from such institutions setting forth proposals regarding how such funds would be spent and reviewing how awarded funds have been spent.

History. 2020, cc. 275, 758.

The number of this section was assigned by the Virginia Code Commission, the number in Acts 2020, cc. 275 and 758 having been § 59.1-284.35.

Chapter 22.17. Technology Development Grant Fund.

§ 59.1-284.38. Technology Development Grant Fund.

  1. As used in this chapter, unless the context requires a different meaning:“Capital investment” means an expenditure by or on behalf of a qualified company on or after January 1, 2020, in real property, tangible personal property, or both, at a facility located in an eligible county that is properly chargeable to a capital account or would be so chargeable with a proper election. The purchase or lease of machinery and tools, furniture, fixtures, and business personal property, including under an operating lease, and expected building expansion and up-fit by or on behalf of the qualified company shall qualify as capital investment.“Eligible county” means Fairfax County.“Facility” means the building, group of buildings, or corporate campus, including any related machinery and tools, furniture, fixtures, and business personal property, located in an eligible county, that is owned, leased, licensed, occupied, or otherwise operated by a qualified company for use in the administration, management, and operation of its business, including software development and technology research and development.“Fund” means the Technology Development Grant Fund.“Grants” means grants from the Fund awarded to a qualified company in an aggregate amount not to exceed $22.5 million.“Memorandum of understanding” means a performance agreement or related document entered into on or before August 1, 2020, among a qualified company, the Commonwealth, and VEDP that sets forth the requirements for capital investment and the creation of new full-time jobs for the qualified company to be eligible for grants from the Fund.“New full-time job” means a job position, in which the employee of the qualified company works at the facility, for which the standard fringe benefits are provided by the company and for which the average annual wage is at least $112,215. Each such position shall require a minimum of either (i) 35 hours of an employee’s time per week for the entire normal year of the qualified company’s operations, which “normal year” shall consist of at least 48 weeks, or (ii) 1,680 hours per year. Seasonal or temporary positions, positions created when a job function is shifted from an existing location in the Commonwealth, unless the position in the existing location is backfilled, and positions with construction contractors, vendors, suppliers, and similar multiplier or spin-off jobs shall not qualify as new full-time jobs. The Commonwealth may gauge compliance with the new full-time jobs requirement for a qualified company by reference to the new payroll generated by the qualified company, as indicated in the memorandum of understanding.“Qualified company” means a technology company, including its affiliates, that between January 1, 2020, and June 30, 2025, is expected to (i) make a capital investment at a facility of at least $64 million and (ii) create at least 1,500 new full-time jobs at the facility related to, or supportive of, its business.“Secretary” means the Secretary of Commerce and Trade.“VEDP” means the Virginia Economic Development Partnership Authority.
  2. There is hereby created in the state treasury a special nonreverting fund to be known as the Technology Development Grant Fund. The Fund shall be established on the books of the Comptroller. All funds appropriated for such Fund shall be paid into the state treasury and credited to the Fund. Interest earned on moneys in the Fund shall remain in the Fund and be credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used solely to pay grants pursuant to this chapter. Expenditures and disbursements from the Fund shall be made by the State Treasurer on warrants issued by the Comptroller pursuant to subsection F.
  3. A qualified company shall be eligible to receive grants each fiscal year beginning with the Commonwealth’s fiscal year starting on July 1, 2021, and ending with the Commonwealth’s fiscal year starting on July 1, 2026, unless such timeframe is extended in accordance with the memorandum of understanding. Grants shall be paid to the qualified company from the Fund, subject to appropriation by the General Assembly, during each such fiscal year, contingent upon the qualified company’s meeting the requirements set forth in the memorandum of understanding for the number of new full-time jobs created and maintained and the amount of capital investment made. The first grant installment of $5,625,000 shall not be awarded until the qualified company has made a capital investment of at least $19,260,000 and has created at least 500 new full-time jobs.
  4. The aggregate amount of grants payable under this section shall not exceed $22.5 million, and grants are expected to be paid in four annual installments of $5,625,000 each, calculated in accordance with the memorandum of understanding as follows:
    1. $5,625,000 for the Commonwealth’s fiscal year beginning July 1, 2021;
    2. $5,625,000 for the Commonwealth’s fiscal year beginning July 1, 2022;
    3. $5,625,000 for the Commonwealth’s fiscal year beginning July 1, 2023; and
    4. $5,625,000 for the Commonwealth’s fiscal year beginning July 1, 2024.
  5. A qualified company applying for a grant installment pursuant to this chapter shall provide evidence, satisfactory to the Secretary, of (i) the aggregate number of new full-time jobs created and maintained in the calendar year that immediately precedes the beginning of the fiscal year in which the grant installment is to be paid; (ii) the aggregate number of existing jobs maintained in certain other facilities operated by the qualified company in the calendar year that immediately precedes the beginning of the fiscal year in which the grant installment is to be paid; and (iii) the aggregate amount of the capital investment made through the calendar year that immediately precedes the beginning of the fiscal year in which the grant installment is to be paid. The application and evidence shall be filed with the Secretary in person, by mail, or as otherwise agreed upon in the memorandum of understanding, by no later than April 1 of each year, reflecting performance through the prior December 31. Failure to meet the filing deadline shall result in a deferral of a scheduled grant installment set forth in subsection D. For filings by mail, the postmark cancellation shall govern the date of the filing determination.
  6. Within 60 days of receiving the application and evidence pursuant to subsection E, the Secretary shall certify to the Comptroller and the qualified company the amount of grants to which the qualified company is entitled for payment. Such grants shall be paid by the State Treasurer on warrant of the Comptroller in the Commonwealth’s fiscal year following submission of such application. The Comptroller shall not draw any warrants for payment of grants pursuant to this chapter without a specific appropriation for the same.
  7. As a condition of receipt of the grants, a qualified company shall make available to the Secretary for inspection, upon request, all documents relevant and applicable to determining whether the qualified company has met the requirements for receipt of grants as set forth in this chapter and subject to the memorandum of understanding. All such documents appropriately identified by the qualified company shall be considered confidential and proprietary.

History. 2021, Sp. Sess. I, c. 271.

Effective date.

This section is effective July 1, 2021.

Chapter 22.18. Shipping And Logistics Headquarters Grant Program.

§ 59.1-284.39. Shipping and Logistics Headquarters Grant Program.

  1. As used in this chapter, unless the context requires a different meaning:

    “Capital investment” means an expenditure within an eligible locality, by or on behalf of a qualified company on or after January 1, 2021, in real property, tangible personal property, or both, at one of the facilities within an eligible locality that has been capitalized or is subject to being capitalized. “Capital investment” may include (i) the purchase of land and buildings and the cost of infrastructure development and land improvements; (ii) a capital expenditure related to a leasehold interest in real property; and (iii) the purchase or lease of furniture, fixtures, machinery, and equipment, including under an operating lease.

    “Eligible locality” means the City of Norfolk or the County of Arlington.

    “Facilities” means the buildings, group of buildings, or campus, including any related furniture, fixtures, equipment, and business personal property, in an eligible locality that is owned, leased, licensed, occupied, or otherwise operated by or on behalf of a qualified company for use as a headquarters facility, a customer care center, or a research and development innovation center in the furtherance of its shipping and logistics business.

    “Fund” means the Shipping and Logistics Headquarters Grant Fund.

    “Grant” means a grant from the Fund awarded to a qualified company in an aggregate amount of up to $9,042,875. Grant proceeds are intended to be used by the qualified company to pay or reimburse costs associated with constructing, renovating, acquiring, and staffing the facilities.

    “Memorandum of understanding” means a performance agreement or related document entered into on or before August 1, 2022, between a qualified company and the Commonwealth that sets forth the requirements for capital investment and the creation of new jobs for the qualified company.

    “New job” means full-time employment at or associated with any of the facilities measured at any time after January 1, 2021, for which the annual average wage is at least $56,713 for a position in the City of Norfolk or at least $99,385 for a position in the County of Arlington, that requires a minimum of 38 hours of an employee’s time per week for the entire normal year, consisting of at least 48 weeks, of the qualified company’s operations. Seasonal or temporary positions and positions created when a job function is shifted from an existing location in the Commonwealth shall not qualify as new jobs. Any new job shall be in addition to the baseline number of existing full-time positions at the qualified company’s facilities, to be set forth in the memorandum of understanding.

    “Qualified company” means a shipping and logistics company, and its affiliates, that between January 1, 2021, and September 30, 2030, is expected to (i) retain its North American headquarters operations in the City of Norfolk; (ii) make or cause to be made a capital investment at one or more of the facilities of at least $36 million; (iii) create and maintain at least 415 new jobs at or associated with the facilities related to, or supportive of, its shipping and logistics business functions; and (iv) establish and operate a research and development innovation center.

    “Secretary” means the Secretary of Commerce and Trade or his designee.

  2. There is hereby created in the state treasury a nonreverting fund to be known as the Shipping and Logistics Headquarters Grant Fund. The Fund shall be established on the books of the Comptroller. All funds appropriated to the Fund shall be paid into the state treasury and credited to it. Any moneys remaining in the Fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the Fund. Moneys in the Fund shall be used solely for the purpose to pay grant installments pursuant to this chapter. Payment of such grant installments shall be made by check issued by the State Treasurer on warrant of the Comptroller. The Comptroller shall not draw any warrants to issue checks for grant installments under this section without a specific appropriation for the same.
  3. Subject to appropriation by the General Assembly, the aggregate amount of grants payable under this section to a qualified company shall not exceed $9,042,875. Grants shall be paid in nine annual installments, calculated in accordance with the memorandum of understanding, with grants that may be awarded in a particular fiscal year not to exceed the following:
    1. $1,359,500 for the Commonwealth’s fiscal year beginning July 1, 2022;
    2. $2,514,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2023;
    3. $3,468,500, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2024;
    4. $4,423,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2025;
    5. $5,377,500, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2026;
    6. $6,332,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2027;
    7. $7,286,500, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2028;
    8. $8,241,000, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2029; and
    9. $9,042,875, less the total amount of grants previously awarded pursuant to this subsection, for the Commonwealth’s fiscal year beginning July 1, 2030.
  4. A qualified company receiving a grant installment pursuant to this section shall provide evidence, satisfactory to the Secretary, annually of, for each facility: (i) the aggregate number of new jobs created and maintained as of the last day of the prior grant year as determined in the memorandum of understanding, the payroll paid by the qualified company during the grant year, and the average annual wage of the new jobs in the grant year and (ii) the aggregate amount of the capital investment made during the grant year, including the extent to which such capital investment was or was not subject to the Virginia Retail Sales and Use Tax Act (§ 58.1-600 et seq.). The report and evidence shall be filed with the Secretary in person, by mail, or as otherwise agreed upon in the memorandum of understanding, by no later than 90 days following the end of the prior grant year upon which the evidence is based.
  5. The memorandum of understanding shall provide that if any annual report and evidence provided pursuant to subsection D indicates that the qualified company failed to meet certain targets for capital investment that is or is not subject to the Virginia Retail Sales and Use Tax Act (§ 58.1-600 et seq.), the average annual wage for new jobs, or the number of new jobs, the qualified company may qualify for a reduced grant installment for the grant year in an amount that reflects the value of the shortfall in the applicable target.
  6. As a condition of receipt of the grant, a qualified company shall make available to the Secretary for inspection all documents relevant and applicable to determining whether the qualified company has met the requirements for the receipt of the grant as set forth herein and subject to the memorandum of understanding. All such documents appropriately identified by the qualified company shall be considered confidential and proprietary and shall not be subject to disclosure pursuant to the Virginia Freedom of Information Act (§ 2.2-3700 et seq.).

History. 2021, Sp. Sess. I, c. 434; 2022, cc. 10, 76.

The number of this chapter and section were assigned by the Virginia Code Commission, the numbers in the 2021 Sp. Sess. act having been Chapter 22.17 (§ 59.1-284.38).

Effective date.

This section is effective July 1, 2021.

The 2022 amendments.

The 2022 amendments by cc. 10 and 76 are identical, and in subsection A, deleted “the City of Chesapeake” following “means” in the definition of “Eligible locality,” substituted “$9,042,875” for “$9.5 million” in the definition of “Grant,” substituted “2022” for “2021” in the definition of “Memorandum of understanding,” deleted “or the City of Chesapeake” following “City of Norfolk” in the definition of “New job,” and substituted “September 30” for “December 31” in the definition of “Qualified company”; rewrote subsection C, which read: “Subject to appropriation by the General Assembly, a qualified company shall be eligible to receive grant installments of $6.33 million in fiscal year 2022 and $3.17 million in fiscal year 2023. Such grant installments shall be paid to the qualified company from the Fund during each such fiscal year, contingent upon the qualified company’s meeting the requirements set forth in the memorandum of understanding to provide security for any potential repayment of the grant, including a cash escrow”; in subsection D, substituted “prior grant” or “grant” for “calendar” throughout, inserted “as determined in the memorandum of understanding”, and substituted “90 days” for “April 1 each year”; substituted “qualify for a reduced grant installment for the grant year” for “be required to repay the Commonwealth a portion of the grant” in subsection E; deleted “and retention” following “receipt” twice; and made stylistic changes.

Chapter 22.19. Nitrile Glove Manufacturing Training Program.

§ 59.1-284.40. Nitrile Glove Manufacturing Training Program.

  1. In order to support the recruiting and training needs of companies with facilities located in the Mount Rogers Planning District that manufacture nitrile gloves for personal protective equipment, or manufacture the inputs used to manufacture such gloves, up to $4,601,000 shall be made available to the Virginia Economic Development Partnership Authority through the Virginia Talent Accelerator Program to provide services to such companies. Subject to appropriation, funding for such services shall be awarded as follows:
    1. $1,427,000 for the Commonwealth’s fiscal year beginning July 1, 2021;
    2. $1,987,000 less the total amount of funds previously awarded pursuant to this subsection for the Commonwealth’s fiscal year beginning July 1, 2022;
    3. $2,722,000 less the total amount of funds previously awarded pursuant to this subsection for the Commonwealth’s fiscal year beginning July 1, 2023;
    4. $3,574,000 less the total amount of funds previously awarded pursuant to this subsection for the Commonwealth’s fiscal year beginning July 1, 2024; and
    5. $4,601,000 less the total amount of funds previously awarded pursuant to this subsection for the Commonwealth’s fiscal year beginning July 1, 2025.
  2. Companies shall be eligible for services funded under this section only if they enter into a memorandum of understanding with the Virginia Economic Development Partnership Authority to:
    1. Create at least 2,464 new jobs that are for full-time employees and that pay an annual wage of at least $37,321;
    2. Make a capital investment of at least $714.1 million in the Commonwealth; and
    3. Agree to meet the performance targets in subdivisions 1 and 2 on or before January 1, 2027, subject to an extension of no more than two years, as provided in the memorandum of understanding, where such extension may also extend the award dates described in subsection A.
  3. Any company receiving services pursuant to this section shall annually provide evidence satisfactory to the Virginia Economic Development Partnership Authority of (i) the aggregate number of new jobs created and maintained as of the last month of the calendar year as determined in the memorandum of understanding, the payroll paid by the company during the calendar year, and the average annual wage of the new jobs in the calendar year and (ii) the aggregate amount of the capital investment made during the calendar year, including the extent to which such capital investment was or was not subject to the Virginia Retail Sales and Use Tax Act (§ 58.1-600 et seq.). The report and evidence shall be filed with the Virginia Economic Development Partnership Authority in person, by mail, or as otherwise agreed upon in the memorandum of understanding by no later than April 1 each year following the end of the prior calendar year upon which the evidence is based.
  4. Any memorandum of understanding entered into pursuant to this section shall provide that if any annual report and evidence provided pursuant to subsection C indicates that a company failed to meet the targets specified in subsection B, the company may be required to repay the Commonwealth a portion of the costs for services delivered pursuant to this section in an amount that reflects the value of the shortfall in the applicable target.
  5. As a condition of receipt of the services funded under this section, a company receiving services pursuant to this section shall make available to the Virginia Economic Development Partnership Authority for inspection all documents relevant and applicable to determining whether the company has met the requirements for the receipt of the services as set forth in this section and subject to the memorandum of understanding. All such documents appropriately identified by the company shall be considered confidential and proprietary, and shall not be subject to disclosure pursuant to the Virginia Freedom of Information Act (§ 2.2-3700 et seq.).
  6. Funding made available pursuant to this section shall be used to provide recruitment and training services for employees of companies that meet the eligibility requirements of this section. Services shall be coordinated by the Virginia Economic Development Partnership Authority through the Virginia Talent Accelerator Program.

History. 2022, cc. 746, 731.

Chapter 23. Cigarette Sales Below Wholesale Cost Act.

§§ 59.1-285 through 59.1-293.

Repealed by Acts 1986, c. 424.

Chapter 23.1. Reduced Cigarette Ignition Propensity.

§§ 59.1-293.1 through 59.1-293.9.

Repealed by Acts 2014, cc. 370 and 418, cl. 2.

Cross references.

For current provisions pertaining to reduced cigarette ignition propensity, see § 9.1-209 et seq.

Editor’s note.

Former Chapter 23.1 (§§ 59.1-293.1 through 59.1-293.9) of Title 59.1, pertaining to reduced cigarette ignition propensity, was enacted by 2008, cc. 96, 348 and amended by 2012, cc. 66, 195.

Chapter 23.2. Liquid Nicotine.

§ 59.1-293.10. Definitions.

As used in this chapter, unless the context requires another meaning:

“Child-resistant packaging” means packaging that is designed or constructed to meet the child-resistant effectiveness standards set forth in 16 C.F.R. § 1700.15(b)(1) when tested in accordance with the protocols described in 16 C.F.R. § 1700.20 as in effect on July 1, 2015.

“Liquid nicotine” means a liquid or other substance containing nicotine in any concentration that is sold, marketed, or intended for use in a nicotine vapor product.

“Liquid nicotine container” means a bottle or other container holding liquid nicotine in any concentration but does not include a cartridge containing liquid nicotine if such cartridge is prefilled and sealed by the manufacturer of such cartridge and is not intended to be opened by the consumer.

“Nicotine vapor product” has the same meaning as in § 18.2-371.2 .

History. 2015, cc. 739, 756.

§ 59.1-293.11. Sale or distribution of liquid nicotine container; prohibition; penalty.

  1. No person shall sell or distribute at retail or offer for retail sale or distribution a liquid nicotine container in the Commonwealth on or after October 1, 2015, unless such liquid nicotine container meets child-resistant packaging standards.
  2. The requirements of subsection A shall not prohibit a wholesaler or retailer from selling its existing inventory of liquid nicotine until January 1, 2016, if the wholesaler or retailer can establish that the inventory was purchased prior to October 1, 2015, in a quantity comparable to that of the inventory purchased during the same period of the prior year.
  3. Any person who sells or distributes at retail or offers for retail sale or distribution a liquid nicotine container in the Commonwealth on or after October 1, 2015, that he knows or has reason to know does not satisfy the child-resistant packaging standards required by this section is guilty of a Class 4 misdemeanor. However, no person shall be guilty of a violation of this section who relies in good faith on any information provided by the manufacturer of a liquid nicotine container that such container meets the requirements of this section.
  4. The provisions of this chapter do not apply to any manufacturer or wholesaler of liquid nicotine containers who sells or distributes a liquid nicotine container, provided that any such liquid nicotine container sold or distributed is intended for use outside of the Commonwealth.
  5. The provisions of subsection A shall be null, void, and of no force and effect upon the effective date of either enacted federal legislation or final regulations issued by the U.S. Food and Drug Administration or by any other federal agency where such legislation or regulations mandate child-resistant packaging for liquid nicotine containers.

History. 2015, cc. 739, 756.

Cross references.

As to punishment for Class 4 misdemeanors, see § 18.2-11 .

Chapter 24. Virginia Health Club Act.

§ 59.1-294. Short title.

This chapter shall be known and may be cited as the “Virginia Health Club Act.”

History. 1984, c. 738; 2014, c. 459.

The numbers of §§ 59.1-294 through 59.1-310 were assigned by the Virginia Code Commission, the numbers in the 1984 act having been 59.1-285 through 59.1-301.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “Health Club” for “Health Spa.”

§ 59.1-295. Statement of purpose.

The purpose of this chapter is to safeguard the public interest against fraud, deceit, and financial hardship, and to foster and encourage competition, fair dealing and prosperity in the field of health club services by prohibiting false and misleading advertising, and dishonest, deceptive, and unscrupulous practices by which the public has been injured in connection with contracts for health club services.

History. 1984, c. 738; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” twice.

§ 59.1-296. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Automated external defibrillator” means a device that combines a heart monitor and defibrillator and (i) has been approved by the U.S. Food and Drug Administration; (ii) is capable of recognizing the presence or absence of ventricular fibrillation or rapid ventricular tachycardia; (iii) is capable of determining, without intervention by an operator, whether defibrillation should be performed; and (iv) automatically charges and requests delivery of an electrical impulse to an individual’s heart upon determining that defibrillation should be performed.

“Business day” means any day except a Sunday or a legal holiday.

“Buyer” means a natural person who enters into a health club contract.

“Commissioner” means the Commissioner of Agriculture and Consumer Services, or a member of his staff to whom he may delegate his duties under this chapter.

“Comparable alternate facility” means a health club facility that is reasonably of like kind, in nature and quality, to the health club facility originally contracted, whether such facility is in the same location but owned or operated by a different health club or is at another location of the same health club.

“Contract price” means the sum of the initiation fee, if any, and all monthly fees except interest required by the health club contract.

“Facility” means a location where health club services are offered as designated in a health club contract.

“Health club” means any person, firm, corporation, organization, club or association whose primary purpose is to engage in the sale of memberships in a program consisting primarily of physical exercise with exercise machines or devices, or whose primary purpose is to engage in the sale of the right or privilege to use exercise machines or devices. The term “health club” shall not include the following: (i) bona fide nonprofit organizations, including, but not limited to, the Young Men’s Christian Association, Young Women’s Christian Association, or similar organizations whose functions as health clubs are only incidental to their overall functions and purposes; (ii) any private club owned and operated by its members; (iii) any organization primarily operated for the purpose of teaching a particular form of self-defense such as judo or karate; (iv) any facility owned or operated by the United States; (v) any facility owned or operated by the Commonwealth of Virginia or any of its political subdivisions; (vi) any nonprofit public or private school or institution of higher education; (vii) any club providing tennis or swimming facilities located in a residential planned community or subdivision, developed in conjunction with the development of such community or subdivision, and deriving at least 80 percent of its membership from residents of such community or subdivision; and (viii) any facility owned and operated by a private employer exclusively for the benefit of its employees, retirees, and family members and which facility is only incidental to the overall functions and purposes of the employer’s business and is operated on a nonprofit basis.

“Health club contract” means an agreement whereby the buyer of health club services purchases, or becomes obligated to purchase, health club services.

“Health club services” means and includes services, privileges, or rights offered for sale or provided by a health club.

“Initiation fee” means a nonrecurring fee charged at or near the beginning of a health club membership, and includes all fees or charges not part of the monthly fee.

“Monthly fee” means the total consideration, including but not limited to, equipment or locker rental, credit check, finance, medical and dietary evaluation, class and training fees, and all other similar fees or charges and interest, but excluding any initiation fee, to be paid by a buyer, divided by the total number of months of health club service use allowed by the buyer’s contract, including months or time periods called “free” or “bonus” months or time periods and such months or time periods that are described in any other terms suggesting that they are provided free of charge, which months or time periods are given or contemplated when the contract is initially executed.

“Out of business” means the status of a facility that is permanently closed and for which there is no comparable alternate facility.

“Prepayment” means payment of any consideration for services or the use of facilities made prior to the day on which the services or facilities of the health club are fully open and available for regular use by the members.

“Relocation” means the provision of health club services by the health club that entered into the membership contract at a location other than that designated in the member’s contract.

History. 1984, c. 738; 1985, c. 585; 1986, c. 187; 1990, cc. 392, 433; 1991, c. 149; 1992, c. 102; 2003, c. 344; 2007, c. 683; 2010, c. 439; 2014, c. 459; 2020, c. 628.

Editor’s note.

At the direction of the Virginia Code Commission, “institution of higher education” was substituted for “college or university” in the definition of “Health club” to conform to Acts 2016, c. 588.

The 2003 amendments.

The 2003 amendment by c. 344 inserted the definition of “Comparable alternate facility”; in the definition of “Health spa,” substituted “80” for “eighty”; and added the definition of “Relocation.”

The 2007 amendments.

The 2007 amendment by c. 683 inserted “the same location through another health spa or at” in the paragraph defining “Comparable alternate facility.”

The 2010 amendments.

The 2010 amendment by c. 439, in the definition of “comparable alternate facility,” substituted “is reasonably” for “provides health spa services and facilities that are reasonably,” “health spa facility” for “services,” and “whether such facility is in the same location but owned by a different health spa or is at another location of the same health” for “for at the same location through another health spa or at another location of the health spa”; added the definition of “facility”; in the definition of “health spa,” rewrote the first sentence, which formerly read: “ ‘Health spa’ means and includes any person, firm, corporation, organization, club or association engaged in the sale of memberships in a program of physical exercise, which included the use of one or more of a sauna, whirlpool, weight lifting room, massage, steam room, or exercising machine device, or engaged in the sale of the right or privilege to use exercise equipment or facilities, such as a sauna, whirlpool, weight lifting room, massage, steam room or exercising machine or device”; and added the definition for “out of business.”

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section; inserted “or operated” in the definition of “Comparable alternate facility”; and substituted “time periods that” for “time periods which” in the definition of “Monthly fee.”

The 2020 amendments.

The 2020 amendment by c. 628, in the introductory language, added “unless the context requires a different meaning”; and added the definition for “Automated external defibrillator.”

Michie’s Jurisprudence.

For related discussion, see 9A M.J. Health and Sanitation, § 1.

§ 59.1-296.1. Registration; fees.

  1. It shall be unlawful for any health club to offer, advertise, or execute or cause to be executed by the buyer any health club contract in this Commonwealth unless each facility of the health club has been properly registered with the Commissioner at the time of the offer, advertisement, sale or execution of a health club contract. The registration shall (i) disclose the address, ownership, date of first sales and date of first opening of the facility and such other information as the Commissioner may require consistent with the purposes of this chapter, (ii) be renewed annually on July 1, and (iii) be accompanied by the appropriate registration fee per each annual registration in the amount indicated below:

    Click to viewFurther, it shall be accompanied by a late fee of $50 if the registration renewal is neither postmarked nor received on or before July 1. In the event that a club operates multiple facilities, a $50 late fee for the first facility and $25 for each additional facility shall accompany the registrations. For each successive 30 days after August 1, an additional $25 shall be added for each facility. Each separate facility where health club services are offered shall be considered a separate facility and shall file a separate registration, even though the separate facilities are owned or operated by the same health club.

  2. Any health club that sells a health club contract prior to registering pursuant to this section and, if required, submits the appropriate surety required by § 59.1-306 shall pay a late filing fee of $100 for each 30-day period the registration or surety is late. This fee shall be in addition to all other penalties allowed by law.
  3. A registration shall be amended within 21 days if there is a change in the information included in the registration.
  4. All fees shall be remitted to the State Treasurer and shall be placed to the credit and special fund of the Virginia Department of Agriculture and Consumer Services to be used in the administration of this chapter.

Number of unexpired Registration fee contracts originally written for more than one month 0 to 250 $200 251 to 500 $300 501 to 2000 $700 2001 or more $800

History. 1985, c. 585; 1988, c. 13; 1990, cc. 392, 433; 2010, c. 439; 2014, c. 459.

The 2010 amendments.

The 2010 amendment by c. 439, in subsection A, in the first paragraph, substituted “each facility of the health spa has been properly registered with the Commissioner” for “the health spa,” deleted “has been properly registered with the Commissioner” following “health spa contract,” substituted “facility” for “health spa,” in the second paragraph, substituted “spa operates” for “spa has,” “facilities” for “locations” twice, “facility” for “location” three times, “facility” for “health spa” once, and substituted “health spa” for “owner” at the end; and made stylistic changes throughout.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “club” for “spa” throughout the section; and substituted “club that” for “spa which” in subsection B.

§ 59.1-296.2. Contracts sold on prepayment basis.

  1. Each health club selling contracts or health club services on a prepayment basis shall notify the Commissioner of the proposed facility for which prepayments will be solicited and shall deposit all funds received from such prepayment contracts in an account established in a financial institution authorized to transact business in the Commonwealth until the health club has commenced operations in the facility and the facility has remained open for a period of 30 days. The account shall be established and maintained only in a financial institution that agrees in writing with the Commissioner to hold all funds deposited and not to release such funds until receipt of written authorization from the Commissioner. The prepayment funds deposited will be eligible for withdrawal by the health club after the facility has been open and providing services pursuant to its health club contracts for 30 days and the Commissioner gives written authorization for withdrawal.
  2. The provisions of this section shall not apply to any facility duly registered pursuant to the provisions of § 59.1-296.1 for which a bond or letter of credit in the amount of $100,000 has been posted.

History. 1985, c. 585; 1990, cc. 392, 433; 2010, c. 439; 2014, c. 459.

The 2010 amendments.

The 2010 amendment by c. 439 designated the existing provisions as subsections A and B and made related changes; in subsection A, substituted “facility” for “location of the spa” and inserted “in the facility” and “the facility” in the first sentence, substituted “facility” for “health spa” in the last sentence; and in subsection B, substituted “facility” for “health spa” and “for which a bond” for “which has posted a bond,” inserted “has been posted” at the end; and made minor stylistic changes.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section; and substituted “that” for “which” in the second sentence of subsection A.

§ 59.1-296.2:1. Prepayment contracts; prohibited practices; relocation; refund.

  1. No health club shall sell a health club contract on a prepayment basis without disclosing in the contract the date on which the facility shall open. The opening date shall not be later than 12 months from the signing of the contract.
  2. No health club shall close or relocate any facility without first giving notice to the Commissioner and conspicuously posting a notice both within and outside each entrance to the facility being closed or relocated of the closing or relocation date. Such notice shall be provided at least 30 days prior to the closing or relocation date. If a relocation is to occur, the Commissioner and the facility’s members shall be provided with the address of the specific new facility at the time of this notice.
  3. No health club shall knowingly and willfully make any false statement in any registration application, statement, report, or other disclosure required by this chapter.
  4. No health club shall refuse or fail, after notice from the Commissioner, to produce for the Commissioner’s review any of the health club’s books or records required to be maintained by this chapter.
  5. Unless it so discloses fully in 10-point bold-faced type or larger on the face of each health club contract, no health club shall sell any health club contract if any owner of the health club, regardless of the extent of his ownership, previously owned in whole or in part a health club that closed for business any facility and failed to:
    1. Refund all moneys due to holders of health club contracts; or
    2. Provide comparable alternate facilities with another health club that agreed in writing to honor all provisions of the health club contracts or at another facility operated by the originally contracting health club.
  6. No health club that has failed to provide the Commissioner the appropriate surety pursuant to § 59.1-306 shall sell a health club contract unless that contract contains a statement that reads as follows: “This club is not permitted, pursuant to the Virginia Health Club Act, to accept any initiation fee in excess of $125 or any payment for more than the prorated monthly fee for the month when the contract is initially executed plus one full month in advance.”Such disclosure shall be printed in 10-point bold-faced type or larger on the face of each contract.

History. 1990, cc. 392, 433; 1993, c. 686; 2003, c. 344; 2004, c. 988; 2010, c. 439; 2014, c. 459.

The 2003 amendments.

The 2003 amendment by c. 344, in subsection A, substituted “later than 12” for “in excess of twelve”; in subsection B, deleted “selling health spa contracts” following “No health spa,” inserted “and conspicuously posting a notice both within and outside each entrance to the health spa facility being closed or relocated,” substituted “30” for “thirty,” and inserted “and the health spa facility’s members”; in subsection C, deleted “or” following “application”; in subsection D, substituted “the Commissioner’s” for “his,” and substituted “health spa’s” for “organization’s”; in subsection E, substituted “shall sell” for “may sell”; in subdivision E 2, substituted “alternate” for “alternative”; and in subsection F, substituted “that has failed” for “failing” and “$75” for “seventy-five dollars.”

The 2004 amendments.

The 2004 amendment by c. 988 substituted “$125” for “$75” in the first paragraph of subsection F.

The 2010 amendments.

The 2010 amendment by c. 439, in subsection A, substituted “facility” for “health spa”; in subsection B, inserted “any facility,” substituted “facility” for “health spa,” deleted “health spa” preceding “facility’s members,” and substituted “facility” for “location”; in subsection E, substituted “owner of the health spa” for “owner of the spa” and inserted “any facility”; in subdivision E 2, substituted “with another” for “at another” and added “or at another facility operated by the originally contracting health spa”; and made minor stylistic changes.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section.

§ 59.1-296.2:2. Automated external defibrillator required.

Each health club location shall have a working automated external defibrillator.

History. 2020, c. 628.

§ 59.1-296.3. Initiation fees.

Whenever a refund is due a buyer, any initiation fee charged by a health club shall be prorated over the life of the contract or 12 months, whichever is greater.

History. 1985, c. 585; 1990, cc. 392, 433; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” and “12” for “twelve.”

§ 59.1-297. Right of cancellation.

  1. Every health club contract for the sale of health club services may be cancelled under the following circumstances:
    1. A buyer may cancel the contract without penalty within three business days of its making and, upon notice to the health club of the buyer’s intent to cancel, shall be entitled to receive a refund of all moneys paid under the contract.
    2. A buyer may cancel the contract if the facility relocates or goes out of business and the health club fails to provide comparable alternate facilities within five driving miles of the location designated in the health club contract. Upon receipt of notice of the buyer’s intent to cancel, the health club shall refund to the buyer funds paid or accepted in payment of the contract in an amount computed as prescribed in § 59.1-297.1.
    3. The contract may be cancelled if the buyer dies or becomes physically unable to use a substantial portion of the services for 30 or more consecutive days. If the buyer becomes physically unable to use a substantial portion of the services for 30 or more consecutive days and wishes to cancel his contract, he must provide the health club with a signed statement from his doctor, physician assistant, or nurse practitioner verifying that he is physically unable to use a substantial portion of the health club services for 30 or more consecutive days. Upon receipt of notice of the buyer’s intent to cancel, the health club shall refund to the buyer funds paid or accepted in payment of the contract in an amount computed as prescribed in § 59.1-297.1. In the case of disability, the health club may require the buyer to submit to a physical examination by a doctor, physician assistant, or nurse practitioner agreeable to the buyer and the health club within 30 days of receipt of notice of the buyer’s intent to cancel. The cost of the examination shall be borne by the health club.
  2. The buyer shall notify the health club of cancellation in writing, by certified mail, return receipt requested, or personal delivery, to the address of the health club as specified in the health club contract.
  3. If the customer has executed any credit or lien agreement with the health club or its representatives or agents to pay for all or part of health club services, any such negotiable instrument executed by the buyer shall be returned to the buyer within 30 days after such cancellation.
  4. If the club agrees to allow a consumer to cancel for any other reason not outlined in this section, upon receipt of notice of cancellation by the buyer, the health club shall refund to the buyer funds paid or accepted in payment of the contract in an amount computed as prescribed in § 59.1-297.1.

History. 1984, c. 738; 1990, cc. 392, 433; 2003, c. 344; 2004, c. 855; 2006, c. 396; 2010, c. 439; 2014, c. 459.

Editor’s note.

Acts 2004, c. 855, cl. 2 provides: “That this act shall take effect 60 days following the effective date of the regulations promulgated by the Board of Medicine and Board of Nursing required by the third enactment clause of this act.” Emergency regulations took effect July 15, 2004.

Acts 2004, c. 855, cl. 3 provides: “That the Board of Medicine and Board of Nursing shall amend regulations governing the licensure of nurse practitioners to be effective within 280 days of enactment of this act. Such amendments shall require inclusion of the nurse practitioner’s authority for signatures, certifications, stamps, verifications, affidavits and endorsements in the written protocol between the supervising physician and the nurse practitioner.”

The 2003 amendments.

The 2003 amendment by c. 344 rewrote the section.

The 2004 amendments.

The 2004 amendment by c. 855 inserted “or nurse practitioner” in the second and next-to-last sentences of subdivision A 3. For effective date, see Editor’s note.

The 2006 amendments.

The 2006 amendment by c. 396 inserted “physician assistant” in the second and fourth sentences in subdivision A 3.

The 2010 amendments.

The 2010 amendment by c. 439, in subdivision A 2, substituted “facility relocates” for “health spa relocates” and inserted “the health spa” near the middle of the first sentence.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “club” for “spa” throughout the section.

Law Review.

For 2006 survey article, “Health Care Law,” see 41 U. Rich. L. Rev. 179 (2006).

§ 59.1-297.1. Payment and calculation of refunds.

  1. All refunds for cancellation of membership shall be paid within 30 days of the health club’s receipt of written notice of cancellation by the buyer and calculated by:
    1. Dividing the contract price by the term of the contract in days;
    2. Multiplying the number obtained in subdivision 1 by the number of days between the effective date of the contract and the date of cancellation; and
    3. Subtracting the number obtained in subdivision 2 from the total price paid on the health club contract.
  2. In the event of the health club going out of business, the date of cancellation shall be the date the health club ceased providing health club services at the facility.
  3. A health club issuing a refund to a buyer under this chapter shall do so within 30 days of the health club receiving a notice of cancellation pursuant to § 59.1-297, or within 30 days of the permanent closing of the facility designated in the buyer’s contract.

History. 2003, c. 344; 2010, c. 439; 2014, c. 459.

The 2010 amendments.

The 2010 amendment by c. 439, in subsection B, added “at the facility” to the end; and added subsection C.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section.

§ 59.1-297.2. Automatic termination of a health club contract.

A health club contract shall be considered terminated automatically if the designated facility closes permanently and the health club does not provide a comparable alternate facility. A facility closes temporarily if it closes for a reasonable period of time (i) for renovations to all or a portion of the facility, (ii) because the lease for the facility has been canceled, or (iii) because of a fire, or a flood or other act of God, or other cause not within the reasonable control of the health club. If a facility closes temporarily, it shall within 14 days from the time of the temporary closing provide notice of the date it expects to reopen, which date shall be within a reasonable period of time from the time the facility temporarily closes, to the Commissioner and shall conspicuously post such notice both within and outside each entrance to the facility.

History. 2003, c. 344; 2010, c. 439; 2014, c. 459.

The 2010 amendments.

The 2010 amendment by c. 439 rewrote the section.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section.

§ 59.1-298. Notice to buyer.

A copy of the executed health club contract shall be delivered to the buyer at the time the contract is executed. All health club contracts shall (i) be in writing, (ii) state the name and physical address of the health club, (iii) be signed by the buyer, (iv) designate the date on which the buyer actually signed the contract, (v) state the starting and expiration dates of the initial membership period, (vi) separately identify any initiation fee, (vii) either in the contract itself or in a separate notice provided to the buyer at the time the contract is executed, notify each buyer that the buyer should attempt to resolve with the health club any complaint the buyer has with the health club, and that the Virginia Department of Agriculture and Consumer Services regulates health clubs in the Commonwealth pursuant to the provisions of the Virginia Health Club Act, and (viii) contain the provisions set forth in § 59.1-297 under a conspicuous caption: “BUYER’S RIGHT TO CANCEL” that shall read substantially as follows:

If you wish to cancel this contract, you may cancel by making or delivering written notice to this health club. The notice must say that you do not wish to be bound by the contract and must be delivered or mailed before midnight of the third business day after you sign this contract. The notice must be delivered or mailed to

Click to view

(Health club shall insert its name and mailing address.)

If canceled within three business days, you will be entitled to a refund of all moneys paid. You may also cancel this contract if this club goes out of business or relocates and fails to provide comparable alternate facilities within five driving miles of the facility designated in this contract. You may also cancel if you become physically unable to use a substantial portion of the health club services for 30 or more consecutive days, and your estate may cancel in the event of your death. You must prove you are unable to use a substantial portion of the health club services by a doctor’s, physician assistant’s, or nurse practitioner’s certificate, and the health club may also require that you submit to a physical examination, within 30 days of the notice of cancellation, by a doctor, physician assistant, or nurse practitioner agreeable to you and the health club. If you cancel after the three business days, the health club may retain or collect a portion of the contract price equal to the proportionate value of the services or use of facilities you have already received. Any refund due to you shall be paid within 30 days of the effective date of cancellation.

History. 1984, c. 738; 1990, cc. 392, 433; 2003, c. 344; 2004, c. 855; 2006, c. 396; 2010, c. 439; 2013, c. 24; 2014, c. 459.

Editor’s note.

Acts 2004, c. 855, cl. 2 provides: “That this act shall take effect 60 days following the effective date of the regulations promulgated by the Board of Medicine and Board of Nursing required by the third enactment clause of this act.” Emergency regulations took effect July 15, 2004.

Acts 2004, c. 855, cl. 3 provides: “That the Board of Medicine and Board of Nursing shall amend regulations governing the licensure of nurse practitioners to be effective within 280 days of enactment of this act. Such amendments shall require inclusion of the nurse practitioner’s authority for signatures, certifications, stamps, verifications, affidavits and endorsements in the written protocol between the supervising physician and the nurse practitioner.”

The 2003 amendments.

The 2003 amendment by c. 345 rewrote the introductory paragraph, and in the form, deleted “moves or” preceding “goes out of business,” substituted “comparable alternate” for “alternative,” inserted “driving” preceding “miles,” substituted “physically unable to use a substantial portion of the health spa services for 30 or more consecutive days” for “disabled,” substituted “you are unable to use a substantial portion of the health spa services” for “such disability,” inserted “within 30 days of the notice of cancellation,” and added the last sentence.

The 2004 amendments.

The 2004 amendment by c. 855, in the last paragraph, in the fourth sentence, inserted “or nurse practitioner’s” following “by a doctor’s” and “or nurse practitioner” following “by a doctor.” For effective date, see Editor’s note.

The 2006 amendments.

The 2006 amendment by c. 396 inserted “physician assistant’s” and “physician assistant” in the fourth sentence of the last paragraph.

The 2010 amendments.

The 2010 amendment by c. 439 substituted “facility” for “location” in the second paragraph of the “BUYER’S RIGHT TO CANCEL” notice.

The 2013 amendments.

The 2013 amendment by c. 24 deleted “Office of Consumer Affairs” following “Agriculture and Consumer Services” in clause (vi) of the second sentence of the first paragraph.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “club” for “spa” throughout the section; and in the introductory paragraph, inserted “state the name and physical address of the health club, (iii)” and made related changes.

§ 59.1-299. Duration of contract.

No health club contract shall have a duration for a period longer than thirty-six months, including any renewal period; however, a health club contract may exceed 36 months provided that:

  1. Any initiation fee does not exceed 10 times the initial monthly fee;
  2. All payments for health club services, other than the initiation fee, are collected as monthly fees on a monthly basis;
  3. After an initial term of not more than 12 months, either party may cancel the health club contract upon not more than 30 days’ notice; and
  4. The monthly fee is never reduced below 80 percent of the monthly fee at the time the contract is initially executed.

History. 1984, c. 738; 1990, cc. 392, 433; 1992, c. 117; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section; in the introductory paragraph substituted “36” for “thirty-six”; in subdivision 1 substituted “10” for “ten”; in subdivision 3 substituted “12” for “twelve” and “30” for “thirty”; and in subdivision 4 substituted “80” for “eighty.”

§ 59.1-300. Provisions of this chapter not exclusive.

The provisions of this chapter are not exclusive and do not relieve the parties or the contracts subject thereto from compliance with all other applicable provisions of law.

History. 1984, c. 738.

§ 59.1-301. Noncomplying contract voidable.

Any health club contract that does not comply with the applicable provisions of this chapter shall be voidable at the option of the buyer.

History. 1984, c. 738; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” and “that” for “which.”

§ 59.1-302. Fraud rendering contract void.

Any health club contract entered into by the buyer upon any false or misleading information, representation, notice, or advertisement of the health club or the health club’s agents shall be void and unenforceable.

History. 1984, c. 738; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section.

§ 59.1-303. Waiver of provisions void and unenforceable.

Any waiver by the buyer of the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.

History. 1984, c. 738.

§ 59.1-304. Notice of preservation of buyers’ rights.

All health club contracts and any promissory note executed by the buyer in connection therewith shall contain the following provision on the face thereof in at least 10-point, boldface type:

NOTICE

ANY HOLDER OF THIS CONTRACT OR NOTE IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

History. 1984, c. 738; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459, in the first paragraph, substituted “health club” for “health spa” and “10” for “ten.”

§ 59.1-305. Prohibition against assignment of health club contract cutting off buyer’s right of action or defense against seller; conditions.

Whether or not the health club has complied with the notice requirements of § 59.1-304, any right of action or defense arising out of a health club contract which the buyer has against the health club, and which would be cut off by assignment, shall not be cut off by assignment of the contract to any third party holder, whether or not the holder acquires the contract in good faith and for value.

History. 1984, c. 738; 2003, c. 344; 2014, c. 459.

The 2003 amendments.

The 2003 amendment by c. 344 substituted “59.1-304” for “59.1-295.”

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section.

§ 59.1-306. Bond or letter of credit required; exception.

  1. Every health club, before it enters into a health club contract and accepts any moneys in excess of the prorated monthly fee for the month when the contract is initially executed plus one month’s fees or accepts any initiation fee in excess of $125, shall file and maintain with the Commissioner, in form and substance satisfactory to him, a bond with corporate surety, from a company authorized to transact business in the Commonwealth or a letter of credit from a bank insured by the Federal Deposit Insurance Corporation in the amounts indicated below:

    Click to viewFor purposes of calculating the number of applicable unexpired health club contracts when determining the required amount of bond or letter of credit, health club contracts entered into on or after January 1, 2005, with a term that exceeds 13 months shall be counted as multiple health club contracts, such that the number of applicable contracts counted with respect thereto shall equal the total of the number of full years and any partial year in its term. However, this paragraph shall not apply (i) to health club contracts that are payable only on a monthly basis and for which the initiation fee is no more than $250 or (ii) if the number of the health club’s contracts in effect with a term that exceeds 13 months is less than 10 percent of the total of its health club contracts.The number of applicable unexpired contracts shall be separately calculated for each facility.A health club shall file a separate bond or letter of credit with respect to each separate facility, even though the separate facilities are owned or operated by the same health club.However, no health club shall be required to file with the Commissioner bonds or letters of credit in excess of $300,000. If the $300,000 limit is applicable, then the bonds or letters of credit filed by the health club shall apply to all facilities owned or operated by the same health club.

  2. A health club may sell health club contracts of up to 36 months’ duration for a facility for which a health club has not filed a bond or letter of credit so long as the amount of payment actually charged, due or received under the health club contracts each month by the health club or any holder thereunder does not exceed the monthly fee calculated pursuant to the definition thereof in § 59.1-296, with the exception that the payment actually charged may include a maximum initiation fee of $125 for health club contracts of 13 months or more in duration.

Number of Amount of bond applicable contracts or letter of credit 0 to 250 $10,000 251 to 500 $20,000 501 to 750 $30,000 751 to 1000 $40,000 1001 to 1250 $50,000 1251 to 1500 $60,000 1501 to 1750 $70,000 1751 to 2000 $80,000 2001 or more $100,000

History. 1984, c. 738; 1985, c. 585; 1990, cc. 392, 433; 1992, c. 117; 2004, c. 988; 2010, c. 439; 2014, c. 459.

The 2004 amendments.

The 2004 amendment by c. 988 twice substituted “$125” for “seventy-five dollars”; inserted the present second paragraph in subsection A; and in subsection B, substituted “36” for “thirty-six” and “13” for “twelve.”

The 2010 amendments.

The 2010 amendment by c. 439, in subsection A, in the third paragraph, substituted “facility” for “location where health spa services are offered,” in the fourth paragraph, substituted “a health spa shall file” for “each separate location where health spa services are offered shall be considered a separate health spa and shall file,” “to each separate facility” for “thereto,” “facilities” for “locations,” and “health spa” for “owner,” in the fifth paragraph, substituted “health spa” for “owner,” “the health spa” for “such owner,” “facilities” for “health spas,” and “same health spa” for “same owner”; and in subsection B, substituted “health spa may sell” for “health spa which has not filed a bond or letter of credit may nevertheless,” inserted “for a facility for which a health spa has not filed a bond or letter of credit” and “under the health spa contracts,” and substituted “thereunder” for “of its health spa contracts.”

The 2014 amendments.

The 2014 amendment by c. 459 substituted “health club” for “health spa” throughout the section and made a minor stylistic change.

§ 59.1-307. Bond or letter of credit; persons protected.

  1. The bond or letter of credit required by § 59.1-306 shall be in favor of the Commonwealth for the benefit of (i) any buyer injured by having paid money for health club services in a facility that fails to open by the date provided by the contract, which date shall not be in excess of 12 months from the signing of the contract; (ii) any buyer injured by having paid money for health club services in a facility which goes out of business prior to the expiration of the buyer’s health club contract; or (iii) any buyer injured as a result of a violation of this chapter.
  2. The aggregate liability of the bond or letter of credit to all persons for all breaches of the conditions of the bond or letter of credit shall in no event exceed the amount of the bond or letter of credit. The bond or letter of credit shall not be cancelled or terminated except with the consent of the Commissioner.

History. 1984, c. 738; 1987, c. 547; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “club” for “spa” throughout the subsection; and in subsection A, substituted “that” for “which” and “12” for “twelve.”

§ 59.1-308. Change in ownership of health club.

For purposes of this chapter, a health club shall be considered a new health club and subject to the requirements of a bond or letter of credit at the time the health club changes ownership. Any health club that has more than 50 percent ownership by the same person or persons shall be considered as owned by the same owner. A change in ownership shall not release, cancel, or terminate liability under any bond or letter of credit previously filed unless the Commissioner agrees in writing to such release, cancellation, or termination because the new owner has filed a new bond or letter of credit for the benefit of the previous owner’s members or because the former owner has refunded all unearned payments to its members. Every change in ownership shall be reported in writing to the Commissioner at least 10 days prior to the effective date of the change in ownership.

History. 1984, c. 738; 1985, c. 585; 1990, cc. 392, 433; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “club” for “spa” throughout the section, “that” for “which,” “person or persons” for “stockholder(s) and/or partner(s),” and “50” for “fifty” in the second sentence; and substituted “10” for “ten” in the last sentence.

§ 59.1-308.1. Production of records.

Every health club, upon the written request of the Commissioner, shall make available to the Commissioner its prepayment bank account records and all membership contracts for inspection and copying, to enable the Commissioner reasonably to determine compliance with this chapter. Every health club shall maintain a true copy of each health club contract executed between the health club and a buyer. Each contract shall be maintained for its term, including any renewal. Every health club shall maintain the executed health club contracts at a designated location where the contracts may be inspected by the Commissioner. If the location designated by the health club is outside Virginia, the health club shall pay the reasonable travel costs of an inspection by the Commissioner.

History. 1985, c. 585; 1990, cc. 392, 433; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “club” for “spa” throughout the section.

§ 59.1-308.2. Investigations.

  1. The Commissioner may:
    1. Make necessary public or private investigations within or without this Commonwealth to determine any violations of the provisions of this chapter or any rule, regulation, or order issued pursuant to this chapter; and
    2. Require or permit any person to file a statement in writing, under oath or otherwise as the Commissioner determines, as to all facts and circumstances concerning the matter under investigation.
  2. For the purpose of any investigation or proceeding under this chapter, the Commissioner may administer oaths or affirmations, and upon such motion or upon request of any party, may subpoena witnesses, compel their attendance, take evidence, and require the production of any matter that is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence.
  3. Any proceeding or hearing of the Commissioner pursuant to this chapter, in which witnesses are subpoenaed and their attendance required for evidence to be taken, or any matter is to be produced to ascertain material evidence, shall take place within the City of Richmond.
  4. If any person fails to obey a subpoena or to answer questions propounded by the Commissioner and upon reasonable notice to all persons affected thereby, the Commissioner may apply to the Circuit Court of the City of Richmond for an order compelling compliance.
  5. The Board may adopt reasonable regulations to implement the provisions of this chapter and such regulations shall be adopted, amended, or repealed in accordance with the Administrative Process Act, Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2.

History. 1990, cc. 392, 433.

§ 59.1-309. Enforcement; penalties.

Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.) of this title.

History. 1984, c. 738.

§ 59.1-310. Applicability.

Sections 59.1-297, 59.1-298, 59.1-299, 59.1-304, and 59.1-305 shall not apply to health club contracts entered into before September 15, 2004.

History. 1984, c. 738; 2014, c. 459.

The 2014 amendments.

The 2014 amendment by c. 459 substituted “club” for “spa” and “September 15, 2004” for “the effective date of this chapter.”

Chapter 24.1. Tanning Facilities.

§ 59.1-310.1. Definitions.

As used in this chapter unless the context requires otherwise:

“Fitzpatrick scale” means the following scale for classifying a skin type, based on the skin’s reaction to the first 10 to 45 minutes of sun exposure after the winter season:

Skin Type: Sunburning and Tanning History 1 Always burns easily; never tans 2 Always burns easily; tans minimally 3 Burns moderately; tans gradually 4 Burns minimally; always tans well 5 Rarely burns; tans profusely 6 Never burns; deeply pigmented

Click to view

“Owner” means a person who owns or operates a tanning facility.

“Person” means an individual, partnership, corporation, limited liability company or association.

“Phototherapy device” means a piece of equipment that emits ultraviolet radiation and that is used by a health care provider in the treatment of a disease.

“Tanning device” means any equipment that emits electromagnetic radiation with wavelengths in the air between 200 and 400 nanometers and that is used for tanning of human skin, including a sunlamp, tanning booth, or tanning bed. The term also includes any accompanying equipment, including protective eyewear, timers, and handrails.

“Tanning facility” means a business that provides persons access to tanning devices.

History. 1990, c. 776; 2007, c. 575.

The 2007 amendments.

The 2007 amendment by c. 575 added the definitions of “Fitzpatrick scale” and “Owner”; inserted “limited liability company” in the definition of “Person”; and substituted “provider” for “professional” in the definition of “Phototherapy device.”

§ 59.1-310.2. Federal law compliance; application of chapter.

A tanning device utilized by a tanning facility shall comply with all applicable federal laws and regulations. This chapter shall not apply to a phototherapy device used by or under the supervision of a licensed physician trained in the use of phototherapy devices.

History. 1990, c. 776.

§ 59.1-310.3. Notice to customers; liability.

  1. A tanning facility shall give each customer a written statement warning that:
    1. Failure to use the eye protection provided to the customer by the tanning facility may result in damage to the eyes;
    2. Overexposure to ultraviolet light causes burns;
    3. Repeated exposure may result in premature aging of the skin and skin cancer;
    4. Abnormal skin sensitivity or burning may be caused by reactions of ultraviolet light to certain (i) foods; (ii) cosmetics; or (iii) medications, including tranquilizers, diuretics, antibiotics, high blood pressure medicines, or birth control pills; and
    5. Any person taking a prescription or over-the-counter drug should consult a physician prior to using a tanning device.
  2. Prior to allowing a prospective customer to use a tanning device, the owner or his designee shall obtain on the written statement the signature of each customer on a duplicate of the written statement provided to the customer under subsection A.
  3. Compliance with the notice requirements does not affect the liability of a tanning facility owner or a manufacturer of a tanning device.
  4. The signed duplicates of the written statements provided under subsection A may be retained at a location other than the tanning facility if an electronic or facsimile image of the original is readily available at each of an owner’s tanning facilities.

History. 1990, c. 776; 2007, c. 575; 2020, c. 387.

The 2007 amendments.

The 2007 amendment by c. 575 added subsections B and D; and redesignated former subsection B as subsection C and substituted “owner” for “operator” in subsection C.

The 2020 amendments.

The 2020 amendment by c. 387 deleted the last sentence of subsection B, which read: “In addition, the owner or his designee shall obtain, every six months, the signature of the parent or legal guardian of a prospective customer who is under the age of 15 and is not emancipated under Virginia law.”

Law Review.

For 2007 annual survey article, “Health Care Law,” see 42 U. Rich. L. Rev. 441 (2007).

§ 59.1-310.4. Warning signs.

  1. A tanning facility shall post a warning sign in a conspicuous location where it is readily readable by persons entering the establishment. The sign shall contain the following warning:

    Click to view

DANGER: ULTRAVIOLET RADIATION Repeated exposure to ultraviolet radiation may cause chronic sun damage to the skin characterized by wrinkling, dryness, fragility, and bruising of the skin, and skin cancer. Failure to use protective eyewear may result in severe burns or permanent injury to the eyes. Medications or cosmetics may increase your sensitivity to ultraviolet radiation. Consult a physician or nurse practitioner before using a sunlamp if you are using medications, have a history of skin problems, or believe you are especially sensitive to sunlight. Pregnant women or women taking oral contraceptives who use this product may develop discolored skin. IF YOU DO NOT TAN IN THE SUN, YOU WILL NOT TAN FROM USE OF AN ULTRAVIOLET SUNLAMP. B. A tanning facility shall post a warning sign, one sign for each tanning device, in a conspicuous location that is readily readable to a person about to use the device. The sign shall contain the following: DANGER: ULTRAVIOLET RADIATION 1. Follow the manufacturer’s instructions for use of this device. 2. Avoid too frequent or lengthy exposure. As with natural sunlight, exposure can cause serious eye and skin injuries and allergic reactions. Repeated exposure may cause skin cancer. 3. Wear protective eyewear. Failure to use protective eyewear may result in severe burns or permanent damage to the eyes. 4. Do not sunbathe before or after exposure to ultraviolet radiation from sunlamps. 5. Medications or cosmetics may increase your sensitivity to ultraviolet radiation. Consult a physician or nurse practitioner before using a sunlamp if you are using medication, have a history of skin problems, or believe you are especially sensitive to sunlight. Pregnant women or women using oral contraceptives who use this product may develop discolored skin. IF YOU DO NOT TAN IN THE SUN, YOU WILL NOT TAN FROM USE OF THIS DEVICE.

History. 1990, c. 776; 2004, c. 855.

Editor’s note.

Acts 2004, c. 855, cl. 2 provides: “That this act shall take effect 60 days following the effective date of the regulations promulgated by the Board of Medicine and Board of Nursing required by the third enactment clause of this act.” Emergency regulations took effect July 15, 2004.

Acts 2004, c. 855, cl. 3 provides: “That the Board of Medicine and Board of Nursing shall amend regulations governing the licensure of nurse practitioners to be effective within 280 days of enactment of this act. Such amendments shall require inclusion of the nurse practitioner’s authority for signatures, certifications, stamps, verifications, affidavits and endorsements in the written protocol between the supervising physician and the nurse practitioner.”

The 2004 amendments.

The 2004 amendment by c. 855 inserted “or nurse practitioner” in the next-to-last sentence of the next-to-last paragraph in subsection A; and inserted “or nurse practitioner” in the next-to-last sentence of subdivision B 5.

§ 59.1-310.5. Operational requirements.

  1. A tanning facility shall have an operator present during operating hours. The operator shall be sufficiently knowledgeable in the correct operation of the tanning devices used at the facility and shall inform and assist each customer in the proper use of the tanning device.
  2. The owner or his designee shall identify the skin type of the customer based on the Fitzpatrick scale, document the skin type of the customer, and advise the customer of the customer’s maximum time of recommended exposure in the tanning device.
  3. Before each use of a tanning device, the operator shall provide the customer with properly sanitized protective eyewear that protects the eyes from ultraviolet radiation and allows adequate vision to maintain balance. The operator shall not allow a person to use a tanning device if that person has not been provided protective eyewear. The operator shall also instruct each customer how to use suitable physical aids, such as handrails and markings on the floor, to maintain proper exposure distance as recommended by the manufacturer of the tanning device.
  4. After each use of a tanning device, the owner or his designee shall clean the device with a cleaner or sanitizer capable of killing bacteria from any previous use.
  5. The tanning facility shall use a timer with an accuracy of at least plus or minus ten percent of any selected time interval. The facility shall limit the exposure time of a customer on a tanning device to the maximum exposure time recommended by the manufacturer. The facility shall control the interior temperature of a tanning device so that it may not exceed 100 degrees Fahrenheit.
  6. Either each time a customer uses a tanning facility or each time a person executes or renews a contract to use a tanning facility, the person shall sign a written statement acknowledging that the person has read and understood the required warnings before using the device and agrees to use the protective eyewear that the tanning facility provides.
  7. No individual under the age of 18 shall be allowed to use any tanning device, other than a spray tanning device that does not emit ultraviolet light, at a tanning facility. The owner shall be responsible for ensuring that each customer using the tanning facility is of legal age to do so.
  8. A tanning facility shall not claim, or distribute promotional material that claims that the use of a tanning device is safe, is without risk, or will result in medical or health benefits.
  9. The provisions of subsection G shall not prohibit any person licensed by the Board of Medicine to practice medicine or osteopathic medicine from prescribing or using a phototherapy device for any patient, regardless of age. For the purposes of this section, “phototherapy device” means a device that emits ultraviolet radiation and is used in the diagnosis or treatment of disease or injury.

History. 1990, c. 776; 2007, c. 575; 2020, c. 387.

The 2007 amendments.

The 2007 amendment by c. 575 added subsections B, D, G and H; and redesignated the remaining subsections accordingly.

The 2020 amendments.

The 2020 amendment by c. 387, in subsection G, added the first sentence; and added subsection I.

Law Review.

For 2007 annual survey article, “Health Care Law,” see 42 U. Rich. L. Rev. 441 (2007).

§ 59.1-310.6. Violations of chapter; penalty.

Any person other than a customer, who knowingly and willfully violates any statute pertaining to the operation of tanning facilities shall be guilty of a Class 3 misdemeanor.

History. 1990, c. 776.

Cross references.

As to punishment for Class 3 misdemeanors, see § 18.2-11 .

Chapter 24.2. Septic System Inspectors.

§ 59.1-310.7. Definitions.

As used in this chapter unless the context requires otherwise:

“Accredited septic system inspector” means a person who possesses the qualifications required by the provisions of this chapter.

“Person” means an individual, partnership, corporation, association, or other entity.

“Septic system” means an onsite method of disposing of sewage when sewers or sewerage facilities are not available and includes septic tanks, septic tank lines and drainage fields or other onsite, residential sewage systems.

History. 2001, c. 52.

Effective date.

Acts 2001, c. 52, cl. 2, as amended by Acts 2002, c. 106, provides: “That the provisions of this act shall become effective on July 1, 2003.”

§ 59.1-310.8. Exceptions.

This chapter shall not be construed to prohibit:

  1. The work of an employee or a subordinate of an accredited septic system inspector;
  2. The practice of any profession or occupation that is regulated by a regulatory board within the Department of Professional and Occupational Regulation or other state agency; or
  3. The work of employees of the Department of Health in carrying out their regulatory duties under Chapter 6 (§ 32.1-163 et seq.) of Title 32.1.

History. 2001, c. 52.

Effective date.

Acts 2001, c. 52, cl. 2, as amended by Acts 2002, c. 106, provides: “That the provisions of this act shall become effective on July 1, 2003.”

§ 59.1-310.9. Requirements for accredited septic system inspectors and performance of septic system inspections.

  1. In order to use the title of “accredited septic system inspector” in connection with any real estate transaction, including refinancings, an applicant shall be accredited by the National Sanitation Foundation or an equivalent national accrediting organization, which accreditation shall include the passage of both a written and practical examination on the principles and practice of septic system inspections.In addition, the applicant shall satisfy the following requirements:
    1. Hold a high school diploma or equivalent; and
    2. Have evidence of at least one year of active field experience conducting onsite septic systems inspections or completion of a nationally approved training course.
  2. Any individual who holds a valid onsite sewage system operator, onsite sewage system installer, or onsite soil evaluator license pursuant to Chapter 23 (§ 54.1-2300 et seq.) of Title 54.1 shall be authorized to perform a septic system inspection in connection with any real estate transaction, including refinancings.

History. 2001, c. 52; 2020, c. 521.

Effective date.

Acts 2001, c. 52, cl. 2, as amended by Acts 2002, c. 106, provides: “That the provisions of this act shall become effective on July 1, 2003.”

The 2020 amendments.

The 2020 amendment by c. 521 added subsection B.

§ 59.1-310.10. Penalty for violation.

No person shall use the title “accredited septic system inspector” or perform a septic system inspection in connection with any real estate transaction unless he meets the requirements of this chapter. Any person who violates the provisions of this chapter is guilty of a Class 3 misdemeanor.

History. 2001, c. 52; 2020, c. 521.

Cross references.

As to punishment for Class 3 misdemeanors, see § 18.2-11 .

Effective date.

Acts 2001, c. 52, cl. 2, as amended by Acts 2002, c. 106, provides: “That the provisions of this act shall become effective on July 1, 2003.”

The 2020 amendments.

The 2020 amendment by c. 521, in the first sentence, inserted “or perform a septic system inspection in connection with any real estate transaction,” and in the last sentence, substituted “is” for “shall be.”

Chapter 25. Virginia Membership Camping Act.

Article 1. General Provisions.

§ 59.1-311. Title.

This chapter shall be known and may be cited as the “Virginia Membership Camping Act.”

History. 1985, c. 409.

§ 59.1-312. Applicability.

This chapter shall apply to each membership camping contract executed at least in part in this Commonwealth after July 1, 1985, regardless of the whereabouts of the membership camping operator’s principal office or his campground or recreational facilities.

History. 1985, c. 409.

§ 59.1-313. Definitions.

When used in this chapter, unless the context requires a different meaning, the following shall have the meanings respectively set forth:

“Advertisement” shall be synonymous with “offer to sell.”

“Agreement” shall be synonymous with “membership camping contract.”

“Blanket encumbrance” means any legal instrument, whether or not evidencing the obligation to pay money, which permits or requires the foreclosure, sale, conveyance or other disposition of the campground or any portion thereof.

“Board” means the Virginia Board of Agriculture and Consumer Services.

“Business day” means any day except Sunday or a legal holiday.

“Camping site” means any parcel of real estate designed and promoted for the purpose of locating thereon a trailer, tent, tent trailer, pickup camper, recreational vehicle, house trailer, van, cabin or other similar device used for camping or for overnight lodging.

“Campground” means any single tract or parcel of real property on which there are at least ten camping sites.

“Commissioner” means the Commissioner of the Virginia Department of Agriculture and Consumer Services, or a member of his staff to whom he has delegated his duties under this chapter.

“Contract” shall be synonymous with “membership camping contract.”

“Department” means the Virginia Department of Agriculture and Consumer Services.

“Facility” means an amenity within a campground set aside or otherwise made available to purchasers in their use and enjoyment of the campground, and may include campsites, swimming pools, tennis courts, recreational buildings, boat docks, restrooms, showers, laundry rooms, and trading posts or grocery stores.

“Holder” means the membership camping operator who enters into a membership camping contract with a purchaser or the assignee of such contract who purchases the same for value.

“Managing entity” means a person who undertakes the duties, responsibilities and obligations of the management of a campground.

“Membership camping contract” or “membership camping agreement” means any written agreement of more than one year’s duration, executed in whole or in part within this Commonwealth, which grants to a purchaser a nonexclusive right or license to use the campground of a membership camping operator or any portion thereof on a first come, first serve or reservation basis together with other purchasers. “Membership camping contract” or “membership camping agreement” also means any written agreement of more than one year’s duration, executed in whole or in part within this Commonwealth, which obligates the membership camping operator to transfer or which does in fact transfer to the purchaser title to or an ownership interest in a campground or any portion thereof, and which gives the purchaser a nonexclusive right or license to use the campground of a membership camping operator or any portion thereof, on a first come, first serve or reservation basis together with other purchasers.

“Membership camping operator” means any person who is in the business of soliciting, offering, advertising, or executing membership camping contracts. A membership camping operator shall not include:

  1. Any enterprise that is tax-exempt under § 501 (c) (3) of the Internal Revenue Code, as amended; or
  2. Any enterprise that is tax-exempt under Chapter 36 of Title 58.1; or
  3. Manufactured home parks wherein the residents occupy the premises as their primary homes.“Membership fees, dues, and assessments” means payments required of the purchaser, or his successor in interest, by the agreement for the support and maintenance of facilities at the campground about which the agreement relates.“Nondisturbance agreement” means any instrument executed by the owner of a blanket encumbrance which subordinates the rights of the owner of the blanket encumbrance to the rights of the purchasers of membership camping contracts. Unless the agreement specifically so provides, the owner of a blanket encumbrance does not by the fact of such ownership assume any of the obligations of the membership camping operator under membership camping contracts or under this chapter.“Offer,” “offer to sell,” “offer to execute” or “offering” means any offer, solicitation, advertisement, or inducement, to execute a membership camping agreement.“Person” means any individual, corporation, partnership, company, unincorporated association or any other legal entity other than a government or agency or a subdivision thereof.“Purchase money” means any money, currency, note, security or other consideration paid by the purchaser for a membership camping agreement.“Purchaser” means a person who enters into a membership camping contract with the membership camping operator.“Ratio of membership camping contracts to camping sites” means the total number of membership camping contracts sold in relation to each available camping site.“Reciprocal program” means any arrangement under which a purchaser is permitted to use camping sites or facilities at one or more campgrounds not owned or operated by the membership camping operator with whom the purchaser has entered into a membership camping contract.“Salesperson” means an individual, other than a membership camping operator, who offers to sell a membership camping contract by means of a direct sales presentation, but does not include a person who merely refers a prospective purchaser to a sales person without making any direct sales presentation.

History. 1985, c. 409; 1989, c. 676; 1992, c. 545; 1999, c. 77.

§ 59.1-313.1. Certified mail; subsequent mail or notices may be sent by regular mail.

Whenever in this chapter the Board, the Commissioner, or the Department is required to send any mail or notice by certified mail and such mail or notice is sent certified mail, return receipt requested, then any subsequent, identical mail or notice that is sent by the Board, the Commissioner, or the Department may be sent by regular mail.

History. 2011, c. 566.

§ 59.1-314. Conflicts with other statutes.

In the event that there is any conflict between this chapter and the Virginia Condominium Act (§ 55.1-1900 et seq.), the Virginia Real Estate Time-Share Act (§ 55.1-2200 et seq.), or the Subdivided Land Sales Act (§ 55.1-2300 et seq.), the provisions of this chapter shall prevail, but this chapter shall not invalidate or otherwise affect rights or obligations vested under the Condominium Act, the Subdivided Land Sales Act, or the Virginia Real Estate Time-Share Act, before July 1, 1985, or the manner of their enforcement.

History. 1985, c. 409.

Editor’s note.

To conform to the recodification of Title 55 by Acts 2019, c. 712, effective October 1, 2019, the following substitution was made at the direction of the Virginia Code Commission: substituted “the Virginia Condominium Act (§ 55.1-1900 et seq.), the Virginia Real Estate Time-Share Act (§ 55.1-2200 et seq.), or the Subdivided Land Sales Act (§ 55.1-2300 et seq.)” for “the Virginia Condominium Act (§ 55-79.39 et seq.), the Subdivided Land Sales Act (§ 55-336 et seq.), or the Virginia Real Estate Time-Share Act (§ 55-360 et seq.).”

§ 59.1-315. Repealed by Acts 2015, c. 709, cl. 2.

Editor’s note.

Former § 59.1-315, pertaining to severability, derived from 1985, c. 409.

§ 59.1-316. Reserved.

Article 2. Registration.

§ 59.1-317. Administration; unlawful offer or execution of membership camping contract.

  1. This chapter shall be administered by the Virginia Department of Agriculture and Consumer Services.
  2. It shall be unlawful for any membership camping operator to offer to sell any membership camping contract in this Commonwealth unless he is registered with the Commissioner.
  3. It shall be unlawful for any membership camping operator registered under this chapter to sell any membership camping contract which causes the total ratio of the outstanding and valid membership camping contracts to exceed a ratio of fifteen such contracts for each camping site.

History. 1985, c. 409; 1989, c. 676.

§ 59.1-318. Application for registration of membership camping operator.

  1. The application for registration shall be on a form prescribed by the Commissioner and shall include, to the extent applicable, the following:
    1. The applicant’s name, address, and the organizational form of his business, including the date, and jurisdiction under which the business was organized; the address of each of its offices in this Commonwealth; and the name and address of each campground located in this Commonwealth, which is owned or operated, in whole or in part, by the applicant;
    2. The name, address, and principal occupation for the past five years of every officer of the applicant, including its principal managers, and the extent and nature of the interest of each such person at the time the application is filed;
    3. A list of all owners of ten percent or more of the capital stock of the applicant, except that this list is not required if the applicant is a company required to report under the Securities and Exchange Act of 1934;
    4. A brief description of and a certified copy of the instrument which creates the applicant’s ownership of, or other right to use the campground and the facilities at the campground which are to be available for use by purchasers, together with a copy of any lease, license, franchise, reciprocal agreement or other agreement entitling the applicant to use such campground and facilities, and any material provision of the agreement which restricts a purchaser’s use of such campground or facilities;
    5. A sample copy of each instrument which will be delivered to a purchaser to evidence his membership in the campground and a sample copy of each agreement which a purchaser will be required to execute;
    6. A statement of the zoning and other governmental regulations affecting the use of the campground including the site plans and building permits and their status;
    7. A list of special taxes or assessments, whether current or proposed, which affect the campground;
    8. Financial statements of the applicant prepared in accordance with generally accepted accounting principles, which shall include a financial statement for the most recent fiscal year audited by an independent certified public accountant and an unaudited financial statement for the most recent fiscal quarter;
    9. A copy of the disclosure statement required by § 59.1-326;
    10. An irrevocable appointment of the Commissioner or his designees to receive service of any lawful process in any proceeding arising under this chapter against the applicant or his agents, except one issued by the Commissioner. The Commissioner shall forward any such process by registered or certified mail addressed to any of the principals, officers, directors, partners, or trustees of the applicant who are listed on the application for registration pursuant to this chapter, or to any other person designated in the application to receive such process, and shall keep a record of it. Any process, notice, order, or demand issued by the Commissioner shall be served by registered mail addressed to any principal, officer, director, partner, or trustee of the applicant listed on the application for registration pursuant to this chapter or to any person designated in the application to receive such process. Nothing in this section shall be construed to limit or prohibit the lawful service of process on individual principals as allowed by the laws of the Commonwealth.  The names and addresses of the principals, officers, directors, partners, or trustees of the membership camping operator as last filed with the Commissioner pursuant to the provisions of this chapter shall be conclusive for the purposes of services of process;
    11. A narrative description of the promotional plan for the sale of the membership camping contracts;
    12. Any bonds required to be posted pursuant to the provisions of this chapter;
    13. A copy of the agreement, if any, between the applicant and any person owning, controlling, or managing the campground and the applicant;
    14. A complete list of locations and addresses of any and all sales offices located within the Commonwealth, together with a roster of all salespersons who are employed in this Commonwealth by the applicant whether as employees or as independent contractors;
    15. The names of any other states or foreign countries in which an application for registration of the membership camping operator or the membership camping contract or any similar document has been filed; and
    16. Complete information concerning any adverse order, judgment, or decree which has been entered by any court or administrative agency in connection with a campground or other project operated by the applicant or in which the applicant has or had an interest at the time.
  2. The application shall be signed by the membership camping operator, an officer or general partner thereof or by another person holding a power of attorney for this purpose from the membership camping operator. If the application is signed pursuant to a power of attorney, a copy of the power of attorney shall be included with the application.
  3. The application shall be submitted with a facing page as might be prescribed by the Commissioner if then in effect, along with the appropriate fees.
  4. An application for registration shall be amended within twenty-five days if there is a material change in the information included in the application. A material change includes any change which significantly reduces or terminates either the applicant’s or the purchaser’s right to use the campground or any of the facilities described in the membership camping contract, but does not include minor changes covering the use of the campground, its facilities or the reciprocal program.
  5. The review of the application for registration of the membership camping operator shall occur pursuant to the provisions of § 59.1-320.1.
  6. Registration with the Commissioner shall not be deemed to be an approval or endorsement by the Commissioner of the membership camping operator, his membership camping contract, or his campground, and any attempt by the membership camping operator to indicate that registration constitutes such approval or endorsement shall be unlawful.

History. 1985, c. 409; 1992, c. 545.

§ 59.1-319. Reserved.

§ 59.1-320. Repealed by Acts 1992, c. 545.

Cross references.

For present provision as to review of registration application, see § 59.1-320.1.

§ 59.1-320.1. Review of registration application.

  1. Once the Commissioner receives an application for registration in proper form, accompanied by the proper fee, he shall, within a reasonable period of time not to exceed forty-five days after the receipt of such application:
    1. Register the applicant if the applicant:
      1. Has met the requirements of § 59.1-318;
      2. Is not in violation of § 59.1-323; and
      3. Has a reasonable ability to discharge the obligations imposed upon him by his membership camping contract; or
  2. Except as otherwise provided by order of the Commissioner, each registration shall be valid for the period from July 1 of one year until its expiration on June 30 of the following year.

2. Issue a notice of opportunity for a hearing to consider whether the application should be denied, if it reasonably appears that the applicant fails to satisfy any provision of § 59.1-323 or any other requirement of this chapter.

History. 1992, c. 545.

§ 59.1-321. Exemption from registration under other acts.

Any membership camping operator registered with the Commissioner under this chapter shall not be required to register or comply with the terms and requirements of the following:

  1. The Virginia Condominium Act (§ 55.1-1900 et seq.).
  2. The Virginia Real Estate Time-Share Act (§ 55.1-2200 et seq.).
  3. The Virginia Securities Act (§ 13.1-501 et seq.).

History. 1985, c. 409; 1996, c. 372.

Editor’s note.

To conform to the recodification of Title 55 by Acts 2019, c. 712, effective October 1, 2019, the following substitutions were made at the direction of the Virginia Code Commission: substituted “55.1-1900” for “55-79.39” and “55.1-2200” for “55-360.”

§ 59.1-322. Other acts.

Registration with the Commissioner by a membership camping operator shall not relieve such operator of the obligation of complying with the requirements of the Virginia Home Solicitation Sales Act (§ 59.1-21.1 et seq.), if applicable.

History. 1985, c. 409.

§ 59.1-323. Denial, suspension, or revocation of registration; hearing; summary action.

  1. The Commissioner may deny an application for registration of a membership camping operator or may suspend, or revoke such registration if the Commissioner finds that such action is necessary for the protection of purchasers or prospective purchasers or that any one of the following is true:
    1. The membership camping operator has failed to comply with any provision of this chapter that materially affects the rights of purchasers, prospective purchasers or owners of membership camping contracts.
    2. The membership camping operator’s offering or execution of membership camping contracts is fraudulent.
    3. The membership camping operator’s application for registration or any amendment thereto is incomplete in any respect.
    4. The membership camping operator has failed to file timely amendments to the application for registration or meet any other requirement of § 59.1-318 of this chapter.
    5. The membership camping operator has represented or is representing to purchasers in connection with the offer to sell membership camping contracts that a particular facility or facilities are planned without reasonable expectation that such facility will be completed within a reasonable time, or without the apparent means to ensure its completion.
    6. The membership camping operator has permanently withdrawn from use all or any substantial portion of any campground and that (i) no adequate provision has been made to provide a substitute campground of comparable quality and attraction in the same general area within a reasonable time after such withdrawal, and (ii) the rights of all purchasers at the affected location have not expired, and (iii) the Commissioner has found that the withdrawal is consistent with the protection of purchasers. Notwithstanding the foregoing, a membership camping operator may reserve the right to withdraw permanently from use all or any portion of a campground devoted to membership camping if, after the membership camping operator first represents to purchasers that the campground is or will be available for camping, the specific date upon which the withdrawal becomes effective is disclosed in writing to all purchasers at or prior to the time the membership camping contract is executed.
    7. The membership camping operator has made any representation in any document or information filed with the Commissioner which is false or misleading.
    8. The membership camping operator has engaged or is engaging in any unlawful act or practice.
    9. The membership camping operator has disseminated or caused to be disseminated, any false or misleading promotional materials in connection with a campground.
    10. The membership camping operator does not have a reasonable ability to discharge the obligations imposed upon him by any membership camping contract.
  2. Except as provided in subsection C of this section, before denying, suspending or revoking a registration, as provided in subsection A of this section, the Commissioner shall issue to the membership camping operator a notice of opportunity for a hearing to consider the denial, suspension, or revocation.
  3. If the Commissioner finds that the public health, safety or welfare requires emergency action and incorporates this finding in his order, the Commissioner may summarily deny, suspend or revoke a registration.  The membership camping operator shall be given an opportunity within ten days after entry of such an order to appear before the Commissioner and show cause why the summary order should not remain in effect. If good cause is shown, the Commissioner shall vacate the summary order. If good cause is not shown, the summary order shall remain in effect. The membership camping operator shall have fifteen days thereafter within which to request a hearing, or the Commissioner may within thirty days thereafter set the matter for a hearing.

History. 1985, c. 409; 1992, c. 545.

§ 59.1-324. Cease and desist orders; temporary order.

  1. If it appears to the Commissioner that any person has engaged or is engaging in any practice in violation of this chapter, he may issue an order directing the person to cease and desist provided that reasonable notice and an opportunity for a hearing shall be given to such person.
  2. The Commissioner may issue a temporary order pending the hearing which is effective on delivery to the person named in the order. The temporary order shall remain in effect until five days after the hearing required in subsection A above is held. In the event no hearing is requested by the person named in the order, the order shall become final within fifteen days after it is delivered.

History. 1985, c. 409.

§ 59.1-325. Fees.

  1. Each application for registration under § 59.1-318 shall be accompanied by a reasonable fee to be determined by the Board and published in the regulations adopted in accordance with the provisions of the Administrative Process Act (§ 2.2-4000 et seq.).
  2. Each application for registration or for amendment shall be accompanied by a reasonable fee to be determined by the Board and published in regulations adopted in accordance with the provisions of the Administrative Process Act.
  3. Until such time as regulations covering fees are adopted by the Board, the registration fee shall be $2,500 and the fee for amendments shall be $100.
  4. All fees shall be remitted to the State Treasurer and shall be credited to a special fund of the Virginia Department of Agriculture and Consumer Services to be used in the administration of this chapter.

History. 1985, c. 409; 1988, c. 58; 1992, c. 545.

Article 3. Protection of Purchasers.

§ 59.1-326. Membership camping operator’s disclosure statement.

  1. Every membership camping operator, salesperson, or other person who is in the business of offering for sale or transfer the rights under existing membership camping contracts for a fee shall deliver to his purchaser a current membership camping operator’s disclosure statement before execution by the purchaser of the membership camping contract and no later than the date shown on such contract.
  2. The membership camping operator’s disclosure statement shall consist of the following items in the order as presented:
    1. A cover page stating:
      1. The words “Membership Camping Operator’s Disclosure Statement” printed in boldfaced type of a minimum size of 10 points;
      2. The name and principal business address of the membership camping operator;
      3. A statement that the membership camping operator is in the business of offering for sale membership camping contracts;
      4. The following statement printed in boldfaced type of a minimum size of 10 points:THIS DISCLOSURE STATEMENT CONTAINS IMPORTANT MATTERS TO BE CONSIDERED IN THE EXECUTION OF A MEMBERSHIP CAMPING CONTRACT. THE MEMBERSHIP CAMPING OPERATOR IS REQUIRED BY LAW TO DELIVER TO YOU A COPY OF THIS DISCLOSURE STATEMENT BEFORE YOU EXECUTE A MEMBERSHIP CAMPING CONTRACT. THE STATEMENTS CONTAINED HEREIN ARE ONLY SUMMARY IN NATURE. YOU AS A PROSPECTIVE PURCHASER SHOULD REVIEW ALL REFERENCES, EXHIBITS, CONTRACT DOCUMENTS, AND SALES MATERIALS. YOU SHOULD NOT RELY UPON ANY ORAL REPRESENTATIONS AS BEING CORRECT. REFER TO THIS DOCUMENT AND TO THE ACCOMPANYING EXHIBITS FOR CORRECT REPRESENTATIONS. THE MEMBERSHIP CAMPING OPERATOR IS PROHIBITED FROM MAKING ANY REPRESENTATIONS WHICH CONFLICT WITH THOSE CONTAINED IN THE CONTRACT AND THIS DISCLOSURE STATEMENT.
      5. The following statement printed in boldfaced type of a minimum size of 10 points:SHOULD YOU EXECUTE A MEMBERSHIP CAMPING CONTRACT, YOU HAVE THE UNQUALIFIED RIGHT TO CANCEL SUCH CONTRACT. THIS RIGHT OF CANCELLATION CANNOT BE WAIVED. THE RIGHT TO CANCEL EXPIRES AT MIDNIGHT ON THE 7TH CALENDAR DAY FOLLOWING THE DATE ON WHICH THE CONTRACT WAS EXECUTED. TO CANCEL THE MEMBERSHIP CAMPING CONTRACT, YOU AS THE PURCHASER MUST MAIL NOTICE OF YOUR INTENT TO CANCEL BY CERTIFIED UNITED STATES MAIL TO THE MEMBERSHIP CAMPING OPERATOR AT THE ADDRESS SHOWN IN THE MEMBERSHIP CAMPING CONTRACT, POSTAGE PREPAID. THE CAMPING OPERATOR IS REQUIRED BY LAW TO RETURN ALL MONEYS PAID BY YOU IN CONNECTION WITH THE EXECUTION OF THE MEMBERSHIP CAMPING CONTRACT, UPON YOUR PROPER AND TIMELY CANCELLATION OF THE CONTRACT. IN ADDITION, AFTER THE INITIAL 7-CALENDAR-DAY CANCELLATION PERIOD, YOU THE PURCHASER OR YOUR SUCCESSOR IN INTEREST MAY TERMINATE YOUR LIABILITY UNDER THE MEMBERSHIP CAMPING CONTRACT INCLUDING PAYMENT OF ANY MEMBERSHIP FEES, DUES, AND ASSESSMENTS UPON YOUR GIVING PROPER AND EFFECTIVE NOTICE TO THE MEMBERSHIP CAMPING OPERATOR. TO BE EFFECTIVE, THE NOTICE MUST BE IN WRITING AND SENT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND IT MUST CONTAIN: (1) YOUR TRANSFER OF ANY AND ALL RIGHTS, TITLE, AND INTEREST YOU HAVE IN THE MEMBERSHIP CAMPING CONTRACT AND CAMPGROUND BACK TO THE MEMBERSHIP CAMPING OPERATOR; (2) A RECORDABLE DEED, DULY EXECUTED AND NOTARIZED, AND THE RECORDING FEE, IF YOU RECEIVED A RECORDED DEED FROM THE MEMBERSHIP CAMPING OPERATOR; (3) PAYMENTS OF (i) THE UNPAID BALANCE OF THE PURCHASE PRICE AND ANY ACCRUED UNPAID INTEREST THEREON AND (ii) ALL UNPAID MEMBERSHIP FEES, DUES, AND ASSESSMENTS WITH ACCRUED INTEREST THEREON PERMITTED BY THE MEMBERSHIP CAMPING CONTRACT; AND (4) PAYMENT OF ALL OTHER UNPAID FINANCIAL OBLIGATIONS OWED BY YOU THE PURCHASER PURSUANT TO THE MEMBERSHIP CAMPING CONTRACT.
      6. The following statement:“Registration of the membership camping operator with the Commissioner of the Virginia Department of Agriculture and Consumer Services does not constitute an approval or endorsement by the Commissioner of the membership camping operator, his membership camping contract, or his campground.”
  3. The membership camping operator shall promptly amend his membership camping operator’s disclosure statement to reflect any material change in the campground or its facilities. He shall also promptly file any such amendments with the Commissioner.

2. The name of the membership camping operator and the address of his principal place of business and the following information:

a. The name, principal occupation, and address of every director, partner, or trustee of the membership camping operator;

b. The name and address of each person owning or controlling an interest of 10 percent or more in the membership camping operator;

c. The particulars of any indictment, conviction, judgment, decree, or order of any court or administrative agency against the membership camping operator or its managing entity arising out of the violation or alleged violation of any federal, state, local, or foreign law or regulation in connection with activities relating to the sale of campground memberships, land sales, land investments, security sales, construction, or sale of homes or improvements or any similar or related activity; and

d. A statement of any unsatisfied judgments against the membership camping operator or its managing entity, the status of any pending suits involving the sale of membership camping contracts or the management of campgrounds to which the membership camping operator or its managing entity is a party and the status of any pending suits, administrative proceedings, or indictments of significance to the campground;

3. A brief description of the nature of the purchaser’s right or license to use the campground and the facilities that are to be available for use by purchasers;

4. A brief description of the membership camping operator’s experience in the membership camping business, including the length of time the operator has been in the membership camping business;

5. The location of each of the campgrounds that is to be available for use by purchasers and a brief description of the facilities at each campground that are currently available for use by purchasers. Facilities that are planned, incomplete, or not yet available for use shall be clearly identified as incomplete or unavailable. A brief description of any facilities that are or will be available to nonpurchasers shall also be provided;

6. As to all memberships offered by the membership camping operator at each campground:

a. The form of membership offered;

b. The types and duration of memberships along with a summary of the major privileges, restrictions, and limitations applicable to each type; and

c. Provisions, if any, that have been made for public utilities at each campsite including water, electricity, telephone, and sewerage facilities;

7. A statement regarding any initial or special fee due from the purchaser together with a description of the purpose and method of calculating the fee;

8. A description of any liens, defects, or encumbrances affecting the campground;

9. A general description of any financing offered or available through the membership camping operator;

10. A statement that the purchaser has until midnight of the seventh calendar day following the signing of the membership campground contract to cancel the contract by proper notice to the membership camping operator;

11. A description of the insurance coverage that the membership camping operator provides for the benefit of purchasers, if any;

12. A statement regarding any fees or charges that purchasers are or may be required to pay for the use of the campground or any facilities;

13. The extent to which financial arrangements, if any, have been provided for the completion of facilities together with a statement of the membership camping operator’s obligation to complete planned facilities. The statement shall include a description of any restrictions or limitations on the membership camping operator’s obligation to begin or to complete such facilities;

14. The name of the managing entity, if there is one, and the significant terms of any management contract, including but not limited to the circumstances under which the membership camping operator may terminate the management contract;

15. A statement regarding any services that the membership camping operator currently provides or expenses he pays that are expected to become the responsibility of the purchasers, including the projected liability that each such service or expense may impose on each purchaser;

16. A brief description of the ownership in or other right to use the campground that is to be transferred to each purchaser, together with the duration of any lease, license, franchise, or reciprocal agreement entitling the membership camping operator or purchasers from him to use the campground, and any provisions in any such agreements that restrict or limit a purchaser’s use of the campground;

17. a. A copy, whether by way of supplement or otherwise, of the rules, restrictions, or covenants regulating the purchaser’s use of the campground in Virginia and its facilities that are to be available for use by the purchasers, including a statement of whether and how the rules, restrictions, or covenants may be changed;

b. A summary, whether by way of supplement or otherwise, of the rules, restrictions, or covenants regulating the purchaser’s use of any other campgrounds, facilities, or any other amenities resulting from the purchase of, or used as an inducement to influence the purchase of, the membership camping contract;

18. A description of any restraints on the transfer of the membership camping contract;

19. A brief description of the policies covering the availability of camping sites, the availability of reservations and the conditions under which they are made;

20. A brief description of any grounds for forfeiture of a purchaser’s membership camping contract;

21. A statement of whether the membership camping operator has the right to withdraw permanently from use all or any portion of any campground devoted to membership camping and, if so, the conditions under which such withdrawal is to be permitted;

22. A statement describing the material terms and conditions of any reciprocal program to be available to the purchaser, including a statement concerning whether the purchaser’s participation in any reciprocal program is dependent upon the continued affiliation of the membership camping operator with that reciprocal program and whether the membership camping operator reserves the right to terminate such affiliation;

23. The following statement printed in boldfaced type of a minimum size of 10 points:“The purchase of this membership camping contract should not be based on any representations that it is an investment or that it can be resold. The resale of a membership may be difficult”; and

24. A statement that contains in boldfaced type the name, address, and telephone number of the Virginia Department of Agriculture and Consumer Services and that states that that agency is the regulatory agency that handles consumer complaints regarding membership campgrounds.

History. 1985, c. 409; 1992, c. 545; 2013, c. 24.

The 2013 amendments.

The 2013 amendment by c. 24, in subsection B, added “items in the order as presented” at the end of the introductory language, deleted “followed by” at the end of B 1 a, B 1 b, and B 1 c, substituted “statement printed in boldfaced” for “in printed boldfaced” at the beginning of B 1 d, substituted “statement” for “language,” and deleted “after the appearance of the items required in subdivisions a through d above” at the end of the introductory language of B 1 e; substituted “statement” for “language below all statements required in subdivisions a through e above” in the introductory language of B 1 f; added “and the following information” at the end of B 2; inserted “A statement regarding” at the beginning of B 7, B 12 and B 15; substituted “statement” for “language” in the introductory language of B 23; and deleted “State Division of Consumer Affairs” following “Consumer Services” in B 24; and made minor stylistic changes throughout.

§ 59.1-327. Purchaser’s rights.

  1. The purchaser shall have the following rights during the first seven calendar days following the execution of the membership camping contract:
    1. A purchaser shall have the right to cancel a membership camping contract within seven calendar days following the date of its execution.
    2. The right of cancellation shall not be waived and any attempt to obtain such a waiver shall be unlawful. Nothing in this section shall preclude the execution of documents in advance of closing for delivery after expiration of the cancellation period.
    3. If the purchaser elects to cancel the membership camping contract, he may do so only by mailing notice thereof by certified United States mail to the membership camping operator at the address listed in the membership camping contract. The cancellation shall be deemed effective upon mailing.
    4. Upon cancellation, the membership camping operator shall refund to the purchaser all payments made by such purchaser and collected by the membership camping operator pursuant to the canceled membership camping contract. The refund shall be made within sixty days after the effective date of the cancellation and may, where payment has been made by credit card, be made by an appropriate credit to the purchaser’s account. Where payment is made by an exchange of real or personal property, the property may be returned to the purchaser.
    5. The purchaser’s right to cancel shall apply only to the initial membership camping contract executed by such purchaser and to no successor contract and shall not apply to a successor contract which replaces an existing contract executed by such purchaser, unless the successor contract is executed within seven calendar days of the original contract in which case the cancellation period shall renew itself.
  2. In addition to the rights afforded the purchaser contained in subsection A of this section, the purchaser and any successor in interest shall not be held liable for any maintenance fees, dues, and assessments succeeding the effective date of notification pursuant to subdivision 2 of this subsection, if:
    1. The purchaser or his successor in interest relinquishes any and all interest in the membership camping contract to the membership camping operator or his assigns; and
    2. The purchaser or his successor in interest notifies the membership camping operator or his assigns, in writing, by certified mail, return receipt requested, of his relinquishment.  The notice shall be deemed effective:
      1. Eighteen months after the notice is mailed provided the membership camping contract is no less than fifty-four months old; and
      2. If and only if the principal and interest payments, the membership fees, dues, and assessments and all other financial obligations owed by the purchaser, or his successor in interest, under the membership camping contract are paid in full as of the date of mailing; and
      3. The relinquishment contained in subdivision B 1 shall be in the form of a recordable deed, duly executed and properly notarized, or other form found acceptable to the membership camping operator accompanied by a fee sufficient to record the deed.
  3. If the notice complies with subsection B of this section concerning avoiding further payments of membership fees, dues, and assessments, the membership camping operator shall confirm, in writing, receipt of the notice within ten days after its receipt. If the notice does not comply with subsection B of this section, the membership camping operator or his assigns shall inform the purchaser or his successors in interest, in writing, within ten days after its receipt, of the specific reasons why the notice does not comply.
  4. All moneys collected by the membership camping operator pursuant to the membership camping contract prior to notification by the purchaser or his successor in interest pursuant to subsection B of this section shall remain the property of the membership camping operator.
  5. Upon satisfaction of all provisions of subsection B of this section, the purchaser or his successor in interest shall have no rights or obligations under the membership camping contract and the membership camping operator or his assigns shall make no claims against the purchaser or his successor in interest thereunder.

History. 1985, c. 409; 1992, c. 545.

§ 59.1-328. Membership camping contracts.

The membership camping operator shall deliver to his purchaser a fully executed copy of the membership camping contract, which contract shall include at least the following information:

  1. The actual date the membership camping contract is executed by the purchaser.
  2. The name of the membership camping operator and the address of his principal place of business.
  3. The total financial obligation imposed upon the purchaser by the contract, including the initial purchase price and any additional charges that the purchaser may be required to pay.
  4. A description of the nature and duration of the membership being purchased, including any interest in real property.
  5. A statement that the membership camping operator, salesperson, or any other person who is in the business of offering for sale or transfer the rights under existing membership camping contracts for a fee is required by the Virginia Membership Camping Act (§ 59.1-311 et seq.) to provide each purchaser with a copy of the membership camping operator’s disclosure statement prior to execution of such contract and that a failure to do so is a violation of the Act.
  6. The following statement under its own paragraph and conspicuously placed:“PURCHASER’S NONWAIVABLE RIGHT TO CANCEL” shall appear at the beginning of such paragraph in boldfaced type of a minimum size of 10 points, immediately preceding the following statement, which shall appear in type no smaller than the other provisions of the contract:YOU AS THE PURCHASER HAVE A NONWAIVABLE 7-CALENDAR-DAY RIGHT OF CANCELLATION. THIS RIGHT OF CANCELLATION IS FULLY EXPLAINED ON THE COVER SHEET OF THE MEMBERSHIP CAMPING OPERATOR’S DISCLOSURE STATEMENT. YOU ARE URGED TO REVIEW THE DISCLOSURE STATEMENT PRIOR TO THE EXECUTION OF THIS CONTRACT FOR A COMPLETE UNDERSTANDING OF YOUR RIGHT OF CANCELLATION. IN ADDITION, AFTER THE INITIAL 7-CALENDAR-DAY CANCELLATION PERIOD, YOU THE PURCHASER OR YOUR SUCCESSOR IN INTEREST MAY TERMINATE YOUR LIABILITY UNDER THE MEMBERSHIP CAMPING CONTRACT INCLUDING PAYMENT OF ANY MEMBERSHIP FEES, DUES, AND ASSESSMENTS UPON YOUR GIVING PROPER AND EFFECTIVE NOTICE TO THE MEMBERSHIP CAMPING OPERATOR. TO BE EFFECTIVE, THE NOTICE MUST BE IN WRITING AND SENT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND IT MUST CONTAIN: (1) YOUR TRANSFER OF ANY AND ALL RIGHTS, TITLE, AND INTEREST YOU HAVE IN THE MEMBERSHIP CAMPING CONTRACT AND CAMPGROUND BACK TO THE MEMBERSHIP CAMPING OPERATOR; (2) A RECORDABLE DEED, DULY EXECUTED AND NOTARIZED, AND THE RECORDING FEE, IF YOU RECEIVED A RECORDED DEED FROM THE MEMBERSHIP CAMPING OPERATOR; (3) PAYMENTS OF (i) THE UNPAID BALANCE OF THE PURCHASE PRICE AND ANY ACCRUED UNPAID INTEREST THEREON AND (ii) ALL UNPAID MEMBERSHIP FEES, DUES, AND ASSESSMENTS WITH ACCRUED INTEREST THEREON PERMITTED BY THE MEMBERSHIP CAMPING CONTRACT; AND (4) PAYMENT OF ALL OTHER UNPAID FINANCIAL OBLIGATIONS OWED BY YOU THE PURCHASER PURSUANT TO THE MEMBERSHIP CAMPING CONTRACT.
  7. The full name of all salespersons involved in the execution of the membership camping contract.
  8. A statement that contains, in boldfaced type, the name, address, and telephone number of the Virginia Department of Agriculture and Consumer Services, stating that that agency is the regulatory agency handling consumer complaints regarding membership campgrounds.

History. 1985, c. 409; 1992, c. 545; 2013, c. 24.

The 2013 amendments.

The 2013 amendment by c. 24 deleted “shall appear in the contract” following “The following statement” in subdivision 6 and “Division of Consumer Affairs” following “Consumer Services” in subdivision 8, and made minor stylistic and punctuation changes throughout.

§ 59.1-329. Escrow and bonding.

  1. All purchase money received from or on behalf of a purchaser in connection with the execution of a membership camping contract shall be deposited in an escrow or trust account designated solely for that purpose, which may be the membership camping operator’s own escrow or trust account or that of his attorney’s, until the expiration of the time for cancellation has expired unless a later time is provided in the membership camping contract. If the contract has not been canceled, any purchase money received from a purchaser may be released to the membership camping operator upon:
    1. The conveying to the purchaser of the title to, interest in, or right or license to use the campground and facilities as required in the membership camping contract; or
    2. The forfeiture of the purchase money by the purchaser under the terms of the membership camping contract.
  2. In lieu of the obligations imposed by subsection A, the membership camping operator may file and maintain with the Commissioner a surety bond issued in favor of the Commissioner for the benefit of purchasers insuring the escrow of the purchase money until such time as it may be released as outlined in subsection A.  Such bond may not be canceled until thirty days after written notice of cancellation is received by the Commissioner. In lieu of such bond, the membership camping operator may post with the Commissioner an irrevocable letter of credit in a form and content acceptable to the Commissioner. The penalty of the bond or letter of credit shall be adjusted from time to time in accordance with the following schedule:

    Click to view

  3. The amount of purchase money paid by purchasers held at any one time by the membership camping operator shall not exceed the amount for which the operator is bonded or the letter of credit is issued in accordance with the schedule set forth in subsection B.
  4. In addition to any bonding requirements contained in this section, the membership camping operator shall file and maintain with the Commissioner a payment and performance bond with surety issued in favor of the Commissioner for the benefit of the purchasers and which guarantees the completion of all incomplete or planned facilities constructed or to be constructed in this Commonwealth as outlined or listed in either the membership camping contract or the membership camping operator’s disclosure statement. The bond may not be canceled until thirty days after written notice of cancellation is received by the Commissioner. In lieu of the bond the membership camping operator may post with the Commissioner an irrevocable letter of credit. The surety bond or letter of credit shall be in a form and content acceptable to the Commissioner. The penalty of the bond or letter of credit shall be in an amount equal to the cost of completing the incomplete or planned facilities as of the date of its issuance or as of the membership camping operator’s application for continued registration date as provided in § 59.1-320.1, whichever is later.

TOTAL AMOUNT OF PURCHASE PENALTY OF BOND MONEY HELD 1. $0 to $200,000 $50,000 2. $200,000 to $500,000 $75,000 3. Over $500,000 $100,000

History. 1985, c. 409; 1992, c. 545.

§ 59.1-330. Repealed by Acts 1992, c. 545.

Cross references.

For present provision for noncomplying contract being voidable, see § 59.1-330.1.

For present provision for fraud rendering contract voidable, see § 59.1-330.2.

§ 59.1-330.1. Noncomplying contract voidable.

Any membership camping contract which does not comply with the applicable provisions of this chapter shall be voidable at the option of the purchaser.

History. 1992, c. 545.

§ 59.1-330.2. Fraud rendering contract voidable.

Any membership camping contract entered into by the purchaser upon any false, misleading, prohibited, or unlawful information, representation, notice, or advertisement of the membership camping operator or the operator’s agent shall be voidable at the option of the purchaser.

History. 1992, c. 545.

§ 59.1-331. Resale of memberships.

  1. In the event of the resale of a membership by a purchaser who is neither a membership camping operator nor any other person who is in the business of offering for sale or transfer the rights under existing membership camping contracts for a fee, such purchaser (hereinafter in this section called “owner”) shall furnish to the new purchaser before the execution of any instrument of conveyance a copy of the membership camping contract and a certificate containing:
    1. A statement disclosing any right of first refusal or other restraint on transfer of the membership.
    2. A statement setting forth the amount of the periodic payments which are required by the contract including any amounts currently due and payable.
    3. That the membership camping operator may have a valid reason for not transferring the contract to the new purchaser.
    4. That there may have been changes in the rules or regulations concerning the rights and obligations of the membership camping operator or purchasers, including changes with respect to membership fees, dues, and assessments, or that some campgrounds or facilities may have been withdrawn.
    5. Any other material changes or risks to the purchaser known to the owner.
  2. The membership camping operator within ten days after receipt of a written request by an owner, shall furnish the owner with a written certificate containing the information necessary to enable the owner to comply with subdivisions 1 and 2 of subsection A of this section. An owner providing such certificate pursuant to subsection A is not liable to the purchaser for any erroneous information provided by the membership camping operator and included in the certificate. The membership camping operator is not liable to either the owner or the new purchaser for any information not provided by him.

History. 1985, c. 409; 1992, c. 545.

§ 59.1-332. Conditions on offering items as an inducement to execute.

  1. It is unlawful for any person by any means, as part of an advertising program, to offer any item of value as an inducement to the recipient to visit a membership camping operator’s campground, attend a sales presentation, or contact a salesperson, unless the person clearly discloses in writing in the offer in readily understandable language each of the following:
    1. The name and campground address of the membership camping operator.
    2. A general statement that the advertising program is being conducted by a membership camping operator and the purpose of any requested visit.
    3. A statement of odds, in Arabic numerals, of receiving each item offered.
    4. The approximate retail value of each item offered.
    5. The number of campgrounds that are participating in such advertising program.
    6. The restrictions, qualifications, and other conditions that must be satisfied before the recipient is entitled to receive the item, including:
      1. Any deadline, if any, by which the recipient must visit the campground, attend the sales presentation, or contact a salesperson in order to receive the item.
      2. The approximate duration of any visit and sales presentation.
      3. The date upon which the offer shall terminate and the final date upon which the gifts or prizes are to be awarded.
      4. Any other conditions, such as minimum age qualification, a financial qualification, or a requirement that if the recipient is married both spouses must be present in order to receive the item.
  2. It is unlawful for any person making an offer subject to subsection A, or any employee or agent of the person, to offer any item if the person knows or has reason to know that the offered item will not be available in a sufficient quantity based on the reasonably anticipated response to the offer.
  3. It is unlawful for any person making an offer subject to subsection A, or any employee or agent of the person, to fail to provide any offered item that any recipient who has responded to the offer in the manner specified in the offer, has performed the requirements disclosed in the offer, and has met the qualifications described in the offer is entitled to receive, unless the offered item is not reasonably available and the offer discloses the reservation of a right to provide a rain check or a like or substitute item if the offered item is unavailable.
  4. If the person making an offer subject to subsection A is unable to provide an offered item because of limitations of supply, quantity, or quality not reasonably foreseeable or controllable by the person making the offer, the person making the offer shall inform the recipient of the recipient’s right to receive a rain check for the item offered, unless the person making the offer knows or has a reasonable basis for knowing that the item will not be reasonably available at approximately the same price to the person making the offer, and shall inform the recipient of the recipient’s right to at least one of the following additional options:
    1. The person making the offer will provide a like item of equivalent or greater retail value or a rain check for the item. This option must be offered if the offered item is not reasonably available.
    2. The person making the offer will provide a substitute item of equivalent or greater retail value.
    3. The person making the offer will provide a rain check for a like or substitute item.
  5. If a rain check is provided, the person making an offer subject to subsection A shall, within a reasonable time, and in any event not more than 90 days after the rain check is provided, deliver the agreed item to the recipient’s address without additional cost or obligation to the recipient, unless the item for which the rain check is provided remains unavailable because of limitations of supply, quantity, or quality not reasonably foreseeable or controllable by the person making the offer. If the item is unavailable for these reasons, the person shall, not more than 30 days after the expiration of the aforesaid 90-day period, deliver a like item of equal or greater retail value or, if the item is not reasonably available to the person at approximately the same price, a substitute item of equal or greater retail value.
  6. On the written request of a recipient who has received or claims a right to receive any offered item, the person making an offer subject to subsection A shall furnish to the recipient sufficient evidence showing that the item provided matches the item randomly or otherwise selected for distribution to that recipient.
  7. It is unlawful for any person making an offer subject to subsection A, or any employee or agent of the person, to:
    1. Misrepresent the size, quantity, identity, or quality of any prize, gift, money, or other item of value offered.
    2. Misrepresent in any manner the odds of receiving any particular gift, prize, amount of money, or other item of value.
    3. Label any offer a “notice of termination” or “notice of cancellation.”
    4. Materially misrepresent, in any manner, the offer or program.
  8. If any provision of this section is in conflict with the provisions of the Prizes and Gifts Act (§ 59.1-415 et seq.), the provisions of the Prizes and Gifts Act shall control.

7. A statement that the membership camping operator reserves the right to provide a rain check or a substitute or like item, if these rights are reserved.

8. All other material rules, terms, and conditions of the offer or program.

History. 1985, c. 409; 1992, c. 545; 2020, c. 900.

The 2020 amendments.

The 2020 amendment by c. 900, in subdivision A 6 d, substituted “spouses” for “husband and wife”; and made stylistic changes throughout the section.

§ 59.1-333. Nondisturbance provisions.

With respect to any property in this Commonwealth acquired and put into operation by a membership camping operator after July 1, 1985, the membership camping operator shall neither offer nor execute a membership camping contract in this Commonwealth granting the right to use such property until:

  1. Each person holding an interest in a blanket encumbrance shall have executed and delivered a nondisturbance agreement which includes the following provisions: (i) that the rights of the owner or owners of the blanket encumbrance in the affected campground are subordinate to the rights of purchasers, and (ii) that any person who acquires the affected campground or any portion thereof by the exercise of any right of sale or foreclosure contained in such agreement shall take the same subject to the rights of the purchasers, and (iii) that the owner or owners of the blanket encumbrance shall not use or cause the property to be used in any manner which interferes with the right of the purchasers to use the campground and its facilities in accordance with the terms and conditions of the membership camping contract. Such agreement shall be recorded in the clerk’s office of the circuit court in which the property is located; and
  2. Every financial institution providing a major hypothecation loan to the membership camping operator (the “hypothecation lender”) which has a lien on, or security interest in the membership camping operator’s ownership interest in the campground shall have executed and delivered a nondisturbance agreement and recorded such agreement in the clerk’s office of the circuit court in which the campground is located. In addition, each person holding an interest in a blanket encumbrance superior to the interest held by the hypothecation lender shall have executed, delivered and recorded an instrument stating that such person shall give the hypothecation lender notice of, and at least thirty days to cure, any default under the blanket encumbrance before such person commences any foreclosure action affecting the campground. For the purposes of this provision, a major hypothecation loan to a membership camping operator is a loan or line of credit secured by substantially all of the contracts receivable arising from the membership camping operator’s sale of membership camping contracts; or
  3. There shall have been delivered to and accepted by the Commissioner a surety bond or letter of credit satisfying the following requirements: The surety bond or letter of credit shall be issued to the Commissioner for the benefit of purchasers and shall be in an amount which is not less than 105 percent of the remaining principal balance of every indebtedness secured by a blanket encumbrance affecting the campground. Such bond shall be issued by a surety authorized to do business in this Commonwealth and having sufficient net worth to satisfy the indebtedness. Such letter of credit shall be irrevocable and shall be drawn upon a bank, savings and loan, or financial institution and shall be in form and content acceptable to the Commissioner. The bond or letter of credit shall provide for payment of all amounts secured by the blanket encumbrance, including costs, expenses, and legal fees of the lien holder, if for any reason the blanket encumbrance is enforced. The bond or letter of credit may be reduced at the option of the membership camping operator periodically in proportion to the reductions of the amounts secured by the blanket encumbrance.
  4. The nondisturbance agreement may be amended provided the provisions of this section are not diminished or altered by the amendment.

History. 1985, c. 409.

Article 4. Miscellaneous Provisions.

§ 59.1-334. Investigations.

  1. The Commissioner may:
    1. Make necessary public or private investigations within or without this Commonwealth to determine whether any person has violated or is about to violate any provision of this chapter or any rule, regulation, or order issued hereunder, or to aid in the enforcement of this chapter in prescribing rules and form hereunder.
    2. Require or permit any person to file a statement in writing, under oath or otherwise as the Commissioner determines, as to all facts and circumstances concerning the matter to be investigated.
  2. For the purpose of any investigation or proceeding under this chapter, the Commissioner may administer oaths or affirmations, and upon such motion or upon request of any party, may subpoena witnesses, compel their attendance, take evidence, and require the production of any matter which is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence.
  3. Any proceeding or hearing of the Commissioner under this chapter, where witnesses are subpoenaed and their attendance required for evidence to be taken, or any matter is to be produced to ascertain material evidence, shall take place within the City of Richmond.
  4. Upon failure to obey a subpoena or to answer questions propounded by the Commissioner and upon reasonable notice to all persons affected thereby, the Commissioner may apply to the Circuit Court of the City of Richmond for an order compelling compliance.
  5. The Board may prescribe reasonable rules and regulations in order to implement the terms of this chapter and such rules and regulations shall be adopted, amended, or repealed in accordance with the Administrative Process Act (§ 2.2-4000 et seq.).
  6. Except as otherwise provided in this chapter, all proceedings under this chapter shall be in accordance with the Administrative Process Act.

History. 1985, c. 409.

§ 59.1-335. Penalties.

  1. Any person violating any of the provisions of §§ 59.1-317, 59.1-318, 59.1-326, 59.1-327, 59.1-328, and 59.1-329 or a cease and desist or temporary order issued pursuant to § 59.1-324 shall be guilty of a Class 1 misdemeanor and any person violating any of the provisions of § 59.1-332 shall be guilty of a Class 3 misdemeanor.  Other than with reference to § 59.1-332 each violation shall be deemed a separate offense.
  2. Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.) of this title.

History. 1985, c. 409; 1992, c. 545.

Cross references.

As to punishment for Class 1 and Class 3 misdemeanors, see § 18.2-11 .

Chapter 25.1. Virginia Credit Services Businesses Act.

§ 59.1-335.1. Title.

This chapter may be cited as the “Virginia Credit Services Businesses Act.”

History. 1989, cc. 651, 655.

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 1 Extra-Judicial Procedures. § 1.02 Self Help. Bryson.

§ 59.1-335.2. Definitions.

In this chapter the following words have the following meanings:

“Attorney General” means the Office of the Attorney General of Virginia.

“Commissioner” means the Commissioner of Agriculture and Consumer Services, or a member of his staff to whom he may delegate his duties under this chapter.

“Consumer” means any individual who is solicited to purchase or who purchases the services of a credit services business.

“Consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which (i) is furnished or (ii) is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for:

  1. Credit or insurance to be used primarily for personal, family, or household purposes; or
  2. Employment purposes; or
  3. Other purposes which shall be limited to the following circumstances:
    1. In response to the order of a court having jurisdiction to issue the order.
    2. In accordance with the written instructions of the consumer to whom the report relates.
    3. To a person which the agency has reason to believe:
      1. Intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to or review or collection of an account of, the consumer; or
      2. Intends to use the information for employment purposes; or
      3. Intends to use the information in connection with the underwriting of insurance involving the consumer; or
      4. Intends to use the information in connection with a determination of the consumer’s eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant’s financial responsibility or status; or
      5. Otherwise has a legitimate business need for the information in connection with a business transaction involving the consumer. The term “consumer report” does not include: “Consumer reporting agency” means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of commerce for the purpose of preparing or furnishing consumer reports. “Consumer reporting agency” does not include a private detective or investigator licensed under the provisions of Article 4 (§ 9.1-138 et seq.) of Chapter 1 of Title 9.1. “Credit services business” means any person who, with respect to the extension of credit by others, sells, provides, or performs, or represents that such person can or will sell, provide, or perform, any of the following services in return for the payment of money or other valuable consideration: “Credit services business” does not include:
        1. The making, arranging, or negotiating for a loan or extension of credit under the laws of this Commonwealth or the United States;
        2. Any bank, trust company, savings bank, or savings institution whose deposits or accounts are eligible for insurance by the Federal Deposit Insurance Corporation or other federal insurance agency, or any credit union organized and chartered under the laws of this Commonwealth or the United States;
        3. Any nonprofit organization exempt from taxation under § 501 (c) (3) of the Internal Revenue Code (26 U.S.C. § 501 (c) (3));
        4. Any person licensed as a real estate broker by this Commonwealth where the person is acting within the course and scope of that license;
        5. Any person licensed to practice law in this Commonwealth where the person renders services within the course and scope of that person’s practice as a lawyer;
        6. Any broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission where the broker-dealer is acting within the course and scope of that regulation;
        7. Any consumer reporting agency as defined in the Federal Fair Credit Reporting Act (15 U.S.C. §§ 1681-1681v); or
        8. Any person selling personal, family, or household goods to a consumer who, in connection with the seller’s sale of its goods to the consumer, assists the consumer in obtaining a loan or extension of credit or extends credit to the consumer. “Extension of credit” means the right to defer payment of debt or to incur debt and defer its payment, offered or granted primarily for personal, family, or household purposes. “File” when used in connection with information on any consumer, means all of the information on that consumer recorded and retained by a consumer reporting agency regardless of how the information is stored. “Investigative consumer report” means a consumer report or portion of it in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any items of information. However, the information does not include specific factual information on a consumer’s credit record obtained directly from a creditor of the consumer or from a consumer reporting agency when the information was obtained directly from a creditor of the consumer or from the consumer. “Person” includes an individual, corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, two or more persons having a joint or common interest, and any other legal or commercial entity.

1. Any report containing information solely as to transactions or experiences between the consumer and the person making the report;

2. Any authorization or approval of a specific extension of credit directly or indirectly by the issuer of a credit card or similar device; or

3. Any report in which a person who has been requested by a third party to make a specific extension of credit directly or indirectly to a consumer conveys his decision with respect to the request, if the third party advises the consumer of the name and address of the person to whom the request was made and the person makes the disclosures to the consumer as to the exact nature of the request and the effect of the report on its decision to extend credit.

1. Improving a consumer’s credit record, history, or rating;

2. Obtaining an extension of credit for a consumer; or

3. Providing advice or assistance to a consumer with regard to either subdivision 1 or 2 herein.

History. 1989, cc. 651, 655; 1990, c. 3; 2003, c. 359.

The 2003 amendments.

The 2003 amendment by c. 359, in the definition of “Credit services business,” deleted “or” at the end of item 3 (vi), added “or” at the end of item 3 (vii), and added subdivision 3 (viii).

§ 59.1-335.3. Registration; fees.

  1. It shall be unlawful for any credit services business to offer, advertise, or execute or cause to be executed by a consumer any contract in this Commonwealth unless the credit services business at the time of the offer, advertisement, sale or execution of a contract has been properly registered with the Commissioner.  The Commissioner may charge the credit services business a reasonable fee not exceeding $100 to cover the costs of filing.
  2. The registration shall contain (i) the name and address of the credit services business, (ii) the name and address of the registered agent authorized to accept service of process on behalf of the credit services business, (iii) the name and address of any person who directly or indirectly owns or controls a ten percent or greater interest in the credit services business, and (iv) the name and address of the surety company that issued a bond pursuant to § 59.1-335.4 or the name and address of the bank that issued a letter of credit pursuant to § 59.1-335.4.  The registration statement shall also contain either a full and complete disclosure of any litigation or unresolved complaint filed within the preceding five years with a governmental authority of the Commonwealth, any other state or the United States relating to the operation of the credit services business, or a notarized statement that there has been no litigation or unresolved complaint filed within the preceding five years with the governmental authority of the Commonwealth, any other state or the United States relating to the operation of the credit services business.
  3. The credit services business shall attach to the registration statement a copy of (i) the information statement required under § 59.1-335.6, (ii) a copy of the contract which the credit services business intends to execute with its consumers, and (iii) evidence of the bond or trust account required under § 59.1-335.4.
  4. The credit services business shall update the registration statement required under this section not later than ninety days after the date from which a change in the information required in the statement occurs.
  5. Each credit services business registering under this section shall maintain a copy of the registration statement in its files.  The credit services business shall allow a buyer to inspect the registration statement on request.

History. 1989, c. 655.

§ 59.1-335.4. Bond or letter of credit required.

  1. Every credit services business, before it enters into a contract with a consumer, shall file and maintain with the Commissioner, in form and substance satisfactory to him, a bond with corporate surety from a company authorized to transact business in the Commonwealth, or a letter of credit from a bank insured by the Federal Deposit Insurance Corporation in an amount equal to 100 times the standard fee charged by the credit services business but in no event shall the bond or letter of credit required under this section be less than $5,000 or greater than $50,000.
  2. The required bond or letter of credit shall be in favor of the Commonwealth of Virginia for the benefit of any person who is damaged by any violation of this Act.  The bond or letter of credit shall also be in favor of any person damaged by such practices. Any person claiming against the bond or letter of credit for a violation of this Act may maintain an action at law against the credit services business and against the surety or bank.  The surety or bank shall be liable only for actual damages and attorneys fees and not for penalties permitted under §§ 59.1-206 and 59.1-335.12 or punitive damages permitted under § 59.1-335.10.  The aggregate liability of the surety or bank to all persons damaged by a credit services business violation of this chapter shall in no event exceed the amount of the bond or letter of credit.
  3. The bond or letter of credit shall be maintained for a period of two years after the date that the credit services business ceases operation.

History. 1989, c. 655.

§ 59.1-335.5. Prohibited practices.

A credit services business, and its salespersons, agents and representatives, and independent contractors who sell or attempt to sell the services of a credit services business, shall not do any of the following:

  1. Charge or receive any money or other valuable consideration prior to full and complete performance of the services that the credit services business has agreed to perform for or on behalf of the consumer, unless the consumer has agreed to pay for such services during the term of a written subscription agreement that provides for the consumer to make periodic payments during the agreement’s term in consideration for the credit services business’s ongoing performance of services for or on behalf of the consumer, provided that such subscription agreement may be cancelled at any time by the consumer;
  2. Charge or receive any money or other valuable consideration solely for referral of the consumer to a retail seller or to any other credit grantor who will or may extend to the consumer, if the credit that is or will be extended to the consumer is upon substantially the same terms as those available to the general public;
  3. Make, or counsel or advise any consumer to make, any statement that is untrue or misleading and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading, to a consumer reporting agency or to any person who has extended credit to a consumer or to whom a consumer is applying for an extension of credit, with respect to a consumer’s creditworthiness, credit standing, or credit capacity;
  4. Make or use any untrue or misleading representations in the offer or sale of the services of a credit services business or engage, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deception upon any person in connection with the offer or sale of the services of a credit services business; or
  5. Advertise, offer, sell, provide, or perform any of the services of a credit services business in connection with an extension of credit that meets any of the following conditions:
    1. The amount of credit is less than $5,000;
    2. The repayment term is one year or less;
    3. The credit is provided under an open-end credit plan; or
    4. The annual percentage rate exceeds 36 percent. For purposes of this section, “annual percentage rate” has the same meaning as in the federal Truth in Lending Act (15 U.S.C. § 1601 et seq.) and its implementing regulations, as they may be amended from time to time.

History. 1989, cc. 651, 655; 2010, c. 421; 2020, cc. 1215, 1258.

Editor’s note.

Acts 2020, cc. 1215 and 1258, cl. 5 provide: “That the provisions of the first and second enactments of this act shall become effective on January 1, 2021, except that the database required by § 6.2-1810 of the Code of Virginia, as amended by this act, shall be modified to accommodate the provisions of this first enactment of this act by January 1, 2022.”

The 2010 amendments.

The 2010 amendment by c. 421 added “unless the consumer has agreed to pay for such services during the term of a written subscription agreement that provides for the consumer to make periodic payments during the agreement’s term in consideration for the credit services business’s ongoing performance of services for or on behalf of the consumer, provided that such subscription agreement may be cancelled at any time by the consumer” to subdivision 1.

The 2020 amendments.

The 2020 amendments by cc. 1215 and 1258, effective January 1, 2021, are identical, and added subdivision 5 and made a related stylistic change.

§ 59.1-335.6. Information statement required.

Before (i) the execution of a contract or agreement between a consumer and a credit services business or (ii) the receipt by the credit services business of any money or other valuable consideration, whichever occurs first, the credit services business shall provide the consumer with an information statement in writing containing all of the information required under § 59.1-335.7. The credit services business shall maintain on file or microfilm for a period of two years from the date of the consumer’s acknowledgement an exact copy of the information statement personally signed by the consumer acknowledging receipt of a copy of the information statement.

History. 1989, cc. 651, 655.

§ 59.1-335.7. Contents of information statement.

The information statement required under § 59.1-335.6 of this chapter shall include all of the following:

    1. A complete and accurate statement of the consumer’s right to review any file on the consumer maintained by any consumer reporting agency, and the right of the consumer to receive a copy of a consumer report containing all information in that file as provided under the Federal Fair Credit Reporting Act (15 U.S.C. § 1681g);
    2. A statement that a copy of the consumer report containing all information in the consumer’s file will be furnished free of charge by the consumer reporting agency if requested by the consumer within 30 days of receiving a notice of a denial of credit as provided under the Federal Fair Credit Reporting Act (15 U.S.C. § 1681j); and
    3. A statement that a nominal charge may be imposed on the consumer by the consumer reporting agency for a copy of the consumer report containing all information in the consumer’s file, if the consumer has not been denied credit within 30 days from receipt of the consumer’s request;
  1. A complete and accurate statement of the consumer’s right to dispute the completeness or accuracy of any item contained in any file on the consumer that is maintained by any consumer reporting agency, as provided under the Federal Fair Credit Reporting Act (15 U.S.C. § 1681i);
  2. A complete and detailed description of the services to be performed by the credit services business for or on behalf of the consumer, and the total amount the consumer will have to pay, or become obligated to pay, for the services. Such statement shall include the following notice in at least 10-point bold type:

    ; and

  3. The notice prescribed by subdivision 3 of this section shall also be posted by means of a conspicuous sign so as to be readily noticeable and readable at the location within the premises of the credit services business where consumers are interviewed by personnel of the business.

IMPORTANT NOTICE: YOU HAVE NO OBLIGATION TO PAY ANY FEES OR CHARGES UNTIL ALL SERVICES HAVE BEEN PERFORMED COMPLETELY FOR YOU, UNLESS YOU ENTER INTO A SUBSCRIPTION AGREEMENT REQUIRING PERIODIC PAYMENTS IN CONSIDERATION FOR ONGOING SERVICES.

History. 1989, cc. 651, 655; 2010, c. 421.

The 2010 amendments.

The 2010 amendment by c. 421 added “UNLESS YOU ENTER INTO A SUBSCRIPTION AGREEMENT REQUIRING PERIODIC PAYMENTS IN CONSIDERATION FOR ONGOING SERVICES” to the notice in subdivision 3 and made minor stylistic changes throughout.

§ 59.1-335.8. Contents of contracts.

  1. Every contract between a consumer and a credit services business for the purchase of the services of the credit services business shall be in writing, dated, signed by the consumer, and shall include all of the following:
    1. A conspicuous statement in size equal to at least ten-point bold type, in immediate proximity to the space reserved for the signature of the consumer as follows:
    2. The terms and conditions of payment, including the total of all payments to be made by the consumer, whether to the credit services business or to some other person;
    3. A complete and detailed description of the services to be performed and the results to be achieved by the credit services business for or on behalf of the consumer, including all guarantees and all promises of full or partial refunds and a list of the adverse information appearing on the consumer’s credit report that the credit services business expects to have modified;
    4. The principal business address of the credit services business and the name and address of its agent in this Commonwealth authorized to receive service of process;
    5. A statement asserting the buyer’s right to proceed against the bond or letter of credit required under § 59.1-335.4; and
    6. The name and address of the surety company which issued the bond, or the name and address of the bank which issued the letter of credit.

      “You, the buyer, may cancel this contract at any time prior to midnight of the third business day after the date of the transaction. See the attached notice of cancellation form for an explanation of this right.”;

    1. The contract shall be accompanied by a completed form in duplicate, captioned “NOTICE OF CANCELLATION,” which shall be attached to the contract and easily detachable, and which shall contain in at least ten-point bold type the following statement: B. 1. The contract shall be accompanied by a completed form in duplicate, captioned “NOTICE OF CANCELLATION,” which shall be attached to the contract and easily detachable, and which shall contain in at least ten-point bold type the following statement:
    2. A copy of the fully completed contract and all other documents the credit services business requires the consumer to sign shall be given by the credit services business to the consumer at the time they are signed.

      “NOTICE OF CANCELLATION

      You may cancel this contract, without any penalty or obligation, at any time prior to midnight of the third business day after the date the contract is signed.

      If you cancel, any payment made by you under this contract will be returned within ten days following receipt by the seller of your cancellation notice.

      To cancel this contract, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, to

      Click to view

(Name of Seller) At (Address of Seller) (Place of Business) Not later than midnight (Date) I HEREBY CANCEL THIS TRANSACTION. (Date) (Buyer’s Signature)”

History. 1989, cc. 651, 655.

§ 59.1-335.9. Breach; null and void contract.

  1. Any breach by a credit services business of a contract under this chapter, or of any obligation arising under it, shall constitute a violation of this chapter.
  2. Any contract for services from a credit services business that does not comply with the applicable provisions of this chapter shall be void and unenforceable as contrary to the public policy of this Commonwealth.
  3. Any waiver by a consumer of any of the provisions of this chapter shall be deemed void and unenforceable by a credit services business as contrary to public policy of this Commonwealth, and any attempt by a credit services business to have a consumer waive rights given by this chapter shall constitute a violation of this chapter.
  4. In any proceeding involving this chapter the burden of proving an exemption or an exception from a definition is upon the person claiming it.

History. 1989, cc. 651, 655.

§ 59.1-335.10. Liability to consumer.

  1. Any credit services business which willfully fails to comply with any requirement imposed under this chapter with respect to any consumer is liable to that consumer in an amount equal to the sum of:
    1. Any actual damages sustained by the consumer as a result of the failure; and
    2. Such amount of punitive damages as the court may allow.
  2. Any credit services business which is negligent in failing to comply with any requirement imposed under this chapter with respect to any consumer is liable to that consumer in an amount equal to the sum of any actual damages sustained by the consumer as a result of the failure.

History. 1989, cc. 651, 655.

§ 59.1-335.11. Statute of limitations.

An action to enforce any liability created under this chapter may be brought within two years from the date on which the liability arises, except that where a defendant has materially and willfully misrepresented any information required under this chapter to be disclosed to a consumer and the information so misrepresented is material to the establishment of the defendant’s liability to that consumer under this chapter, the action may be brought at any time within two years after discovery by the consumer of the misrepresentation.

History. 1989, cc. 651, 655.

§ 59.1-335.12. Violations of chapter; enforcement.

  1. Each sale of the services of a credit services business that violates any provision of this chapter is a prohibited practice under § 59.1-200.
  2. If the Attorney General, any attorney for the Commonwealth, or any attorney for a county, city or town has reason to believe that any credit services business, or any salesperson, agent, representative, or independent contractor acting on behalf of a credit services business, has violated any provision of this chapter, the Attorney General, the attorney for the Commonwealth, or attorney for the county, city or town may institute a proceeding under Chapter 17 (§ 59.1-196 et seq.) of Title 59.1.

History. 1989, cc. 651, 655.

Chapter 26. Uniform Trade Secrets Act.

§ 59.1-336. Short title and definitions.

As used in this chapter, which may be cited as the Uniform Trade Secrets Act, unless the context requires otherwise:

“Improper means” includes theft, bribery, misrepresentation, use of a computer or computer network without authority, breach of a duty or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.

“Misappropriation” means:

  1. Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
  2. Disclosure or use of a trade secret of another without express or implied consent by a person who
    1. Used improper means to acquire knowledge of the trade secret; or
    2. At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was
      1. Derived from or through a person who had utilized improper means to acquire it;
      2. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use;
      3. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
      4. Acquired by accident or mistake.

        “Person” means a natural person, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity.

        “Trade secret” means information, including but not limited to, a formula, pattern, compilation, program, device, method, technique, or process, that:

1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

History. 1986, c. 210; 2009, cc. 321, 376.

Cross references.

As to records which are excluded from the provisions of the Virginia Freedom of Information Act, see §§ 2.2-3705.2 , 2.2-3705.6 , 2.2-3705.7 .

As to the limited purposes for which “public bodies,” as defined by the Virginia Freedom of Information Act, may hold closed meetings, see § 2.2-3711 .

As to the penalties established under this act applying to agreements for the release of confidential information under the Virginia Biotechnology Research Act, see § 2.2-5506 .

Uniform law cross references.

For other signatory state provisions, see:

Alabama: Code of Ala. §§ 8-27-1 to 8-27-6.

Alaska: Alaska Stat. §§ 45.50.910 to 45.50.945.

Arizona: A.R.S. §§ 44-401 to 44-407.

California: California Civ. Code §§ 3426 to 3426.11.

Colorado: C.R.S §§ 7-74-101 to 7-74-110.

Connecticut: Conn. Gen. Stat. §§ 35-50 to 35-58.

Delaware: 6 Del. C. §§ 2001 to 2009.

District of Columbia: D.C. Code §§ 36-401 to 36-410.

Florida: Fla. Stat. §§ 688.001 to 688.009.

Hawaii: H.R.S. §§ 482B-1 to 482B-9.

Indiana: Burns Ind. Code §§ 24-2-3-1 to 24-2-3-8.

Iowa: Iowa Code §§ 550.1 to 550.8.

Kansas: K.S.A. §§ 60-3320 to 60-3330.

Kentucky: K.R.S. §§ 365.880 to 365.900.

Louisiana: La. R.S. §§ 51:1431 to 51:1439.

Maine: 10 M.R.S. §§ 1541 to 1548.

Maryland: Md. Commercial Code Ann. §§ 11-1201 to 11-1209.

Michigan: M.C.L.S. §§ 445.1901 to 445.1910.

Minnesota: Minn. Stat. §§ 325C.01 to 325C.08.

Mississippi: Miss. Code Ann. §§ 75-26-1 to 75-26-19.

Missouri: §§ 417.450 to 417.467 R.S.Mo.

Montana: Mont. Code Anno. §§ 30-14-401 to 30-14-409.

Nevada: Nev. Rev. Stat. Ann. §§ 600A.010 to 600A.100.

New Hampshire: R.S.A. §§ 350-B:1 to 350-B:9.

New Mexico: N.M. Stat. Ann. §§ 57-3 A-1 to 57-3 A-7.

North Dakota: N.D. Cent. Code §§ 47-25.1-01 to 47-25.1-08.

Ohio: O.R.C. Ann. §§ 1333.61 to 1333.69.

Oklahoma: 78 Okl. St. §§ 85 to 94.

Oregon: O.R.S. § 646.461 et seq.

Pennsylvania: 12 Pa. C.S. §§ 5301 to 5308.

Rhode Island: R.I. Gen. Laws §§ 6-41-1 to 6-41-11.

South Dakota S.D. Codified Laws §§ 37-29-1 to 37-29-11.

Tennessee: Tenn. Code Ann. §§ 47-25-1701 to 47-25-1709.

Texas: Tex. Civ. Prac. & Rem. Code § 134A.001 et seq.

Utah: Utah Code Ann. §§ 13-24-1 to 13-24-9.

Virgin Islands: 11 V.I.C. §§ 1001 to 1010.

Washington: Rev. Code Wash. §§ 19.108.010 to 19.108.940.

West Virginia: W. Va. Code §§ 47-22-1 to 47-22-10.

Wisconsin: Wis. Stat. § 134.90.

Wyoming: Wyo. Stat. §§ 40-24-101 to 40-24-110.

The 2009 amendments.

The 2009 amendments by cc. 321 and 376 are identical, and inserted “use of a computer or computer network without authority” in the paragraph defining “Improper means.”

Law Review.

For an article, “Myth, Chameleon or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law,” see 8 Geo. Mason L. Rev. 69 (1999).

For article, “The Virginia Uniform Trade Secrets Act: A Critical Summary of the Act and Case Law,” see 5 Va. J.L. & Tech. 15 (Fall 2000).

For article, “Antitrust and Trade Regulation,” see 35 U. Rich. L. Rev. 453 (2001).

For note, “Inevitable Disclosure Through an Internet Lens: Is the Doctrine’s Demise Truly Inevitable,” see 45 Wm. & Mary L. Rev. 395 (2003).

For article, “Contributory Negligence, Technology, and Trade Secrets,” see 17 Geo. Mason L. Rev. 1 (2009).

For note, “Causing Damage Without Authorization: The Limitations of Current Judicial Interpretations of Employee Authorization Under the Computer Fraud and Abuse Act,” 52 Wm. & Mary L. Rev. 1369 (2011).

For annual survey of Virginia law article, “Labor and Employment Law,” see 47 U. Rich. L. Rev. 201 (2012).

For article, “The Case Against Federalizing Trade Secrets,” see 101 Va. L. Rev. 317 (2015).

Research References.

Friend’s Virginia Pleading and Practice (Matthew Bender). Chapter 29 Consumer Actions and Products Liability. § 29.03 Statutory Consumer Actions. Friend.

Virginia Forms (Matthew Bender). No. 13-523 Confidential Information.

Michie’s Jurisprudence.

For related discussion, see 4A M.J. Conspiracy, § 13; 6A M.J. Discovery, § 35; 18 M.J. Trademarks, Trade Names and Unfair Competition, § 4.1.

CASE NOTES

Analysis

I.In General.

Public policy balance struck in adopting this chapter. —

By adopting the Uniform Trade Secrets Act, the General Assembly has struck the public-policy balance to be applied by courts in this Commonwealth in determining whether an employee is guilty of misappropriation of trade secrets; subdivision 2 b (2) sets forth the appropriate factors for consideration. Dionne v. Southeast Foam Converting & Packaging, Inc., 240 Va. 297 , 397 S.E.2d 110, 1990 Va. LEXIS 121 (1990).

Relationship with other laws. —

Where a judgment creditor moved for a judgment on pleadings, a Virginia state court judgment for willful and malicious misappropriation of trade secrets was nondischargeable under 11 U.S.C.S. § 523(a)(4). Section 523(a)(6) did not apply as the state court’s determination of willful and malicious misappropriation was sufficient to establish the elements essential to the Chapter 13 debtor’s liability for larceny in the context of § 523(a)(4). La Bella Dona Skin Care, Inc. v. Harton (In re Harton), No. 12-36221-KRH, No. 13-03028-KRH, 2013 Bankr. LEXIS 4113 (Bankr. E.D. Va. Oct. 1, 2013).

Burden of proof. —

Under the Virginia Uniform Trade Secrets Act, §§ 59.1-336 through 59.1-343, plaintiff had the burden to prove by a preponderance of evidence that defendants misappropriated its trade secrets; the Act did not shift the burden to defendants, once plaintiff made out a prima facie case, to prove that their product was independently derived. MicroStrategy Inc. v. Li, 268 Va. 249 , 601 S.E.2d 580, 2004 Va. LEXIS 132 (2004).

Defendants were properly granted summary judgment on plaintiff corporations’ Virginia Uniform Trade Secrets Act claim because the claim relied exclusively on allegations and inferences instead of any sort of actual objective evidence; while defendants did have access to trade secrets, the corporations were unable to produce any evidence, even after discovery, that defendants’ business was using such trade secrets. Othentec Ltd. v. Phelan, 526 F.3d 135, 2008 U.S. App. LEXIS 10233 (4th Cir. 2008).

Trial court erred in denying a prime contractor’s motion to strike the planning services providers’ claim that it breached a nondisclosure agreement where the providers presented no evidence of a misappropriation under § 59.1-336 and failed to show how the agreement required the contractor to use the providers as subcontractors. Navar, Inc. v. Fed. Bus. Council, 291 Va. 338 , 784 S.E.2d 296, 2016 Va. LEXIS 58 (2016).

Trade secret misappropriation claim failed on summary judgment for failure to provide a scintilla of evidence or argument; the claimant did not meet its burden of proof because it provided nothing more than pure speculation and conclusory statements that a competitor used its trade secrets. ZUP, LLC v. Nash Mfg., Inc., 229 F. Supp. 3d 430, 2017 U.S. Dist. LEXIS 5477 (E.D. Va. 2017), aff'd, 896 F.3d 1365, 2018 U.S. App. LEXIS 20712 (Fed. Cir. 2018).

Sufficient allegations. —

Where plaintiff’s former employees testified that they used only public sources in developing software for plaintiff’s competitor, and defense experts, whom the chancellor found more persuasive than plaintiff’s expert, testified as to differences between the parties’ software designs and the employees’ ability to develop the competitor’s software from public sources, the record supported the chancellor’s finding that the employees and competitor did not misappropriate plaintiff’s software design. MicroStrategy Inc. v. Li, 268 Va. 249 , 601 S.E.2d 580, 2004 Va. LEXIS 132 (2004).

In plaintiff’s action against defendant alleging misappropriation of trade secrets in violation of the Virginia Uniform Trade Secrets Act, issuance of a preliminary injunction was appropriate because plaintiff was likely to succeed on the merits where (1) its proprietary information, including software and software documentation resided in Virginia; (2) the information and the sublicense constituted trade secrets because plaintiff had taken reasonable measures to safeguard the information and competitors would economically benefit from receiving this proprietary information; and (3) defendant’s alleged acquisition of plaintiff’s trade secrets through improper means constituted the definition of misappropriation because defendant’s alleged access to the information was obtained without consent or authorization. Datatel, Inc. v. Rose & Tuck, LLC, No. 05-495, 2005 U.S. Dist. LEXIS 29704 (E.D. Va. June 17, 2005).

Former employer was entitled to temporary restraining order because, in light of affidavit submitted, it could likely show that at least some of its confidential information, including its models and methods for pricing, its specifications, business means, marketing plans, and financial cost structure, constituted trade secrets, and could likely show misappropriation by a former employee who was under a duty to maintain its secrecy but used trade secret information in attempting to obtain at least one customer with in-process quotes. Audio-Video Group, LLC v. Green, No. 1:14cv169, 2014 U.S. Dist. LEXIS 25413 (E.D. Va. Feb. 26, 2014).

Insufficient allegations. —

Government contractor’s claim for misappropriation of trade secrets was properly dismissed, because the contractor failed to identify what trade secrets the subcontractor misappropriated or identify the improper means by which the subcontractor obtained the trade secrets or how it used those secrets. Preferred Sys. Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382 , 732 S.E.2d 676, 2012 Va. LEXIS 160 (2012).

Judgment as a matter of law. —

Company suing the corporation for conversion and conversion conspiracy could not escape judgment as a matter of law under Fed. R. Civ. P. 50(a) being granted to the corporation as the expert’s testimony for the company assumed that the material converted, confidential business information about a manufacturing process and the company’s business plans, was trade secret information under § 59.1-336. As a result, a jury could not make a damage award for the conversion of confidential, not-trade secret information that was not speculative. E.I. du Pont de Nemours & Co. v. Kolon Indus., No. 3:09cv58, 2011 U.S. Dist. LEXIS 113702 (E.D. Va. Oct. 3, 2011).

Attorneys’ fees erroneously awarded. —

Where parties to an employment contract agreed to submit the issue of an award of attorneys’ fees to be determined under the fee-shifting language of their contract, and that language expressly limited any action under the contract to one relating to their agreement and excluded an independent action such as one under the Uniform Trade Secrets Act, the trial court erred in determining that the employer was entitled to attorneys’ fees pursuant to the parties’ contract. Ulloa v. QSP, Inc., 271 Va. 72 , 624 S.E.2d 43, 2006 Va. LEXIS 21 (2006).

No double recovery. —

Because a company’s claim asserting violation of Virginia’s Uniform Trade Secret Act did not require the same proof as the civil conspiracy claim, the award of both punitive and treble damages in favor of the company did not constitute an impermissible double recovery. 21st Century Sys. v. Perot Sys. Gov't Servs., 284 Va. 32 , 726 S.E.2d 236, 2012 Va. LEXIS 139 (2012).

II.Definitions.
A.“Improper means.”.

Evidence of violation. —

Website host demonstrated unauthorized copying of customer lists and proprietary software codes by a competitor and its employee in violation of § 59.1-336 where the website host’s customer lists and proprietary software taken in computer attacks were trade secrets, and the website host demonstrated that these trade secrets were misappropriated by the competitor and its employee. Physicians Interactive v. Lathian Sys., No. CA-03-1193-A, 2003 U.S. Dist. LEXIS 22868 (E.D. Va. Dec. 5, 2003).

B.“Misappropriation.”.

Timeliness of claim. —

Trade secrets claim was untimely because the alleged misappropriation could have been discovered earlier. Even if the claimant did not know that a former employee had disclosed supplier contact information that was one of its trade secrets, it knew that another company had acquired the information, and it could have taken reasonable steps to learn how that happened. Thousand Oaks Barrel Co., LLC v. Deep South Barrels LLC, 241 F. Supp. 3d 708, 2017 U.S. Dist. LEXIS 40011 (E.D. Va. 2017).

Mere acquisition sufficient. —

The Virginia Uniform Trade Secrets Act (VUTSA) prohibits the improper acquisition of a trade secret, whether or not the secret is used in direct competition with the rightful owner. Smithfield Ham & Prods. Co. v. Portion Pac, Inc., 905 F. Supp. 346, 1995 U.S. Dist. LEXIS 17891 (E.D. Va. 1995).

No misappropriation shown. —

Sublicensees did not misappropriate a licensor’s trade secrets because the sublicensees had a sub-license to use the licensor’s technology for all purposes and the right to disclose the technology to third parties without prior approval. Babcock & Wilcox Co. v. Areva NP, Inc, 292 Va. 165 , 788 S.E.2d 237, 2016 Va. LEXIS 103 (2016).

Competition not required. —

In a suit brought by a former employer against a former employee and his new employers, the trial court erred by dismissing plaintiff’s claims under the Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., because its ruling was based upon the faulty premise that competition must be shown under § 59.1-336 as use of the misappropriated trade secret to compete with the holder of the trade secret (plaintiff) was not required to show damages. Collelo v. Geographic Servs., 283 Va. 56 , 727 S.E.2d 55, 2012 Va. LEXIS 12 (2012).

Respondeat superior liability. —

A former employer is not precluded by statute from relying on the doctrine of respondeat superior in an action for misappropriation of trade secrets against a former employee’s subsequent employer. Newport News Indus. v. Dynamic Testing, 130 F. Supp. 2d 745, 2001 U.S. Dist. LEXIS 1080 (E.D. Va. 2001).

Former employee’s duty not to reveal confidential information is suffiicent to allege a claim. —

Competitor’s Fed. R. Civ. P. 12(b)(6) motion to dismiss an aeronautical engineering company’s misappropriation of trade secret claim for flutter test materials brought pursuant to § 59.1-336, was denied where the company alleged that a former employee took the materials contrary to his duty not to reveal confidential information and the company knew at the time of use that the former employee had a duty to maintain the secrecy of the information. Tao of Sys. Integration v. Analytical Servs. & Materials, Inc., 299 F. Supp. 2d 565, 2004 U.S. Dist. LEXIS 313 (E.D. Va. 2004).

Sufficient allegations of misappropriation. —

Aeronautical engineering company’s Fed. R. Civ. P. 12(b)(6) motion to dismiss a competitor’s misappropriation of trade secret counterclaim was denied where it was reasonable to infer from the allegations that the company’s proposal to a federal agency contained trade secrets other than those that may have belonged to the company. Tao of Sys. Integration v. Analytical Servs. & Materials, Inc., 299 F. Supp. 2d 565, 2004 U.S. Dist. LEXIS 313 (E.D. Va. 2004).

Competitor was denied summary judgment on an aeronautical engineering company’s misappropriation of trade secret claim where the company had properly supported its version of the facts, presented evidence to controvert the competitor’s version, and the competitor failed to address two of the alleged acts of misappropriation. Tao of Sys. Integration, Inc. v. Analytical Servs. & Materials, Inc., 330 F. Supp. 2d 668, 2004 U.S. Dist. LEXIS 16008 (E.D. Va. 2004), aff'd, 141 Fed. Appx. 129, 2005 U.S. App. LEXIS 16378 (4th Cir. 2005).

Aeronautical engineering company was granted summary judgment on a competitor’s claim that it had disclosed or used a trade secret where the competitor offered no evidence to show that the company knew or had reason to know that the person who provided it with a copy of the competitor’s proposal had obtained it through improper means. Tao of Sys. Integration, Inc. v. Analytical Servs. & Materials, Inc., 330 F. Supp. 2d 668, 2004 U.S. Dist. LEXIS 16008 (E.D. Va. 2004), aff'd, 141 Fed. Appx. 129, 2005 U.S. App. LEXIS 16378 (4th Cir. 2005).

A “Competitive Recipe” prepared for plaintiff, which was the equivalent of a competitive playbook, was a protected trade secret and was misappropriated as a matter of law where document could only have been obtained from an employee of the plaintiff in breach of their employment agreement and in light of evidence that this type of information was actively solicited from plaintiff’s employees by ex-employees of the company who had moved on to work for the defendant. MicroStrategy, Inc. v. Business Objects, S.A., 331 F. Supp. 2d 396, 2004 U.S. Dist. LEXIS 18228 (E.D. Va. 2004), aff'd, 429 F.3d 1344, 2005 U.S. App. LEXIS 24774 (Fed. Cir. 2005).

Telecommunications provider’s complaint did not contain sufficient allegations to state a claim for misappropriation of trade secrets, as the claim was premised on the single, conclusory assertion that defendant sought to appropriate and disclose the names of the telecommunications provider customers, along with other trade secrets and confidential information, but the complaint contained no additional factual allegations that supported that assertion or otherwise plausibly suggested an entitlement to relief. All Bus. Solutions, Inc. v. NationsLine, Inc., 629 F. Supp. 2d 553, 2009 U.S. Dist. LEXIS 54693 (W.D. Va. 2009).

Former franchisee misappropriated trade secrets. —

Auto care franchisor was granted summary judgment on its misappropriation of trade secrets claim against a former franchisee where the franchisee knew that it was acquiring the franchisor’s trade secrets in a policy and procedure manual, the franchisee breached the confidential relationship with the franchisor when it did not return the confidential manual after lawful termination of the parties’ franchise agreement, the franchisee continued to operate its auto care business as an unauthorized franchise while maintaining possession and control of the confidential manual, and the franchisee’s continued use of the franchisor’s trade secrets made it more difficult and hindered the franchisor’s ability to improve or maintain its competitive edge, thereby causing damage to the franchisor’s reputation. Precision Tune Auto Care, Inc. v. Pinole Auto Care, Inc., No. 00-1748-A, 2001 U.S. Dist. LEXIS 24840 (E.D. Va. Oct. 15, 2001).

C.“Trade secrets.”.

Novelty in patent law sense not required for trade secret. —

Although the subject of a trade secret may be novel in the sense that it is something generally unknown in the trade or business, novelty, in the patent law sense, is not required for a trade secret; indeed, a trade secret may be a device or process which is clearly anticipated in the prior art or one which is merely a mechanical improvement that a good mechanic can make. Dionne v. Southeast Foam Converting & Packaging, Inc., 240 Va. 297 , 397 S.E.2d 110, 1990 Va. LEXIS 121 (1990).

The hallmark of a trade secret is not its novelty but its secrecy. Avtec Sys. v. Peiffer, 21 F.3d 568, 1994 U.S. App. LEXIS 6522 (4th Cir. 1994).

The secrecy need not be absolute; the owner of a trade secret may, without losing protection, disclose it to a licensee, an employee, or a stranger, if the disclosure is made in confidence, express or implied. Dionne v. Southeast Foam Converting & Packaging, Inc., 240 Va. 297 , 397 S.E.2d 110, 1990 Va. LEXIS 121 (1990).

“Not generally known” standard. —

Under this section, plaintiff could not establish that certain documents were “not generally known” (since they had escaped into the Internet); additionally, plaintiff did not demonstrate that these documents provided it with any economic advantage over competitors. Religious Technology Ctr. v. Lerma, 897 F. Supp. 260, 1995 U.S. Dist. LEXIS 16799 (E.D. Va. 1995).

Defendants’ motion for summary judgment was denied in trade secrets misappropriation claim where the mere fact that documents were filed unsealed and were available in public court files did not destroy the secrecy of these documents as no confidential documents or exhibits had been requested or copied so that the information in question remained as much a secret now as it was before the trial. MicroStrategy, Inc. v. Business Objects, S.A., 331 F. Supp. 2d 396, 2004 U.S. Dist. LEXIS 18228 (E.D. Va. 2004), aff'd, 429 F.3d 1344, 2005 U.S. App. LEXIS 24774 (Fed. Cir. 2005).

Preparing tax returns and negotiating with tax authorities does not meet the statutory definition of a trade secret under Virginia law; property tax statutes and regulations are not secrets and the identity of tax officials is not a secret. Cablecom Tax Servs. v. Shenandoah Telcoms. Co., No. 5:12cv069, 2013 U.S. Dist. LEXIS 76169 (W.D. Va. May 30, 2013).

There was no allegation that the accounting system allegedly developed by plaintiff was anything other than the application of property tax laws and regulations to the telecommunications industry; obviously, property tax laws and regulations were not secret. Cablecom Tax Servs. v. Shenandoah Telcoms. Co., No. 5:12cv069, 2013 U.S. Dist. LEXIS 76169 (W.D. Va. May 30, 2013).

Plaintiff’s alleged “valuable relationships” with taxing authorities was not a trade secret; such a relationship was not information that derived independent economic value from not being generally known and which could have been the subject of reasonable efforts to maintain secrecy. Cablecom Tax Servs. v. Shenandoah Telcoms. Co., No. 5:12cv069, 2013 U.S. Dist. LEXIS 76169 (W.D. Va. May 30, 2013).

Information that derives economic value from being not generally known. —

Internet payment processing and billing services company had stated a valid counterclaim for misappropriation of trade secrets under the Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., against a computer design company where it alleged that its software, hardware, and documents constituted information that derived economic value from being not generally known to, or easily ascertainable by, the general public, the information was the subject of efforts to maintain its secrecy, the computer design company had acquired the internet billing company’s proprietary information under circumstances giving rise to a duty to maintain its secrecy or limit its use, and the computer design company had disclosed that information to third parties without defendant’s permission, thereby causing detriment to the Internet billing company. S&S Computers & Design, Inc. v. Paycom Billing Servs., No. 5:00-CV-00058, 2001 U.S. Dist. LEXIS 25874 (W.D. Va. Apr. 5, 2001).

Publicly available information cannot support a misappropriation claim. —

Competitor’s Fed. R. Civ. P. 12(b)(6) motion to dismiss an aeronautical engineering company’s misappropriation of trade secret claim related to patents and patent refinements, brought pursuant to § 59.1-336, was granted where the information in the government’s patent files was publicly available and the company failed to allege that the enhancements, refinements, and improvements to the company’s patents had been improperly acquired, disclosed, or used. Tao of Sys. Integration v. Analytical Servs. & Materials, Inc., 299 F. Supp. 2d 565, 2004 U.S. Dist. LEXIS 313 (E.D. Va. 2004).

In a contract case in which a hospital consulting company alleged a claim for misappropriation of trade secrets and a hospital filed a Fed. R. Civ. P. 12(b)(6) motion to dismiss, that claim failed since it contained insufficient facts to establish either that there was a trade secret or that it was misappropriated. The crucial characteristic of a trade secret was secrecy rather than novelty, and the consulting company’s idea was found in widely-disseminated information. McKay Consulting, Inc. v. Rockingham Mem. Hosp., 665 F. Supp. 2d 626, 2009 U.S. Dist. LEXIS 98888 (W.D. Va. 2009).

Jury verdict for a chemical company in its trade secret misappropriation action under the Virginia Uniform Trade Secrets Act could not stand because the in limine exclusion of the competitor’s relevant and material evidence in defense of the claims, wherein it intended to show that the trade secrets were publicly available, was an abuse of discretion. E.I. Dupont De Nemours & Co. v. Kolon Indus., 564 Fed. Appx. 710, 2014 U.S. App. LEXIS 6163 (4th Cir.), cert. denied, 574 U.S. 987, 135 S. Ct. 439, 190 L. Ed. 2d 352, 2014 U.S. LEXIS 7209 (2014).

Passwords not trade secrets. —

Claim under the Virginia Uniform Trade Secrets Act failed because: (1) a government relations and analysis firm based the claim on a former client’s unauthorized sharing of its passwords for the firm’s database with a competitor; (2) although the passwords clearly had economic value given that they were integral to accessing the firm’s database, they had no independent economic value in the way a formula or a customer list might have; and (3) where plaintiff had not alleged that its passwords were the product of any special formula or algorithm that it developed, the passwords were not trade secrets. State Analysis, Inc. v. Am. Fin. Servs. Assoc., 621 F. Supp. 2d 309, 2009 U.S. Dist. LEXIS 27548 (E.D. Va. 2009).

Sufficient allegations of trade secret. —

Plaintiff’s discount schedule was a protectable trade secret where testimony made clear that a volume discount schedule was qualitatively different from a standard price list and that this schedule was not even made available to customers, could not be easily gained through legitimate means, and was of economic value to a competitor because a competitor possessing knowledge of such pricing could undercut the plaintiff or price differently to influence a prospect’s purchase decision. MicroStrategy, Inc. v. Business Objects, S.A., 331 F. Supp. 2d 396, 2004 U.S. Dist. LEXIS 18228 (E.D. Va. 2004), aff'd, 429 F.3d 1344, 2005 U.S. App. LEXIS 24774 (Fed. Cir. 2005).

Where a software owner alleged that a competitor and former employees misappropriated trade secrets under the Virginia Trade Secret Misappropriations Act, §§ 59.1-336 through 59.1-343, summary judgment was inappropriate because the record supported the owner’s contention that its software, as a compilation, was not generally known or readily ascertainable by proper means. Decision Insights, Inc. v. Sentia Group, Inc., 416 Fed. Appx. 324, 2011 U.S. App. LEXIS 5151 (4th Cir. 2011).

Insufficient allegations of trade secrets. —

Defendant’s misappropriation of trade secrets claim failed because it had not provided sufficient factual allegations to establish that the information at issue was a trade secret. Microstrategy Servs. Corp. v. OpenRisk, LLC, No. 1:14cv1244, 2015 U.S. Dist. LEXIS 32719 (E.D. Va. Mar. 17, 2015), dismissed in part, No. 1:14cv1244, 2015 U.S. Dist. LEXIS 59347 (E.D. Va. May 6, 2015).

CIRCUIT COURT OPINIONS

Common-law misappropriation. —

When a contractor alleged claims against a former employee and against competitors both under the Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., and under common-law misappropriation of trade secrets, the employee’s and competitors’ demurrers were not sustained because the parties were not in agreement about whether the information in question constituted trade secrets, and the court was unwilling to rule, on demurrer, that the information was a trade secret, which would have allowed the statutory claim to preempt the common-law claim. H.E.R.C. Prods. v. Turlington, 62 Va. Cir. 489, 2003 Va. Cir. LEXIS 305 (Norfolk Sept. 17, 2003).

Acquisition by improper means. —

Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., prohibits acquisition of trade secrets by improper means. It does not prohibit maintenance of those secrets after the initial proper acquisition unless one can prove an actual or threatened disclosure or use of those secrets. Knowesis, Inc. v. Herrera, 103 Va. Cir. 175, 2019 Va. Cir. LEXIS 459 (Fairfax County Oct. 2, 2019).

Virginia Uniform Trade Secrets Act (VUTSA), § 59.1-336 et seq., does not prohibit mere maintenance of trade secrets initially acquired through proper means. Rather, the VUTSA prohibits acquisition by improper means of the trade secrets or the actual or threatened disclosure or use of them. Knowesis, Inc. v. Herrera, 103 Va. Cir. 175, 2019 Va. Cir. LEXIS 459 (Fairfax County Oct. 2, 2019).

Price list as trade secret. —

Former employee’s demurrer pursuant to subsection A of § 8.01-273 was denied as to a company’s claim that the former employee violated the Virginia Uniform Trade Secrets Act, because under § 59.1-336 a price list such as the list in question could qualify as a trade secret, and the company alleged that it took reasonable efforts to keep this information secret. Int'l Paper Co. v. Gilliam, 63 Va. Cir. 485, 2003 Va. Cir. LEXIS 249 (Roanoke Dec. 23, 2003).

Employment negotiations did not constitute trade secrets. —

Defendants’ demurrers were granted as to an engineer’s claims that defendants violated the Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., because information concerning the engineer’s employment negotiations did not constitute trade secrets, and there was no evidence showing misappropriation as defined by § 59-336, which required that inappropriate means were used to acquire or disclose the information. Rohrbaugh v. Kreidler, 71 Va. Cir. 298, 2006 Va. Cir. LEXIS 245 (Arlington County July 20, 2006).

Former employee. —

Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., does not affect a former employee who properly acquires trade secrets and merely holds them post-employment with no actual or threatened disclosure or use. This statutory principle applies even if the retention is against the will of the employer. Knowesis, Inc. v. Herrera, 103 Va. Cir. 175, 2019 Va. Cir. LEXIS 459 (Fairfax County Oct. 2, 2019).

Material from public sources. —

Materials in plaintiff’s training manual that its former independent contractors copied and provided to plaintiff’s competitor were not “trade secrets” because they were compiled from public sources and plaintiff did not attempt to keep them secret. Management Concepts v. Kraemer, 2004 Va. Cir. LEXIS 391 (Fairfax County Apr. 26, 2004).

Materials did not derive independent value and were largely available through the government, and thus plaintiff’s claim for misappropriation of trade secrets failed; many of the materials, regardless of how they were ultimately acquired, were developed in support of plaintiff’s prior government contract, thereby making them government property. As property not in plaintiff’s exclusive dominion, the materials remained readily ascertainable by proper means by other persons who could obtain economic value from their disclosure. Futrend Tech., Inc. v. MicroHealth LLC, 2020 Va. Cir. LEXIS 128 (Fairfax County Aug. 21, 2020).

Independent economic value. —

To the extent that any of the materials were exclusively owned by plaintiff, they could not be considered trade secrets as plaintiff had not established a basis for independent economic value. Futrend Tech., Inc. v. MicroHealth LLC, 2020 Va. Cir. LEXIS 128 (Fairfax County Aug. 21, 2020).

Preliminary injunction proper. —

Trade secrets holder was granted a preliminary injunction where the evidence showed that the former employee possessed storage devices containing confidential information and trade secrets related to a medical isotope production system, the holder faced financial consequences from the misappropriation that were neither remote nor speculative, and that harm outweighed any hardships faced by the employee. BWX Techs., Inc. v. Glenn, 2013 Va. Cir. LEXIS 213 (Lynchburg Jan. 25, 2013).

Sufficient allegations. —

Former employee’s and competitors’ demurrers to contractor’s claim under the Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., were not sustained because (1) the contractor detailed aspects of the process of bidding for a public contract with which the employee and competitors interfered that were allegedly confidential trade secrets; (2) pled that its mobile recirculation units were trade secrets; (3) pled the trade secrets were obtained by the employee in the scope of his relationship with the contractor with an attendant duty of confidentiality; and (4) that the competitors knew of this relationship. H.E.R.C. Prods. v. Turlington, 62 Va. Cir. 489, 2003 Va. Cir. LEXIS 305 (Norfolk Sept. 17, 2003).

Because a company raised facts that, if considered as true, provided an adequate legal basis for its claims of violation of the Virginia Uniform Trade Secrets Act, breach of contract, fraud, and conspiracy under § 18.2-499 , the demurrer and plea in bar of a competitor and its successor were overruled. VMC Satellite, Inc. v. Stevens & Assocs., 68 Va. Cir. 103, 2005 Va. Cir. LEXIS 231 (Loudoun County May 19, 2005).

Complaint stated a claim for a Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., violation under the notice pleading rules of Va. Sup. Ct. R. 1:4(d) as it alleged that: (1) an employee acquired a corporation’s customer information that the corporation had employed reasonable efforts to keep secret; (2) the employee disseminated that information to a direct competitor; and (3) the employee knew that knowledge of the information was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use. Strategic Enter. Solutions, Inc. v. Ikuma, 77 Va. Cir. 179, 2008 Va. Cir. LEXIS 144 (Fairfax County Oct. 7, 2008).

Cause of action not stated. —

Former employer failed to sufficiently plead misappropriation of trade secrets under § 59.1-336 where an underlying employment agreement was rendered invalid by a blue-pencil provision and by overbroad noncompetition and confidentiality provisions and where the employer failed to allege theft, bribery, misrepresentation, or espionage. BB&T Ins. Servs. v. Thomas Rutherfoord, Inc., 80 Va. Cir. 174, 2010 Va. Cir. LEXIS 25 (Richmond Feb. 9, 2010).

Violation not found. —

Plaintiff had not shown that his former partners violated the Uniform Trade Secrets Act. They had not misappropriated any trade secrets belonging to plaintiff personally, except as a relatively minor incidental effect of the defendants’ overall plan to force him out of their partnership without fair compensation; moreover, plaintiff had not proven any damages resulting directly from the misappropriation. Greenfeld v. Stitely, 2007 Va. Cir. LEXIS 7 (Fairfax County Jan. 5, 2007).

Where an employee inadvertently copied two documents, which were not trade secrets under § 59.1-336, while clearing out the employee’s personal files, there was no misappropriation. Tryco, Inc. v. United States Med. Source, 80 Va. Cir. 619, 2010 Va. Cir. LEXIS 91 (Fairfax County Aug. 3, 2010).

Employer was not entitled to prevail on its VUTSA claim against a former employee where it alleged that the employee properly acquired the trade secrets in furtherance of her employment and did not allege that she threatened to disclose or use, or in fact disclosed or used, those secrets in any way after she left employment. Her passive maintenance of the secrets was not a violation of the Virginia Uniform Trade Secrets Act, § 59.1-336 et seq. Knowesis, Inc. v. Herrera, 103 Va. Cir. 175, 2019 Va. Cir. LEXIS 459 (Fairfax County Oct. 2, 2019).

§ 59.1-337. Injunctive relief.

  1. Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.
  2. In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.
  3. In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

History. 1986, c. 210.

Law Review.

For article, “Antitrust and Trade Regulation,” see 35 U. Rich. L. Rev. 453 (2001).

Michie’s Jurisprudence.

For related discussion, see 10A M.J. Injunctions, §§ 113, 161.

CASE NOTES

Applicable law. —

Federal district court applied the Virginia Supreme Court’s principles to the trade secret owner’s request for permanent injunctive relief under the Virginia Uniform Trade Secrets Act because applying the federal standard for injunctive relief would have trenched upon the Erie doctrine. E.I. Dupont De Nemours & Co. v. Kolon Indus., 894 F. Supp. 2d 691, 2012 U.S. Dist. LEXIS 123890 (E.D. Va. 2012).

Actual or threatened disclosure required for injunction. —

Absent evidence of actual or threatened disclosure of a trade secret, an injunction should not issue; mere knowledge of trade secrets is insufficient to support an injunction under the terms of this section. Motion Control Sys., Inc. v. East, 262 Va. 33 , 546 S.E.2d 424, 2001 Va. LEXIS 72 (2001).

Jurisdiction over motion to dissolve. —

Jurisdiction over the instant motion to dissolve the injunction existed without regard to the status of the pending appeal because the question of the injunctive relief ordered by the court was not on appeal. The Fed. R. Civ. P. 60(b)(5) motion filed by defendants did not duplicate an appeal but merely asked that the court find that it was no longer equitable to enforce the injunction based on changed circumstances; a finding by the court that the injunction should have terminated based on a finding that the two documents were no longer trade secrets did not complicate issues on appeal as the question of the appropriateness of injunctive relief was not on appeal. MicroStrategy, Inc. v. Business Objects, S.A., 369 F. Supp. 2d 725, 2005 U.S. Dist. LEXIS 8592 (E.D. Va.), aff'd, 429 F.3d 1344, 2005 U.S. App. LEXIS 24774 (Fed. Cir. 2005).

Injunction not overly broad. —

In plaintiff’s action against defendant alleging copyright infringement under 17 U.S.C.S. § 501 and misappropriation of trade secrets in violation of the Virginia Uniform Trade Secrets Act, a preliminary injunction was not improperly overbroad where it was narrowly tailored to limit the scope only to prevent defendant’s misappropriation of plaintiff’s copyrighted material and trade secrets and did not prevent defendant from engaging in business. Datatel, Inc. v. Rose & Tuck, LLC, No. 05-495, 2005 U.S. Dist. LEXIS 29704 (E.D. Va. June 17, 2005).

Irreparable harm not required. —

Trade secrets owner did not have to prove irreparable harm or the lack of an adequate remedy at law to receive an injunction against the actual misappropriation of its trade secrets. E.I. Dupont De Nemours & Co. v. Kolon Indus., 894 F. Supp. 2d 691, 2012 U.S. Dist. LEXIS 123890 (E.D. Va. 2012).

Injunctive relief granted. —

Where the trial court was aware that the documents described might no longer constitute trade secrets under § 59.1-336, the court enjoined the defendant for a reasonable minimum period, at which time the defendant could petition the court to dissolve the injunction, should it desire to do so. MicroStrategy, Inc. v. Business Objects, S.A., 331 F. Supp. 2d 396, 2004 U.S. Dist. LEXIS 18228 (E.D. Va. 2004), aff'd, 429 F.3d 1344, 2005 U.S. App. LEXIS 24774 (Fed. Cir. 2005).

Trade secrets owner was granted a permanent injunction against a foreign company where the foreign company may have had no recoverable domestic assets, a balancing of the equities strongly favored granting an injunction to foreclose the foreign company from benefitting from its misappropriation of the owner’s trade secrets, and the public interest was served by an injunction. E.I. Dupont De Nemours & Co. v. Kolon Indus., 894 F. Supp. 2d 691, 2012 U.S. Dist. LEXIS 123890 (E.D. Va. 2012).

Motion to dissolve injunction was granted. —

This section makes clear that the objectives of an injunction covering trade secrets will be when both the trade secrets cease to exist and any residual commercial advantage is eliminated; thus, when the company’s competitive recipe was no longer be considered a trade secret because it ceased to be economically valuable when the products and technology it references were outdated, and had not been available to the public for seven years, the injunction that prevented the competitor from using the recipe was dissolved. Microstrategy, Inc. v. Business Objects, S.A., 661 F. Supp. 2d 548, 2009 U.S. Dist. LEXIS 92595 (E.D. Va. 2009).

Motion to dissolve injunction was denied. —

Although defendants produced some evidence that pertained to economic value, it largely relied on argument concerning the age and staleness of the documents and in the absence of other evidence that the documents at issue would cease to be economically valuable or would become publicly available and considering that the injunction was only in place for nine months, the court could not find that the documents ceased to be trade secrets or that any commercial advantage dissipated such that the injunction should have been lifted. MicroStrategy, Inc. v. Business Objects, S.A., 369 F. Supp. 2d 725, 2005 U.S. Dist. LEXIS 8592 (E.D. Va.), aff'd, 429 F.3d 1344, 2005 U.S. App. LEXIS 24774 (Fed. Cir. 2005).

CIRCUIT COURT OPINIONS

Generally. —

Virginia Uniform Trade Secrets Act (VUTSA), § 59.1-336 et seq., does not prohibit mere maintenance of trade secrets initially acquired through proper means. Rather, the VUTSA prohibits acquisition by improper means of the trade secrets or the actual or threatened disclosure or use of them. Knowesis, Inc. v. Herrera, 103 Va. Cir. 175, 2019 Va. Cir. LEXIS 459 (Fairfax County Oct. 2, 2019).

§ 59.1-338. Damages.

  1. Except where the user of a misappropriated trade secret has made a material and prejudicial change in his position prior to having either knowledge or reason to know of the misappropriation and the court determines that a monetary recovery would be inequitable, a complainant is entitled to recover damages for misappropriation.  Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. If a complainant is unable to prove a greater amount of damages by other methods of measurement, the damages caused by misappropriation can be measured exclusively by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.
  2. If willful and malicious misappropriation exists, the court may award punitive damages in an amount not exceeding twice any award made under subsection A of this section, or $350,000 whichever amount is less.

History. 1986, c. 210; 1990, c. 344.

Law Review.

For annual survey of Virginia labor and employment law, see 40 U. Rich. L. Rev. 241 (2005).

CASE NOTES

Courts should be flexible. —

Each case under this Act is controlled by its own peculiar facts and circumstances. Courts should remain flexible and imaginative. American Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1994 U.S. Dist. LEXIS 12835 (E.D. Va. 1994) see also 867 F. Supp. 378 (E.D. Va. 1994).

CIRCUIT COURT OPINIONS

No exclusive dominion. —

Materials did not derive independent value and were largely available through the government, and thus plaintiff’s claim for misappropriation of trade secrets failed; many of the materials, regardless of how they were ultimately acquired, were developed in support of plaintiff’s prior government contract, thereby making them government property. As property not in plaintiff’s exclusive dominion, the materials remained readily ascertainable by proper means by other persons who could obtain economic value from their disclosure. Futrend Tech., Inc. v. MicroHealth LLC, 2020 Va. Cir. LEXIS 128 (Fairfax County Aug. 21, 2020).

Generally. —

Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., prohibits acquisition of trade secrets by improper means. It does not prohibit maintenance of those secrets after the initial proper acquisition unless one can prove an actual or threatened disclosure or use of those secrets. Knowesis, Inc. v. Herrera, 103 Va. Cir. 175, 2019 Va. Cir. LEXIS 459 (Fairfax County Oct. 2, 2019).

CASE NOTES

Defendant not insulated by profit lack. —

The lack of significant profits does not insulate defendant from being obliged to pay for what it has wrongfully obtained in the mistaken belief its theft would benefit it. American Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1994 U.S. Dist. LEXIS 12835 (E.D. Va. 1994) see also 867 F. Supp. 378 (E.D. Va. 1994).

Competition not necessary. —

In a suit brought by a former employer against a former employee and his new employers, the trial court erred by dismissing plaintiff’s claims under the Virginia Uniform Trade Secrets Act, § 59.1-336 et seq., because its ruling was based upon the faulty premise that competition must be shown under § 59.1-336 as use of the misappropriated trade secret to compete with the holder of the trade secret (plaintiff) was not required to show damages. Collelo v. Geographic Servs., 283 Va. 56 , 727 S.E.2d 55, 2012 Va. LEXIS 12 (2012).

Policy and procedure manuals as trade secrets. —

As the legal requirements of the Virginia Payday Loan Act, § 6.1-444 et seq. [now § 6.2-1800 et seq.], were vastly different from the detailed steps set forth in a payday lender’s policy and procedure manuals, and these materials were the subject of reasonable efforts to maintain their secrecy, they were protected trade secrets. Check 'n Go of Va., Inc. v. Laserre, No. 6:04-CV-00050, 2005 U.S. Dist. LEXIS 16591 (W.D. Va. Aug. 9, 2005).

Measurement of damages. —

This Act dictates that plaintiff’s loss plus defendant’s unjust enrichment is the appropriate damages measure unless it would provide an inadequate sum; otherwise it should be a reasonable royalty exclusively. American Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1994 U.S. Dist. LEXIS 12835 (E.D. Va. 1994) see also 867 F. Supp. 378 (E.D. Va. 1994).

Measurement of reasonable royalty. —

Reasonable royalty focuses on the approximation of the actual value of the infringed secret to the defendant, relying on the fiction that a license was to be granted at the time of beginning the infringement, and then determining what the license price should have been if both parties were reasonably trying to reach agreement. American Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1994 U.S. Dist. LEXIS 12835 (E.D. Va. 1994) see also 867 F. Supp. 378 (E.D. Va. 1994).

The simplest measure of reasonable royalty is the actual market value of what has been appropriated. American Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1994 U.S. Dist. LEXIS 12835 (E.D. Va. 1994) see also 867 F. Supp. 378 (E.D. Va. 1994).

No entitlement to royalty based on costs incurred by parent company. —

Though a payday lender proved that a competitor misappropriated its trade secrets, the lender was not entitled to a reasonable royalty because the cost to develop the policy and procedure manuals that made up the trade secrets was wholly incurred by the lender’s parent holding company, and the legal rights of parent and subsidiary corporations were separate. Check 'n Go of Va., Inc. v. Laserre, No. 6:04-CV-00050, 2005 U.S. Dist. LEXIS 16591 (W.D. Va. Aug. 9, 2005).

Punitive damages not favored. —

Virginia law does not favor punitive damages and reserves them for only the most egregious conduct. American Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1994 U.S. Dist. LEXIS 12835 (E.D. Va. 1994) see also 867 F. Supp. 378 (E.D. Va. 1994).

Punitive award denied. —

While defendant’s use of the list was reprehensible and illegal, it was not a serious breach of loyalty, and it did not seriously harm the plaintiff. His ultimate motive was to contact strong potential clients and develop his own business, not to ruin plaintiff’s. Plaintiff did not show that defendant acted with conscious disregard for plaintiffs rights, only that defendant acted with anger and used information it should not have. Therefore, the court could not find that defendant’s actions were willful and malicious and therefore denied plaintiff’s request for punitive damages. American Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1994 U.S. Dist. LEXIS 12835 (E.D. Va. 1994) see also 867 F. Supp. 378 (E.D. Va. 1994).

Attorney fees denied. —

District court did not abuse its discretion by holding that the plaintiff did not act in bad faith in pursuing its misappropriation of trade secrets claim against defendant, and therefore defendant was not entitled to attorney fees, even though the claim was not legally sufficient, because the plaintiff offered evidence that if credited could have substantiated the claim, the claim had survived extensive pretrial motions, and the district court had needed several weeks to evaluate the trial evidence fully. Young Design, Inc. v. Teletronics Int'l, Inc., 38 Fed. Appx. 994, 2002 U.S. App. LEXIS 14570 (4th Cir. 2002).

§ 59.1-338.1. Attorneys’ fees.

If the court determines that (i) a claim of misappropriation is made in bad faith, or (ii) willful and malicious misappropriation exists, the court may award reasonable attorneys’ fees to the prevailing party.

History. 1990, c. 344.

CASE NOTES

Trial and appellate fees included. —

When a party to a Virginia Trade Secrets Act case does not prevail and is found to have acted in bad faith, the prevailing part may recover counsel fees not only incurred at the trial level, but also those incurred in a successful defense of all or part of the trial court’s final judgment on appeal. Trident Perfusion Assocs. v. Lesnoff, 992 F. Supp. 829, 1998 U.S. Dist. LEXIS 1203 (W.D. Va. 1998).

Costs denied. —

Although attorney fees were warranted in a trade secret misappropriation case, the statute did not provide a valid basis for an award of non-taxable costs for the prevailing party. E.I. Dupont de Nemours & Co. v. Kolon Indus., 911 F. Supp. 2d 340, 2012 U.S. Dist. LEXIS 176909 (E.D. Va. 2012), vacated, No. 13-1054, No. 14-1266, 2014 U.S. App. LEXIS 24933 (4th Cir. June 12, 2014).

Attorney fees denied. —

The Virginia Uniform Trade Secrets Act did not authorize an award attorneys fees because the plaintiff only prevailed in part, and thus, the evidence was not sufficient to establish that the defendant’s misappropriation was willful and malicious. MicroStrategy, Inc. v. Business Objects, S.A., 331 F. Supp. 2d 396, 2004 U.S. Dist. LEXIS 18228 (E.D. Va. 2004), aff'd, 429 F.3d 1344, 2005 U.S. App. LEXIS 24774 (Fed. Cir. 2005).

Attorney fees awarded. —

Attorney fees were warranted because a trade secret owner presented overwhelming evidence of willful and malicious misappropriation of trade secrets, the appropriator engaged in obstreperous litigation tactics that unnecessarily multiplied the proceedings, the misappropriation involved in the case was flagrant, and the compensatory and punitive damages awarded and permanent injunction granted did not detract from the propriety of an award of attorneys’ fees. E.I. Dupont de Nemours & Co. v. Kolon Indus., 911 F. Supp. 2d 340, 2012 U.S. Dist. LEXIS 176909 (E.D. Va. 2012), vacated, No. 13-1054, No. 14-1266, 2014 U.S. App. LEXIS 24933 (4th Cir. June 12, 2014).

Attorneys’ fees erroneously awarded. —

Where parties to an employment contract agreed to submit the issue of an award of attorneys’ fees to be determined under the fee-shifting language of their contract, and that language expressly limited any action under the contract to one relating to their agreement and excluded an independent action such as one under the Uniform Trade Secrets Act, § 59.1-336 et seq., the trial court erred in determining that the employer was entitled to attorneys’ fees pursuant to the parties’ contract. Ulloa v. QSP, Inc., 271 Va. 72 , 624 S.E.2d 43, 2006 Va. LEXIS 21 (2006).

CIRCUIT COURT OPINIONS

Attorney fees denied. —

In an action for damages by a company against a former employee, a limited liability company, its members, and others, although the company was unable to sustain its burden of proof, there was no showing that the company acted in bad faith and, thus, the defendants were not entitled to attorney’s fees for their defense of a trade secrets claim. Tryco, Inc. v. United States Med. Source, 80 Va. Cir. 619, 2010 Va. Cir. LEXIS 91 (Fairfax County Aug. 3, 2010).

As defendant’s counterclaim alleging that plaintiffs misappropriated its trade secrets survived their motion to strike, it would be inappropriate to find that defendant engaged in bad faith in filing the claim within the meaning of § 59.1-338.1; accordingly, plaintiffs were not entitled to the attorney’s fees incurred in defending the claim. Bhagat v. Diamond Info. Sys., L.L.C., 84 Va. Cir. 233, 2012 Va. Cir. LEXIS 79 (Loudoun County Jan. 23, 2012).

§ 59.1-339. Preservation of secrecy.

In an action under this chapter, a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include:

  1. Granting protective orders in connection with discovery proceedings;
  2. Holding in-camera hearings;
  3. Sealing the records of the action; and
  4. Ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.

History. 1986, c. 210.

§ 59.1-340. Statute of limitations.

An action for misappropriation shall be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim.

History. 1986, c. 210.

Law Review.

For article, “The Case Against Federalizing Trade Secrets,” see 101 Va. L. Rev. 317 (2015).

CASE NOTES

Accrual of cause of action. —

Plaintiff filed its copyright infringement and misappropriation of trade secrets claims well within the three year statute of limitations requirement, because its case rested on defendant’s bid which advertised defendant’s extensive experience working with plaintiff’s products and tools. Although defendant claimed that plaintiff’s case fell outside the statute of limitations because one of the contracts between the parties was more than three years ago, the misappropriation of trade secrets did not occur until the year that plaintiff filed suit. Datatel, Inc. v. Rose & Tuck, LLC, No. 05-495, 2005 U.S. Dist. LEXIS 29704 (E.D. Va. June 17, 2005).

Trade secrets claim was untimely because the alleged misappropriation could have been discovered earlier. Even if the claimant did not know that a former employee had disclosed supplier contact information that was one of its trade secrets, it knew that another company had acquired the information, and it could have taken reasonable steps to learn how that happened. Thousand Oaks Barrel Co., LLC v. Deep South Barrels LLC, 241 F. Supp. 3d 708, 2017 U.S. Dist. LEXIS 40011 (E.D. Va. 2017).

§ 59.1-341. Effect on other law.

  1. Except as provided in subsection B of this section, this chapter displaces conflicting tort, restitutionary, and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret.
  2. This chapter does not affect:
    1. Contractual remedies whether or not based upon misappropriation of a trade secret; or
    2. Other civil remedies that are not based upon misappropriation of a trade secret; or
    3. Criminal remedies, whether or not based upon misappropriation of a trade secret.

History. 1986, c. 210.

CASE NOTES

Purpose of section. —

The plain language of this preemption provision indicates that the law was intended to prevent inconsistent theories of relief for the same underlying harm by eliminating alternative theories of common-law recovery which are premised on the misappropriation of a trade secret. Smithfield Ham & Prods. Co. v. Portion Pac, Inc., 905 F. Supp. 346, 1995 U.S. Dist. LEXIS 17891 (E.D. Va. 1995).

No preemption of alternative claims not based on trade secrets. —

Unless it can be clearly discerned that the information in question constitutes a trade secret, a court cannot dismiss alternative theories of relief as preempted by the Virginia Uniform Trade Secrets Act; thus, where the parties dispute whether allegedly misappropriated confidential information constituted trade secrets, a court will not find alternative claims preempted by the act. Stone Castle Fin., Inc. v. Friedman, Billings, Ramsey & Co., 191 F. Supp. 2d 652, 2002 U.S. Dist. LEXIS 3764 (E.D. Va. 2002).

Insurance company’s claims against a former regional manager for tortious interference with contractual and/or prospective business relations and breach of fiduciary duties were not preempted by § 59.1-341 because the claims for tortious interference and breach of fiduciary duties were not entirely dependent on the manager’s alleged misappropriation of trade secrets. The claims for tortious interference and breach of fiduciary duties were based, in part, on the allegation that the manager solicited the manager’s coworkers to leave the insurance company to work for a competitor, and the insurance company did not allege that the identities of the coworkers were uncovered solely through the misappropriation of trade secrets. Combined Ins. Co. of Am. v. Wiest, 578 F. Supp. 2d 822, 2008 U.S. Dist. LEXIS 61436 (W.D. Va. 2008).

Virginia Uniform Trade Secrets Act did not preempt plaintiff’s conspiracy and other tort claims because those claims were not predicated entirely upon defendant’s alleged misappropriation of trade secrets. E.I. Dupont De Nemours & Co. v. Kolon Indus., 688 F. Supp. 2d 443, 2009 U.S. Dist. LEXIS 76795 (E.D. Va. 2009), .

Because the doctrine of respondeat superior does not conflict with the Virginia Uniform Trade Secrets Act in any sense of the word, the preemption provision has no bearing upon a claim seeking to impose liability under that doctrine. Newport News Indus. v. Dynamic Testing, 130 F. Supp. 2d 745, 2001 U.S. Dist. LEXIS 1080 (E.D. Va. 2001).

Breach of fiduciary duty claim was preempted. —

Internet payment processing and billing services company’s counterclaim for breach of fiduciary duty was dismissed where it was based on a computer design company’s alleged misappropriation of trade secrets in hardware, software, and documents and as such, the counterclaim was displaced by the Virginia Uniform Trade Secrets Act, § 59.1-336 et seq. S&S Computers & Design, Inc. v. Paycom Billing Servs., No. 5:00-CV-00058, 2001 U.S. Dist. LEXIS 25874 (W.D. Va. Apr. 5, 2001).

Dismissal based on preemption. —

Defendant’s business conspiracy and common-law conspiracy claims would not be dismissed because applying the Virginia Uniform Trade Secrets Act’s preemption provision would be premature as the court could not conclusively determine whether the information was a trade secret without the benefit of a factual record, and the court declined to enlarge the reach of Uniform Trade Secrets Act’s statutory preemption to include confidential business information. Microstrategy Servs. Corp. v. OpenRisk, LLC, No. 1:14cv1244, 2015 U.S. Dist. LEXIS 32719 (E.D. Va. Mar. 17, 2015), dismissed in part, No. 1:14cv1244, 2015 U.S. Dist. LEXIS 59347 (E.D. Va. May 6, 2015).

CIRCUIT COURT OPINIONS

Arbitration. —

Parties could agree to submit a trade secret dispute to arbitration without violating the Uniform Trade Secrets Act. Joyner's Mech., Inc. v. Miller, 85 Va. Cir. 80, 2012 Va. Cir. LEXIS 166 (Chesapeake May 24, 2012).

No preemption under Virginia Uniform Trade Secrets Act. —

Plaintiffs’ allegations were not premised entirely on a claim for the misappropriation of a trade secret, it was merely a component of the conspiracy, and thus plaintiffs’ claims were not preempted under the Virginia Uniform Trade Secrets Act; although the plaintiffs cited the misappropriation of trade secrets, their claims were not wholly reliant thereon and the demurrer was consequently overruled. Rogers Elec. of Va., Ltd. v. Sims, 93 Va. Cir. 484, 2015 Va. Cir. LEXIS 239 (Chesapeake Feb. 13, 2015).

Count did not simply allege the removal of trade secrets, it always alleged the erasure of unspecified computer data; plaintiffs’ claims were not wholly reliant on the misappropriation and thus the claims were not preempted under the Virginia Uniform Trade Secrets Act, and the demurrer was overruled. Rogers Elec. of Va., Ltd. v. Sims, 93 Va. Cir. 484, 2015 Va. Cir. LEXIS 239 (Chesapeake Feb. 13, 2015).

Tortious interference alleged was not solely based upon the misappropriation of customers, but rather a coordinated effort to solicit customers, establish a competing entity, and so forth; plaintiffs’ claims were not wholly reliant on the misappropriation and thus the claims were not preempted under the Virginia Uniform Trade Secrets Act, and the demurrer was overruled. Rogers Elec. of Va., Ltd. v. Sims, 93 Va. Cir. 484, 2015 Va. Cir. LEXIS 239 (Chesapeake Feb. 13, 2015).

§ 59.1-342. Repealed by Acts 2015, c. 709, cl. 2.

Editor’s note.

Former § 59.1-342, pertaining to severability, derived from 1986, c. 210.

§ 59.1-343. Time of taking effect.

This chapter shall become effective on July 1, 1986, and shall not apply to misappropriation occurring prior to the effective date. With respect to a continuing misappropriation that began prior to the effective date, the chapter also shall not apply to misappropriation that occurs after the effective date.

History. 1986, c. 210.

Chapter 27. Farm Machinery Dealerships.

§§ 59.1-344 through 59.1-352.

Repealed by Acts 2002, c. 898, effective July 1, 2002.

Cross references.

For the Equipment Dealers Protection Act, see now §§ 59.1-352.1 et seq.

Chapter 27.1. Equipment Dealers Protection Act.

§ 59.1-352.1. Definitions.

As used in this chapter, unless the context requires otherwise:

“Agreement” means a written or oral contract or agreement between a dealer and a wholesaler, manufacturer, or distributor by which the dealer is granted one or more of the following rights:

  1. To sell or distribute goods or services.
  2. To use a trade name, trademark, service mark, logo type, or advertising or other commercial symbol.“Current model” means a model listed in the wholesaler’s, manufacturer’s, or distributor’s current sales manual or any supplements.“Current net price” means the price listed in the supplier’s price list or catalog in effect at the time the agreement is terminated, less any applicable discounts allowed.“Dealer” means a person engaged in the business of selling at retail farm, construction, utility or industrial equipment, implements, machinery, attachments, outdoor power equipment, or repair parts.“Family member” means a spouse, brother, sister, parent, grandparent, child, grandchild, mother-in-law, father-in-law, daughter-in-law, son-in-law, stepparent, or stepchild, or a lineal descendant of the dealer or principal owner of the dealership.“Good cause” means failure by a dealer to comply with requirements imposed upon the dealer by the agreement if the requirements are not different from those imposed on other dealers similarly situated in this Commonwealth. In addition, good cause exists in any of the following circumstances:
  3. Default by the dealer under a chattel mortgage or other security agreement between the dealer and the supplier or a revocation or discontinuance of a guarantee of a present or future obligation of the retailer to the supplier.
  4. Closeout or sale of a substantial part of the dealer’s business related to the handling of goods; the commencement or dissolution or liquidation of the dealer if the dealer is a partnership or corporation; or a change, without the prior written approval of the supplier, which shall not be unreasonably withheld, in the location of the dealer’s principal place of business or additional locations set forth in the agreement.
  5. Withdrawal of an individual proprietor, partner, major shareholder, or manager of the dealership, or a substantial reduction in interest of a partner or major shareholder, without the prior written consent of the supplier.
  6. Revocation or discontinuance of any guarantee of the dealer’s present or future obligations to the supplier.
  7. The dealer has failed to operate in the normal course of business for seven consecutive business days or has otherwise abandoned the business.
  8. The dealer has pleaded guilty to or has been convicted of a felony affecting the relationship between the dealer and the supplier.
  9. The dealer transfers an interest in the dealership, or a person with a substantial interest in the ownership or control of the dealership, including an individual proprietor, partner, or major shareholder, withdraws from the dealership or dies, or a substantial reduction occurs in the interest of a partner or major shareholder in the dealership.“Inventory” means farm implements and machinery, construction, utility and industrial equipment, consumer products, outdoor power equipment, attachments, or repair parts.“Net cost” means the price the dealer paid the supplier for the inventory, less all applicable discounts allowed, plus the amount the dealer paid for freight costs from the supplier’s location to the dealer’s location, plus reasonable cost of assembly or disassembly performed by the dealer.“Superseded part” means any part that will provide the same function as a currently available part as of the date of cancellation.“Supplier” means a wholesaler, manufacturer, distributor, or any purchaser of assets or stock of any surviving corporation resulting from a merger or liquidation, any receiver or assignee, or any trustee of the original manufacturer, wholesaler, or distributor who enters into an agreement with a dealer.“Termination” of an agreement means the termination, cancellation, nonrenewal, or noncontinuance of the agreement.

1. A petition under bankruptcy or receivership law has been filed against the dealer.

2. The dealer has made an intentional misrepresentation with the intent to defraud the supplier.

History. 2002, c. 898.

§ 59.1-352.2. Usage of trade.

The terms “utility” and “industrial,” when used to refer to equipment, implements, machinery, attachments, or repair parts, shall have the meaning commonly used and understood among dealers and suppliers of farm equipment as a usage of trade in accordance with § 8.1A-303(c) .

History. 2002, c. 898; 2003, c. 353.

The 2003 amendments.

The 2003 amendment by c. 353 substituted “8.1A-303(c)” for “paragraph 2 of § 8.1-205.”

§ 59.1-352.3. Notice of termination of agreements.

  1. No supplier, directly or through an officer, agent, or employee, may terminate, cancel, fail to renew, or substantially change the competitive circumstances of an agreement without good cause.
  2. Notwithstanding any agreement to the contrary, a dealer who terminates an agreement with a supplier shall notify the supplier of the termination not less than 90 days prior to the effective date of the termination.
  3. A supplier shall provide a dealer with at least 90 days’ written notice of termination of the agreement and a 60-day right to cure the deficiency. If the deficiency is cured within the allotted time, the notice is void. In the case where cancellation of an agreement is based upon the dealer’s failure to capture the share of the market required in the agreement, a minimum 12-month period of time shall have existed where the supplier has worked with the dealer to gain the desired market share. The notice shall state all reasons constituting good cause.
  4. Notification under this section shall be in writing and shall be by certified mail or personally delivered to the recipient. It shall contain all of the following:
    1. A statement of intention to terminate the dealership;
    2. A statement of the reasons for the termination; and
    3. The date on which the termination takes effect.
  5. The notice and right to cure is not required if the reason for termination, cancellation or nonrenewal is for good cause, as defined in § 59.1-352.1.

History. 2002, c. 898; 2003, c. 797.

The 2003 amendments.

The 2003 amendment by c. 797 substituted “90” for “ninety”” in subsections B and C, substituted “60-day” for “sixty-day” and “12-month” for “twelve-month” in subsection C, and added subsection E.

§ 59.1-352.4. Supplier’s duty to repurchase.

  1. Whenever a dealer enters into an agreement evidenced by a written or oral contract in which the dealer agrees to maintain an inventory, and the agreement is terminated by either party, the supplier shall repurchase the dealer’s inventory as provided in this chapter unless the dealer chooses to keep the inventory. If the dealer has any outstanding debts to the supplier, then the repurchase amount may be set off or credited to the retailer’s account.
  2. Whenever a dealer enters into an agreement in which the dealer agrees to maintain an inventory, and the dealer, or the majority stockholder of the dealer if the dealer is a corporation, dies or becomes incompetent, the supplier shall, at the option of the heir, personal representative, or guardian of the dealer, or the person who succeeds to the stock of the majority stockholder, repurchase the inventory as if the agreement had been terminated. The heir, personal representative, guardian, or succeeding stockholder has one year from the date of the death of the dealer or majority stockholder to exercise the option under this chapter.

History. 2002, c. 898.

§ 59.1-352.5. Repurchase terms.

  1. The supplier shall repurchase from the dealer within ninety days after termination of the agreement all inventory previously purchased from the supplier that remains unsold on the date of termination of the agreement.
  2. The supplier shall pay the dealer:
    1. One hundred percent of the current net price of all new, unused, unsold, undamaged, and complete farm, construction, utility, and industrial equipment, implements, machinery, outdoor power equipment, and attachments.
    2. Ninety percent of the current net price of all new, unused, and undamaged repair and superseded parts.
    3. Seventy-five percent of the net cost of all specialized repair tools purchased in the previous three years and fifty percent of the net cost of all specialized repair tools purchased in the previous four through six years pursuant to the requirements of the supplier and held by the dealer on the date of termination. Such specialized repair tools shall be unique to the supplier’s product line and shall be in complete and resalable condition. Farm implements, machinery, utility and industrial equipment, and outdoor power equipment used in demonstrations, including equipment leased primarily for demonstration or lease, shall also be subject to repurchase under this section at its agreed depreciated value, provided the equipment is in new condition and has not been damaged.
    4. At its amortized value, the price of any specific data processing hardware and software and telecommunications equipment that the supplier required the dealer to purchase within the past five years.
  3. The supplier shall pay the cost of shipping the inventory from the dealer’s location and shall pay the dealer ten percent of the current net price of all new, unused, undamaged repair parts returned, to cover the cost of handling, packing, and loading. The supplier may perform the handling, packing, and loading instead of paying the ten percent for the services. The dealer and the supplier may each furnish a representative to inspect all parts and certify their acceptability when packed for shipment.
  4. The supplier shall pay the full repurchase amount to the dealer not later than thirty days after receipt of the inventory. If the dealer has any outstanding debts to the supplier, then the repurchase amount may be credited to the dealer’s account.
  5. Upon payment of the repurchase amount to the dealer, the title and right of possession to the repurchased inventory shall transfer to the supplier. Annually, at the end of each calendar year, or after termination or cancellation of the agreement, the dealer’s reserve account for recourse, retail sale, or lease contracts shall not be debited by a supplier or lender for any deficiency unless the dealer or the heirs of the dealer have been given at least seven business days’ notice by certified or registered United States mail, return receipt requested, of any proposed sale of the equipment financed and an opportunity to purchase the equipment. The former dealer or the heirs of the dealer shall be given quarterly status reports on any remaining outstanding recourse contracts. As the recourse contracts are reduced, any reserve account funds shall be returned to the dealer or the heirs of the dealer in direct proportion to the liabilities outstanding.
  6. In the event of the death of the dealer or the majority stockholder of a corporation operating as a dealer, the supplier shall, at the option of the heir, repurchase the inventory from the heir of the dealer or majority stockholder as if the supplier had terminated the agreement. The heir shall have one year from the date of the death of the dealer or majority stockholder to exercise the heir’s options under this section. Nothing in this section shall require the repurchase of any inventory if the heir and the supplier enter into a new agreement to operate the retail dealership.
  7. A supplier shall have ninety days in which to consider and make a determination upon a request by a family member to enter into a new agreement to operate the dealership. In the event the supplier determines that the requesting family member is not acceptable, the supplier shall provide the family member with a written notice of its determination with the stated reasons for nonacceptance. This section does not entitle an heir, personal representative, or family member to operate a dealership without the specific written consent of the supplier.
  8. Notwithstanding the provisions of this section, in the event that a supplier and a dealer have executed an agreement concerning succession rights prior to the dealer’s death, and if the agreement has not been revoked, that agreement shall be enforced even if it designates someone other than the surviving spouse or heir of the decedent as the successor.

History. 2002, c. 898.

§ 59.1-352.6. Exceptions to repurchase requirement.

This chapter does not require the repurchase from a dealer of:

  1. A repair part with a limited storage life or otherwise subject to deterioration, such as gaskets or batteries, except for industrial “press on” or industrial pneumatic tires.
  2. A single repair part that is priced as a set of two or more items.
  3. A repair part that, because of its condition, is not resalable as a new part without repackaging or reconditioning.
  4. Any repair part that is not in new, unused, undamaged condition.
  5. An item of inventory for which the dealer does not have title free of all claims, liens, and encumbrances other than those of the supplier.
  6. Any inventory that the dealer chooses to keep.
  7. Any inventory that was ordered by the dealer after either party’s receipt of notice of termination of the franchise agreement.
  8. Any farm implements and machinery, construction, utility and industrial equipment, outdoor power equipment, and attachments that are not current models or that are not in new, unused, undamaged, complete condition, provided that the equipment used in demonstrations or leased, as provided in § 59.1-352.5, shall be considered new and unused.
  9. Any farm implements and machinery, construction, utility and industrial equipment, outdoor power equipment, and attachments that were purchased more than thirty-six months prior to notice of termination of the agreement.
  10. Any inventory that was acquired by the dealer from a source other than the supplier.

History. 2002, c. 898.

§ 59.1-352.7. Uniform commercial practice.

  1. This chapter does not affect a security interest of the supplier in the inventory of the dealer.
  2. The dealer and supplier shall furnish representatives to inspect all parts and certify their acceptability when packed for shipment. Failure of the supplier to provide a representative within sixty days shall result in automatic acceptance by the supplier of all returned items.

History. 2002, c. 898; 2011, c. 369.

The 2011 amendments.

The 2011 amendment by c. 369 deleted former subsection B, which read: “A repurchase of inventory under this chapter shall not be subject to the bulk sales provisions of Title 8.6A. (§ 8.6A-101 et seq.) of the Uniform Commercial Code.”; and redesignated former subsection C as subsection B.

§ 59.1-352.8. Warranty obligations.

  1. Whenever a supplier and a dealer enter into an agreement, the supplier shall pay any warranty claim made by the dealer for warranty parts or service within thirty days after its approval. The supplier shall approve or disapprove a warranty claim within thirty days after its receipt. If a claim is disapproved, the manufacturer, wholesaler, or distributor shall notify the dealer within thirty days stating the specific grounds upon which the disapproval is based. If a claim is not specifically disapproved in writing within thirty days after its receipt, it is approved and payment must follow within thirty days.
  2. Whenever a supplier and a dealer enter into an agreement, the supplier shall indemnify and hold harmless the dealer against any judgment for damages or any settlement agreed to by the supplier, including court costs and a reasonable attorney’s fee, arising out of a complaint, claim, or lawsuit including negligence, strict liability, misrepresentation, breach of warranty, or rescission of the sale, to the extent the judgment or settlement relates to the manufacture, assembly, or design of inventory, or other conduct of the supplier beyond the dealer’s control.
  3. If, after termination of an agreement, the dealer submits a claim to the manufacturer, wholesaler, or distributor for warranty work performed prior to the effective date of the termination, the manufacturer, wholesaler, or distributor shall accept or reject the claim within thirty days of receipt.
  4. If a claim is not paid within the time allowed under this section, interest shall accrue at the maximum lawful interest rate.
  5. Warranty work performed by the dealer shall be compensated in accordance with the reasonable and customary amount of time required to complete the work, expressed in hours and fractions thereof. The cost of the work shall be computed by multiplying the time required to complete the work by the dealer’s established customer hourly retail labor rate. The dealer shall inform the manufacturer, wholesaler, or distributor for whom the dealer is performing warranty work of the dealer’s established customer hourly retail labor rate before the dealer performs any work.
  6. Expenses expressly excluded under the warranty of the manufacturer, wholesaler, or distributor to the customer shall neither be included nor required to be paid for warranty work performed, even if the dealer requests compensation for the work performed.
  7. The dealer shall be paid for all parts used by the dealer in performing warranty work. Payment shall be in an amount equal to the dealer’s net price for the parts, plus a minimum of fifteen percent.
  8. The manufacturer, wholesaler, or distributor has a right to adjust compensation for errors discovered during an audit and, if necessary, to adjust claims paid in error.
  9. The dealer shall have the right to accept the reimbursement terms and conditions of the manufacturer, wholesaler, or distributor in lieu of the terms and conditions of this section.

History. 2002, c. 898.

§ 59.1-352.9. Prohibited acts.

No supplier shall do any of the following:

  1. Coerce any dealer to accept delivery of equipment, parts, or accessories that the dealer has not ordered voluntarily, except as required by any applicable law, or unless the parts or accessories are safety parts or accessories required by the supplier.
  2. Condition the sale of additional equipment to a dealer upon a requirement that the dealer also purchase other goods or services, except that a supplier may require the dealer to purchase those parts reasonably necessary to maintain the quality of operation in the field of the equipment used in the trade area.
  3. Coerce a dealer into refusing to purchase equipment manufactured by another supplier.
  4. Terminate, cancel, or fail to renew or substantially change the competitive circumstances of the retail agreement based on the results of any circumstance beyond the dealer’s control, including a natural disaster such as a sustained drought, high unemployment in the dealership market area, or a labor dispute.

History. 2002, c. 898.

§ 59.1-352.10. Failure to repurchase; civil remedy.

  1. If a supplier fails or refuses to repurchase any inventory covered under the provisions of this chapter within the time periods established in § 59.1-352.5, the supplier shall be civilly liable for one hundred percent of the current net price of the inventory, any freight charges paid by the dealer, the dealer’s reasonable attorney’s fee and court costs, and interest on the current net price of the inventory computed at the legal rate of interest from the ninety-first day after termination of the agreement.
  2. Notwithstanding any agreement to the contrary, and in addition to any other legal remedies available, any person who suffers monetary loss due to a violation of this chapter or because he refuses to accede to a proposal for an arrangement that, if consummated, is in violation of this chapter, may bring a civil action to enjoin further violations and to recover damages sustained by him together with the costs of the suit, including a reasonable attorney’s fee.
  3. The provisions of §§ 59.1-352.3 through 59.1-352.8 shall not be waivable in any contract or agreement, and any such attempted waiver shall be null and void.
  4. A civil action commenced under the provisions of this chapter shall be brought within four years after the violation complained of is or reasonably should have been discovered, whichever occurs first.

History. 2002, c. 898.

Chapter 28. Heavy Equipment Dealer Act.

§ 59.1-353. Chapter title; definitions.

This chapter may be cited as the “Heavy Equipment Dealer Act.” As used in this chapter unless the context requires otherwise:

“Agreement” means a commercial relationship, not required to be evidenced in writing, of definite or indefinite duration, between a supplier and a dealer pursuant to which the dealer has been authorized to distribute one or more of the supplier’s heavy equipment products, and attachments and repair parts therefor, and in connection therewith to use a trade name, trademark, service mark, logo type, or advertising or other commercial symbol.

“Dealer” means a person in Virginia (i) engaged in the business of selling or leasing heavy equipment at retail, (ii) who customarily maintains a total inventory, valued at over $250,000, of new heavy equipment and attachments and repair parts therefor, and (iii) who provides repair services for the heavy equipment sold.

“Heavy equipment” means self-propelled, self-powered or pull-type equipment and machinery, including engines, weighing 5000 pounds or more, primarily employed for construction, industrial, maritime, mining and forestry uses, as such terms are commonly used and understood as a usage of trade in accordance with § 8.1A-303(c) . The term “heavy equipment” shall not include (i) motor vehicles requiring registration and certificates of title in accordance with § 46.2-600 , (ii) farm machinery, equipment and implements sold or leased pursuant to dealer agreements with suppliers subject to the provisions of Chapter 27.1 (§ 59.1-352.1 et seq.) of this title, or (iii) equipment that is “consumer goods” within the meaning of § 8.9A-102 .

“Person” means a natural person, corporation, partnership, trust, agency or other entity as well as the individual officers, directors or other persons in active control of the activities of each such entity. “Person” also includes heirs, assigns, personal representatives, guardians and conservators.

“Supplier” means every person, including any agent of such person, or any authorized broker acting on behalf of that person, that enters into an “agreement” with a dealer.

History. 1988, c. 73; 1997, c. 801; 2002, c. 898; 2003, c. 353.

Editor’s note.

Acts 1997, c. 801, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 1998. The powers granted and duties imposed pursuant to this act shall apply prospectively to guardians and conservators appointed by court order entered on or after that date, or modified on or after that date if the court so directs, without regard to when the petition was filed. The procedures specified in this act governing proceedings for appointment of a guardian or conservator or termination or other modification of a guardianship shall apply on and after that date without regard to when the petition therefor was filed or the guardianship or conservatorship created.”

The 2002 amendments.

The 2002 amendment by c. 898 substituted “Chapter 27.1 (§ 59.1-352.1 et seq.” for “Chapter 27 (§ 59.1-344 et seq.” in the definition of “Heavy equipment.”

The 2003 amendments.

The 2003 amendment by c. 353 substituted “8.1A-303(c)” for “8.1-205 (2)” in the definition of “Heavy equipment.”

Law Review.

For article, “Antitrust and Trade Regulation,” see 35 U. Rich. L. Rev. 453 (2001).

CASE NOTES

“Dealer.” —

Additional evidence was required to determine whether or not the company was a dealer at the time that the agreement between the company and the manufacturer was terminated so that the terms and conditions of the Virginia Heavy Equipment Dealer Act would apply. Such evidence could include the inventory kept by the company on a monthly or quarterly basis or by evaluating the total inventory kept by the company during the years immediately preceding the date of the agreement. Atl. Mach. & Equip., Inc. v. Tigercat Indus., 419 F. Supp. 2d 856, 2006 U.S. Dist. LEXIS 10284 (E.D. Va. 2006).

Franchisee was a “dealer” within the meaning of the Virginia Heavy Equipment Dealer Act where record evidence established that its total inventory of new equipment and parts for all lines of heavy equipment on the last day of each month during the term of the parties’ agreement exceeded the $250,000 statutory threshold as the inventory exceeded $500,000 for 25 months and it exceeded one million dollars for four months. Atl. Mach. & Equip., Inc. v. Tigercat Indus., 427 F. Supp. 2d 657, 2006 U.S. Dist. LEXIS 28561 (E.D. Va. 2006).

“Total inventory.” —

As used in the Virginia Heavy Equipment Dealer Act, “total inventory” means inventory kept by a company from all suppliers. Atl. Mach. & Equip., Inc. v. Tigercat Indus., 419 F. Supp. 2d 856, 2006 U.S. Dist. LEXIS 10284 (E.D. Va. 2006).

“Customarily.” —

In the context of the Virginia Heavy Equipment Dealer Act, the statutory requirement that a dealer “customarily” maintain a total inventory of $250,000 or more requires that the dealer have $250,000 of inventory on hand or in stock on a regular basis from all sources. Atl. Mach. & Equip., Inc. v. Tigercat Indus., 419 F. Supp. 2d 856, 2006 U.S. Dist. LEXIS 10284 (E.D. Va. 2006).

§ 59.1-354. Cancellation.

  1. Notwithstanding the terms, provisions or conditions of any agreement, no supplier shall unilaterally amend, cancel, terminate or refuse to continue to renew any agreement, or unilaterally cause a dealer to resign from an agreement, unless the supplier has first complied with the provisions of § 59.1-355, and good cause exists for amendment, termination, cancellation, nonrenewal, noncontinuance or causing a resignation. “Good cause” shall not include the sale or purchase of a supplier. “Good cause” shall be limited to withdrawal by the supplier, its successors and assigns, of the sale of its products in Virginia, or dealer performance deficiencies including, but not limited to, the following:
    1. Bankruptcy or receivership of the dealer;
    2. Assignment for the benefit of creditors or similar disposition of the assets of the dealer, other than the creation of a security interest in the assets of a dealer for the purpose of securing financing in the ordinary course of business; or
    3. Failure by the dealer to substantially comply, without reasonable cause or justification, with any reasonable and material requirement imposed upon him in writing by the supplier including, but not limited to, a substantial failure by a dealer to (i) maintain a sales volume or trend of his supplier’s product line or lines comparable to that of other similarly situated dealers of that product line, or (ii) render services comparable in quality, quantity or volume to the services rendered by other dealers of the same product or product line similarly situated.In any determination as to whether a dealer has failed to substantially comply, without reasonable excuse or justification, with any reasonable and material requirement imposed upon him by the supplier, consideration shall be given to the relative size, population, geographical location, number of retail outlets and demand for the products applicable to the market area of the dealer in question and to comparable market area.
  2. No supplier shall be required to give notice or show good cause pursuant to subsection A of this section to unilaterally amend agreements with dealers to comply with federal or state law or, where not inconsistent with this chapter, to uniformly amend agreements as to all dealers of the supplier in question in all states in which the supplier is marketing its products.
  3. In any dispute as to whether a supplier has acted with good cause as required by this section the supplier shall have the burden of proof to establish that good cause existed.

History. 1988, c. 73.

§ 59.1-355. Notice of intent to terminate.

  1. Except as provided in subsection D of this section, a supplier shall provide a dealer at least 120 days’ prior written notice of any intention to amend, terminate, cancel or not renew any agreement. The notice shall state all the reasons for the intended amendment, termination, cancellation or nonrenewal.
  2. Where such reason or reasons relate to a condition or conditions which may be rectified by action of the dealer, he shall have seventy-five days in which to take such action and, within such seventy-five-day period, shall give written notice to the supplier if and when such action is taken. If such condition or conditions have been rectified by action of the dealer, then the proposed amendment, termination, cancellation or nonrenewal shall be void and without legal effect. However, where the supplier contends that action on the part of the dealer has not rectified one or more of such conditions, such supplier must give written notice thereof to the dealer within fifteen days after the dealer gave notice to the supplier of the action taken.
  3. During the 120-day notice period provided for in subsection A the dealer shall have the right to contract for a transfer of his business to another person who meets the material and reasonable qualifications and standards required by the supplier of its dealers. The dealer shall give notice of any such transfer to the supplier at least forty-five days prior to the expiration of the 120-day notice period.
  4. No notice shall be required and an agreement may be immediately terminated, amended, canceled or allowed to expire if the reason for the amendment, termination, cancellation or nonrenewal is:
    1. The bankruptcy or receivership of the dealer;
    2. An assignment for the benefit of the creditors or similar disposition of the assets of the business, other than the creation of a security interest in the assets of a dealer for the purpose of securing financing in the ordinary course of business;
    3. Willful or intentional misrepresentation made by the dealer with the express intent to defraud the supplier;
    4. Failure of the dealer to conduct its customary sales and service operations during its customary business hours for seven consecutive business days, unless such failure has resulted from acts of God, casualties, strikes, or other similar circumstances beyond the dealer’s reasonable control;
    5. Failure to pay any undisputed amount due the supplier continuing for thirty days after written notice thereof; or
    6. A final conviction of the dealer of a felony.

History. 1988, c. 73.

CASE NOTES

Timeliness of cancellation notice. —

Notice of cancellation of a franchise agreement for heavy equipment did not comply with the requirements of the Virginia Heavy Equipment Dealer Act, because the franchisor gave the franchisee 60 days written notice of termination, rather than the required 120 days notice. Atl. Mach. & Equip., Inc. v. Tigercat Indus., 427 F. Supp. 2d 657, 2006 U.S. Dist. LEXIS 28561 (E.D. Va. 2006).

§ 59.1-356. Transfer of business.

  1. No supplier shall unreasonably withhold or delay consent to any transfer of the dealer’s business or transfer of the stock or other interest in the dealership, whenever the dealer to be substituted meets the material and reasonable qualifications and standards required of its dealers. Should a supplier determine that a proposed transferee does not meet its qualifications and standards, it shall give the dealer written notice thereof, stating the specific reasons for withholding consent. No prospective transferee shall be disqualified to be a dealer because it is a publicly held corporation. A supplier shall have forty-five days to consider a dealer’s request to make a transfer under this subsection.
  2. Notwithstanding any provision in subsection A of this section, no supplier shall withhold consent to, or in any manner retain a right of prior approval of, the transfer of the dealer’s business to a member or members of the family of the dealer or the principal owner of the dealer. As used in this subsection, “family” means and includes the spouse, parent, siblings, children, stepchildren and lineal descendants, including those by adoption of the dealer or principal owner of the dealer.
  3. Whenever a transfer of a dealer’s business occurs, the transferee shall assume all the obligations imposed on and succeed to all the rights held by the selling dealer by virtue of any agreement, consistent with this chapter, between the selling dealer and one or more suppliers entered into prior to the transfer.
  4. In any dispute as to whether a supplier has denied consent in violation of this section, the supplier shall have the burden of proving a substantial and reasonable justification for the denial of consent.

History. 1988, c. 73.

§ 59.1-357. Notices.

Notices required by this chapter shall be sent by certified or registered mail, postage prepaid.

History. 1988, c. 73.

§ 59.1-358. Remedies.

  1. Jurisdiction to hear and determine cases and controversies arising under provisions of this chapter shall be in the circuit court of the city or county wherein the dealer has its principal place of business in Virginia. The court may grant equitable relief as is necessary to remedy the effects of conduct which it finds to exist and which is prohibited under this chapter, including, but not limited to, declaratory judgment and injunctive relief.
  2. In addition to any other remedies available at law or in equity, if a supplier has attempted or accomplished an annulment, cancellation, termination or refused to continue or renew an agreement without good cause or withheld or delayed consent in violation of § 59.1-354 or § 59.1-356, then the dealer shall be entitled to recover losses and damages, both general and special, proximately resulting therefrom, together with the cost of the action and reasonable legal fees. Such damages shall include compensation for the value of the agreement and the good will of the dealer’s business, if any, arising therefrom.
  3. Nothing contained herein shall bar the right of an agreement to provide for binding arbitration of disputes. Any such arbitration shall be consistent with the provisions of this chapter and Chapter 21 (§ 8.01-577 et seq.) of Title 8.01, and the place of any such arbitration shall be in the city or county in which the dealer maintains his principal place of business in Virginia.
  4. No supplier may cancel, terminate or refuse to continue to renew an agreement during the 120-day period set forth in § 59.1-355 or during the pendency of litigation or arbitration with respect thereto except under the conditions set forth in subsection D of § 59.1-355.

History. 1988, c. 73.

§ 59.1-359. Management.

No supplier shall require or prohibit any change in management or personnel of any dealer unless the current or potential management or personnel fails to meet reasonable qualifications and standards required by the supplier for its dealers.

History. 1988, c. 73.

§ 59.1-360. Waiver of chapter void.

The provisions of this chapter shall be deemed to be incorporated in every agreement subject hereto and shall supersede and control all other provisions of the agreement inconsistent herewith. No supplier shall require any dealer to waive compliance with any provision of this chapter. Any contract or agreement purporting to do so is void and unenforceable to the extent of the waiver or variance. Nothing in this chapter shall be construed to limit or prohibit good faith settlements of disputes voluntarily entered into between the parties.

History. 1988, c. 73.

§ 59.1-361. Applicability.

This chapter shall apply to agreements in effect as of January 1, 1988. In addition, the chapter shall apply to any agreements entered into after January 1, 1988. The provisions of this chapter are also applicable to any renewal or amendment of such agreements.

History. 1988, cc. 73, 865.

§ 59.1-362. Reasonableness and good faith.

  1. Every agreement entered into under this chapter shall impose on the parties the obligation to act in good faith.
  2. This chapter shall impose on every term and provision of any agreement a requirement of reasonableness. Every term or provision of any agreement shall be interpreted so that the requirements or obligations imposed therein are reasonable.

History. 1988, c. 73.

§ 59.1-363. Exclusions.

Agreements subject to the provisions of this chapter shall not be subject to any requirement contained in Chapter 8 (§ 13.1-557 et seq.) of Title 13.1 or Chapter 27.1 (§ 59.1-352.1 et seq.) of this title.

History. 1988, c. 73; 2002, c. 898.

The 2002 amendments.

The 2002 amendment by c. 898 substituted “Chapter 27.1 (§ 59.1-352.1 et seq.)” for “Chapter 27 (§ 59.1-344 et seq.).”

Chapter 29. Horse Racing and Pari-Mutuel Wagering.

Article 1. Virginia Racing Commission.

§ 59.1-364. Control of racing with pari-mutuel wagering.

  1. Horse racing with pari-mutuel wagering as licensed herein shall be permitted in the Commonwealth for the promotion, sustenance and growth of a native industry, in a manner consistent with the health, safety and welfare of the people. The Virginia Racing Commission is vested with control of all horse racing with pari-mutuel wagering in the Commonwealth, with plenary power to prescribe regulations and conditions under which such racing and wagering shall be conducted, so as to maintain horse racing in the Commonwealth of the highest quality and free of any corrupt, incompetent, dishonest or unprincipled practices and to maintain in such racing complete honesty and integrity. The Virginia Racing Commission shall encourage participation by local individuals and businesses in those activities associated with horse racing.
  2. The conduct of any horse racing with pari-mutuel wagering participation in such racing or wagering and entrance to any place where such racing or wagering is conducted is a privilege which may be granted or denied by the Commission or its duly authorized representatives in its discretion in order to effectuate the purposes set forth in this chapter.
  3. The award of any prize money for any pari-mutuel wager placed at a racetrack or satellite facility licensed by the Commission shall not be deemed to be a part of any gaming contract within the purview of § 11-14 .
  4. This section shall not apply to any sports betting or related activity that is lawful under Chapter 41 (§ 58.1-4100 et seq.) of Title 58.1.
  5. This section shall not apply to any sports betting or related activity that is lawful under Article 2 (§ 58.1-4030 et seq.) of Chapter 40 of Title 58.1, which shall be regulated pursuant to such chapter.

History. 1988, c. 855; 1992, c. 820; 1998, c. 619; 2020, cc. 1197, 1218, 1248, 1256.

Editor’s note.

Acts 1988, c. 855 enacted Chapter 29 of Title 59.1, effective Jan. 1, 1989, contingent on approval by the voters at the 1988 general election in November, 1988. The voters did so approve and the election results were certified on Nov. 28, 1988.

Acts 2020, cc. 1197 and 1248, cl. 2 provides: “That the provisions of this act may result in a net increase in periods of imprisonment or commitment. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of imprisonment in state adult correctional facilities; therefore, Chapter 854 of the Acts of Assembly of 2019 requires the Virginia Criminal Sentencing Commission to assign a minimum fiscal impact of $50,000. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of commitment to the custody of the Department of Juvenile Justice.”

Acts 2020, cc. 1197 and 1248, cl. 3 provides: “That the Virginia Lottery Board shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

Acts 2020, cc. 1218 and 1256, cl. 2 provides: “That the Virginia Lottery Board (the Board) shall promulgate regulations implementing the provisions of this act. The Board’s initial adoption of regulations shall be exempt from the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia), except that the Board shall provide an opportunity for public comment on the regulations prior to adoption. The Board shall complete work on such regulations no later than September 15, 2020.”

The 2020 amendments.

The 2020 amendments by cc. 1197 and 1248 are identical, and added subsection D.

The 2020 amendments by cc. 1218 and 1256 are identical, and added subsection D, which was subsequently redesignated as subsection E at the direction of the Virginia Code Commission.

Research References.

Enforcement of Judgments and Liens in Virginia (Matthew Bender). Chapter 12 Foreign Judgments. § 12.9 Foreign Nation Judgments. Rendleman.

Michie’s Jurisprudence.

For related discussion, see 9B M.J. Horse and Dog Racing, § 1.

CASE NOTES

Legislative intent. —

This legislation was intended to protect the honesty and integrity of horse racing in the Commonwealth. Virginia Jockey Club, Inc. v. Virginia Racing Comm'n, 22 Va. App. 275, 469 S.E.2d 70, 1996 Va. App. LEXIS 307 (1996).

This legislation is designed to ensure that horse racing is conducted on a sound financial basis, according to accepted business and management practices, in order to promote the success and growth of the industry. Virginia Jockey Club, Inc. v. Virginia Racing Comm'n, 22 Va. App. 275, 469 S.E.2d 70, 1996 Va. App. LEXIS 307 (1996).

§ 59.1-365. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Advance deposit account wagering” means a method of pari-mutuel wagering conducted in the Commonwealth that is permissible under the Interstate Horseracing Act, § 3001 et seq. of Chapter 57 of Title 15 of the United States Code, and in which an individual may establish an account with an entity, licensed by the Commission, to place pari-mutuel wagers in person or electronically.

“Breakage” means the odd cents by which the amount payable on each dollar wagered exceeds a multiple of $0.10.

“Commission” means the Virginia Racing Commission.

“Dependent” means a son, daughter, father, mother, brother, sister, or other person, whether or not related by blood or marriage, if such person receives from an officer or employee more than one-half of his financial support.

“Drug” shall have the meaning prescribed by § 54.1-3401 . The Commission shall by regulation define and designate those drugs the use of which is prohibited or restricted.

“Enclosure” means all areas of the property of a track to which admission can be obtained only by payment of an admission fee or upon presentation of authorized credentials, and any additional areas designated by the Commission.

“Handle” means the total amount of all pari-mutuel wagering sales excluding refunds and cancellations.

“Historical horse racing” means a form of horse racing that creates pari-mutuel pools from wagers placed on previously conducted horse races and is hosted at (i) a racetrack owned or operated by a significant infrastructure limited licensee or (ii) a satellite facility that is owned or operated by (a) a significant infrastructure limited licensee or (b) the nonprofit industry stakeholder organization recognized by the Commission and licensed to own or operate such satellite facility.

“Horse racing” means a competition on a set course involving a race between horses on which pari-mutuel wagering is permitted and includes historical horse racing.

“Immediate family” means (i) a spouse and (ii) any other person residing in the same household as an officer or employee, who is a dependent of the officer or employee or of whom the officer or employee is a dependent.

“Licensee” includes any person holding an owner’s or operator’s license under Article 2 (§ 59.1-375 et seq.).

“Member” includes any person designated a member of a nonstock corporation, and any person who by means of a pecuniary or other interest in such corporation exercises the power of a member.

“Pari-mutuel wagering” means the system of wagering on horse races in which those who wager on horses that finish in the position or positions for which wagers are taken share in the total amounts wagered, plus any amounts provided by a licensee, less deductions required or permitted by law and includes pari-mutuel wagering on historical horse racing and simulcast horse racing originating within the Commonwealth or from any other jurisdiction.

“Participant” means any person who (i) has an ownership interest in any horse entered to race in the Commonwealth or who acts as the trainer, jockey, or driver of any horse entered to race in the Commonwealth or (ii) takes part in any horse racing subject to the jurisdiction of the Commission or in the conduct of a race meeting or pari-mutuel wagering there, including but not limited to a horse owner, trainer, jockey, or driver, groom, stable foreman, valet, veterinarian, agent, pari-mutuel employee, concessionaire or employee thereof, track employee, or other position the Commission deems necessary to regulate to ensure the integrity of horse racing in Virginia.

“Permit holder” includes any person holding a permit to participate in any horse racing subject to the jurisdiction of the Commission or in the conduct of a race meeting or pari-mutuel wagering thereon as provided in § 59.1-387.

“Person” means any individual, group of individuals, firm, company, corporation, partnership, business, trust, association, or other legal entity.

“Pool” means the amount wagered during a race meeting or during a specified period thereof.

“Principal stockholder” means any person who individually or in concert with his spouse and immediate family members, beneficially owns or controls, directly or indirectly, five percent or more of the stock of any person which is a licensee, or who in concert with his spouse and immediate family members, has the power to vote or cause the vote of five percent or more of any such stock. However, “principal stockholder” shall not include a broker-dealer registered under the Securities Exchange Act of 1934, as amended, which holds in inventory shares for sale on the financial markets for a publicly traded corporation holding, directly or indirectly, a license from the Commission.

“Race meeting” means the whole consecutive period of time during which horse racing with pari-mutuel wagering is conducted by a licensee.

“Racetrack” means an outdoor course located in Virginia which is laid out for horse racing and is licensed by the Commission.

“Recognized majority horsemen’s group” means the organization recognized by the Commission as the representative of the majority of owners and trainers racing at race meetings subject to the Commission’s jurisdiction.

“Retainage” means the total amount deducted from the pari-mutuel wagering pool for (i) a license fee to the Commission and localities, (ii) the licensee, (iii) purse money for the participants, (iv) the Virginia Breeders Fund, and (v) certain enumerated organizations as required or permitted by law, regulation or contract approved by the Commission.

“Satellite facility” means all areas of the property at which simulcast horse racing is received for the purposes of pari-mutuel wagering, and any additional areas designated by the Commission.

“Significant infrastructure facility” means a horse racing facility that has been approved by a local referendum pursuant to § 59.1-391 and has a minimum racing infrastructure consisting of (i) a one-mile dirt track for flat racing, (ii) a seven-eighths-mile turf course for flat or jump racing, (iii) covered seating for no fewer than 500 persons, and (iv) barns with no fewer than 400 permanent stalls.

“Significant infrastructure limited licensee” means a person who owns or operates a significant infrastructure facility and holds a limited license under § 59.1-376.

“Simulcast horse racing” means the simultaneous transmission of the audio or video portion, or both, of horse races from a licensed horse racetrack or satellite facility to another licensed horse racetrack or satellite facility, regardless of state of licensure, whether such races originate within the Commonwealth or any other jurisdiction, by satellite communication devices, television cables, telephone lines, or any other means for the purposes of conducting pari-mutuel wagering.

“Steward” means a racing official, duly appointed by the Commission, with powers and duties prescribed by Commission regulations.

“Stock” includes all classes of stock, partnership interest, membership interest, or similar ownership interest of an applicant or licensee, and any debt or other obligation of such person or an affiliated person if the Commission finds that the holder of such interest or stock derives therefrom such control of or voice in the operation of the applicant or licensee that he should be deemed an owner of stock.

“Virginia Breeders Fund” means the fund established to foster the industry of breeding race horses in the Commonwealth of Virginia.

History. 1988, c. 855; 1991, c. 591; 1992, c. 820; 1996, c. 319; 1998, cc. 608, 619; 2005, c. 700; 2007, c. 757; 2015, cc. 731, 751; 2018, c. 811.

Editor’s note.

The Securities Exchange Act of 1934, referred to above is codified generally as 15 U.S.C.S. § 78a et seq.

Acts 2007, c. 757, cl. 3 provides: “That the Virginia Racing Commission shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

Acts 2018, c. 811, cl. 2 provides: “That the Virginia Racing Commission shall promulgate regulations to implement the provisions of this act to be effective within 180 days of its enactment.”

Acts 2020, c. 1289, as amended by Acts 2021, Sp. Sess. I, c. 552, Item 110 F 5, effective for the biennium ending June 30, 2022, provides: “For any local referendum passed pursuant to § 59.1-391 after July 1, 2020, the Virginia Racing Commission shall not authorize any additional satellite facilities as defined in § 59.1-365 of the Code of Virginia, or additional simulcast wagering terminals pursuant to 11 VAC 10-47-180, during a period of two years after the effective date of this act.”

The 2005 amendments.

The 2005 amendment by c. 700 inserted “plus any amounts provided by an unlimited licensee” in the definition of “pari-mutual wagering” and inserted the definition of “Participant.”

The 2007 amendments.

The 2007 amendment by c. 757, effective March 23, 2007, inserted the paragraphs defining “Advance deposit account wagering,” “Handle,” and “Retainage.”

The 2015 amendments.

The 2015 amendments by cc. 731 and 751 are identical, and substituted “As used in this chapter, unless the context requires a different meaning” for “Unless another meaning is required by the context, the following words shall have the meanings prescribed by this section” in the first sentence; substituted “or operator’s license under Article 2 (§ 59.1-375 et seq.)” for “operator’s or limited license under §§ 59.1-375 through 59.1-386 of this chapter. The licensee under a limited license shall not be deemed an owner for the purposes of owning or operating a satellite facility” in the definition for “Licensee”; substituted “a licensee” for “an unlimited licensee” in the definition for “Peri-mutuel wagering”; added the definition for “Recognized majority horsemen’s group”; substituted “licensee” for “unlimited license” in the definition for “Retainage”; added the definitions for “Significant infrastructure facility” and “Significant infrastructure limited licensee”; and made minor stylistic changes.

The 2018 amendments.

The 2018 amendment by c. 811 inserted the definition for “Historical horse racing”; in the definition for “Horse racing,” added “and includes historical horse racing”; in the definition for “Pari-mutuel wagering,” inserted “historical horse racing and.”

§ 59.1-366. The Virginia Racing Commission created; members.

  1. The Virginia Racing Commission is hereby created. It shall consist of five members appointed by the Governor and confirmed by a majority of those elected to each house of the General Assembly at the next regular session following any such appointment. Each Commissioner shall have been a resident of the Commonwealth for a period of at least three years next preceding his appointment and his continued residency shall be a condition of his tenure in office. The initial appointments shall be as follows: one for a term of one year, one for a term of two years, one for a term of three years, one for a term of four years, and one for a term of five years. Thereafter, all appointments shall be for terms of five years. Vacancies in the Commission shall be filled for the unexpired term in the manner provided for original appointments. Each Commissioner shall be eligible for reappointment for a second consecutive term at the discretion of the Governor. Persons who are first appointed to initial terms of less than five years shall thereafter be eligible for reappointment to two consecutive terms of five years each. The Commission shall elect its chairman. No member of the General Assembly while serving as a member shall be eligible for appointment to the Commission.
  2. Each member of the Commission shall receive fifty dollars for each day or part thereof spent in the performance of his duties and in addition shall be reimbursed for his reasonable expenses incurred therein.
  3. The members of the Commission shall serve at the pleasure of the Governor.
  4. The Commission shall establish and maintain a general business office within the Commonwealth for the transaction of its business at a place to be determined by the Commission. The Commission shall meet at such times and places within the Commonwealth as it shall determine. A majority of the Commissioners shall constitute a quorum for the convening of a meeting, but the performance of any duty or the exercise of any power of the Commission shall require a majority of the entire Commission.

History. 1988, c. 855.

Editor’s note.

Acts 2011, c. 269, provides: “§ 1. The Virginia Racing Commission shall be authorized to negotiate, enter into, and participate in the Interstate Racing and Wagering Compact, as proposed by the Association of Racing Commissioners International, for the purpose of providing for member states through state racing commissions to act jointly and cooperatively to create more uniform, effective, and efficient practices, programs, and rules relating to (i) horse racing and (ii) pari-mutuel activities that occur in or affect a party state.”

§ 59.1-367. Legal representation.

The Commission shall be represented in all legal matters by general counsel hired by the Commission; however, the employment of such counsel shall be subject to the approval of the Attorney General. The compensation for such general counsel shall be paid out of the funds appropriated for the administration of the Commission. No member of the General Assembly while serving as a member nor any person associated with such member’s law practice shall be employed as general counsel.

History. 1988, c. 855.

§ 59.1-368. Financial interests of Commission members, employees and family members prohibited.

No member or employee of the Commission, and no spouse or immediate family member of any such member or employee shall have any financial interest, direct or indirect, in any horse racetrack, satellite facility or operation incident thereto subject to the provisions of this chapter, or in any entity which has submitted an application for a license under Article 2 (§ 59.1-375 et seq.) of this chapter, or in the operation of any such track or satellite facility within the Commonwealth, or in the operation of any wagering authorized under this chapter, or participate as owner of a horse or otherwise as a contestant in any race subject to the jurisdiction of the Commission, or have any pecuniary interest in the purse or prize contested for in any such race. No member of the Commission and no spouse or immediate family member of a Commission member shall make any contribution to a candidate for office or office holders on the local or state level, or cause a contribution to be made on their behalf.

History. 1988, c. 855; 1992, c. 820.

§ 59.1-369. Powers and duties of the Commission.

The Commission shall have all powers and duties necessary to carry out the provisions of this chapter and to exercise the control of horse racing as set forth in § 59.1-364. Such powers and duties shall include but not be limited to the following:

  1. The Commission is vested with jurisdiction and supervision over all horse racing licensed under the provisions of this chapter including all persons conducting, participating in, or attending any race meeting. It shall employ such persons to be present at race meetings as are necessary to ensure that they are conducted with order and the highest degree of integrity. It may eject or exclude from the enclosure or from any part thereof any person, whether or not he possesses a license or permit, whose conduct or reputation is such that his presence may, in the opinion of the Commission, reflect on the honesty and integrity of horse racing or interfere with the orderly conduct of horse racing.
  2. The Commission, its representatives, and employees shall visit, investigate, and have free access to the office, track, facilities, satellite facilities or other places of business of any license or permit holder, and may compel the production of any of the books, documents, records, or memoranda of any license or permit holder for the purpose of satisfying itself that this chapter and its regulations are strictly complied with. In addition, the Commission may require any person granted a permit by the Commission and shall require any person licensed by the Commission, the recognized majority horsemen’s group, and the nonprofit industry stakeholder organization recognized by the Commission under this chapter to produce an annual balance sheet and operating statement prepared by a certified public accountant approved by the Commission. The Commission may require the production of any contract to which such person is or may be a party.
  3. The Commission shall promulgate regulations and conditions under which horse racing with pari-mutuel wagering shall be conducted in the Commonwealth, and all such other regulations it deems necessary and appropriate to effect the purposes of this chapter, including a requirement that licensees post, in a conspicuous place in every place where pari-mutuel wagering is conducted, a sign which bears a toll-free telephone number for “Gamblers Anonymous” or other organization which provides assistance to compulsive gamblers. Such regulations shall include provisions for affirmative action to assure participation by minority persons in contracts granted by the Commission and its licensees. Nothing in this subdivision shall be deemed to preclude private local ownership or participation in any horse racetrack. Such regulations may include penalties for violations. The regulations shall be subject to the Administrative Process Act (§ 2.2-4000 et seq.).
  4. The Commission shall promulgate regulations and conditions under which simulcast horse racing shall be conducted at a licensed horse racetrack or satellite facility in the Commonwealth and all such other regulations it deems necessary and appropriate to effect the purposes of this chapter. Such regulations shall include provisions that all simulcast horse racing shall comply with the Interstate Horse Racing Act of 1978 (15 U.S.C. § 3001 et seq.) and shall require the holder of a license to schedule no more than 125 live racing days in the Commonwealth each calendar year; however, the Commission shall have the authority to alter the required number of live racing days based on what the Commission deems to be in the best interest of the Virginia horse industry. Such regulations shall authorize up to 10 satellite facilities and restrict majority ownership of satellite facilities to an entity licensed by the Commission that is a significant infrastructure limited licensee, or if by August 1, 2015, there is no such licensee or a pending application for such license, then the nonprofit industry stakeholder organization recognized by the Commission may be granted licenses to own or operate satellite facilities. If, however, after the issuance of a license to own or operate a satellite facility to such nonprofit industry stakeholder organization, the Commission grants a license to a significant infrastructure limited licensee pursuant to § 59.1-376, then such limited licensee may own or operate the remaining available satellite facilities authorized in accordance with this subdivision. In no event shall the Commission authorize any such entities to own or operate more than a combined total of 10 satellite facilities. Nothing in this subdivision shall be deemed to preclude private local ownership or participation in any satellite facility. Except as authorized pursuant to subdivision 5, wagering on simulcast horse racing shall take place only at a licensed horse racetrack or satellite facility.
  5. The Commission shall promulgate regulations and conditions regulating and controlling advance deposit account wagering. Such regulations shall include, but not be limited to, (i) standards, qualifications, and procedures for the issuance of a license to an entity for the operation of pari-mutuel wagering in the Commonwealth; except that the Commission shall not issue a license to, and shall revoke the license of, an entity that, either directly or through an entity under common control with it, withholds the sale at fair market value to a licensee of simulcast horse racing signals that such entity or an entity under common control with it sells to other racetracks, satellite facilities, or advance deposit account wagering providers located in or outside of the Commonwealth; (ii) provisions regarding access to books, records, and memoranda, and submission to investigations and audits, as authorized by subdivisions 2 and 10; and (iii) provisions regarding the collection of all revenues due to the Commonwealth from the placing of such wagers. No pari-mutuel wager may be made on or with any computer owned or leased by the Commonwealth, or any of its subdivisions, or at any public elementary or secondary school or institution of higher education. The Commission also shall ensure that, except for this method of pari-mutuel wagering, all wagering on simulcast horse racing shall take place only at a licensed horse racetrack or satellite facility.Nothing in this subdivision shall be construed to limit the Commission’s authority as set forth elsewhere in this section.
  6. The Commission may issue subpoenas for the attendance of witnesses before it, administer oaths, and compel production of records or other documents and testimony of such witnesses whenever, in the judgment of the Commission, it is necessary to do so for the effectual discharge of its duties.
  7. The Commission may compel any person holding a license or permit to file with the Commission such data as shall appear to the Commission to be necessary for the performance of its duties including but not limited to financial statements and information relative to stockholders and all others with any pecuniary interest in such person. It may prescribe the manner in which books and records of such persons shall be kept.
  8. The Commission may enter into arrangements with any foreign or domestic government or governmental agency, for the purposes of exchanging information or performing any other act to better ensure the proper conduct of horse racing.
  9. The Commission shall report annually on or before March 1 to the Governor and the General Assembly, which report shall include a financial statement of the operation of the Commission.
  10. The Commission may order such audits, in addition to those required by § 59.1-394, as it deems necessary and desirable.
  11. The Commission shall upon the receipt of a complaint of an alleged criminal violation of this chapter immediately report the complaint to the Attorney General of the Commonwealth and the State Police for appropriate action.
  12. The Commission shall provide for the withholding of the applicable amount of state and federal income tax of persons claiming a prize or pay-off for a winning wager and shall establish the thresholds for such withholdings.
  13. The Commission, its representatives and employees may, within the enclosure, stable, or other facility related to the conduct of racing, and during regular or usual business hours, subject any (i) permit holder to personal inspections, including alcohol and drug testing for illegal drugs, inspections of personal property, and inspections of other property or premises under the control of such permit holder and (ii) horse eligible to race at a race meeting licensed by the Commission to testing for substances foreign to the natural horse within the racetrack enclosure or other place where such horse is kept. Any item, document or record indicative of a violation of any provision of this chapter or Commission regulations may be seized as evidence of such violation. All permit holders consent to the searches and seizures authorized by this subdivision, including breath, blood and urine sampling for alcohol and illegal drugs, by accepting the permit issued by the Commission. The Commission may revoke or suspend the permit of any person who fails or refuses to comply with this subdivision or any rules of the Commission. Commission regulations in effect on July 1, 1998, shall continue in full force and effect until modified by the Commission in accordance with law.
  14. The Commission shall require the existence of a contract between each licensee and the recognized majority horsemen’s group for that licensee. Such contract shall be subject to the approval of the Commission, which shall have the power to approve or disapprove any of its items, including but not limited to the provisions regarding purses and prizes. Such contracts shall provide that on pools generated by wagering on simulcast horse racing from outside the Commonwealth, (i) for the first $75 million of the total pari-mutuel handle for each breed, the licensee shall deposit funds at the minimum rate of five percent in the horsemen’s purse account, (ii) for any amount in excess of $75 million but less than $150 million of the total pari-mutuel handle for each breed, the licensee shall deposit funds at the minimum rate of six percent in the horsemen’s purse account, (iii) for amounts in excess of $150 million for each breed, the licensee shall deposit funds at the minimum rate of seven percent in the horsemen’s purse account. Such deposits shall be made in the horsemen’s purse accounts of the breed that generated the pools and such deposits shall be made within five days from the date on which the licensee receives wagers. In the absence of the required contract between the licensee and the recognized majority horsemen’s group, the Commission may permit wagering to proceed on simulcast horse racing from outside of the Commonwealth, provided that the licensee deposits into the State Racing Operations Fund created pursuant to § 59.1-370.1 an amount equal to the minimum percentage of the total pari-mutuel handles as required in clauses (i), (ii), and (iii) or such lesser amount as the Commission may approve. The deposits shall be made within five days from the date on which the licensee receives wagers. Once a contract between the licensee and the recognized majority horsemen’s group is executed and approved by the Commission, the Commission shall transfer these funds to the licensee and the horsemen’s purse accounts.
  15. Notwithstanding the provisions of § 59.1-391, the Commission may grant provisional limited licenses or provisional unlimited licenses to own or operate racetracks or satellite facilities to an applicant prior to the applicant securing the approval through the local referendum required by § 59.1-391. The provisional licenses issued by the Commission shall only become effective upon the approval of the racetrack or satellite wagering facilities in a referendum conducted pursuant to § 59.1-391 in the jurisdiction in which the racetrack or satellite wagering facility is to be located.

History. 1988, c. 855; 1990, c. 271; 1991, c. 591; 1992, c. 820; 1993, c. 430; 1998, cc. 619, 845; 2000, cc. 99, 1031; 2003, c. 682; 2004, c. 774; 2005, cc. 633, 700; 2007, c. 757; 2009, c. 142; 2011, c. 732; 2015, cc. 731, 751.

Editor’s note.

Acts 2007, c. 757, cl. 3 provides: “That the Virginia Racing Commission shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

Acts 2011, c. 732, cl. 2 provides: “That the Virginia Racing Commission shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

At the direction of the Virginia Code Commission, “institution of higher education” was substituted for “any public college or university” in subdivision 5 to conform to Acts 2016, c. 588.

The 2000 amendments.

The 2000 amendment by c. 99, in the second sentence of subdivision 4, substituted “simulcast horse racing shall” for “simulcast horse racing must” and also substituted “during the first six years” for “during the first five years.”

The 2000 amendment by c. 1031, effective April 19, 2000, substituted “through calendar year 2005” for “during the first six years of operation” near the end of the second sentence in subdivision 4; and added subdivision 13.

The 2003 amendments.

The 2003 amendment by c. 682 deleted “through calendar year 2005” following “number of live racing days” in the second sentence of subdivision 4, added present subdivisions 5 and 15, and redesignated former subdivisions 5 through 13 as present subdivisions 6 through 14.

The 2004 amendments.

The 2004 amendment by c. 774 substituted “10” for “six” in the third sentence of subdivision 4.

The 2005 amendments.

The 2005 amendments by cc. 633 and 700 are nearly identical, and inserted “on or before March 1” in subdivision 9.

The 2007 amendments.

The 2007 amendment by c. 757, effective March 23, 2007, added the exception to the beginning of the last sentence of subdivision 4; substituted “advance deposit account wagering” for “a method of pari-mutuel wagering conducted in the Commonwealth that is permissible under the Interstate Horseracing Act, § 3001 et seq. of Chapter 57 of Title 15 of the United States Code, and in which an individual may establish an account with an entity, approved by the Commission, to place pari-mutuel wagers in person or electronically” in the first paragraph of subdivision 5; and, in the first paragraph following subdivision 5, substituted “advance deposit account wagering” for “a method of pari-mutuel wagering which an individual may establish an account with an entity approved by the Commission to place pari-mutuel wagers in person or electronically,” and added the last sentence.

The 2009 amendments.

The 2009 amendment by c. 142 rewrote the second paragraph in subdivision 5.

The 2011 amendments.

The 2011 amendment by c. 732 rewrote the first sentence of subdivision 5.

The 2015 amendments.

The 2015 amendments by cc. 731 and 751 are identical, and in subdivision 2, rewrote the second sentence, which read “In addition, the Commission may require the production of an annual balance sheet and operating statement of any person licensed or granted a permit pursuant to the provisions of this chapter and may require the production of any contract to which such person is or may be a party” and added the third sentence; in subdivision 4, substituted “a license” for “and unlimited license,” “no more” for “not less,” “125” for “150” in the first sentence, rewrote the second sentence, which read “Such regulations shall authorize up to 10 satellite facilities and restrict majority ownership of satellite facilities to an entity licensed by the Commission which owns a horse racetrack in the Commonwealth” and added the third and fourth sentences; in subdivision 5, substituted “a licensee” for “an unlimited licensee,” deleted “of this section” following “10” in the second sentence, and deleted the former second paragraph pertaining to the allocation of revenue from advance deposit wagering; in subdivision 14, substituted “each” for “the” and “horsemen’s group for that licensee” for “horseman’s group providing for purses and prizes” and added the fifth, sixth and seventh sentences.

Law Review.

For article discussing decisions of Virginia courts dealing with state administrative procedures between June 1, 2002 and June 1, 2003, see 38 U. Rich. L. Rev. 39 (2003).

OPINIONS OF THE ATTORNEY GENERAL

When licensee may open satellite facility. —

There is no requirement that a licensed racetrack be in existence and operating before a licensee may open a satellite facility to transmit simulcast horse racing. See opinion of Attorney General to The Honorable Robert G. Marshall, Member, House of Delegates, 99-104, 2000 Va. AG LEXIS 12 (2/11/00).

Issuance of license for operation of racetrack. —

If the Virginia Racing Commission does not issue a license to a facility for the operation of a racetrack in a county, the facility is also precluded from operating a daily satellite facility at the racetrack; however, if the Commission does issue such a license, the facility is also permitted to operate a daily simulcast facility at the racetrack. See opinion of Attorney General to The Honorable Robert G. Marshall, Member, House of Delegates, 99-084, 2000 Va. AG LEXIS 13 (2/11/00).

Operation of 20-day live racing program. —

The Virginia Racing Commission has been given the sole authority to allow a 20-day live racing program during the first five years of operation of a racetrack, provided the licensee has been issued an unlimited license by the Commission. See opinion of Attorney General to The Honorable Robert G. Marshall, Member, House of Delegates, 99-084, 2000 Va. AG LEXIS 13 (2/11/00).

§ 59.1-370. Commission; Executive Secretary; staff; stewards.

  1. The Commission shall appoint an Executive Secretary and such other employees as it deems essential to perform its duties under this chapter, who shall possess such authority and perform such duties as the Commission shall prescribe or delegate to them. Such employees may include stewards, chemists, veterinarians, inspectors, accountants, guards and such other employees deemed by the Commission to be necessary for the supervision and the proper conduct of the highest standard of horse racing. Such employees shall be compensated as provided by the Commission.The Executive Secretary, in addition to any other duties prescribed by the Commission, shall keep a true and full record of all proceedings of the Commission and preserve at the Commission’s general office all books, documents and papers of the Commission. Neither the Executive Secretary nor the spouse or any member of the immediate family of the Executive Secretary shall make any contributions to a candidate for office or office holder at the local or state level, or cause such a contribution to be made on his behalf.
  2. The stewards appointed by the Commission shall act as racing officials to oversee the conduct of (i) horse racing at licensed racetracks and (ii) simulcast horse racing at satellite facilities. The stewards shall enforce the Commission’s regulations and the provisions of this chapter and shall have authority to interpret the Commission’s regulations and to decide all questions of racing not specifically covered by the regulations of the Commission. Nothing in this subsection shall limit the authority of the Commission to carry out the provisions of this chapter and to exercise control of horse racing as set forth in § 59.1-364, including the power to review all decisions and rulings of the stewards.

History. 1988, c. 855; 1998, c. 619; 2005, c. 700.

The 2005 amendments.

The 2005 amendment by c. 700, in subsection B, rewrote the second sentence and added the third sentence.

§ 59.1-370.1. State Racing Operations Fund.

  1. All moneys and revenues received by the Commission under this chapter shall be placed in a special fund known as the State Racing Operations Fund. Notwithstanding any other provision of law, interest earned from moneys in the State Racing Operations Fund shall accrue to the benefit of such fund.
  2. The total costs for the operation and administration of the Virginia Racing Commission shall be funded from the State Racing Operations Fund and shall be in such amount as provided in the general appropriations act.

History. 1990, c. 272.

§ 59.1-371. Fingerprints and background investigations; investigations from other states.

  1. The Commission shall fingerprint and require a background investigation to include a criminal history record information check of the following persons to be conducted by a representative of a law-enforcement agency of the Commonwealth or federal government: (i) every person licensed to hold race meetings within the Commonwealth of Virginia; (ii) every person who is an officer or director or principal stockholder of a corporation which holds such a license, and every employee of the holder of any such license whose duties relate to the horse racing business in Virginia; (iii) all security personnel of any license holder; (iv) members and employees of the Virginia Racing Commission; (v) all permit holders, owners, trainers, jockeys, apprentices, stable employees, managers, agents, blacksmiths, veterinarians, employees of any license or permit holder; and (vi) any person who actively participates in the racing activities of any license or permit holder.
  2. Notwithstanding the provisions of subsection A, the Commission may, (i) by regulation, establish a procedure to recognize a license or permit issued by another state in which horse racing is authorized when the Commission in its discretion determines that the laws or requirements of the licensing authority for such state governing fingerprinting and background investigations are substantially the same as required under this chapter and Commission regulations, and that the applicant has not been convicted of an offense as provided in  subsection C of § 59.1-389 and (ii) waive the requirements for fingerprints and background investigations for permit holders participating in (a) horse racing in nonsecure areas or (b) nonracing activities.

History. 1988, c. 855; 1990, c. 774; 1991, c. 591; 1995, c. 370; 1998, c. 619; 2000, c. 1011.

Editor’s note.

In subsection B, the language “convicted of an offense as provided in subsection C of § 59.1-389” was substituted for “convicted of a misdemeanor or felony as provided in subdivision B 6 of § 59.1-389” at the direction of the Virginia Code Commission to conform to changes by Acts 1999, c. 356.

The 2000 amendments.

The 2000 amendment by c. 1011 added the clause (i) designation and the language beginning “and (ii) waive” and ending “nonracing activities” in subsection B.

§ 59.1-372. Virginia Breeders Fund.

There is hereby created within the State Treasury the Virginia Breeders Fund, which Fund, together with the interest thereon, shall be administered in whole or in part by the Commission or by an entity designated by the Commission. The cost of administering and promoting the Fund shall be deducted from the Fund, and the balance shall be disbursed by the Commission or designated entity to the breeders of Virginia-bred horses that win races at race meetings designated by the Commission, to the owners of Virginia sires of Virginia-bred horses that win races at race meetings designated by the Commission, to the owners of Virginia-bred horses that win or earn purse money in nonrestricted races at racetracks in Virginia licensed by the Commission, to the owners of Virginia-bred horses that win races at race meetings designated by the Commission and for purses for races restricted to Virginia-bred or Virginia-sired horses or both at race meetings designated by the Commission. To assist it in establishing this awards and incentive program to foster the industry of breeding racehorses in Virginia, the Commission shall appoint an advisory committee composed of two members from each of the registered breed associations representing each breed of horse participating in the Fund program, one member representing the owners and operators of racetracks and one member representing all of the meets sanctioned by the National Steeplechase Association.

History. 1988, c. 855; 1993, c. 146; 1997, c. 798; 2002, c. 852.

Cross references.

As to agency action related to the Fund being exempt from the Administrative Process Act, see § 2.2-4002 .

As to the authority of the Commission to designate an entity to administer and promote the Virginia Breeders Fund without competitive procurement, see § 2.2-4346 .

The 2002 amendments.

The 2002 amendment by c. 852, effective April 17, 2002, in the second sentence, inserted “or earn purse money in” preceding “nonrestricted,” inserted “to the owners of Virginia-bred horses that win races at race meetings designated by the Commission” preceding “and for purses,” “or Virginia-sired,” following “restricted to Virginia-bred,” and “or both” preceding “at race meetings.”

§ 59.1-373. Hearing and appeal.

Any person aggrieved by a refusal of the Commission to issue any license or permit, the suspension or revocation of a license or permit, the imposition of a fine, or any other action of the Commission, may seek review of such action in accordance with Article 5 of the Administrative Process Act in the Circuit Court of the City of Richmond. Further appeals shall also be in accordance with Article 5 (§ 2.2-4025 et seq.) of the Administrative Process Act.

History. 1988, c. 855; 1996, c. 573.

Editor’s note.

Acts 1996, c. 573, cl. 2, provides: “[t]hat the provisions of this act shall not apply to any agency action or the review of any agency action commenced prior to July 1, 1996.”

CASE NOTES

Standing not found. —

Association composed of individuals residing within the vicinity of a proposed betting parlor did not have standing to sue as a “person aggrieved” under this section; association did not own nor occupy any real property, no personal or property right of the association was adjudicated by the Commission, the Commission did not order the association to act or refrain from acting, and there was nothing in the record to indicate the association held any right that would be affected by the outcome of the betting parlor’s licensure ruling. Pearsall v. Virginia Racing Comm'n, 26 Va. App. 376, 494 S.E.2d 879, 1998 Va. App. LEXIS 48 (1998).

§ 59.1-374. Injunction.

Whenever it appears to the Commission that any person has violated or may violate any provision of this chapter or any regulation or final decision of the Commission, it may apply to the appropriate circuit court for an injunction against such person. The order granting or refusing such injunction shall be subject to appeal as in other cases in equity.

History. 1988, c. 855; 1998, c. 619.

Article 2. Licenses.

§ 59.1-375. Owner’s and operator’s license required.

No person shall construct, establish or own a horse racetrack or satellite facility where pari-mutuel wagering is permitted, unless he has obtained an owner’s license issued by the Commission in accordance with the provisions of this chapter.

No person shall operate pari-mutuel wagering or conduct any race meeting at which wagering is permitted with his knowledge or acquiescence, unless he has obtained an operator’s license issued by the Commission in accordance with the provisions of this chapter.

No person to whom an owner’s or operator’s license has been issued nor any officer, director, partner, or spouse or immediate family member thereof shall make any contribution to any candidate for public office or public office holder at the local or state level.

No license issued under the provisions of this chapter shall be transferable.

History. 1988, c. 855; 1991, c. 591; 1992, c. 820.

§ 59.1-376. Limited licenses; transfer of meet; taxation; authority to issue; limitations.

  1. Notwithstanding the provisions of § 59.1-375 or § 59.1-378 but subject to such regulations and criteria as it may prescribe, the Commission is authorized to issue limited licenses, provided such licenses shall permit any holder to conduct a race meeting or meetings for a period not to exceed 14 days in any calendar year, or in the case of a significant infrastructure limited licensee, 75 days in any calendar year.
  2. The Commission may at any time, in its discretion, authorize any organization or association licensed under this section to transfer its race meeting or meetings from its own track or place for holding races, to the track or place for holding races of any other organization or association licensed under this chapter upon the payment of any and all appropriate license fees. No such authority to transfer shall be granted without the express consent of the organization or association owning or leasing the track to which such transfer is made.
  3. For any such meeting the licensee shall retain and pay from the pool the tax as provided in § 59.1-392.
  4. No person to whom a limited license has been issued nor any officer, director, partner, or spouse or immediate family member thereof shall make any contribution to any candidate for public office or public office holder at the local or state level.

History. 1988, c. 855; 1991, c. 591; 2015, cc. 731, 751.

The 2015 amendments.

The 2015 amendments by cc. 731 and 751 are identical, and substituted “14” for “fourteen” and added “or in the case of a significant infrastructure limited licensee, 75 days in any calendar year” following “calendar year” in subsection A; and made stylistic changes.

§ 59.1-376.1. Repealed by Acts 2009, c. 142, cl. 2.

Editor’s note.

Former § 59.1-376.1, pertaining to temporary licenses to operate advance deposit account wagering, derived from 2007, c. 757.

§ 59.1-377. Application for owner’s license.

  1. Any person desiring to construct or own a horse racetrack or satellite facility where pari-mutuel wagering is permitted shall file with the Commission an application for an owner’s license. Such application shall be filed at the time and place prescribed by the Commission, and shall be in such form and contain such information as prescribed by the Commission, including but not limited to the following:
    1. The name and address of such person; if a corporation, the state of its incorporation, the full name and address of each officer and director thereof, and if a foreign corporation, whether it is qualified to do business in this Commonwealth; if a partnership or joint venture, the name and address of each officer thereof;
    2. The name and address of each stockholder or member of such corporation, or each partner of such partnership or joint venture, and of each person who has contracted for a pecuniary interest in the applicant or the enclosure where race meetings or pari-mutuel wagering will be conducted, whether such interest is an ownership or a security interest, and the nature and value of such interest, and the name and address of each person who has agreed to lend money to the applicant;
    3. Such information as the Commission deems appropriate regarding the character, background and responsibility of the applicant and the members, partners, stockholders, officers and directors of the applicant;
    4. The location and description of the racetrack, place or enclosure where such person proposes to hold such meetings or wagering, including the name of any county, city or town in which any property of such track or satellite facility is or will be located. The Commission shall require such information about the enclosure and location of such track as it deems necessary and appropriate to determine whether they comply with the minimum standards provided in this chapter, and whether the conduct of a race meeting or pari-mutuel wagering at such location would be in the best interests of the people of the Commonwealth;
    5. Such information relating to the financial responsibility of the applicant as the Commission deems appropriate;
    6. If any of the facilities necessary for the conduct of racing or pari-mutuel wagering are to be leased, the terms of such lease; and
    7. Any other information which the Commission in its discretion deems appropriate.
  2. Any application filed hereunder shall be verified by the oath or affirmation of an officer of the applicant, and shall be accompanied by a nonrefundable application fee as determined by the Commission.
  3. Any person who knowingly makes a false statement to the Commission for the purposes of obtaining a license under this article shall be guilty of a Class 4 felony.

History. 1988, c. 855; 1991, c. 591; 1992, c. 820.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

CASE NOTES

Partnership may apply for ownership license. —

This section expressly permits “any person,” which under the Horse Racing Act includes a “natural person” or partnership to apply for an owner’s license. Virginia Jockey Club, Inc. v. Virginia Racing Comm'n, 22 Va. App. 275, 469 S.E.2d 70, 1996 Va. App. LEXIS 307 (1996).

§ 59.1-378. Issuance of owner’s license.

  1. The Commission shall consider all applications for an owner’s license and may grant a valid owner’s license to applicants who meet the criteria set forth in this chapter and established by the Commission. The Commission shall deny a license to any applicant unless it finds that the applicant’s facilities are or will be appropriate for the finest quality of racing.
  2. The Commission shall deny a license to an applicant if it finds that for any reason the issuance of a license to the applicant would not be in the interest of the people of the Commonwealth or the horse racing industry in the Commonwealth, or would reflect adversely on the honesty and integrity of the horse racing industry in the Commonwealth, or that the applicant, or any officer, partner, principal stockholder, or director of the applicant:
    1. Has knowingly made a false statement of material fact or has deliberately failed to disclose any information requested;
    2. Is or has been found guilty of any illegal, corrupt, or fraudulent act, practice, or conduct in connection with any horse racing in this or any other state, or has been convicted of a felony;
    3. Has at any time knowingly failed to comply with the provisions of this chapter or of any regulations of the Commission;
    4. Has had a license or permit to hold or conduct a horse race meeting denied for just cause, suspended, or revoked in any other state or country;
    5. Has legally defaulted in the payment of any obligation or debt due to the Commonwealth;
    6. Has constructed or caused to be constructed a racetrack or satellite facility for which a license was required under § 59.1-377 hereof without obtaining such license, or has deviated substantially, without the permission of the Commission, from the plans and specifications submitted to the Commission; or
    7. Is not qualified to do business in Virginia or is not subject to the jurisdiction of the courts of this Commonwealth.
  3. The Commission shall deny a license to any applicant unless it finds:
    1. That, if the corporation is a stock corporation, that such stock is fully paid and nonassessable, has been subscribed and paid for only in cash or property to the exclusion of past services, and, if the corporation is a nonstock corporation, that there are at least twenty members;
    2. That all principal stockholders or members have submitted to the jurisdiction of the Virginia courts, and all nonresident principal stockholders or members have designated the Executive Secretary of the Commission as their agent for receipt of process;
    3. That the applicant’s articles of incorporation provide that the corporation may, on vote of a majority of the stockholders or members, purchase at fair market value the entire membership interest of any stockholder or require the resignation of any member who is or becomes unqualified for such position under § 59.1-379; and
    4. That the applicant meets the criteria established by the Commission for the granting of an owner’s license.

History. 1988, c. 855; 1990, c. 206; 1992, c. 820; 2015, cc. 731, 751.

The 2015 amendments.

The 2015 amendments by cc. 731 and 751 are identical, and deleted “and meet or will meet the minimum standards that any track provided for standard breed racing be at least five-eighths of a mile, that any dirt track provided for flat racing be at least one mile, and that any track provided for flat or jump racing on the turf be at least seven-eighths of a mile” in subsection A; and made stylistic changes.

CASE NOTES

Broad licensing eligibility. —

This section clearly indicates that individuals, joint ventures, partnerships, associations, or corporations are eligible to receive an owner’s license; thus unsuccessful applicant was also unsuccessful in challenging the award of such ownership and operational licenses to others. Virginia Jockey Club, Inc. v. Virginia Racing Comm'n, 22 Va. App. 275, 469 S.E.2d 70, 1996 Va. App. LEXIS 307 (1996).

§ 59.1-378.1. Licensing of owners or operators of certain pari-mutuel facilities.

  1. Notwithstanding the provisions of § 59.1-391, the Commission may grant a license, for a duration to be determined by the Commission, to the owner or operator of a facility for the purpose of conducting pari-mutuel wagering on (i) thoroughbred and standard bred race meetings and (ii) simulcast horse racing at that facility in conjunction with the race meetings for a period not to exceed 14 days in any calendar year, provided that, prior to making application for such license, (a) the facility has been approved by the Commission and (b) the owner or operator of such facility has been granted tax-exempt status under § 501(c)(3) or (4) of the Internal Revenue Code.
  2. In deciding whether to grant any license pursuant to this section, the Commission shall consider (i) the results of, circumstances surrounding, and issues involved in any referendum conducted under the provisions of § 59.1-391 and (ii) whether the Commission had previously granted a license to such facility, owner, or operator.
  3. In no event shall the Commission issue more than 12 licenses in a calendar year pursuant to this section.

History. 1996, cc. 663, 750; 2000, c. 1002; 2014, cc. 564, 625; 2015, cc. 731, 751.

Editor’s note.

Acts 1996, cc. 663 and 750, cl. 2, provide: “[t]hat the provisions of this act shall apply to any county with a population between 86,000 and 86,500.”

The 2000 amendments.

The 2000 amendment by c. 1002, in subsection A, substituted “on” for “at,” inserted “at that facility” following “steeplechase race meetings,” inserted “Virginia Steeplechase Association or” in clause (i), and inserted “or (4)” in clause (ii).

The 2014 amendments.

The 2014 amendments by cc. 564 and 625 are identical, and in subsection A, inserted the clause (i) designator and clause (ii), redesignated former clauses (i) and (ii) as clauses (a) and (b), and substituted “14” for “fourteen”; and substituted “12” for “twelve” in subsection C.

The 2015 amendments.

The 2015 amendments by cc. 731 and 751 are identical, and in subsection A, deleted “steeplechase” following “operator of a,” inserted “thoroughbred and standard bred” in clause (i); deleted “that is limited to the transmission from Churchill Downs of the Kentucky Derby horse race” following “(ii) simulcast horse racing,” substituted “approved by the Commission” for “sanctioned by the Virginia Steeplechase Association or National Steeplechase Association” in clause (a) and deleted the former second paragraph, which read: “For purposes of this section, ‘steeplechase facility’ means a turf racecourse constructed over natural ground which is utilized primarily for races where horses jump over fences.”

§ 59.1-379. Refusal of owner’s license.

No owner’s license or renewal thereof shall be granted to any corporation if the Commission finds that any principal stockholder of such stock corporation, or any member of such nonstock corporation:

  1. Is or has been guilty of any illegal, corrupt or fraudulent act, conduct or practice in connection with horse racing in this or any other state, or has knowingly failed to comply with the provisions of this chapter or Commission regulations;
  2. Has had a license or permit to hold or conduct a race meeting denied for cause, suspended or revoked in any other state or country; or
  3. Has at any time during the previous five years knowingly failed to comply with the provisions of this chapter or any Commission regulations.

History. 1988, c. 855.

§ 59.1-380. Duration, form of owner’s license; bond.

A license issued under § 59.1-378 shall be for the period set by the Commission, not to be less than twenty years, but shall be reviewed annually. The Commission shall designate on the license the duration of such license, the location of such track or satellite facility or proposed track or satellite facility and such other information as it deems proper. The Commission shall establish criteria and procedures for license renewal.

The Commission shall require (i) a bond with surety or (ii) a letter of credit, acceptable to the Commission, and in an amount determined by it, to be sufficient to cover any indebtedness incurred by the licensee to the Commonwealth.

History. 1988, c. 855; 1992, c. 820; 2000, c. 1011.

The 2000 amendments.

The 2000 amendment by c. 1011, in the second paragraph, inserted “(i)” and “or (ii) a letter of credit” and substituted “the Commission” for “it.”

§ 59.1-381. Application for operator’s license.

  1. Any person desiring to hold a race meeting or operate a satellite facility shall file with the Commission an application for an operator’s license.  Such application may be made in conjunction with an application for an owner’s license, if appropriate. It shall be filed at the time and place prescribed by the Commission and contain such information as prescribed by the Commission, including all information prescribed for an owner’s license under § 59.1-377 and, in addition, the date the applicant wishes to conduct a race meeting.
  2. Any application filed hereunder shall be verified by the oath or affirmation of an officer of the applicant and shall be accompanied by a nonrefundable application fee as determined by the Commission.

History. 1988, c. 855; 1992, c. 820.

§ 59.1-382. Issuance of operator’s license.

The Commission shall promptly consider any application for an operator’s license and grant a valid operator’s license to applicants who meet the criteria set forth in this chapter and established by the Commission. The Commission shall deny a license to any applicant, unless it finds:

  1. That such applicant is a corporation organized under Title 13.1 or comparable law of another state, and qualified to do business in Virginia;
  2. That, if the corporation is a stock corporation, all principal stockholders have submitted to the jurisdiction of the Virginia courts and all nonresident principal stockholders have designated the Executive Secretary of the Commission as their agent for process, and further, that an application shall also contain information as required by § 59.1-377;
  3. That the applicant’s articles of incorporation provide that the corporation may, on vote of a majority of the stockholders or members, purchase at fair market value the entire membership interest of any stockholder, or require the resignation of any member, who is or becomes unqualified for such position under § 59.1-379;
  4. That the applicant would be qualified for a license to own such horse racetrack or satellite facility under the provisions of §§ 59.1-378 and 59.1-379;
  5. That the applicant has made provisions satisfactory to the Commission for the detection and prosecution of any illegal, corrupt or fraudulent act, practice or conduct in connection with any race meeting or pari-mutuel wagering, that the applicant has made provision for membership in the Thoroughbred Racing Association or other equivalent applicable association, and that the applicant shall utilize the services of the Thoroughbred Racing Protective Bureau or any other protective agency acceptable to the Virginia Racing Commission;
  6. That the applicant has met the criteria established by the Commission for the granting of an operator’s license.

History. 1988, c. 855; 1991, c. 591; 1992, c. 820.

§ 59.1-383. Duration, form of operator’s license; bond.

A license issued under § 59.1-382 shall be for a period of twenty years from the date of issuance, but shall be reviewed annually. The Commission may, as it deems appropriate, change at the beginning of any year the dates on which the licensee is authorized to conduct a race meeting or pari-mutuel wagering. An applicant for renewal of a license may omit any information which in the opinion of the Commission is already available to it. The Commission shall establish criteria and procedures for license renewal.

Any license issued under § 59.1-382 shall designate on its face the type or types of horse racing or pari-mutuel wagering for which it is issued, the location of the track or satellite facility where such meeting or wagering is to be conducted, the period during which such license is in effect and such other information as the Commission deems proper.

The Commission shall require a bond with surety acceptable to it, and in an amount determined by it to be sufficient to cover any indebtedness incurred by such licensee during the days allotted for racing.

History. 1988, c. 855; 1991, c. 591; 1992, c. 820.

§ 59.1-384. Denial of license final.

The denial of an owner’s or operator’s license by the Commission shall be final unless appealed under § 59.1-373.

History. 1988, c. 855.

§ 59.1-385. Suspension or revocation of license.

  1. After a hearing with fifteen days’ notice the Commission may suspend or revoke any license, or fine the holder thereof a sum not to exceed $100,000, in any case where it has reason to believe that any provision of this chapter, or any regulation or condition of the Commission, has not been complied with or has been violated. The Commission may revoke a license if it finds that facts not known by it at the time it considered the application indicate that such license should not have been issued.
  2. The Commission shall revoke any license issued under § 59.1-382 for the operation of a satellite facility if the licensee, within one year of issuance of the satellite facility license, fails to conduct live racing at a racetrack licensed pursuant to § 59.1-382 or fails to conduct, without the permission of the Commission, the live racing days assigned to the licensee by the Commission.
  3. The Commission, at a meeting at which a quorum of the members is present, may summarily suspend any license for a period of not more than ninety days pending a hearing and final determination by the Commission if the Commission determines that emergency action is required to protect the public health, safety and welfare including, but not limited to, revenues due the Commonwealth, localities and the horsemen’s purse account. The Commission shall (i) schedule a hearing within fourteen business days after the license is summarily suspended and (ii) notify the licensee not less than five business days before the hearing of the date, time, and place of the hearing.
  4. Deliberations of the Commission hereunder shall be conducted pursuant to the provisions of the Virginia Freedom of Information Act (§ 2.2-3700 et seq.). If any such license is suspended or revoked, the Commission shall state its reasons for doing so, which shall be entered of record. Such action shall be final unless appealed in accordance with § 59.1-373. Suspension or revocation of a license by the Commission for any violation shall not preclude criminal liability for such violation.

History. 1988, c. 855; 1991, c. 591; 1995, cc. 212, 275; 2000, c. 1031.

The 2000 amendments.

The 2000 amendment by c. 1031, effective April 19, 2000, added the language following “§ 59.1-382” at the end of subsection B, added present subsection C, and redesignated former subsection C as present subsection D.

§ 59.1-386. Acquisition of interest in licensee.

  1. The Commission shall require any person desiring to become a partner, member or principal stockholder of any licensee to apply to the Commission for approval thereof and may demand such information of the applicant as it finds necessary. The Commission shall consider such application forthwith and shall approve or deny the application within 60 days of receipt. The Commission shall approve an application that meets the criteria set forth in this chapter. The Commission shall deny an application if in its judgment the acquisition by the applicant would be detrimental to the public interest or to the honesty, integrity, and reputation of racing. The Commission shall approve an application to acquire actual control of a licensee only if it finds that the applicant meets the criteria set forth in subsection B.
  2. If an applicant proposes to acquire actual control of a licensee, such person shall, pursuant to subsection A, submit to the Commission (i) its proposal for the future operation of any existing or planned racetrack, or satellite facility owned or operated by the licensee, (ii) such additional information as it desires, and (iii) such information as may be required by the Commission to assure the Commission that the licensee, under the actual control of such person, will have the experience, expertise, financial responsibility and commitment to comply with (a) the provisions of this chapter, (b) Commission regulations and orders, (c) the requirements for the continued operation of the licensee pursuant to the terms and conditions in effect on the date of the application of all licenses held by the licensee, (d) any existing contract with a recognized majority horseman’s group, and (e) any proposal submitted to the Commission by such person. The provisions of this subsection shall apply regardless of whether the control acquired is direct or indirect or whether its acquisition is accomplished individually or in concert with others.
  3. Any such acquisition of control without prior approval of the Commission shall be voidable by the Commission and, in such instance, the Commission may revoke any license it has issued to such licensee, order compliance with this section, or take such other action as may be appropriate within the authority of the Commission.

History. 1988, c. 855; 2003, c. 705.

Editor’s note.

Acts 2003, c. 705, cl. 2, provides: “That the Virginia Racing Commission shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

The 2003 amendments.

The 2003 amendment by c. 705 designated the existing provisions of the section as subsection A and rewrote the provisions thereof; and added subsections B and C.

Law Review.

For article discussing decisions of Virginia courts dealing with state administrative procedures between June 1, 2002 and June 1, 2003, see 38 U. Rich. L. Rev. 39 (2003).

Article 3. Permits.

§ 59.1-387. Permit required; exception.

  1. No participant shall engage in any horse racing subject to the jurisdiction of the Commission or in the conduct of a race meeting or pari-mutuel wagering thereon, including but not limited to as a horse owner, trainer, jockey, exercise rider, groom, stable foreman, valet, veterinarian, agent, pari-mutuel employee, concessionaire or employee thereof, track employee, or other positions the Commission deems necessary to regulate to ensure the integrity of horse racing in Virginia, unless such person possesses a permit therefor from the Commission, and complies with the provisions of this chapter and all Commission regulations. No permit issued under the provisions of this chapter shall be transferable.
  2. The Commission may waive the permit requirement for any person who possesses a valid permit or license to participate in the conduct of horse racing in another racing jurisdiction and participates in horse racing in Virginia on nonconsecutive racing days.
  3. Once a horse is entered to run in Virginia, all participants shall come under the jurisdiction of the Commission and its stewards and shall be subject to regulations of the Commission and sanctions it or its stewards may impose.

History. 1988, c. 855; 1991, c. 591; 2000, c. 1011; 2005, c. 700.

The 2000 amendments.

The 2000 amendment by c. 1011, redesignated the former single undesignated paragraph as present subsection A, and added new subsection B.

The 2005 amendments.

The 2005 amendment by c. 700 substituted “participant shall engage” for “person shall participate” in the first sentence of subsection A; and added subsection C.

§ 59.1-388. Application for permit.

  1. Any person desiring to obtain a permit as required by this chapter shall make application therefor on a form prescribed by the Commission. The application shall be accompanied by a fee prescribed by the Commission.
  2. Any application filed hereunder shall be verified by the oath or affirmation of the applicant.

History. 1988, c. 855.

§ 59.1-389. Consideration of application.

  1. The Commission shall promptly consider any application for a permit and issue or deny such permit based on the information in the application and all other information before it, including any investigation it deems appropriate. If an application for a permit is approved, the Commission shall issue a permit, which shall contain such information as the Commission deems appropriate. Such permit shall be valid for one year; however, the permit of a licensee’s employee shall expire automatically when such permit holder leaves the employment of the licensee or at the end of one year, whichever occurs first. The licensee shall promptly notify the Commission when a permit holder leaves the employment of the licensee. The Commission shall establish criteria and procedures for permit renewal.
  2. The Commission shall deny the application and refuse to issue the permit, which denial shall be final unless an appeal is taken under § 59.1-373, if it finds that the issuance of such permit to such applicant would not be in the interests of the people of the Commonwealth, or the horse racing industry of the Commonwealth, or would reflect on the honesty and integrity of the horse racing industry in the Commonwealth, or that the applicant:
    1. Has knowingly made a false statement of a material fact in the application, or has deliberately failed to disclose any information requested by the Commission;
    2. Is or has been found guilty of any corrupt or fraudulent practice or conduct in connection with horse racing in this or any other state;
    3. Has knowingly failed to comply with the provisions of this chapter or the regulations of the Commission;
    4. Has had a permit to engage in activity related to horse racing denied for just cause, suspended or revoked in any other state, and such denial, suspension or revocation is still in effect; or
    5. Is unqualified to perform the duties required for the permit sought.
  3. The Commission shall deny the application and refuse to issue the permit if, within the five years immediately preceding the date of his application for the permit sought, the applicant has been convicted of a crime involving the unlawful conduct of wagering, fraudulent use of a credential, unlawful transmission of information, touting, bribery, or administration or possession of drugs or any felony considered by the Commission to be detrimental to horse racing in the Commonwealth; the denial shall be final unless an appeal is taken under § 59.1-373. Additionally, the Commission may deny the application and refuse to issue any permit, if the applicant has been convicted of any such crime committed prior to the five years immediately preceding the date of his application.
  4. The Commission may refuse to issue the permit if for any reason it feels the granting of such permit is not consistent with the provisions of this chapter or its responsibilities hereunder.

History. 1988, c. 855; 1991, c. 591; 1998, c. 619; 1999, c. 356.

§ 59.1-390. Suspension or revocation of permit; fine.

  1. The Commission, acting by and through its stewards or at a meeting at which a quorum is present, may suspend or revoke a permit issued under this chapter or fine the holder of such permit a sum not to exceed $10,000, or suspend a permit issued by this chapter and fine the holder of such permit a sum not to exceed $10,000 after a hearing for which proper notice has been given to the permittee, in any case where it determines by a preponderance of the evidence that any provision of this chapter, or any regulation or condition of the Commission, has not been complied with, or has been violated. The Commission may revoke such permit, after such hearing, if it finds that facts not known by it at the time it was considering the application indicate that such permit should not have been issued. Deliberations of the Commission under this section shall be conducted pursuant to the provisions of the Virginia Freedom of Information Act (§ 2.2-3700 et seq.). If any permit is suspended or revoked, the Commission shall state its reasons for doing so, which shall be entered of record. Such action shall be final unless an appeal is taken in accordance with § 59.1-373. Suspension or revocation of a permit by the Commission for any violation shall not preclude criminal liability for such violation.
  2. The Commission, acting by and through its stewards, or at a meeting at which a quorum is present, may summarily suspend the permit of a person for a period of not more than 90 days pending a hearing and final determination by the Commission or its stewards, if the Commission or its stewards determine the protection of the integrity of horse racing requires emergency action. The Commission or its stewards shall (i) schedule a hearing within 14 business days after the permit is summarily suspended and (ii) notify the permit holder, not less than five business days before the hearing, of the date, time and place of the hearing.

History. 1988, c. 855; 1990, c. 456; 1991, c. 591; 1998, c. 619; 2005, c. 700.

The 2005 amendments.

The 2005 amendment by c. 700, in the first sentence of subsection A, inserted “acting by and through its stewards or at a meeting at which a quorum is present,” “or suspend a permit issued by this chapter and fine the holder of such permit a sum not to exceed $10,000” and substituted “determines by a preponderance of the evidence” for “has reason to believe”; and made minor stylistic changes.

Article 4. Local Referendum.

§ 59.1-391. Local referendum required.

The Commission shall not grant any initial license to construct, establish, operate or own a racetrack or satellite facility until a referendum approving the question is held in each county, city, or town in which such track or satellite facility is to be located, in the following manner:

  1. A petition, signed by five percent of the qualified voters of such county, city, or town shall be filed with the circuit court of such county, city, or town asking that a referendum be held on the question, “Shall pari-mutuel wagering be permitted at a licensed racetrack in (name of such county, city, or town) on live horse racing at, and on simulcast horse racing transmitted from another jurisdiction to, the licensed racetrack on such days as may be approved by the Virginia Racing Commission in accordance with Chapter 29 (§ 59.1-364 et seq.) of Title 59.1 of the Code of Virginia?” In addition, or in the alternative, such petition may ask that a referendum be held on the question, “Shall pari-mutuel wagering be permitted in . . . . . . . . . . . . (the name of such county, city, or town) at satellite facilities in accordance with Chapter 29 (§ 59.1-364 et seq.) of Title 59.1 of the Code of Virginia?”
  2. Following the filing of such petition, the court shall, by order of record entered in accordance with § 24.2-684.1 , require the regular election officers of such city, county, or town to cause a special election to be held to take the sense of the qualified voters on the question. Such election shall be on a day designated by order of such court, but shall not be later than the next general election unless such general election is within 60 days of the date of the entry of such order, nor shall it be held on a date designated as a primary election.
  3. The clerk of such court of record of such city, county, or town shall publish notice of such election in a newspaper of general circulation in such city, county, or town once a week for three consecutive weeks prior to such election.
  4. The regular election officers of such city or county shall open the polls at the various voting places in such city or county on the date specified in such order and conduct such election in the manner provided by law. The election shall be by ballot which shall be prepared by the electoral board of the city, county, or town and on which shall be printed either or both of the following questions:“Shall pari-mutuel wagering be permitted at a licensed racetrack in . . . . . . . . . . . . on live horse racing at, and on simulcast horse racing transmitted from another jurisdiction to, the licensed racetrack on such days as may be approved by the Virginia Racing Commission in accordance with Chapter 29 (§ 59.1-364 et seq.) of Title 59.1 of the Code of Virginia?[ ] Yes[ ] No”“Shall pari-mutuel wagering be permitted in . . . . . . . . . . . . at satellite facilities in accordance with Chapter 29 (§ 59.1-364 et seq.) of Title 59.1 of the Code of Virginia?[ ] Yes[ ] No”In the blank shall be inserted the name of the city, county, or town in which such election is held. Any voter desiring to vote “Yes” shall mark a check (π) mark or a cross (x or +) mark or a line (-) in the square provided for such purpose immediately preceding the word “Yes,” leaving the square immediately preceding the word “No” unmarked. Any voter desiring to vote “No” shall mark a check (π) mark or a cross (x or +) mark or a line (-) in the square provided for such purpose immediately preceding the word “No,” leaving the square immediately preceding the word “Yes” unmarked.The ballots shall be counted, returns made and canvassed as in other elections, and the results certified by the electoral board to the court ordering such election. Thereupon, such court shall enter an order proclaiming the results of such election and a duly certified copy of such order shall be transmitted to the Commission and to the governing body of such city, county, or town.No such referendum as described above shall be held more often than every three years in the same county, city, or town.A subsequent local referendum shall be required if a license has not been granted by the Commission within five years of the court order proclaiming the results of the election. Town, for purposes of this section, means any town with a population of 5,000 or more.

History. 1988, c. 855; 1989, c. 145; 1991, c. 591; 1992, c. 820; 1998, c. 619; 2001, c. 539; 2003, c. 682.

Editor’s note.

Acts 2020, cc. 1197 and 1248, cl. 7 provide: “That the Virginia Racing Commission (the Commission) shall authorize an additional 600 historical racing terminals each time a local referendum required by § 58.1-4123 of the Code of Virginia, as created by this act, is approved, provided that the total number of additional machines authorized in this enactment shall not exceed 2,000 statewide. The tax rate for any machine added pursuant to this enactment clause shall be 20 percent as calculated and distributed pursuant to the method used to calculate and distribute such rate in effect for machines in existence as of January 1, 2020. For every 100 additional machines authorized pursuant to this enactment clause, the total number of live horse racing days shall be increased by one day. Excluding machines installed as of March 1, 2020, each location operating historical racing terminals shall be prohibited from having more than forty percent of its terminals manufactured by any single manufacturer. The increase in historical racing terminals shall not apply with respect to any city where a significant infrastructure limited licensee, as defined in § 59.1-365 of the Code of Virginia, or the affiliate of such licensee is awarded a casino operator’s license pursuant to this act. Notwithstanding the provisions of 11VAC10-47-180 and subject to the local referendum requirements of § 59.1-391 of the Code of Virginia, for the machines specifically authorized in this enactment, the Commission shall authorize up to 1,650 machines in a satellite facility in a metropolitan area with a population in excess of 2.5 million located in a jurisdiction that has passed a referendum pursuant to the requirements of § 59.1-391 of the Code of Virginia prior to January 1, 2020, and 500 machines in a metropolitan area with a population in excess of 300,000, provided that no additional machines authorized in this enactment shall be located within 35 miles of an eligible host city as described in § 58.1-4107 of the Code of Virginia, as created by this act. No satellite facility shall be authorized in any locality that is included in the Regional Improvement Commission established in the fifth enactment of this act. Population determinations pursuant to this enactment shall be based on the 2018 population estimates from the Weldon Cooper Center for Public Service of the University of Virginia. Except as provided herein, the Commission shall not be authorized to promulgate regulations to allow or grant a license to authorize historical horse racing terminals in excess of those permitted by the emergency regulations that became effective on October 5, 2018.”

Acts 2020, c. 1289, as amended by Acts 2021, Sp. Sess. I, c. 552, Item 110 F 5, effective for the biennium ending June 30, 2022, provides: “For any local referendum passed pursuant to § 59.1-391 after July 1, 2020, the Virginia Racing Commission shall not authorize any additional satellite facilities as defined in § 59.1-365 of the Code of Virginia, or additional simulcast wagering terminals pursuant to 11 VAC 10-47-180, during a period of two years after the effective date of this act.”

The 2001 amendments.

The 2001 amendment by c. 539, in subdivision 1, deleted “in name of such county or city” following “wagering be permitted” and inserted the language beginning “in (name of such county or city)” and ending “by the Virginia Racing Commission,” and in the second paragraph of subdivision 4, deleted “in . . . . ” following “Shall pari-mutuel wagering be permitted” and inserted “in . . . . on live horse racing at, and on simulcast horse racing transmitted from another jurisdiction to, the licensed racetrack on such days as may be approved by the Virginia Racing Commission.”

The 2003 amendments.

The 2003 amendment by c. 682 substituted “county, city, or town” for “county or city” in the introductory paragraph, three times in subdivision 1, and once in the next-to-last paragraph; substituted “city, county, or town” for “city or county” once in subdivision 2, subdivision 4, and in the third and fourth paragraphs from the end; substituted “60 days” for “sixty days” in subdivision 2; and added the second sentence of the last paragraph.

OPINIONS OF THE ATTORNEY GENERAL

Referendum on pari-mutuel wagering. —

A referendum on the question of whether pari-mutuel wagering should be permitted at a licensed racetrack and/or satellite facilities must be presented to the qualified voters of a county or city. Voter approval of pari-mutuel wagering on live horse racing at a licensed racetrack constitutes voter approval of pari-mutuel wagering on simulcast horse racing at that licensed racetrack; however, voter approval of pari-mutuel wagering at a licensed racetrack does not constitute voter approval of pari-mutuel wagering at satellite facilities. See opinion of Attorney General to The Honorable Robert G. Marshall, Member, House of Delegates, 99-084, 2000 Va. AG LEXIS 13 (2/11/00).

Article 5. Taxation and Audit.

§ 59.1-392. Percentage retained; tax.

  1. Any person holding an operator’s license to operate a horse racetrack or satellite facility in the Commonwealth pursuant to this chapter shall be authorized to conduct pari-mutuel wagering on horse racing subject to the provisions of this chapter and the conditions and regulations of the Commission.
  2. On pari-mutuel pools generated by wagering at the racetrack on live horse racing conducted within the Commonwealth, involving win, place and show wagering, the licensee shall retain a percentage amount approved by the Commission as jointly requested by a recognized majority horsemen’s group and a licensee and the legitimate breakage, out of which shall be paid one and one-quarter percent to be distributed as follows: one percent to the Commonwealth as a license tax and one-quarter percent to the locality in which the racetrack is located. The remainder of the retainage shall be paid as provided in subsection D, provided, however, that if the percentage amount approved by the Commission is other than 18 percent, the amounts provided in subdivisions D 1, 2 and 3 shall be adjusted by the proportion that the approved percentage amount bears to 18 percent.
  3. On pari-mutuel pools generated by wagering at each Virginia satellite facility on live horse racing conducted within the Commonwealth, involving win, place and show wagering, the licensee shall retain a percentage amount approved by the Commission as jointly requested by a recognized majority horsemen’s group and a licensee and the legitimate breakage, out of which shall be paid one and one-quarter percent to be distributed as follows: three-quarters percent to the Commonwealth as a license tax, one-quarter percent to the locality in which the satellite facility is located, and one-quarter percent to the locality in which the racetrack is located. The remainder of the retainage shall be paid as provided in subsection D; provided, however, that if the percentage amount approved by the Commission is other than 18 percent, the amounts provided in subdivisions D 1, 2 and 3 shall be adjusted by the proportion that the approved percentage amount bears to 18 percent.
  4. On pari-mutuel pools generated by wagering at the racetrack and each Virginia satellite facility on live horse racing conducted within the Commonwealth, involving win, place and show wagering, the licensee shall retain a percentage amount approved by the Commission as jointly requested by a recognized majority horsemen’s group and a licensee and the legitimate breakage, out of which shall be paid:
    1. Eight percent as purses or prizes to the participants in such race meeting;
    2. Seven and one-half percent, and all of the breakage and the proceeds of pari-mutuel tickets unredeemed 180 days from the date on which the race was conducted, to the operator;
    3. One percent to the Virginia Breeders Fund;
    4. Fifteen one-hundredths percent to the Virginia-Maryland Regional College of Veterinary Medicine;
    5. Five one-hundredths percent to the Virginia Horse Center Foundation;
    6. Five one-hundredths percent to the Virginia Horse Industry Board; and
    7. The remainder of the retainage shall be paid as appropriate under subsection B or C.
  5. On pari-mutuel pools generated by wagering at the racetrack on live horse racing conducted within the Commonwealth involving wagering other than win, place and show wagering, the licensee shall retain a percentage amount approved by the Commission as jointly requested by a recognized majority horsemen’s group and a licensee and the legitimate breakage, out of which shall be paid two and three-quarters percent to be distributed as follows: two and one-quarter percent to the Commonwealth as a license tax, and one-half percent to the locality in which the racetrack is located. The remainder of the retainage shall be paid as provided in subsection G; provided, however, that if the percentage amount approved by the Commission is other than 22 percent, the amounts provided in subdivisions G 1, 2 and 3 shall be adjusted by the proportion that the approved percentage amount bears to 22 percent.
  6. On pari-mutuel pools generated by wagering at each Virginia satellite facility on live horse racing conducted within the Commonwealth involving wagering other than win, place and show wagering, the licensee shall retain a percentage amount approved by the Commission as jointly requested by a recognized majority horsemen’s group and a licensee and the legitimate breakage, out of which shall be paid two and three-quarters percent to be distributed as follows: one and three-quarters percent to the Commonwealth as a license tax, one-half percent to the locality in which the satellite facility is located, and one-half percent to the locality in which the racetrack is located. The remainder of the retainage shall be paid as provided in subsection G; provided, however, that if the percentage amount approved by the Commission is other than 22 percent, the amounts provided in subdivisions G 1, 2 and 3 shall be adjusted by the proportion that the approved percentage amount bears to 22 percent.
  7. On pari-mutuel pools generated by wagering at the racetrack and each Virginia satellite facility on live horse racing conducted within the Commonwealth involving wagering other than win, place and show wagering, the licensee shall retain a percentage amount approved by the Commission as jointly requested by a recognized majority horsemen’s group and a licensee and the legitimate breakage, out of which shall be paid:
    1. Nine percent as purses or prizes to the participants in such race meeting;
    2. Nine percent, and the proceeds of the pari-mutuel tickets unredeemed 180 days from the date on which the race was conducted, to the operator;
    3. One percent to the Virginia Breeders Fund;
    4. Fifteen one-hundredths percent to the Virginia-Maryland Regional College of Veterinary Medicine;
    5. Five one-hundredths percent to the Virginia Horse Center Foundation;
    6. Five one-hundredths percent to the Virginia Horse Industry Board; and
    7. The remainder of the retainage shall be paid as appropriate under subsection E or F.
  8. On pari-mutuel wagering generated by simulcast horse racing transmitted from jurisdictions outside the Commonwealth, the licensee may, with the approval of the Commission, commingle pools with the racetrack where the transmission emanates or establish separate pools for wagering within the Commonwealth. All simulcast horse racing in this subsection must comply with the Interstate Horse Racing Act of 1978 (15 U.S.C. § 3001 et seq.).
  9. On pari-mutuel pools generated by wagering at the racetrack on simulcast horse racing transmitted from jurisdictions outside the Commonwealth, involving win, place and show wagering, the licensee shall retain one and one-quarter percent of such pool to be distributed as follows: three-quarters percent to the Commonwealth as a license tax, and one-half percent to the Virginia locality in which the racetrack is located.
  10. On pari-mutuel pools generated by wagering at each Virginia satellite facility on simulcast horse racing transmitted from jurisdictions outside the Commonwealth, involving win, place and show wagering, the licensee shall retain one and one-quarter percent of such pool to be distributed as follows: three-quarters percent to the Commonwealth as a license tax, one-quarter percent to the locality in which the satellite facility is located, and one-quarter percent to the Virginia locality in which the racetrack is located.
  11. On pari-mutuel pools generated by wagering at the racetrack and each Virginia satellite facility on simulcast horse racing transmitted from jurisdictions outside the Commonwealth, involving win, place and show wagering, the licensee shall retain one and thirty one-hundredths percent of such pool to be distributed as follows:
    1. One percent of the pool to the Virginia Breeders Fund;
    2. Fifteen one-hundredths percent to the Virginia-Maryland Regional College of Veterinary Medicine;
    3. Five one-hundredths percent to the Virginia Horse Center Foundation;
    4. Five one-hundredths percent to the Virginia Horse Industry Board; and
    5. Five one-hundredths percent to the Virginia Thoroughbred Association for the promotion of breeding in the Commonwealth.
  12. On pari-mutuel pools generated by wagering at the racetrack on simulcast horse racing transmitted from jurisdictions outside the Commonwealth, involving wagering other than win, place and show wagering, the licensee shall retain two and three-quarters percent of such pool to be distributed as follows: one and three-quarters percent to the Commonwealth as a license tax, and one percent to the Virginia locality in which the racetrack is located.
  13. On pari-mutuel pools generated by wagering at each Virginia satellite facility on simulcast horse racing transmitted from jurisdictions outside the Commonwealth, involving wagering other than win, place and show wagering, the licensee shall retain two and three-quarters percent of such pool to be distributed as follows: one and three-quarters percent to the Commonwealth as a license tax, one-half percent to the locality in which the satellite facility is located, and one-half percent to the Virginia locality in which the racetrack is located.
  14. On pari-mutuel pools generated by wagering at the racetrack and each Virginia satellite facility on simulcast horse racing transmitted from jurisdictions outside the Commonwealth, involving wagering other than win, place and show wagering, the licensee shall retain one and thirty one-hundredths percent of such pool to be distributed as follows:
    1. One percent of the pool to the Virginia Breeders Fund;
    2. Fifteen one-hundredths percent to the Virginia-Maryland Regional College of Veterinary Medicine;
    3. Five one-hundredths percent to the Virginia Horse Center Foundation;
    4. Five one-hundredths percent to the Virginia Horse Industry Board; and
    5. Five one-hundredths percent to the Virginia Thoroughbred Association for the promotion of breeding in the Commonwealth.
  15. Moneys payable to the Commonwealth shall be deposited in the general fund. Gross receipts for license tax purposes under Chapter 37 (§ 58.1-3700 et seq.) of Title 58.1 shall not include pari-mutuel wagering pools and license taxes authorized by this section.
  16. All payments by the licensee to the Commonwealth or any locality shall be made within five days from the date on which such wagers are received by the licensee. All payments by the licensee to the Virginia Breeders Fund shall be made to the Commission within five days from the date on which such wagers are received by the licensee. All payments by the licensee to the Virginia-Maryland Regional College of Veterinary Medicine, the Virginia Horse Center Foundation, the Virginia Horse Industry Board, and the Virginia Thoroughbred Association shall be made by the first day of each quarter of the calendar year. All payments made under this section shall be used in support of the policy of the Commonwealth to sustain and promote the growth of a native industry.
  17. If a satellite facility is located in more than one locality, any amount a licensee is required to pay under this section to the locality in which the satellite facility is located shall be prorated in equal shares among those localities.
  18. Any contractual agreement between a licensee and other entities concerning the distribution of the remaining portion of the retainage under subsections I through N and subsections u and V shall be subject to the approval of the Commission.
  19. The recognized majority horsemen’s group racing at a licensed race meeting may, subject to the approval of the Commission, withdraw for administrative costs associated with serving the interests of the horsemen an amount not to exceed two percent of the amount in the horsemen’s account.
  20. The legitimate breakage from each pari-mutuel pool for live, historical, and simulcast horse racing shall be distributed as follows:
    1. Seventy percent to be retained by the licensee to be used for capital improvements that are subject to approval of the Commission; and
    2. Thirty percent to be deposited in the Racing Benevolence Fund, administered jointly by the licensee and the recognized majority horsemen’s group racing at a licensed race meeting, to be disbursed with the approval of the Commission for gambling addiction and substance abuse counseling, recreational, educational or other related programs.
  21. On pari-mutuel pools generated by wagering on historical horse racing on the first 3,000 terminals authorized, the licensee shall retain 1.25 percent of such pool to be distributed as follows:
    1. Seventy-four hundredths percent to the Commonwealth as a license tax and 0.01 percent to the Problem Gambling Treatment and Support Fund established pursuant to § 37.2-314.2 ; and
      1. If generated at a racetrack, 0.5 percent to the locality in which the racetrack is located; or
      2. If generated at a satellite facility, 0.25 percent to the locality in which the satellite facility is located and 0.25 percent to the Virginia locality in which the racetrack is located.
  22. On pari-mutuel pools generated by wagering on historical racing on the 2,000 terminals authorized by the seventh enactment of Chapters 1197 and 1248 of the Acts of Assembly of 2020, the licensee shall retain 1.6 percent of such pool to be distributed as follows:
    1. Ninety-five hundredths percent to the Commonwealth as a license tax and 0.01 percent to the Problem Gambling Treatment and Support Fund established pursuant to § 37.2-314.2 ; and
      1. If generated at a racetrack, 0.64 percent to the locality in which the racetrack is located; or
      2. If generated at a satellite facility, 0.32 percent to the locality in which the satellite facility is located and 0.32 percent to the Virginia locality in which the racetrack is located.

History. 1988, c. 855; 1991, c. 591; 1992, c. 820; 1995, c. 217; 1998, cc. 608, 619; 2000, c. 1031; 2007, c. 61; 2011, c. 732; 2015, cc. 731, 751; 2018, c. 811; 2022, c. 511.

Editor’s note.

Acts 2011, c. 732, cl. 2 provides: “That the Virginia Racing Commission shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

Acts 2018, c. 811, cl. 2 provides: “That the Virginia Racing Commission shall promulgate regulations to implement the provisions of this act to be effective within 180 days of its enactment.”

Acts 2020, c. 1289, as amended by Acts 2021, Sp. Sess. I, c. 552, Item 110 B, effective for the biennium ending June 30, 2022, provides: “Notwithstanding the provisions of § 59.1-392, Code of Virginia, up to $255,000 the first year and $255,000 the second year shall be transferred to Virginia Polytechnic Institute and State University to support the Virginia-Maryland Regional College of Veterinary Medicine.”

The 2000 amendments.

The 2000 amendment by c. 1031, effective April 19, 2000, deleted “and all the breakage” following “Nine percent” in subdivision G 2, and added subdivisions S and T.

The 2007 amendments.

The 2007 amendment by c. 61 substituted “Virginia Horse Center Foundation” for “Virginia Equine Center Foundation” in subdivisions D 5, G 5, K 3 and N 3 and in the third sentence of subsection P.

The 2011 amendments.

The 2011 amendment by c. 732, in subsection B and C, substituted “a percentage amount approved by the Commission as jointly requested by a recognized majority horseman’s group and an unlimited licensee” for “an amount not to exceed eighteen percent of such pool” and added a proviso at the end; in subsection A, deleted “eighteen percent” following “The remainder of the” in the second sentence; in subsection D, substituted “a percentage amount approved by the Commission as jointly requested by a recognized majority horseman’s group and an unlimited licensee” for “an amount not to exceed eighteen percent of such pool”; in subdivision D 7, deleted “eighteen percent” preceding ”retainage shall be paid as appropriate”; in subsections E, F, and G, substituted “a percentage amount approved by the Commission as jointly requested by a recognized majority horseman’s group and an unlimited licensee” for “an amount not to exceed twenty-two percent of such pool”; in subsections E and F, added a proviso at the end; added subdivisions K 5 and N 5; and made minor stylistic changes.

The 2015 amendments.

The 2015 amendments by cc. 731 and 751 are identical, and substituted “majority horsemen’s group and a licensee” for “majority horseman’s group and an unlimited licensee” throughout; and in subsection S and subdivision T 2, substituted “The recognized majority horsemen’s group racing at a licensed race” for “The horsemen’s organizations representing a majority of the horsemen racing at a licensed unlimited race.”

The 2018 amendments.

The 2018 amendment by c. 811, in subsection R, inserted “and subsection U”; in subsection T, substituted “live, historical, and simulcast horse racing” for “both live racing and simulcast horse racing” in the opening paragraph; and added subsection U.

The 2022 amendments.

The 2022 amendment by c. 511, substituted “subsections U and V” for “subsection U” in subsection R; in subsection U, inserted “on the first 3,000 terminals authorized” and substituted “retain 1.25 percent” for “retain one and one-quarter percent”; rewrote subdivision U 1, which read: “Three-quarters percent to the Commonwealth as a license tax; and”; substituted “0.5 percent” for “one-half percent” in subdivision U 2 a; substituted “0.25 percent” for “one-quarter percent” twice in subdivision U 2 b; and added subsection V.

§ 59.1-392.1. Advance deposit account wagering revenues; distribution.

  1. Notwithstanding the provisions of § 59.1-392, the allocation of revenue from advance deposit account wagering shall include (i) a licensee fee of 1.5 percent paid to the Commission; (ii) an additional fee equal to one percent of all wagers made within the Commonwealth placed through an advance deposit account wagering licensee, which shall be paid to the Virginia Breeders Fund, and (iii) an additional fee equal to nine percent of all wagers made within the Commonwealth placed through an advance deposit account wagering licensee, out of which shall be paid:
    1. Four percent to a nonprofit industry stakeholder organization recognized by, and with oversight from, the Commission to include the recognized majority horsemen’s group, a breeder’s organization, and a licensed track operator for the purpose of promoting, sustaining, and advancing horse racing within the Commonwealth; and
    2. Five percent to representatives of the recognized majority horsemen’s group by breed to be used for purse funds at races conducted in the Commonwealth, unless otherwise authorized by the Commission.Notwithstanding the foregoing, if the advance deposit account wagering licensee is a significant infrastructure limited licensee, the additional fee equal to nine percent of the wagers placed through such advance deposit account wagering licensee since November 1, 2014, shall instead be retained by such licensee for operational expenses, including defraying the costs of live racing.
  2. The Commission-recognized nonprofit industry stakeholder organization shall make distributions from fees received from advance deposit wagering to organizations within the Commonwealth providing care for retired race horses, the Virginia-Maryland Regional College of Veterinary Medicine, the Virginia Horse Center Foundation, the Virginia Horse Industry Board, and the Virginia Thoroughbred Association in the percentages of wagering handles set forth in subsections K and N of § 59.1-392, and shall make a distribution of thirty-five one-hundredths of one percent of all wagers made within the Commonwealth placed through such advance deposit account wagering licensee to the locality where live racing licensed by the Commission occurred prior to January 1, 2012, and beginning January 1, 2020, to the locality or localities where such live racing occurs to be shared in a ratio of the number of such annual live races in a locality to the total number of such annual lives races in the Commonwealth. Distributions under this section from the Commission-recognized nonprofit stakeholder organization to the foregoing entities and locality or localities, when added to the distributions to such entities and locality or localities under § 59-1.392, shall be capped at the sum necessary to equal distributions made in the 2013 calendar year to each entity under § 59-1.392, and shall be capped at the sum necessary to equal $400,000 for a locality or localities.
  3. Any additional distribution of fees received from advance deposit account licensees by the Commission-recognized nonprofit industry stakeholder organization shall be approved by the Commission.

History. 2015, cc. 731, 751.

§ 59.1-393. Admissions tax.

The governing body of any county or city may by ordinance impose a tax on any licensee hereunder to conduct a race meeting at a track located solely in such county or city of twenty-five cents on the admission of each person on each day except those holding a valid permit under this chapter and actually employed at such track in the capacity for which such permit was issued. The licensee may collect such amount from the ticket holder in addition to the amount charged for the ticket of admission.

If such track or its enclosure is located in two or in three localities, each locality may impose a tax hereunder of twelve and one-half cents or eight and one-third cents per person, respectively.

Gross receipts for license tax purposes under Chapter 37 of Title 58.1 shall not include the admissions tax imposed under this section.

History. 1988, c. 855; 1991, c. 591.

§ 59.1-394. Audit required.

A regular post-audit shall be conducted of all accounts and transactions of the Commission. An audit of a fiscal and compliance nature of the accounts and transactions of the Commission shall be conducted by the Auditor of Public Accounts as determined necessary by the Auditor of Public Accounts. The cost of the audit and post-audit examinations shall be borne by the Commission.

History. 1988, c. 855; 2018, cc. 57, 307.

The 2018 amendments.

The 2018 amendments by cc. 57 and 307 are identical, and in the second and third sentences, deleted “annual” preceding “audit” and in the second sentence, substituted “as determined necessary by the Auditor of Public Accounts” for “on or before September 30 of each year.”

Article 5.1. Live Horseracing Compact.

§ 59.1-394.1. Live Horseracing Compact; form of compact.

The Live Horseracing Compact is enacted into law and entered into with all other jurisdictions legally joining therein in the form substantially as follows:

ARTICLE I. Purposes.

§ 1

Purposes.

The purposes of this compact are to:

  1. Establish uniform requirements among the party states for the licensing of participants in live horse racing with pari-mutuel wagering, and ensure that all such participants who are licensed pursuant to this compact meet a uniform minimum standard of honesty and integrity.
  2. Facilitate the growth of the horse racing industry in each party state and nationwide by simplifying the process for licensing participants in live racing, and reduce the duplicative and costly process of separate licensing by the regulatory agency in each state that conducts live horse racing with pari-mutuel wagering.
  3. Authorize the Virginia Racing Commission to participate in this compact.
  4. Provide for participation in this compact by officials of the party states, and permit those officials, through the compact committee established by this compact, to enter into contracts with governmental agencies and nongovernmental persons to carry out the purposes of this compact.
  5. Establish the compact committee created by this compact as an interstate governmental entity duly authorized to request and receive criminal history record information from the Federal Bureau of Investigation and other state and local law-enforcement agencies.

ARTICLE II. Definitions.

§ 2

Definitions.

“Compact committee” means the organization of officials from the party states that is authorized and empowered by this compact to carry out the purposes of this compact.

“Official” means the appointed, elected, designated or otherwise duly selected representative of a racing commission or the equivalent thereof in a party state who represents that party state as a member of the compact committee.

“Participants in live racing” means participants in live horse racing with pari-mutuel wagering in the party states.

“Party state” means each state that has enacted this compact.

“State” means each of the several states of the United States, the District of Columbia, the Commonwealth of Puerto Rico and each territory or possession of the United States.

ARTICLE III. Entry into Force, Eligible Parties and Withdrawal.

§ 3

Entry into force.

This compact shall come into force when enacted by any four states. Thereafter, this compact shall become effective as to any other state upon (i) that state’s enactment of this compact and (ii) the affirmative vote of a majority of the officials on the compact committee as provided in § 8.

§ 4

States eligible to join compact.

Any state that has adopted or authorized horse racing with pari-mutuel wagering shall be eligible to become party to this compact.

§ 5

Withdrawal from compact and impact thereof on force and effect of compact.

Any party state may withdraw from this compact by enacting a statute repealing this compact, but no such withdrawal shall become effective until the head of the executive branch of the withdrawing state has given notice in writing of such withdrawal to the head of the executive branch of all other party states. If as a result of withdrawals participation in this compact decreases to less than three party states, this compact no longer shall be in force and effect unless and until there are at least three or more party states again participating in this compact.

ARTICLE IV. Compact Committee.

§ 6

Compact committee established.

There is hereby created an interstate governmental entity to be known as the “compact committee,” which shall be comprised of one official from the racing commission or its equivalent in each party state who shall be appointed, serve and be subject to removal in accordance with the laws of the party state he represents. Pursuant to the laws of his party state, each official shall have the assistance of his state’s racing commission or the equivalent thereof in considering issues related to licensing of participants in live racing and in fulfilling his responsibilities as the representative from his state to the compact committee. If an official is unable to perform any duty in connection with the powers and duties of the compact committee, the racing commission or equivalent thereof from his state shall designate an alternate who shall serve in his place and represent the party state as its official on the compact committee until that racing commission or equivalent thereof determines that the original representative official is able once again to perform his duties as that party state’s representative official on the compact committee. The designation of an alternate shall be communicated by the affected state’s racing commission or equivalent thereof to the compact committee as the committee’s bylaws may provide.

§ 7

Powers and duties of compact committee.

In order to carry out the purposes of this compact, the compact committee is hereby granted the power and duty to:

  1. Determine which categories of participants in live racing, including but not limited to owners, trainers, jockeys, grooms, mutuel clerks, racing officials, veterinarians, and farriers, and which categories of equivalent participants in live racing with pari-mutuel wagering authorized in two or more of the party states, should be licensed by the committee, and establish the requirements for the initial licensure of applicants in each such category, the term of the license for each category, and the requirements for renewal of licenses in each category. Provided, however, that with regard to requests for criminal record on the issuance or renewal of a license, the compact committee shall determine for each category of participants in live racing which licensure requirements for that category are, in its judgment, the most restrictive licensure requirements of any party state for that category and shall adopt licensure requirements for that category that are, in its judgment, comparable to those most restrictive requirements.
  2. Investigate applicants for a license from the compact committee and, as permitted by federal and state law, gather information on such applicants, including criminal history record information from the Federal Bureau of Investigation and relevant state and local law-enforcement agencies, and, where appropriate, from the Royal Canadian Mounted Police and law-enforcement agencies of other countries, necessary to determine whether a license should be issued under the licensure requirements established by the committee as provided in paragraph 1 of this section. Only officials on, and employees of, the compact committee may receive and review such criminal history record information, and those officials and employees may use that information only for the purposes of this compact. No such official or employee may disclose or disseminate such information to any person or entity other than another official or employee of the compact committee. The fingerprints of each applicant for a license from the compact committee shall be taken by the compact committee, its employees, or its designee and, pursuant to Public Law 92-544 or Public Law 100-413, shall be forwarded to a state identification bureau, or an association of state officials regulating pari-mutuel wagering designated by the Attorney General of the United States, for submission to the Federal Bureau of Investigation for a criminal history record check. Such fingerprints may be submitted on a fingerprint card or by electronic or other means authorized by the Federal Bureau of Investigation or other receiving law-enforcement agency.
  3. Issue licenses to, and renew the licenses of, participants in live racing listed in paragraph 1 of this section who are found by the committee to have met the licensure and renewal requirements established by the committee. The compact committee shall not have the power or authority to deny a license. If it determines that an applicant will not be eligible for the issuance or renewal of a compact committee license, the compact committee shall notify the applicant that it will not be able to process his application further. Such notification does not constitute and shall not be considered to be the denial of a license. Any such applicant shall have the right to present additional evidence to, and to be heard by, the compact committee, but the final decision on issuance or renewal of the license shall be made by the compact committee using the requirements established pursuant to paragraph 1 of this section.
  4. Enter into contracts or agreements with governmental agencies and with nongovernmental persons to provide personal services for its activities and such other services as may be necessary to effectuate the purposes of this compact.
  5. Create, appoint, and abolish those offices, employments, and positions, including an executive director, as it deems necessary for the purposes of this compact, prescribe their powers, duties and qualifications, hire persons to fill those offices, employments and positions, and provide for the removal, term, tenure, compensation, fringe benefits, retirement benefits and other conditions of employment of its officers, employees and other positions.
  6. Borrow, accept, or contract for the services of personnel from any state, the United States, or any other governmental agency, or from any person, firm, association, corporation or other entity.
  7. Acquire, hold, and dispose of real and personal property by gift, purchase, lease, license, or in other similar manner, in furtherance of the purposes of this compact.
  8. Charge a fee to each applicant for an initial license or renewal of a license.
  9. Receive other funds through gifts, grants and appropriations.
§ 8

Voting requirements.

  1. Each official shall be entitled to one vote on the compact committee.
  2. All action taken by the compact committee with regard to the addition of party states as provided in § 3, the licensure of participants in live racing, and the receipt and disbursement of funds shall require a majority vote of the total number of officials (or their alternates) on the committee. All other action by the compact committee shall require a majority vote of those officials (or their alternates) present and voting.
  3. No action of the compact committee may be taken unless a quorum is present. A majority of the officials (or their alternates) on the compact committee shall constitute a quorum.
§ 9

Administration and management.

  1. The compact committee shall elect annually from among its members a chairman, a vice-chairman, and a secretary/treasurer.
  2. The compact committee shall adopt bylaws for the conduct of its business by a two-thirds vote of the total number of officials (or their alternates) on the committee at that time and shall have the power by the same vote to amend and rescind such bylaws. The committee shall publish its bylaws in convenient form and shall file a copy thereof and a copy of any amendments thereto with the secretary of state or equivalent agency of each of the party states.
  3. The compact committee may delegate the day-to-day management and administration of its duties and responsibilities to an executive director and his support staff.
  4. Employees of the compact committee shall be considered governmental employees.
§ 10

Immunity from liability for performance of official responsibilities and duties.

No official of a party state or employee of the compact committee shall be held personally liable for any good faith act or omission that occurs during the performance and within the scope of his responsibilities and duties under this compact.

ARTICLE V. Rights and Responsibilities of Each Party State.

§ 11

Rights and responsibilities of each party state.

  1. By enacting this compact, each party state:
    1. Agrees (i) to accept the decisions of the compact committee regarding the issuance of compact committee licenses to participants in live racing pursuant to the committee’s licensure requirements and (ii) to reimburse or otherwise pay the expenses of its official representative on the compact committee or his alternate.
    2. Agrees not to treat a notification to an applicant by the compact committee under paragraph 3 of § 7 that the compact committee will not be able to process his application further as the denial of a license, or to penalize such an applicant in any other way based solely on such a decision by the compact committee.
    3. Reserves the right (i) to charge a fee for the use of a compact committee license in that state, (ii) to apply its own standards in determining whether, on the facts of a particular case, a compact committee license should be suspended or revoked, (iii) to apply its own standards in determining licensure eligibility, under the laws of that party state, for categories of participants in live racing that the compact committee determines not to license and for individual participants in live racing who do not meet the licensure requirements of the compact committee, and (iv) to establish its own licensure standards for the licensure of nonracing employees at horse racetracks and employees at separate satellite wagering facilities. Any party state that suspends or revokes a compact committee license shall, through its racing commission or the equivalent thereof or otherwise, promptly notify the compact committee of that suspension or revocation.
  2. No party state shall be held liable for the debts or other financial obligations incurred by the compact committee.

ARTICLE VI. Construction and Severability.

§ 12

Construction and severability.

This compact shall be liberally construed so as to effectuate its purposes. The provisions of this compact shall be severable, and, if any phrase, clause, sentence or provision of this compact is declared to be contrary to the Constitution of the United States or of any party state, or the applicability of this compact to any government, agency, person or circumstance is held invalid, the validity of the remainder of this compact and the applicability thereof to any government, agency, person or circumstance shall not be affected thereby. If all or some portion of this compact is held to be contrary to the constitution of any party state, the compact shall remain in full force and effect as to the remaining party states and in full force and effect as to the state affected as to all severable matters.

History. 2000, c. 992; 2003, c. 722.

Compact cross references.

As to provisions of other member states, see:

California: Cal Bus & Prof Code, §§ 19527, 19528.

Delaware: 3 Del. C. § 10200 et seq.

Florida: Fla. Stat. § 550.901 et seq.

Kentucky: K.R.S. § 230.3751.

Louisiana: La. R.S. 4:275 et seq.

Maryland: Md. Business Regulation Code Ann. § 11-1301 et seq.

Nebraska: R.R.S. Neb. § 2-1247.

New Jersey: N.J. Stat. § 5:5-161 et seq.

New York: NY CLS Racing & Wagering § 1101 et seq.

Oklahoma: 3A Okl. St. § 240.

Washington: Rev. Code Wash. (ARCW) § 67.17.005 et seq.

The 2003 amendments.

The 2003 amendment by c. 722 substituted “duly selected representative” for “duly selected member” in the paragraph defining “Official” in § 2 of Article II; deleted “another of its members” following “shall designate” in the third sentence of § 6 of Article IV; and in § 7 of Article IV, inserted “and which categories of equivalent participants in live racing with pari-mutuel wagering authorized in two or more of the party states” near middle of the first sentence of subdivision 1, and deleted “to the Association of Racing Commissioners, International“ preceding “an association of state officials” in the fourth sentence of subdivision 2.

§ 59.1-394.2. Compact Committee members.

The Governor shall appoint one official to represent the Commonwealth on the Compact Committee for a term of four years. No official shall serve more than three consecutive terms. A vacancy shall be filled by the Governor for the unexpired term.

History. 2000, c. 992.

§ 59.1-394.3. Cooperation of departments, agencies and officers of the Commonwealth.

All departments, agencies and officers of the Commonwealth and its political subdivisions are hereby authorized to cooperate with the Compact Committee in furtherance of any of its activities pursuant to the Compact.

History. 2000, c. 992.

§ 59.1-394.4. Racing Commission powers preserved.

Nothing in this article shall be construed to diminish or limit the powers and responsibilities of the Racing Commission established by Article 1 of this chapter or to invalidate any action of the Racing Commission previously taken, including without limitation any regulation promulgated thereby.

History. 2000, c. 992.

Article 6. Criminal Penalties.

§ 59.1-395. Unlawful conduct of wagering.

Any person not licensed under subdivision 5 of § 59.1-369 or under Article 2 (§ 59.1-375 et seq.) of this chapter who conducts pari-mutuel wagering, or horse racing on which wagering is conducted with his knowledge or consent, shall be guilty of a Class 4 felony.

History. 1988, c. 855; 2003, c. 682.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

The 2003 amendments.

The 2003 amendment by c. 682 substituted “under subdivision 5 of § 59.1-369 or under Article 2 (§ 59.1-375 et seq.) of this chapter” for “hereunder.”

§ 59.1-396. Fraudulent use of credential.

Any person other than the lawful holder thereof who has in his possession any credential, license or permit issued by the Commission, or a forged or simulated credential, license or permit of the Commission, and who uses such credential, license or permit for the purpose of misrepresentation, fraud or touting is guilty of a Class 4 felony.

Any credential, license or permit issued by the Commission, if used by the holder thereof for a purpose other than identification and in the performance of legitimate duties on a racetrack or within a satellite facility, shall be automatically revoked whether so used on or off a racetrack or satellite facility.

History. 1988, c. 855; 1992, c. 820.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

§ 59.1-397. Unlawful transmission of information.

Any person who knowingly transmits information as to the progress or results of a horse race, or information as to wagers, betting odds, post or off times, or jockey changes in any race by any means whatsoever for the purposes of carrying on illegal gambling operations as defined in § 18.2-325 , or to a person engaged in illegal gambling operations shall be guilty of a Class 4 felony.

This section shall not be construed to prohibit a newspaper from printing such results or information as news, or any television or radio station from telecasting or broadcasting such results or information as news. This section shall not be so construed as to place in jeopardy any common carrier or its agents performing operations within the scope of a public franchise, or any gambling operation authorized by law.

History. 1988, c. 855.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

§ 59.1-398. Touting.

Any person, who knowingly and designedly by false representation attempts to, or does persuade, procure or cause another person to wager on a horse in a race to be run in this Commonwealth or elsewhere, and upon which money is wagered in this Commonwealth, and who asks or demands compensation as a reward for information or purported information given in such case, shall be guilty of a Class 1 misdemeanor.

History. 1988, c. 855.

Cross references.

As to punishment for Class 1 misdemeanors, see § 18.2-11 .

§ 59.1-399. Bribing of a jockey, driver or other participant.

Any person who gives, promises or offers to any jockey, driver, groom or any person participating in any race meeting, including owners of racetracks and their employees, stewards, trainers, judges, starters and special policemen, any valuable thing with intent to influence him to attempt to lose or cause to be lost a horse race in which such person is taking part or expects to take part, or has any duty or connection, or who, being either jockey, driver, or groom or participant in a race meeting, solicits or accepts any valuable thing to influence him to lose or cause to be lost a horse race in which he is taking part, or expects to take part, or has any duty or connection, shall be guilty of a Class 4 felony.

History. 1988, c. 855.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

§ 59.1-400. Prohibited acts, administration of drugs, etc.; penalty.

Any person who, with the intent to defraud, acts to alter the outcome of a race by (i) the administration of any substance foreign to the natural horse, except those substances specifically permitted by the regulations of the Virginia Racing Commission, or (ii) the use of any device, electrical or otherwise, except those specifically permitted by the regulations of the Virginia Racing Commission, shall be guilty of a Class 4 felony.

Any person who, with the intent to defraud, influences or conspires with another to alter the outcome of a race by (i) the administration of any substance foreign to the natural horse, except those substances specifically permitted by the regulations of the Virginia Racing Commission, or (ii) the use of any device, electrical or otherwise, except those specifically permitted by the regulations of the Virginia Racing Commission, shall be guilty of a Class 4 felony.

Any person who (i) administers any substance foreign to the natural horse, except those substances specifically permitted by the regulations of the Virginia Racing Commission, when the horse is entered to start, or (ii) at any time, exposes any substance foreign to the natural horse with the intent of impeding or increasing the speed, endurance, health, or condition of a horse, shall be guilty of a Class 4 felony.

History. 1988, c. 855; 1990, c. 366.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

§ 59.1-401. Possessing drugs.

The possession or transportation of any drug except those permitted by regulations of the Commission within the racing enclosure is prohibited except upon a bona fide veterinarian’s prescription with complete statement of uses and purposes on the container. A copy of such prescription shall be filed with the stewards. Any person knowingly violating the provisions of this section relating to the legal possession of drugs shall be guilty of a Class 1 misdemeanor. The provisions of the Drug Control Act (§ 54.1-3400 et seq.) shall apply in situations where drugs regulated by that Act are within the racing enclosure.

History. 1988, c. 855.

Cross references.

As to punishment for Class 1 misdemeanors, see § 18.2-11 .

§ 59.1-402. Racing under false name; penalty.

Any person who knowingly enters or races any horse in any running or harness race under any name or designation other than the name or designation assigned to such horse by and registered with the Jockey Club, the United States Trotting Association, the American Quarter Horse Association, or other applicable association or who knowingly instigates, engages in, or in any way furthers any act by which any horse is entered or raced in any running or trotting race under any name or designation other than the name or designation duly assigned by and registered with the Jockey Club, the United States Trotting Association, the American Quarter Horse Association, or other applicable association, is guilty of a Class 4 felony.

History. 1988, c. 855; 1990, c. 351.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

§ 59.1-403. Prohibition on persons under 21 years of age; penalty.

No person shall wager on or conduct any wagering on the outcome of a horse race pursuant to the provisions of this chapter unless such person is 18 years of age or older. No person shall accept any wager from a minor. No person shall be admitted into a satellite facility if such person is under 18 years of age unless accompanied by one of his parents or his legal guardian. No person under 21 years of age shall use any electronic gaming terminal or other electronic device in a satellite facility to wager on or conduct any wagering on historical horse racing. Violation of this section shall be a Class 1 misdemeanor.

History. 1988, c. 855; 1996, cc. 915, 1025; 2022, cc. 502, 503.

Cross references.

As to punishment for Class 1 misdemeanors, see § 18.2-11 .

The 2022 amendments.

The 2022 amendments by cc. 502 and 503 are identical, and substituted “18 years” for “eighteen years” twice; and added the fourth sentence.

§ 59.1-404. Repealed by Acts 1991, c. 591.

Cross references.

As to present provision relating to punishment for making a false statement to the Commission, see § 59.1-377.

As to present provisions relating to suspension or revocation of license and criminal liability for violations, see §§ 59.1-385 and 59.1-390.

§ 59.1-405. Conspiracies and attempts to commit violations.

  1. Any person who conspires, confederates or combines with another, either within or without this Commonwealth, to commit a felony prohibited by this chapter shall be guilty of a Class 4 felony.
  2. Any person who attempts to commit any act prohibited by this article shall be guilty of a criminal offense and punished as provided in either §§ 18.2-26 , 18.2-27 or § 18.2-28 , as appropriate.

History. 1988, c. 855; 1991, c. 591.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

OPINIONS OF THE ATTORNEY GENERAL

Operation of satellite facility. —

If the Virginia Racing Commission issues a license to operate a racetrack and/or a satellite facility, the clear definition of the term “simulcast horse racing” permits the licensee to operate a satellite facility on a daily basis pursuant to the terms of the license. See opinion of Attorney General to The Honorable Robert G. Marshall, Member, House of Delegates, 99-105, 2000 Va. AG LEXIS 11 (2/11/00).

Chapter 29.1. Greyhound Racing.

§ 59.1-405.1. Greyhound racing and simulcasting prohibited; penalty.

  1. No person shall hold, conduct or operate any greyhound races for public exhibition in the Commonwealth for monetary remuneration.
  2. No person shall transmit or receive interstate or intrastate simulcasting of greyhound races for commercial purposes in the Commonwealth.
  3. Any person who violates the provisions of this chapter shall be guilty of a Class 4 felony.

History. 1995, c. 19.

Cross references.

As to punishment for Class 4 felonies, see § 18.2-10 .

Chapter 30. Overhead High Voltage Line Safety Act.

§ 59.1-406. Scope.

This chapter (§ 59.1-406 et seq.) is enacted to promote the safety and protection of persons engaged in work or activity in the vicinity of overhead high voltage lines. The chapter defines the conditions under which work may be carried on safely and provides for the safety arrangements to be taken when any person engages in work or other activity in proximity to overhead high voltage lines.

History. 1989, c. 341.

Law Review.

For article on developments in the field of Virginia public utility law from June 2002 through May 2003, see 38 U. Rich. L. Rev. 195 (2003).

Michie’s Jurisprudence.

For related discussion, see 12B M.J. Master and Servant, § 94.2.

CIRCUIT COURT OPINIONS

Applicability. —

It could not be determined whether the Virginia Overhead High Voltage Line Safety Act, § 59.1-406 et seq., applied as the complaint did not allege the voltage of the power lines by which a decedent was electrocuted or that the lines were overhead high voltage lines. Rodriguez v. N. Va. Elec. Coop., 79 Va. Cir. 266, 2009 Va. Cir. LEXIS 236 (Loudoun County Sept. 14, 2009).

§ 59.1-407. Definitions.

As used in this chapter:

“Covered equipment” means any mechanical equipment or hoisting equipment, any part of which is capable of vertical, lateral or swinging motion that could cause the equipment to be operated within ten feet of an overhead high voltage line, including but not limited to cranes, derricks, power shovels, drilling rigs, excavating equipment, hay loaders, hay stackers, combines, grain augers and mechanical cotton pickers.

“Notice” means actual notification in the manner prescribed in § 59.1-411.

“Overhead high voltage line” means all above ground bare or insulated electrical conductors of voltage in excess of 600 volts measured between conductors or measured between a conductor and the ground, except those conductors that are de-energized and grounded or that are enclosed in rigid metallic conduit or flexible armored conduit.

“Person” means natural person, firm, business association, company, partnership, corporation or other legal entity.

“Person responsible for the work” means the person performing or controlling the work.

“Warning sign” means a weather-resistant sign of not less than five inches by seven inches with a yellow background and black lettering reading as follows: “WARNING — UNLAWFUL TO OPERATE THIS EQUIPMENT WITHIN 10 FEET OF OVERHEAD HIGH VOLTAGE LINES” or such other equally effective warning signs as may be approved for use by the Virginia Safety and Health Codes Board or the Commissioner of Labor and Industry.

“Work” means the physical act of performing or preparing to perform any activity under, over, by, or near overhead high voltage lines, including, but not limited to, the operation, erection, handling, storage, or transportation of any tools, machinery, ladders, antennas, equipment, covered equipment, supplies, materials, or apparatus, or the moving of any house or other structure, whenever such activity is done by a person or entity in pursuit of his trade or business.

“Working day” means every day except Saturdays, Sundays, and legal state and federal holidays.

History. 1989, c. 341; 2003, c. 364.

The 2003 amendments.

The 2003 amendment by c. 364 added the definition of “Notice”; in the definition of “Person,” deleted “to be done” following “responsible for the work” and substituted “work” for “job or activity” at the end; in the definition of “Warning sign,” substituted “10” for “TEN”; and added the definitions of “Work” and “Working day.”

§ 59.1-408. Prohibited activities.

Unless danger of contact with overhead high voltage lines has been guarded against as provided by § 59.1-410:

  1. No person shall, individually or through an agent or employee, perform, or require any other person to perform, any work, as defined in § 59.1-407, that will cause any person or tools, machinery, ladders, antennas, equipment, covered equipment, supplies, materials, or apparatus to be placed within 10 feet (3.1 meters) of any overhead high voltage line.
  2. A clearance greater than 10 feet (3.1 meters) may be required under the circumstances by the occupational safety and health regulations adopted by the Safety and Health Codes Board pursuant to Chapter 3 (§ 40.1-22 et seq.) of Title 40.1 and enforced by the Commissioner of Labor and Industry.
  3. The prohibited activities as described in this section shall not apply to covered equipment as defined herein when lawfully driven or transported on public streets and highways in compliance with the height restriction imposed by § 46.2-1110 , nor shall they apply to covered equipment, when used in agricultural or silvicultural activities, that is in compliance with the height restrictions imposed by § 46.2-1110 when driven or transported on land used for agricultural or silvicultural activities.

History. 1989, c. 341; 1995, c. 298; 2003, c. 364.

The 2003 amendments.

The 2003 amendment by c. 364 rewrote the section.

§ 59.1-409. Warning signs.

  1. No person shall, individually or through an agent or employee, or as an agent or employee, operate any covered equipment in the proximity of an overhead high voltage line unless there is posted and maintained a warning sign placed as follows:
    1. Within the equipment and readily visible and legible to the operator of such equipment when at the controls of such equipment; and
    2. On the outside of equipment in such numbers and locations as to be readily visible and legible at 12 feet to other persons engaged in the work operations.
  2. It shall be the duty and responsibility of the owner, lessee, or employer of any covered equipment to acquaint themselves, and their employees who will be operating the equipment or will be engaged in work, with the provisions of this chapter and the regulations prescribed and promulgated pursuant to it.

History. 1989, c. 341; 2003, c. 364.

The 2003 amendments.

The 2003 amendment by c. 364, in subdivision A 2, substituted “12” for “twelve,” and in subsection B, substituted “engaged in work” for “engaged in work operations.”

§ 59.1-410. Temporary safety arrangements.

  1. When any person desires to carry on any work in closer proximity to any overhead high voltage line than permitted by this chapter, the person responsible for the work shall promptly notify the owner or operator of the high voltage line on a working day, or in emergency situations as soon as possible under the circumstances, in the manner prescribed in § 59.1-411. The work shall be performed only after satisfactory mutual arrangements have been negotiated between the owner or the operator of the lines or both and the person responsible for the work. The negotiations shall proceed promptly and in good faith with the goal of accommodating the requested work consistent with the owner’s or operator’s service needs and the duty to protect the public from the danger of overhead high voltage lines. The owner or operator of the lines shall initiate the agreed upon safety arrangements within five working days from the date of the request of the person responsible for the work. The owner and operator of the lines shall complete the work promptly and without interruption, consistent with the owner’s or operator’s service needs. Arrangements may include (i) placement of temporary mechanical barriers separating and preventing contact between material, equipment, or persons and overhead high voltage lines, (ii) temporary de-energization and grounding, (iii) temporary relocation or raising of the lines, or (iv) other such measures found to be appropriate in the judgment of the owner or operator of the lines. The person responsible for the work shall ensure that the temporary safety arrangements described in this subsection are completed prior to the commencement of any such work.
  2. The actual expense incurred by any owner or operator of overhead high voltage lines in taking precautionary measures as set out in subsection A of this section, including the wages of its workers involved in making safety arrangements, shall be paid by the person responsible for the work or a person subject to the following exceptions:
    1. In the case of property used for residential purposes, such actual expenses shall be limited to those in excess of $1,000;
    2. Whenever any owner or operator of an overhead high voltage line has located its facilities within a public highway or street right-of-way and the work is performed by or for the Department of Transportation or a city, county or town, the actual expenses shall be the responsibility of the owner or operator of the overhead high voltage lines, unless the owner or operator can provide evidence of prior rights or there is a prior written agreement specifying cost responsibility; and
    3. Whenever it is determined by the Department of Transportation or a city, county or town that the temporary safety arrangements are for the sole convenience of its contractor, the actual expense shall be the responsibility of the contractor.
  3. When requested by a person, an owner or operator of a high voltage line shall provide within a reasonable period of time an estimate of the scope and cost of any required safety arrangements.

History. 1989, c. 341; 1993, c. 284; 1995, c. 298; 1996, c. 267; 2003, c. 364.

The 2003 amendments.

The 2003 amendment by c. 364 rewrote subsection A, and in subsection B, deleted “to be done” following “work.”

§ 59.1-411. Notification.

  1. Every notice served by any person on an owner or operator of an overhead high voltage line pursuant to § 59.1-410 shall contain the following information:
    1. The name of the individual serving such notice;
    2. The location or address of the tract or parcel of land upon which the work is to take place with sufficient particularity to enable the owner or operator of the overhead high voltage lines to ascertain the precise tract or parcel of land involved;
    3. The name, address and work day telephone number of the person responsible for the work;
    4. The field telephone number at the site of such work, if one is available;
    5. The type and extent of the proposed work;
    6. The name of the person for whom the proposed work is being performed;
    7. The time and date of the notice; and
    8. The dates upon which the work is scheduled to commence and be completed.
  2. If the notification required by this chapter is made by telephone, a record of such notification shall be maintained by the owner or operator notified and the person giving the notice to document compliance with the requirements of this chapter.
  3. To facilitate notification required by this chapter, every operator of overhead high voltage lines shall publish a phone number or numbers that, when called, will serve to provide initial notification of the need to arrange for the temporary safety arrangements pursuant to this chapter.
  4. If, after the arrangements required by § 59.1-410 are made, a delay in commencing the work is encountered, then the person responsible for the work shall be required to give a new notice as specified in this section.
  5. The provisions of this section shall not apply to the owner or leaseholder of real estate devoted to agricultural or silvicultural activities beneath a high voltage line, unless otherwise required by state or federal law.

History. 1989, c. 341; 1995, c. 298; 1996, c. 267; 2003, c. 364.

The 2003 amendments.

The 2003 amendment by c. 364 rewrote subdivisions A 2 and A 8; redesignated the second paragraph of subsection B as present subsection C; substituted “that” for “which” in subsection C; and added subsections D and E.

§ 59.1-412. Enforcement of chapter.

The provisions of this chapter shall be considered as safety and health standards of the Commonwealth and enforced as to employers pursuant to § 40.1-49.4 by the Commissioner of Labor and Industry.

In the case of violations of this chapter over which the Commissioner of Labor and Industry does not have enforcement powers pursuant to § 40.1-49.4 , a civil penalty of up to $1,000 may be imposed at the discretion of the general district court for the jurisdiction in which the offense occurred.

History. 1989, c. 341.

§ 59.1-413. Exemptions.

This chapter shall not apply to the construction, reconstruction, operation, and maintenance of overhead electrical or communication circuits or conductors and their supporting structures and associated equipment of (i) rail transportation systems, (ii) electrical generating, transmission or distribution systems, (iii) communication systems, including cable television, or (iv) any other publicly or privately owned system provided that such work on any of the foregoing systems is performed by the employees of the owner or operator of the systems or independent contractors engaged on behalf of the owner or operator of the system to perform the work.

This chapter also shall not apply to electrical or communications circuits or conductors on the premises of coal or other mines which are subject to the provisions of the Federal Mine Safety and Health Act of 1977 (30 U.S.C. § 801 et seq.) and regulations adopted pursuant to that Act by the Mine Safety and Health Administration.

History. 1989, c. 341.

§ 59.1-414. Application.

  1. The owner or operator of overhead high voltage lines shall not be liable for damage or loss to any person or property caused by work within 10 feet of overhead high voltage lines, unless notice has been given as required by § 59.1-411 and the owner or operator of the overhead high voltage line has failed to comply with the provisions of § 59.1-410.
  2. Any person responsible for the work who violates the requirements of § 59.1-408 and whose subsequent activities within the vicinity of overhead high voltage  lines cause damage to utility facilities or cause injury or damage to any person or property shall indemnify the owner or operator of such overhead high voltage lines against all claims arising from personal injury or death, property damage, or service interruptions, together with attorneys’ fees and other costs incurred in defending any such claims directly resulting from work in violation of § 59.1-408.
  3. Except as provided in subsection A, nothing in this chapter shall be construed or applied so as to alter the duty or degree of care applicable to owners or operators of overhead high voltage lines with respect to damage to property, personal injury or death.
  4. Except for the rights provided to the owner or operator of the overhead high voltage line in subsection B, nothing contained in this chapter shall be construed to alter, amend, restrict, or limit the exclusive remedy provisions of § 65.2-307 .

History. 1989, c. 341; 2003, c. 364.

The 2003 amendments.

The 2003 amendment by c. 364 rewrote the section.

Chapter 31. Prizes and Gifts Act.

§ 59.1-415. Definitions.

As used in this chapter, which shall be known and may be cited as the “Prizes and Gifts Act”:

“Anything of value,” “item of value” or “item” means any item or service with monetary value.

“Handling charge” means any charge, fee or sum of money which is paid by a consumer to receive a prize, gift or any item of value including, but not limited to, promotional fees, redemption fees, registration fees or delivery costs.

“Pay-per-call service” means any passive, interactive, polling, conference, or other similar audiotext service that is accessed through a 900 number exchange or otherwise, and generates a service-related fee billed to a telephone customer.

“Person” means any natural person, corporation, trust, partnership, association and any other legal entity.

History. 1989, c. 689; 1991, c. 154.

The numbers of §§ 59.1-415 through 59.1-423 were assigned by the Virginia Code Commission, the numbers in the 1989 act having been 59.1-406 through 59.1-414.

§ 59.1-416. Representation of having won a prize, gift or any item of value.

  1. No person shall, in connection with the sale or lease or solicitation for the sale or lease of goods, property, or service, represent that another person has won anything of value or is the winner of a contest, unless all of the following conditions are met:
    1. The recipient of the prize, gift or item of value shall be given the prize, gift or item of value without obligation; and
    2. The prize, gift or item of value shall be delivered to the recipient at no expense to him, within ten days of the representation.
  2. The use of language that may lead a reasonable person to believe he has won a contest or anything of value, including, but not limited to, “Congratulations,” or “You have won,” or “You are the winner of,” shall be considered a representation of the type governed by this section.

History. 1989, c. 689.

CASE NOTES

Solicitors violated both the Virginia Prizes and Gifts Act and the Virginia Consumer Protection Act. —

They violated this section of the Virginia Prizes and Gifts Act by obligating the consumers to sit through a lengthy sales presentation before giving the consumers their free gift; in addition, they violated § 59.1-417 by failing to reveal to the consumers all material conditions attached to their receipt of the appliance that was represented as a free gift. They also violated § 59.1-417 by failing to list on their worksheets the actual values of the appliances that were represented as being free gifts. In re Fravel, 143 Bankr. 1001, 1992 Bankr. LEXIS 1215 (Bankr. E.D. Va. 1992).

Solicitors obligated to give items as represented. —

Where the solicitors notified prospective consumers that they were recently notified by mail that their family had definitely been awarded—at no cost and with absolutely no purchase necessary—one of the following valuable items, solicitors were required to give the gifts to the prospective consumers without obligation. In re Fravel, 143 Bankr. 1001, 1992 Bankr. LEXIS 1215 (Bankr. E.D. Va. 1992).

§ 59.1-417. Representation of eligibility to win or to receive a prize, gift or item of value.

  1. No person shall, in connection with the sale or lease or solicitation for sale or lease of goods, property or service, represent that another person has a chance to win or to receive a prize, gift or item of value without clearly and conspicuously disclosing on whose behalf the contest or promotion is conducted, as well as all material conditions which a participant must satisfy. In an oral solicitation all material conditions shall be disclosed prior to requesting the consumer to enter into the sale or lease. Additionally, in any written material covered by this section, each of the following shall be clearly and prominently disclosed (i) immediately adjacent to the first identification of the prize, gift or item of value to which it relates or (ii) in a separate section entitled “Consumer Disclosure” which title shall be printed in no less than ten-point bold face type and which section shall contain only a description of the prize, gift or item of value and the disclosures outlined in subdivisions 1, 2 and 3 of this subsection:
    1. The actual retail value of each item or prize, which for purposes of this section shall be (i) the price at which substantial sales of the item were made in the area in which the offer was received within the last ninety days or (ii) the actual cost of the item of value, gift or prize to the person on whose behalf the contest or promotion is conducted plus no more than 700 percent, but in no case shall it exceed such person’s good faith estimate of the appraised retail value;
    2. The actual number of each item, gift or prize to be awarded; and
    3. The odds of receiving each item, gift or prize.
  2. All disclosures required by this chapter to be in writing shall comply with the following:
    1. All dollar values shall be stated in arabic numerals and be preceded by a dollar sign ($).
    2. The number of each item, gift or prize to be awarded and the odds of receiving each item, gift or prize shall be stated in arabic numerals and shall be written in a manner which is clear and understandable.
  3. It shall be unlawful to notify a person that he will receive a gift, prize or item of value that has as a condition of receiving the gift, prize or item of value the requirement that he pay any money, or purchase, lease or rent any goods or services, unless there shall have been clearly and conspicuously disclosed the nature of the charges to be incurred, including, but not limited to, any shipping charge and handling charges.  Such disclosure shall be given (i) on the face of any written materials or (ii) prior to requesting or inviting the person to enter into the sale or lease in any oral notification.
  4. The provisions of this section shall not apply where to be eligible:
    1. Participants are asked only to complete and mail, or deposit at a local retail commercial establishment, an entry blank obtainable locally or by mail, or to call in their entry by telephone; or
    2. Participants are never required to listen to a sales presentation and never requested or required to pay any sum of money for any merchandise, service or item of value.
  5. Nothing in this section shall create any liability for acts by the publisher, owner, agent or employee of a newspaper, periodical, radio station, television station, cable-television system or other advertising medium arising out of the publication or dissemination of any advertisement or promotion governed by this section, when the publisher, owner, agent or employee did not know that the advertisement or promotion violated the requirements of this section.
  6. Every solicitation that seeks to induce its recipient to call a pay-per-call service telephone number to receive any information about a prize, gift, or item of value shall (i) conform to the provisions of this section, and (ii) disclose the total cost of the pay-per-call service immediately adjacent to the pay-per-call service telephone number.  In written materials, this disclosure shall be in ten-point bold-faced type.  All solicitations delivered through the electronic media shall contain the disclosures in such size, duration, or volume so as to be clearly readable or audible to the recipient.

History. 1989, c. 689; 1991, c. 154.

CASE NOTES

Requirements of section. —

This section requires one who represents that a person has a chance to receive a free gift to “clearly and conspicuously” reveal on whose behalf the promotion is being conducted, as well as all material conditions the individual must meet in order to receive the free gift. Additionally, if the solicitation is oral, all material conditions must be disclosed before the consumer is requested to enter into a sale. In re Fravel, 143 Bankr. 1001, 1992 Bankr. LEXIS 1215 (Bankr. E.D. Va. 1992).

Actual retail value of item must be disclosed. —

Written material pertaining to gifts must disclose specific material, including the actual retail value of the item or prize. Where the actual values of the gifts were not disclosed, but rather, the consumers were led to believe the costs of the items were as the consumers themselves had estimated, and where sales representatives wrote down the price the consumers had estimated and made no effort to change the price to the actual value or make the consumers aware that their estimation was incorrect, this section was violated. In re Fravel, 143 Bankr. 1001, 1992 Bankr. LEXIS 1215 (Bankr. E.D. Va. 1992).

Solicitors violated both the Virginia Prizes and Gifts Act and the Virginia Consumer Protection Act. —

They violated § 59.1-416 of the Virginia Prizes and Gifts Act by obligating the consumers to sit through a lengthy sales presentation before giving the consumers their free gift; in addition, they violated this section by failing to reveal to the consumers all material conditions attached to their receipt of the appliance that was represented as a free gift. They also violated this section by failing to list on their worksheets the actual values of the appliances that were represented as being free gifts. In re Fravel, 143 Bankr. 1001, 1992 Bankr. LEXIS 1215 (Bankr. E.D. Va. 1992).

§ 59.1-418. Representation of being specially selected.

  1. No person shall represent that another person has been specially selected in connection with the sale or lease or solicitation for sale or lease of goods, property, or service, unless the selection process is designed to reach a particular type or types of persons.
  2. The use of any language that may lead a reasonable person to believe he has been specially selected, including but not limited to “carefully selected,” or “You have been selected to receive,” or “You have been chosen,” shall be considered a representation of the type governed by this section.

History. 1989, c. 689.

§ 59.1-419. Simulation of checks and invoices.

In connection with a consumer transaction, no person shall issue any writing which simulates or resembles (i) a check unless the writing clearly and conspicuously discloses its true value and purpose, and the writing would not mislead a reasonable person or (ii) an invoice unless the intended recipient of the invoice has actually contracted for goods, property, or services for which the issuer seeks proper payment.

History. 1989, c. 689.

§ 59.1-420. Conditions for handling charges and shipping charges.

  1. It shall be unlawful to notify a person that he will receive a gift, prize or item of value and that as a condition of receiving the gift, prize or item of value he will be required to pay any money, or purchase or lease (including rent) any goods or services, if any one or more of the following conditions exist:
    1. The shipping charge exceeds:
      1. The cost of postage or the charge of a delivery service in the business of delivering goods of like size, weight, and kind for shipping the gift, prize or item of value from the geographic area in which the gift, prize or item of value is being distributed; or
      2. The exact amount for shipping paid to an independent fulfillment house or an independent supplier, either of which is in the business of shipping goods for shippers other than the offeror of the gift, prize or item of value; or
  2. This section shall apply to all offers of prizes, gifts or items of value covered by this chapter.

2. The handling charge exceeds the lesser of five dollars or the actual cost of handling.

History. 1989, c. 689.

§ 59.1-421. Action to enforce the provisions of chapter.

Any consumer who suffers loss by reason of a violation of any provision of this chapter may bring a civil action to enforce such provisions. Any consumer who is successful in such an action shall recover reasonable attorney’s fees, and court costs incurred by bringing such action.

History. 1989, c. 689.

§ 59.1-422. Enforcement; penalties.

Any violation of this chapter shall constitute a prohibited practice under the provisions of § 59.1-200 and shall be subject to any of the enforcement provisions of Chapter 17 (§ 59.1-196 et seq.) of this title.

History. 1989, c. 689.

§ 59.1-423. Exemptions.

The provisions of §§ 59.1-417 through 59.1-420 shall not apply to the sale or purchase, or solicitation or representation in connection therewith, of goods from a catalog or of books, recordings, videocassettes, periodicals and similar goods through a membership group or club which is regulated by the Federal Trade Commission trade regulation rule concerning use of negative option plans by sellers in commerce or through a contractual plan or arrangement such as a continuity plan, subscription arrangement, or a single sale or purchase series arrangement under which the seller ships goods to a consumer who has consented in advance to receive such goods and the recipient of such goods is given the opportunity, after examination of the goods, to receive a full refund of charges for the goods, or unused portion thereof, upon return of the goods, or unused portion thereof, undamaged.

History. 1989, c. 689.

Chapter 32. Virginia Public Telephone Information Act.

§ 59.1-424. Short title.

This chapter may be cited as the “Virginia Public Telephone Information Act.”

History. 1989, c. 703.

The numbers of §§ 59.1-424 through 59.1-428 were assigned by the Virginia Code Commission, the numbers in the 1989 act having been 59.1-406 through 59.1-410.

Michie’s Jurisprudence.

For related discussion, see 18 M.J. Telegraph and Telephone Companies, § 2.

§ 59.1-425. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Alternate operator services provider” means a telecommunications company, other than a local exchange company or interexchange company certificated by the State Corporation Commission or an affiliate or agent of such a company, which provides intrastate long distance operator assisted services where human or automated call intervention is necessary for obtaining billing information from the end-user. However, this exception for local exchange companies and interexchange companies applies only where the rates charged are those of the local exchange company or interexchange company on file with the State Corporation Commission.

“Person” means individual and entity.

“Public telephone equipment provider” means any person who makes available for public use telephone equipment with access to the public switched network where a charge is made to the user for such use and intrastate local or long distance service is provided through such equipment by an alternate operator services provider. This includes but is not limited to hotels, motels, airports, baccalaureate institutions of higher education, hospitals, and coin-operated telephone equipment either privately owned or furnished by local exchange and interstate long distance telephone companies.

History. 1989, c. 703.

Editor’s note.

At the direction of the Virginia Code Commission, “baccalaureate institutions of higher education” was substituted for “universities” in the definition of “Public telephone equipment provider” to conform to Acts 2016, c. 588.

§ 59.1-426. Notice requirements of article.

  1. Any public telephone equipment provider shall conspicuously display the identity of the company which will normally make the charge for any intrastate long distance calls or local operator-assisted calls not handled by the local exchange telephone company placed from such equipment.
    1. Public telephone equipment providers shall disclose on the telephone equipment the method to gain access to other intrastate long distance or local services.  The notice shall also explain how to reach the local exchange telephone company operator unless the local exchange company operator can be reached by dialing “0.” B. 1. Public telephone equipment providers shall disclose on the telephone equipment the method to gain access to other intrastate long distance or local services.  The notice shall also explain how to reach the local exchange telephone company operator unless the local exchange company operator can be reached by dialing “0.”
    2. A notice shall be conspicuously posted on or near the equipment stating “For long distance rates, dial . . . . . . . .” All alternate operator service companies shall provide a toll free number to provide rate information and shall be able to quote a specific rate for each call upon inquiry.  The posting of this notice shall be the responsibility of the subscriber to the alternate operator service.
  2. The alternate operator service shall preannounce to the person placing the call the identity of the provider handling the intrastate toll or operator-assisted local call and the rate for the operator-assisted local call before a cost is incurred by the person placing the call.
  3. No alternate operator service provider may bill for a call placed using a credit card issued by a local exchange telephone company or interexchange carrier without the express consent of the person placing the call.
  4. No provider of operator services, whether or not certificated by the State Corporation Commission, shall enter into any contract or agreement with a customer which provides or permits call blocking of (i) the local exchange operator, (ii) other operator service providers’ 950 or 800 numbers used to gain access to such carriers’ networks, (iii) other operator service providers’ 1-0-XXX-0+ numbers used to gain access to such carriers’ networks, unless a waiver is first obtained from the State Corporation Commission, or (iv) emergency telephone numbers, such as 911.
  5. Any person who adds a charge for use of telephone equipment in placing local or long distance calls shall conspicuously disclose the amount of the charge.
  6. Every public telephone equipment provider, other than a telephone company certificated by the State Corporation Commission, owning coin-operated telephones shall conspicuously post on its coin-operated telephones a notice stating the local emergency telephone number and the complete address of the telephone.  The letter size of the emergency number and address shall be at least one-quarter of an inch in height.

History. 1989, c. 703; 1990, cc. 346, 357.

§ 59.1-427. Enforcement; penalties.

Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act, Chapter 17 (§ 59.1-196 et seq.) of this title.

History. 1989, c. 703.

§ 59.1-428. Repealed by Acts 2015, c. 709, cl. 2.

Editor’s note.

Former § 59.1-428, pertaining to severability, derived from 1989, c. 703.

Chapter 33. Pay-Per-Call Services Act.

§ 59.1-429. Definitions.

As used in this chapter:

“Division” means the Division of Consumer Counsel in the Department of Law.

“Information provider” means any person providing pay-per-call services.

“Long distance carrier” means any interexchange telephone company providing services within the Commonwealth.

“Pay-per-call service” means any passive, interactive, polling, conference, or other similar audiotext service that is accessed by telephone, through a 900 number exchange or otherwise, and generates a service-related fee billed to a telephone customer.

“Telephone company” means a certificated local exchange telephone company which owns, manages, or controls any plant or equipment or any part of a plant or equipment within the Commonwealth for the conveyance of telephone messages, either directly or indirectly.

History. 1991, cc. 608, 630; 2012, cc. 803, 835.

Editor’s note.

Acts 2012, cc. 803 and 835, cl. 16 provides: “That the Governor may transfer an appropriation or any portion thereof within a state agency established, abolished, or otherwise affected by the provisions of the 13th enactment of this act, or from one such agency to another, to support the changes in organization or responsibility resulting from or required by the provisions of the 13th enactment of this act, provided that any such transfer shall be limited to salary and fringe benefits for any personnel transferred and reasonable administrative overhead and costs.”

The 2012 amendments.

The 2012 amendments by cc. 803 and 835, cl. 13, are identical, and deleted definitions of “board” and “commissioner” which read, “‘Board’ means the Virginia Board of Agriculture and Consumer Services. ‘Commissioner’ means the Commissioner of the Department of Agriculture and Consumer Services or his designee.”; and added the paragraph defining “division.”

Michie’s Jurisprudence.

For related discussion, see 18 M.J. Telegraph and Telephone Companies, § 2.

§ 59.1-430. Required disclosures.

  1. Every pay-per-call service advertisement or solicitation shall disclose (i) that a fee in excess of applicable telephone company or long distance carrier charges, if any, is charged for calls to the telephone number provided; (ii) the per-minute or flat-rate charges for the calls; (iii) the average length of call, measured in minutes, required to receive the service; (iv) whether additional calls to other pay-per-call services are required to obtain the full benefit of the service; and (v) the information provider’s name, business address, and business telephone number.In television advertisements, the price disclosure shall be preceded by a dollar sign, stated in arabic numerals, positioned in the lower portion of the television screen in letters large enough to be easily read by viewers and displayed during the entire time the telephone number is displayed.  In written materials, the cost of the call shall be printed in ten-point bold-faced type immediately adjacent to the pay-per-call service telephone number.
  2. The disclosures required by subsection A of this section shall be conspicuously displayed in a manner reasonably intended to furnish advance notice of the pay-per-call service’s total cost.
  3. Every information provider shall disclose to the customer at the beginning of each call for which pay-per-call charges are incurred the per-minute or flat-rate charges for the pay-per-call service if (i) the per-minute rate charged is two dollars or more; (ii) the flat-rate charge is five dollars or more; or (iii) the pay-per-call service is intended for children under the age of twelve, regardless of the amount charged.  In addition, pay-per-call services intended for children under the age of twelve shall also include an introductory statement that children should obtain prior parental approval before calling the service.  The information provider shall also provide a delayed timing of information charges.
  4. Every information provider shall provide a period of a minimum of twelve seconds for a delayed timing of information charges and price disclosure message.  If the delayed timing period is exceeded, a consumer shall be billed from the time of the initial connection, and transport charges shall be billed to the information provider from the time of the initial connection.  If the consumer disconnects the call within the delayed timing period, no information charge shall be billed to the caller.During the delayed timing period, the information provider shall inform the consumer of any information required by subsection C of this section and of all of the following:  (i) the name of the programs; (ii) the date the information was recorded, if the information is a recorded message; and (iii) that if the caller disconnects the call within the delayed timing period, the consumer will not be charged for the call.

History. 1991, cc. 608, 630; 1992, c. 284.

§ 59.1-431. Telephone company and long distance carrier duties.

Every telephone company and long distance carrier shall furnish the following information on any telephone customer’s bill that contains charges for pay-per-call services: (i) the pay-per-call number called; (ii) the date, time, and length of the call; and (iii) the amount charged.

History. 1991, cc. 608, 630.

§ 59.1-432. Regulations.

The Division is authorized to prescribe reasonable regulations in order to implement provisions in this chapter relating to pay-per-call service advertising or solicitation. These regulations shall be adopted, amended, or repealed in accordance with the Administrative Process Act (§ 2.2-4000 et seq.).

History. 1991, cc. 608, 630; 2012, cc. 803, 835.

Editor’s note.

Acts 2012, cc. 803 and 835, cl. 16 provides: “That the Governor may transfer an appropriation or any portion thereof within a state agency established, abolished, or otherwise affected by the provisions of the 13th enactment of this act, or from one such agency to another, to support the changes in organization or responsibility resulting from or required by the provisions of the 13th enactment of this act, provided that any such transfer shall be limited to salary and fringe benefits for any personnel transferred and reasonable administrative overhead and costs.”

The 2012 amendments.

The 2012 amendments by cc. 803 and 835, cl. 13, are identical, and substituted “Division” for “Board” near the beginning of the first sentence.

§ 59.1-433. Investigations.

  1. The Division may, with respect to pay-per-call service advertising or solicitation:
    1. Make necessary public and private investigations within or without this Commonwealth to determine whether any person has violated the provisions of this chapter, or any rule, regulation, or order issued pursuant to this chapter;
    2. Require or permit any person to file a statement in writing, under oath or otherwise as the Division determines, as to all facts and circumstances concerning the matter under investigation; and
    3. Administer oaths or affirmations, and upon such motion or upon request of any party, may subpoena witnesses, compel their attendance, take evidence, and require the production of any matter that is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence.
  2. Any proceeding or hearing of the Division pursuant to this chapter, in which witnesses are subpoenaed and their attendance required for evidence to be taken, or any matter is to be produced to ascertain material evidence, shall take place within the City of Richmond.
  3. If any person fails to obey a subpoena or to answer questions propounded by the Division and upon reasonable notice to all persons affected thereby, the Division may apply to the Circuit Court of the City of Richmond for an order compelling compliance.

History. 1991, cc. 608, 630.

Editor’s note.

At the direction of the Virginia Code Commission, “Division” was substituted for “Commissioner” throughout the section to conform to changes by Acts 2012, cc. 803 and 835.

§ 59.1-434. Enforcement; penalties.

Any violation of this chapter shall constitute a prohibited practice under the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.) of this title.

History. 1991, cc. 608, 630.

Chapter 33.1. Home Service Contract Providers.

§ 59.1-434.1. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Board” means the Board of Agriculture and Consumer Services.

“Commissioner” means the Commissioner of Agriculture and Consumer Services or his designee.

“Home service contract” means a contract or agreement for a separately stated consideration for any duration to perform the service, repair, replacement, or maintenance of property or to indemnify for the costs of service, repair, replacement, or maintenance, for the operational failure of any property due to a defect in materials, workmanship, inherent defect, or normal wear and tear, with or without additional provisions for incidental payment of indemnity under limited circumstances. Home service contracts may provide for the service, repair, replacement, or maintenance of property for damage resulting from power surges or interruption and for accidental damage from handling. Home service contracts may provide roof leak coverage.

“Property” means any component, part, appliance, or household system of a residential property that is covered by a contract, whether such component, part, appliance, or household system is personal property or is affixed as real property to the covered residential property.

“Provider” means a person that is contractually obligated to the purchaser under the terms of the home service contract.

“Purchaser” means a person who enters into a home service contract with a provider.

History. 2017, c. 727.

Editor’s note.

Acts 2017, c. 727, cl. 3 provides: “Until such time as the Department of Taxation promulgates a regulation for providers as defined in § 59.1-434.1 of the Code of Virginia, the provisions of 23 VAC 10-120-89 shall apply, mutatis mutandis, to the minimum tax imposed by § 58.1-400.4 of the Code of Virginia, as created by this act.”

Acts 2017, c. 727, cl. 4 provides: “That any entity that is exempt from the provisions of former Article 2 (§§ 38.2-2617 et seq.) of Chapter 26 of Title 38.2 of the Code of Virginia prior to its repeal pursuant to the second enactment of this act shall be exempt from the provisions of Chapter 33.1 (§ 59.1-434.1 et seq.) of Title 59.1 of the Code of Virginia, as created by this act, for such period that the activities or status of the entity that made it exempt from the application of former Article 2 of Chapter 26 of Title 38.2 continue to exist.”

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

OPINIONS OF THE ATTORNEY GENERAL

Authority to bring action. —

When one of the exemptions to § 38.2-2618 applies to a home service contract provider, including the exemption added in 2010, the State Corporation Commission would not have the authority to bring an enforcement action under § 38.2-2627. See opinion of Attorney General to The Honorable Christopher K. Peace, Member, House of Delegates, Senate of Virginia, 10-027, 2010 Va. AG LEXIS 29 (5/20/10) (decided under former §§ 38.2-2617 through 38.2-2627).

Definition of “contractor.” —

The terms of the home service contract dictate whether a home service contract provider is considered to be a contractor. Should a provider be considered to be a contractor, he must be licensed as a contractor pursuant to Chapter 11 of Title 54.1. See opinion of Attorney General to The Honorable Christopher K. Peace, Member, House of Delegates, Senate of Virginia, 10-027, 2010 Va. AG LEXIS 29 (5/20/10) (decided under former §§ 38.2-2617 through 38.2-2627).

When home service contract providers are considered to be contractors, they must comply with Chapter 11 when they manage and superintend contractors and subcontractors to perform work under the home service contracts they administer. They are not required to comply with Chapter 11 merely by hiring a contractor or subcontractor. See opinion of Attorney General to The Honorable Christopher K. Peace, Member, House of Delegates, Senate of Virginia, 10-027, 2010 Va. AG LEXIS 29 (5/20/10) (decided under former §§ 38.2-2617 through 38.2-2627).

§ 59.1-434.2. Registration; fees.

  1. It shall be unlawful for any provider to offer, advertise, or execute or cause to be executed by the purchaser any home service contract for property in the Commonwealth unless the provider at the time of the solicitation, offer, advertisement, sale, or execution of a contract has been properly registered with the Commissioner. The registration application and renewal shall be on a form provided by the Commissioner and shall (i) disclose the address, ownership, and nature of business of the provider; (ii) be renewed annually on July 1; (iii) be accompanied by a fee of $300 per registration and annual renewal; and (iv) be accompanied by an audited financial statement per registration and annual renewal that is prepared in accordance with generally accepted accounting principles or statutory accounting principles, at the election of the provider. A registration application or registration renewal shall not be considered filed until all required information and fees are received by the Commissioner and taxes are paid pursuant to Article 10 (§ 58.1-400 et seq.) of Chapter 3 of Title 58.1. Notwithstanding § 58.1-3 or any other provision of law, the Department of Taxation and the Department of Agriculture and Consumer Services may exchange information regarding providers for purposes of enforcing the provisions of this chapter. A provider shall not be required by this chapter to file with the Commissioner or any other entity or agency copies of the provider’s home service contract forms or information regarding the rates or charges under the provider’s home service contracts. Any provider that fails to register prior to the sale of a home service contract shall pay a late filing fee of $100 for each 30-day period, or portion thereof, that the registration is late. A provider that fails to timely renew its registration shall pay a late fee of $50 for each 30-day period, or portion thereof, that the annual renewal filing is late. The late fees authorized by this subsection shall be in addition to all other penalties authorized by law.
  2. All fees shall be remitted to the State Treasurer and shall be placed to the credit and in the special fund of the Department of Agriculture and Consumer Services to be used in the administration of this chapter.

History. 2017, c. 727.

Editor’s note.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

§ 59.1-434.3. Bond or letter of credit required.

  1. Every provider shall maintain a funded reserve account for its obligations under its home service contracts issued and outstanding in the Commonwealth. The reserves shall not be less than 40 percent of gross consideration received, less claims paid, on the sale of the home service contract for all in-force home service contracts sold in the Commonwealth.
  2. Each provider, before it is registered under § 59.1-434.2, shall file and maintain with the Commissioner, in form and substance satisfactory to him, a bond with corporate surety, from a company authorized to transact business in the Commonwealth or a letter of credit from a bank insured by the Federal Deposit Insurance Corporation, in the amount of $10,000. Additional bond or letter of credit amounts shall be similarly filed with the Commissioner and shall be adjusted from time to time, in accordance with the following schedule:

    Click to viewThe total amount of unexpired home service contracts shall be the total consideration paid by all purchasers to the provider for all home service contracts currently in effect. The bond or letter of credit required by this subsection shall be in favor of the Commonwealth for the benefit of purchasers of home service contracts for property in the event that the provider does not fulfill its obligations under such home service contracts for any reason, including insolvency or bankruptcy.

  3. The aggregate liability of the bond or letter of credit to all persons for all breaches of the conditions of the bond or letter of credit shall in no event exceed the amount of the bond or letter of credit. The bond or letter of credit shall not be cancelled or terminated except with the consent of the Commissioner.
  4. In lieu of compliance with subsections A and B, a provider may demonstrate financial responsibility by filing with the Commissioner a copy of a liability insurance policy issued by an insurer authorized to transact business in the Commonwealth and that covers 100 percent of the provider’s home service contract liabilities, including the administration of claims and the cost for such administration. Reimbursement insurance policies filed pursuant to this section may not be canceled by either the provider or the issuing insurer without providing 60 days’ notice to the Commissioner.

Total Amount of Unexpired Amount of Bond or Home Service Contracts Letter of Credit $50,001 to $300,000 $40,000 $300,001 to $750,000 $65,000 $750,001 or more $90,000

History. 2017, c. 727.

Editor’s note.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

§ 59.1-434.4. Regulations.

  1. The Board is authorized to adopt reasonable regulations in order to implement provisions in this chapter relating to home service contracts. These regulations shall be adopted, amended, or repealed in accordance with the Administrative Process Act (§ 2.2-4000 et seq.).
  2. Without limiting the authority of the Board under subsection A, the Board is authorized to adopt reasonable regulations that designate services, in addition to those enumerated in the definition of home service contract in § 59.1-434.1, that may be provided under a home service contract, provided that the designation of the additional services is not inconsistent with the provisions of this chapter.

History. 2017, c. 727.

Editor’s note.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

§ 59.1-434.5. Investigations.

  1. The Commissioner may, with respect to home service contracts:
    1. Make necessary public and private investigations within or without the Commonwealth to determine whether any person has violated the provisions of this chapter or any rule, regulation, or order issued pursuant to this chapter;
    2. Require or permit any person to file a statement in writing, under oath or otherwise as the Commissioner determines, as to all facts and circumstances concerning the matter under investigation; and
    3. Administer oaths or affirmations, and upon motion or upon request of any party, may subpoena witnesses, compel their attendance, take evidence, and require the production of any matter that is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence.
  2. Any proceeding or hearing of the Commissioner pursuant to this chapter, in which witnesses are subpoenaed and their attendance required for evidence to be taken, or any matter produced to ascertain material evidence, shall take place within the City of Richmond.
  3. If any person fails to obey the subpoena or to answer questions propounded by the Commissioner and upon reasonable notice to all persons affected thereby, the Commissioner may apply to the Circuit Court of the City of Richmond for an order compelling compliance.

History. 2017, c. 727.

Editor’s note.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

§ 59.1-434.6. Production of records.

Every provider, upon written request of the Commissioner, shall make available to the Commissioner its home service contract records for inspection and copying to enable the Commissioner to reasonably determine compliance with this chapter. Every provider shall maintain a true copy of each contract executed between the provider and a purchaser, and each contract shall be maintained for its term.

History. 2017, c. 727.

Editor’s note.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

§ 59.1-434.7. Home service contracts not insurance; exemptions.

  1. Home service contracts are (i) not contracts of insurance in the Commonwealth and (ii) not subject to regulation under Title 38.2.
  2. Any provider that has a net worth, on a stand-alone basis or together with a parent company, calculated in accordance with generally accepted accounting principles or statutory accounting principles at the election of the provider, in excess of $100 million shall be subject to neither (i) the provisions of this chapter nor (ii) the provisions of Title 38.2.
  3. Any matter subject to the insurance regulatory authority of the State Corporation Commission pursuant to Title 38.2 shall not be subject to the provisions of this chapter.
  4. Providers that comply with this chapter shall not be subject to the provisions of Title 38.2.
  5. Employees of providers that comply with this chapter and licensed real estate agents or other contractors operating under a written agreement with such providers that market, sell, or offer to sell home service contracts on behalf of the registered provider shall be subject to neither (i) the provisions of this chapter nor (ii) the provisions of Title 38.2.
  6. The provisions of this chapter shall not apply to:
    1. Any extended service contract providers offering extended service contracts on consumer products, as those terms are defined in § 59.1-435, that are registered and regulated pursuant to Chapter 34 (§ 59.1-435 et seq.); or
    2. Any maintenance and service agreement (i) pertaining to a heating, ventilation, air conditioning, or cooling system entered into between a seller of petroleum heating oil, propane, or natural gas and the seller’s customer if the seller does not engage in selling home service contracts for property other than heating, ventilation, air conditioning, or cooling systems or (ii) entered into by a person who provides telecommunications services in the Commonwealth to which the service contract, guarantee or warranty relates.

History. 2017, c. 727.

Editor’s note.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

§ 59.1-434.8. Violations of chapter; penalty.

  1. Any provider that knowingly and willfully violates any provision of this chapter is guilty of a Class 3 misdemeanor.
  2. Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.).

History. 2017, c. 727.

Cross references.

As to punishment for Class 3 misdemeanors, see § 18.2-11 .

Editor’s note.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

Chapter 34. Extended Service Contract Act.

§ 59.1-435. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Board” means the Virginia Board of Agriculture and Consumer Services.

“Commissioner” means the Commissioner of the Department of Agriculture and Consumer Services or his designee.

“Consumer product” means tangible personal property primarily used for personal, family, or household purposes.

“Extended service contract” or “contract” means a written contract or agreement for a specific duration in return for the payment of a segregated charge by the purchaser to perform the repair or replacement of any consumer product, including a motor vehicle, or indemnification for repair or replacement, for the operational or structural failure of any consumer product, including a motor vehicle, due to a defect in materials, workmanship, inherent defect, or normal wear and tear, with or without additional provisions for incidental payment of indemnity under limited circumstances, including, but not limited to, towing, rental, and emergency road service and road hazard protection. Extended service contracts may provide for any one or more of the following:

  1. The repair or replacement of any consumer product for damage resulting from power surges or interruption or accidental damage from handling;
  2. The repair or replacement of tires or wheels, or both, on a motor vehicle damaged as the result of coming into contact with a road hazard;
  3. The removal of dents, dings, or creases on a motor vehicle that can be repaired using the process of paintless dent removal without affecting the existing paint finish and without replacing vehicle body panels, sanding, bonding, or painting;
  4. The repair of chips or cracks in, or the replacement of, a motor vehicle windshield as a result of damage caused by a road hazard;
  5. The replacement of a motor vehicle key or key fob in the event that the key or key fob becomes inoperable or is lost or stolen;
  6. The installation on or application to a motor vehicle of a protective chemical, substance, device, or system that (i) is designed to prevent loss or damage to the motor vehicle from a specific cause and (ii) includes, within or as an accompaniment to the extended service contract, an agreement that provides for payment to or on behalf of the purchaser of incidental costs in the event that the protective chemical, substance, device, or system fails to prevent loss or damage as specified, provided that the reimbursement of incidental costs under such agreement is tied to the purchase of a protective chemical, substance, device, or system that is formulated or designed to make the specified loss or damage less likely to occur; or
  7. Any other service that may be designated by the Board as provided in subsection B of § 59.1-438.“Extended service contract” does not include a contract or agreement that provides (i) for the application of fuel additives, oil additives, or other chemical products to the engine, transmission, or fuel system of a motor vehicle or (ii) coverage for (a) the repair of damage to the interior surfaces of a motor vehicle or the replacement of the interior surfaces of a motor vehicle, or both, or (b) the repair of damage to the exterior paint finish of a motor vehicle or the replacement of the exterior paint finish of a motor vehicle, or both, unless the coverage is provided under a product warranty included in connection with the sale of a protective chemical, substance, device, or system described in subdivision 6.

    “Extended service contract provider” or “provider” means any person or entity other than a public service corporation supervised by the State Corporation Commission, who is the original manufacturer or seller and who solicits, offers, advertises, or executes extended service contracts. Such definition includes the obligor of the contract sold, solicited, offered, advertised or executed by the original manufacturer, seller or obligor.

    “Obligor” means the person who is contractually obligated to the purchaser to provide services under the extended service contract and who is (i) the original manufacturer or seller of the merchandise covered by the extended service contract, (ii) acting through or with the written consent of the original manufacturer, seller or purchaser of the merchandise covered by the extended service contract, or (iii) acting through or with the written consent of a manufacturer or seller of merchandise similar to the merchandise covered by the extended service contract.

    “Purchaser” means a person who enters into an extended service contract with an extended service contract provider.

    “Road hazard” means a hazard that is encountered while driving a motor vehicle, including potholes, rocks, wood debris, metal parts, glass, plastic, curbs, and composite scraps.

History. 1991, c. 654; 1996, c. 966; 2008, c. 524; 2014, c. 193.

The numbers of §§ 59.1-435 through 59.1-441 were assigned by the Virginia Code Commission, the numbers in the 1991 act having been 59.1-429 through 59.1-435.

Cross references.

As to recovery on bond for loss or damage resulting from breach of an extended service contract, see § 46.2-1527.10 .

The 2008 amendments.

The 2008 amendment by c. 524, rewrote the definition of “Extended service contract,” which read: “ ‘Extended service contract’ or ‘contract’ means a written agreement which is in effect for at least one year whereby the purchaser is indemnified against the cost of repair or replacement of a consumer product which is defective in material or workmanship in return for the payment of a segregated charge by the purchaser.”

The 2014 amendments.

The 2014 amendment by c. 193, in the first paragraph, in the definition of “Extended service contract” substituted “any one or more of the following” for “the,” inserted the subdivision 1 designation, and added subdivisions 2-7 and paragraph following subdivision 7; and added the definition of “Road hazard.”

§ 59.1-436. Registration; fees; exemptions.

  1. It shall be unlawful for any extended service contract provider to offer, advertise, or execute or cause to be executed by the purchaser any extended service contract for a consumer product in this Commonwealth unless the obligor at the time of the solicitation, offer, advertisement, sale, or execution of a contract has been properly registered with the Commissioner. The registration shall (i) disclose the address, ownership, and nature of business of the obligor; (ii) be renewed annually on July 1; and (iii) be accompanied by a fee of $300 per registration and annual renewal. A registration application or registration renewal will not be considered filed until all required information and fees are received by the Commissioner. Any obligor who fails to register prior to the sale of an extended service contract shall pay a late filing fee of $100 for each 30-day period, or portion thereof, that the registration is late. An obligor who fails to timely renew its registration shall pay a late fee of $50 for each 30-day period, or portion thereof, that the annual renewal filing is late. The late fees authorized by this subsection shall be in addition to all other penalties authorized by law.
  2. All fees shall be remitted to the State Treasurer and shall be placed to the credit and special fund of the Virginia Department of Agriculture and Consumer Services to be used in the administration of this chapter.
  3. Any matter subject to the insurance regulatory authority of the State Corporation Commission pursuant to Title 38.2 shall not be subject to the provisions of this chapter.
  4. Licensed or registered motor vehicle dealers, as defined in § 46.2-1500 , shall not be subject to the provisions of this chapter.
  5. Extended service contract providers who comply with this section and the employees of such providers who market, sell or offer to sell extended service contracts on behalf of the provider shall not be subject to the provisions of Title 38.2.
  6. Providers of a home service contract, as those terms are defined in § 59.1-434.1, that are registered and regulated pursuant to Chapter 33.1 (§ 59.1-434.1 et seq.) shall not be subject to the provisions of this chapter.

History. 1991, c. 654; 1996, c. 966; 1997, c. 30; 2005, c. 407; 2017, c. 727.

Editor’s note.

Acts 2017, c. 727, cl. 5 provides: “That the provisions of this act shall become effective on January 1, 2018.”

The 2005 amendments.

The 2005 amendment by c. 407, in subsection A, substituted “$300” for “$100” in the second sentence and added the third through sixth sentences.

The 2017 amendments.

The 2017 amendment by c. 727, effective January 1, 2018, added subsection F.

§ 59.1-437. Third party obligors; proof of financial stability.

  1. In order to ensure the faithful performance of a third party obligor’s obligations to its contract holders, each third party obligor shall furnish proof of its financial stability by complying with either of the following:
    1. The third party obligor shall show that it has a net worth of at least $100 million by providing the Commissioner with a copy of the third party obligor’s most recent annual audited financial statement; or
    2. The third party obligor shall show a net worth of the third party obligor or its parent company of at least $100 million by providing the Commissioner with a copy of the third party obligor’s, or if the third party obligor’s financial statements are consolidated with those of its parent company, the third party obligor’s parent company’s, most recent Form 10-K or Form 20-F filed with the Securities and Exchange Commission, provided the Form 10-K or Form 20-F was filed with the Securities and Exchange Commission within the last calendar year. If the third party obligor’s parent company’s Form 10-K or Form 20-F is filed to meet the third party obligor’s financial stability requirement, then the parent company shall agree to guarantee the obligations of the third party obligor relating to service contracts sold by the third party obligor in this Commonwealth.
  2. In lieu of compliance with subsection A, a third party obligor may demonstrate financial responsibility by filing with the Commissioner a copy of a liability insurance policy issued by an insurer authorized to transact business in this Commonwealth and which covers 100 percent of the obligor’s service contract liabilities, including the administration of claims and the cost for such administration. Reimbursement insurance policies filed pursuant to this section may not be cancelled by either the third party obligor or the issuing insurer without providing 60 days’ notice to the Commissioner.
  3. Each service contract shall include a disclosure in substantially the form as follows or in such other form as the Commissioner directs:“If any promise made in the contract has been denied or has not been honored within 60 days after your request, you may contact the Virginia Department of Agriculture and Consumer Services, Office of Charitable and Regulatory Programs to file a complaint.”
  4. Upon receipt of a complaint by a purchaser against an obligor asserting that a promise made in a contract has been denied or has not been honored within 60 days after the purchaser’s request, the Commissioner may conduct an investigation as authorized by § 59.1-439 to determine if the obligor or its insurance company, if complying with subsection B, has improperly denied or failed to honor a purchaser’s request. If the Commissioner determines that a purchaser’s request was improperly denied or failed to be honored by an obligor or its insurance company, if complying with subsection B, the Commissioner may issue an order requiring the obligor to rectify or justify the denial or failure. In addition to the penalties provided in § 59.1-441, if the denial or failure is not rectified or sufficiently justified by the obligor, the Commissioner may (i) issue a cease and desist order requiring the obligor to cease operations in the Commonwealth until the denial or failure has been rectified; (ii) deny, suspend, or revoke the obligor’s registration; or (iii) assess a civil penalty of up to $1,000 per violation not to exceed $10,000 in the aggregate for all similar violations. Any civil penalties collected pursuant to this subsection shall be payable to the State Treasurer for deposit to the general fund. If the Commissioner elects to assess such a civil penalty and an obligor does not pay the civil penalty within 60 days of its assessment, the Commissioner may (a) issue a cease and desist order requiring the obligor to cease operations in the Commonwealth until the civil penalty has been paid or (b) deny, suspend, or revoke the obligor’s registration.

History. 1991, c. 654; 1996, c. 966; 2003, c. 411; 2019, cc. 396, 558.

The 2003 amendments.

The 2003 amendment by c. 411 rewrote subsection D; and in subsection E, substituted “100” for “one hundred,” and “60” for “sixty.”

The 2019 amendments.

The 2019 amendments by cc. 396 and 558 are identical, and deleted former subsections A through C regarding bonds and letters of credit; redesignated former subsections D and E as A and B, respectively; and added subsections C and D.

§ 59.1-437.1. Denial, suspension, or revocation of registration.

  1. The Commissioner may deny an application for registration of an obligor under § 59.1-436 or may suspend or revoke such registration if the Commissioner finds that such action is necessary for the protection of purchasers or prospective purchasers or that any one of the following is true:
    1. The obligor has failed to comply with any provision of this chapter;
    2. The obligor has improperly denied or failed to honor a purchaser’s request as provided in subsection D of § 59.1-437 and the denial or failure is not rectified or sufficiently justified by the obligor;
    3. The obligor does not pay a civil penalty assessed pursuant to subsection D of § 59.1-437 within 60 days of its assessment;
    4. The obligor’s application for registration or any amendment thereto is incomplete in any respect;
    5. The obligor failed to meet any other requirement of § 59.1-437;
    6. The obligor has made any representation in any document or information filed with the Commissioner that is false or misleading;
    7. The obligor has engaged or is engaging in any unlawful act or practice;
    8. The obligor does not have a reasonable ability to discharge the obligations imposed upon it by any extended service contract; or
    9. Facts not known by the Commissioner at the time the Commissioner considered the application for registration indicate that such registration should not have been issued.
  2. Except as provided in subsection C, the Commissioner may deny, suspend, or revoke an obligor’s registration after a hearing with 15 days’ notice.
  3. If the Commissioner finds that the public health, safety, or welfare requires emergency action and incorporates this finding in his order, the Commissioner may summarily deny, suspend, or revoke a registration. The obligor shall be given an opportunity within 10 days after entry of such an order to appear before the Commissioner and show cause why the summary order should not remain in effect. If good cause is shown, the Commissioner shall vacate the summary order. If good cause is not shown, the summary order shall remain in effect. The obligor shall have 15 days after the registration is summarily suspended within which to request a hearing, or the Commissioner may within 30 days thereafter set the matter for a hearing.
  4. If any such registration is suspended or revoked, the Commissioner shall state its reasons for doing so, which shall be entered of record. Suspension or revocation of a registration for any violation of this chapter shall not affect the authority to take any action authorized by § 59.1-441 with respect to such violation.

History. 2019, cc. 396, 558.

§ 59.1-438. Regulations.

  1. The Board is authorized to adopt reasonable regulations in order to implement provisions in this chapter relating to extended service contracts. These regulations shall be adopted, amended, or repealed in accordance with the Administrative Process Act (§ 2.2-4000 et seq.).
  2. Without limiting the authority of the Board under subsection A, the Board is authorized to adopt reasonable regulations that designate services, in addition to those enumerated in the definition of extended service contract in § 59.1-435, that may be provided under an extended service contract, provided that the designation of the additional services is not inconsistent with the provisions of this chapter.

History. 1991, c. 654; 2014, c. 193.

The 2014 amendments.

The 2014 amendment by c. 193 inserted the A designation at the beginning of the first paragraph and substituted “adopt” for “prescribe” in the first sentence; and added subsection B.

§ 59.1-439. Investigations.

  1. The Commissioner may, with respect to extended service contracts:
    1. Make necessary public and private investigations within or without this Commonwealth to determine whether any person has violated the provisions of this chapter or any rule, regulation, or order issued pursuant to this chapter;
    2. Require or permit any person to file a statement in writing, under oath or otherwise as the Commissioner determines, as to all facts and circumstances concerning the matter under investigation; and
    3. Administer oaths or affirmations, and upon motion or upon request of any party, may subpoena witnesses, compel their attendance, take evidence, and require the production of any matter that is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence.
  2. Any proceeding or hearing of the Commissioner pursuant to this chapter, in which witnesses are subpoenaed and their attendance required for evidence to be taken, or any matter produced to ascertain material evidence, shall take place within the City of Richmond.
  3. If any person fails to obey the subpoena or to answer questions propounded by the Commissioner and upon reasonable notice to all persons affected thereby, the Commissioner may apply to the Circuit Court of the City of Richmond for an order compelling compliance.

History. 1991, c. 654.

§ 59.1-440. Production of records.

Every extended service contract obligor, upon written request of the Commissioner, shall make available to the Commissioner its extended service contract records for inspection and copying to enable the Commissioner to reasonably determine compliance with this chapter. Every obligor shall maintain a true copy of each contract executed between the obligor and a purchaser, and each contract shall be maintained for its term.

History. 1991, c. 654; 1996, c. 966.

§ 59.1-440.1. Extended service contracts not insurance.

Extended service contracts are (i) not contracts of insurance in the Commonwealth and (ii) not subject to regulation under Title 38.2.

History. 2014, c. 193.

§ 59.1-441. Violations of chapter; penalty.

  1. Any extended service provider who knowingly and willfully violates any provision of this chapter shall be guilty of a Class 3 misdemeanor.
  2. Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.) of this title.

History. 1991, c. 654.

Cross references.

As to punishment for Class 3 misdemeanors, see § 18.2-11 .

Chapter 34.1. Legal Services Contracts.

§ 59.1-441.1. Definitions.

In addition to the definitions in § 59.1-435, the following terms in this chapter shall have the following meanings, unless a different meaning clearly appears from the context:

“Contract holder” means a person entering into a subscription contract with an organization;

“Department” means the Virginia Department of Agriculture and Consumer Services;

“Legal services organization” or “organization” means a person subject to regulation and licensing under Chapter 44 (§ 38.2-4400 et seq.) of Title 38.2 who operates, conducts, or administers a legal services plan;

“Legal services plan” or “plan” means a contractual obligation or an arrangement whereby legal services are provided in consideration of a specified payment consisting in whole or in part of prepaid or periodic charges, regardless of whether the payment is made by the subscribers individually or by a third person for them;

“Legal services plan seller” means a person subject to registration and regulation under this chapter who offers to a subscriber the opportunity to enter into a subscription contract. Home office salaried officers whose principal duties and responsibilities do not include the negotiation or solicitation of subscription contracts shall not be required to register under this chapter;

“Subscriber” means any person entitled to benefits under the terms and conditions of a subscription contract; and

“Subscription contract” means a written contract that is issued to a subscriber by an organization and that provides legal services or benefits for legal services.

History. 2004, c. 784.

§ 59.1-441.2. Registration; fees.

  1. It is unlawful for any legal services plan seller to offer, advertise, or execute, or cause to be executed by the subscriber, any subscription contract in the Commonwealth unless the legal services plan seller at the time of the offer, advertisement, sale, or execution of a subscription contract has been properly registered with the Commissioner or the legal services plan seller has submitted the registration information and fee required by this section to the legal services organization for which the seller will offer subscription contracts. The registration shall (i) disclose the address, ownership, and affiliation with the legal services organization and such other information as the Commissioner may require consistent with the purposes of this chapter, (ii) be renewed annually on July 1, and (iii) be accompanied by the appropriate registration fee of $50 per each annual registration. Further, the registration shall be accompanied by a late fee of $25 if the registration renewal is neither postmarked nor received on or before July 1. A legal services plan seller’s initial or renewal registration may be accomplished either by the legal services plan seller or on behalf of such seller by the legal services organization for which the seller offers subscription contracts, and the Commissioner shall accept any registration information or fee required to be submitted pursuant to this chapter that is submitted to the Commissioner. A legal services organization shall submit the registration information and fees received pursuant to this section to the Commissioner, in a form and manner prescribed by the Commissioner, no later than 30 days after the information and fees are received by the organization.
  2. Any legal services plan seller or legal services organization that violates the provisions of subsection A shall pay a late filing fee of $100 for each 30-day period the registration is late. This fee shall be in addition to all other penalties allowed by law.
  3. A registration shall be amended within 21 days if there is a change in the information included in the registration. If the legal services plan seller has submitted such changes to the legal services organization for which the seller will offer subscription contracts, the legal services organization shall submit the amended registration, in the form and manner prescribed by the Commissioner, no later than 30 days after such information is received by the organization.
  4. Any matter subject to the insurance regulatory authority of the State Corporation Commission pursuant to Title 38.2 shall not be subject to the provisions of this chapter.
  5. All fees shall be remitted to the State Treasurer and shall be placed to the credit and special fund of the Virginia Department of Agriculture and Consumer Services to be used in the administration of this chapter.
  6. All insurance agent licenses issued by the State Corporation Commission including authority to sell legal services plan subscription contracts shall continue in effect for a period of 90 days following the effective date of this chapter, during which time those holding such authority from the State Corporation Commission shall apply for registration with the Department. At the end of the 90-day period, no insurance agent license shall include the authority to sell legal services plan subscription contracts.

History. 2004, c. 784; 2020, c. 408; 2021, Sp. Sess. I, c. 180.

The 2020 amendments.

The 2020 amendment by c. 408 added the last sentence to subsection A.

The 2021 Sp. Sess. I amendments.

The 2021 amendment by Sp. Sess. I, c. 180, effective July 1, 2021, in subsection A, substituted “It is unlawful” for “It shall be unlawful” and inserted “or the legal services plan seller has submitted the registration information and fee required by this section to the legal services organization for which the seller will offer subscription contracts” in the first sentence, deleted “on a monthly basis by the organization on behalf of such a legal services plan seller” from the end of the fourth sentence, and added the last sentence; in subsection B, substituted “or legal services organization that violates the provisions of subsection A” for “that sells a subscription contract prior to registering pursuant to this section”; and added the second sentence in subsection C.

§ 59.1-441.3. Regulations.

The Board is authorized to prescribe reasonable regulations in order to implement provisions in this chapter relating to legal services plan sellers. These regulations shall be adopted, amended, or repealed in accordance with the Administrative Process Act (§ 2.2-4000 et seq.).

History. 2004, c. 784.

§ 59.1-441.4. Investigations.

  1. The Commissioner may, with respect to the offering of subscription contracts:
    1. Make necessary public and private investigations within or without the Commonwealth to determine whether any person has violated the provisions of this chapter or any rule, regulation, or order issued pursuant to this chapter;
    2. Require or permit any person to file a statement in writing, under oath, or otherwise as the Commissioner determines, as to all facts and circumstances concerning the matter under investigation; and
    3. Administer oaths or affirmations, and upon motion or upon request of any party, may subpoena witnesses, compel their attendance, take evidence, and require the production of any matter that is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of material evidence.
  2. Any proceeding or hearing of the Commissioner pursuant to this chapter, in which witnesses are subpoenaed and their attendance required for evidence to be taken, or any matter produced to ascertain material evidence, shall take place within the City of Richmond.
  3. If any person fails to obey the subpoena or to answer questions propounded by the Commissioner and upon reasonable notice to all persons affected thereby, the Commissioner may apply to the Circuit Court of the City of Richmond for an order compelling compliance.

History. 2004, c. 784.

§ 59.1-441.5. Production of records.

Every legal services plan seller shall, upon written request of the Commissioner, make available to the Commissioner its legal services plan contract records for inspection and copying to enable the Commissioner to reasonably determine compliance with this chapter. Every legal services plan seller shall maintain a true copy of each subscription contract executed between the subscriber and the legal services plan, and each contract shall be maintained for its term.

History. 2004, c. 784.

§ 59.1-441.6. Violations of chapter; penalty.

  1. Any legal services plan seller who knowingly and willfully violates any provision of this chapter is guilty of a Class 3 misdemeanor.
  2. Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.).

History. 2004, c. 784.

Cross references.

As to punishment for Class 3 misdemeanors, see § 18.2-11 .

Chapter 35. Personal Information Privacy Act.

§ 59.1-442. Sale of purchaser information; notice required.

  1. No merchant, without giving notice to the purchaser, shall sell to any third person information that concerns the purchaser and that is gathered in connection with the sale, rental, or exchange of tangible personal property to the purchaser at the merchant’s place of business. Notice required by this section may be by the posting of a sign or any other reasonable method. If requested by a purchaser not to sell such information, the merchant shall not do so. No merchant shall sell any information gathered solely as the result of any customer payment by personal check, credit card, or where the merchant records the number of the customer’s driver’s license or other document issued under Chapter 3 (§ 46.2-300 et seq.) of Title 46.2 or the comparable law of another jurisdiction. This subsection shall not be construed as authorizing a merchant to sell to a third person any information concerning a purchaser if the sale or dissemination of the information is prohibited pursuant to § 59.1-443.3.
  2. For the purposes of this section and § 59.1-443.3, “merchant” means any person or entity engaged in the sale of goods from a fixed retail location in Virginia.

History. 1992, c. 807; 2014, cc. 789, 795; 2020, cc. 1227, 1246.

Editor’s note.

Acts 2020, cc. 1227 and 1246, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2021.”

Acts 2020, cc. 1227 and 1246, cl. 4 provides: “That the provisions of this act may result in a net increase in periods of imprisonment or commitment. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of imprisonment in state adult correctional facilities; therefore, Chapter 854 of the Acts of Assembly of 2019 requires the Virginia Criminal Sentencing Commission to assign a minimum fiscal impact of $50,000. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of commitment to the custody of the Department of Juvenile Justice.”

The 2014 amendments.

The 2014 amendments by cc. 789 and 795 are identical, and designated the existing provisions as subsections A and B; added the last sentence in subsection A; and inserted “and § 59.1-443.3” in subsection B.

The 2020 amendments.

The 2020 amendments by cc. 1227 and 1246, effective January 1, 2021, are identical and substituted “records the number of the customer’s driver’s license or other document issued under Chapter 3 (§ 46.2-300 et seq.) of Title 46.2 or the comparable law of another jurisdiction” for “records the customer’s driver’s license number” in the next-to-last sentence of subsection A; and made stylistic changes.

Michie’s Jurisprudence.

For related discussion, see 16 M.J. Right of Privacy, § 1.

§ 59.1-443. Exceptions.

Section 59.1-442 shall not apply to: (i) information gathered for purposes of extending credit or the recording and sale, rental, exchange or disclosure to others of information obtained from any public body as defined in the Virginia Freedom of Information Act (§ 2.2-3700 et seq.); (ii) the sale of information concerning a check or credit card transaction when it is incidental to the sale or other disposition of accounts receivable; (iii) the furnishing by a merchant of information on check writing activity of its customers in conjunction with check validation transactions; or (iv) information sold in connection with any sale by a business of the business’s retail operations at one or more locations, provided that the information is sold only to the purchasers thereof.

History. 1992, c. 807; 1993, c. 453; 2004, c. 241.

The 2004 amendments.

The 2004 amendment by c. 241 substituted “Section 59.1-442” for “This chapter.”

§ 59.1-443.1. Recording date of birth as condition of accepting checks prohibited.

  1. As used in this section:“Check” shall have the same meaning as defined in § 8.3A-104 .
  2. Except as provided in subsection C, no person who accepts checks for the transaction of business shall, as a condition of accepting the check, record, or request or require a person to record, his or her date of birth upon the check or otherwise.
  3. This section does not require a person to accept checks for the transaction of business. Nothing in this section shall apply to (i) the collection or use of a date of birth that is unrelated to accepting payment by check or (ii) a requirement that the person paying by check provide the year of his birth.

History. 2004, c. 241; 2005, c. 839.

The 2005 amendments.

The 2005 amendment by c. 839, effective October 1, 2005, deleted subdivision A 2 which read: “ ‘Person’ shall have the same meaning as defined in § 1-13.19.”; and made a related change.

§ 59.1-443.2. Restricted use of social security numbers.

  1. Except as otherwise specifically provided by law, a person shall not:
    1. Intentionally communicate another individual’s social security number to the general public;
    2. Print an individual’s social security number on any card required for the individual to access or receive products or services provided by the person;
    3. Require an individual to use his social security number to access an Internet website, unless a password, unique personal identification number or other authentication device is also required to access the site; or
    4. Send or cause to be sent or delivered any letter, envelope, or package that displays a social security number on the face of the mailing envelope or package, or from which a social security number is visible, whether on the outside or inside of the mailing envelope or package.
  2. This section does not prohibit the collection, use, or release of a social security number as permitted by the laws of the Commonwealth or the United States, or the use of a social security number for internal verification or administrative purposes unless such use is prohibited by a state or federal statute, rule, or regulation.
  3. In the case of any (i) health care provider as defined in § 8.01-581.1 , (ii) manager of a pharmacy benefit plan, (iii) insurer as defined in § 38.2-100 , (iv) corporation providing a health services plan, (v) health maintenance organization providing a health care plan for health care services, or (vi) contractor of any such person, the prohibition contained in subdivision 2 of subsection A shall become effective on January 1, 2006.
  4. This section shall not apply to public bodies as defined in § 2.2-3701 .
  5. No person shall embed an encrypted or unencrypted social security number in or on a card or document, including, but not limited to, using a bar code, chip, magnetic strip, or other technology, in place of removing the social security number as required by this section.

History. 2005, c. 640; 2008, cc. 562, 820.

The 2008 amendments.

The 2008 amendments by cc. 562 and 820 are identical, and substituted “another individual’s” for “an individual’s” in subdivision A 1; and in subsection D, deleted the clause (i) designation preceding “public bodies,” and deleted clause (ii), which read: “or (ii) records required by law to be open to the public, and shall not be construed to limit access to records pursuant to the Virginia Freedom of Information Act (§ 2.2-3700 et seq.).”

CASE NOTES

Constitutionality. —

Although the possibility that communicating Social Security numbers might be found unprotected in other situations was not foreclosed, on the instant facts, the First Amendment did reach plaintiff’s publication of Virginia land records containing unredacted SSNs; the First Amendment did not allow Virginia to punish plaintiff for posting its land records online without redacting SSNs when numerous clerks were doing precisely that. Virginia’s failure to redact SSNs before placing land records online meant that barring plaintiff’s protected speech would not be narrowly tailored to Virginia’s interest in protecting individual privacy; therefore enforcing § 59.1-443.2 against plaintiff for the Virginia land records posted on her website violated the First Amendment. Ostergren v. Cuccinelli, 615 F.3d 263, 2010 U.S. App. LEXIS 15254 (4th Cir. 2010).

Injunctive relief. —

District court abused its discretion by not tailoring the scope of the remedy to fit the nature and extent of the constitutional violation; on remand the district court would require a more developed factual record to determine proper injunctive relief, which included evidence about the status and effectiveness of Virginia’s redaction efforts. Depending on the scope of § 59.1-443.2, this could also include evidence about non-Virginia public records that plaintiff would publish on her website; because the constitutional analysis turned on how Virginia has handled public records rather than on whose social security numbers were being exposed, the district court should frame the injunctive relief accordingly. Ostergren v. Cuccinelli, 615 F.3d 263, 2010 U.S. App. LEXIS 15254 (4th Cir. 2010).

Sanctions. —

Although the debtors, whose personal information was published by the creditor in its form of proof of claim, stated claims for relief under the Virginia Consumer Protection Act and the Virginia Personal Information Privacy Act, the Virginia Health Records Privacy Act, but were not entitled to sanctions under 11 U.S.C.S. §§ 105 and 107, and Fed. R. Bankr. P. 9011(b) and 9037. Maple v. Colonial Orthopaedics, Inc., 434 Bankr. 363, 2010 Bankr. LEXIS 2497 (Bankr. E.D. Va. 2010).

OPINIONS OF THE ATTORNEY GENERAL

No federal preemption. —

Persuasive legal arguments exist to assert that the portion of the Virginia civil identity protection statute prohibiting the intentional communication of an individual’s social security number, as contained in subdivision A 1 of § 59.1-443.2, is not preempted by the National Labor Relations Act. Under facts identical to those presented in Fisher v. Communications Workers of America , 716 S.E.2d 396 (N.C. App. 2011), it is likely that Virginia’s courts would reach the same result. In the more likely event of labor relations litigation arising on different facts, a much stronger prospect exists to successfully defeat a federal preemption claim. See opinion of Attorney General to the Honorable Richard H. Black, Member, Senate of Virginia, 12-107, 2013 Va. AG LEXIS 24 (4/12/13).

§ 59.1-443.3. Scanning information from driver’s license or other document; retention, sale, or dissemination of information.

  1. No merchant may scan the machine-readable zone of a driver’s license or other document issued by the Department of Motor Vehicles under Chapter 3 (§ 46.2-300 et seq.) of Title 46.2 or the comparable law of another jurisdiction, except for the following purposes:
    1. To verify authenticity of the driver’s license or other document or to verify the identity of the individual if the individual requests a service pursuant to a membership or a service agreement, pays for goods or services with a method other than cash, returns an item, or requests a refund or an exchange;
    2. To verify the individual’s age when providing age-restricted goods or services to the individual if there is a reasonable doubt of the individual having reached 18 years of age or older;
    3. To prevent fraud or other criminal activity if the individual returns an item or requests a refund or an exchange and the merchant uses a fraud prevention service company or system. Information collected by scanning an individual’s driver’s license or other document pursuant to this subdivision shall be limited to the individual’s name, address, and date of birth and the number of the driver’s license or other document;
    4. To comply with a requirement imposed on the merchant by the laws of the Commonwealth or federal law;
    5. To provide to a check services company regulated by the federal Fair Credit Reporting Act, (15 U.S.C. § 1681 et seq.), that receives information obtained from an individual’s driver’s license or other document to administer or enforce a transaction or to prevent fraud or other criminal activity; or
    6. To complete a transaction permitted under the federal Gramm-Leach-Bliley Act, (15 U.S.C. § 6801 et seq.), or the federal Fair Credit Reporting Act, (15 U.S.C. § 1681 et seq.).
  2. No merchant shall retain any information obtained from a scan of the machine-readable zone of an individual’s driver’s license or other document except as permitted in subdivision A 1, 3, 4, 5, or 6. The merchant shall destroy the retained information when the purpose for which it was provided and retained under this section has been satisfied.
  3. No merchant shall sell or disseminate to a third party any information obtained from a scan of the machine-readable zone of an individual’s driver’s license or other document for any marketing, advertising, or promotional purpose. This subsection shall not prohibit a merchant from disseminating to a third party any such information for a purpose described in subdivision A 3, 4, 5, or 6.
  4. Any waiver of a provision of this section is contrary to public policy and is void and unenforceable.

History. 2014, cc. 789, 795; 2020, cc. 542, 1227, 1246.

Editor’s note.

Acts 2020, cc. 1227 and 1246, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2021.”

Acts 2020, cc. 1227 and 1246, cl. 4 provides: “That the provisions of this act may result in a net increase in periods of imprisonment or commitment. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of imprisonment in state adult correctional facilities; therefore, Chapter 854 of the Acts of Assembly of 2019 requires the Virginia Criminal Sentencing Commission to assign a minimum fiscal impact of $50,000. Pursuant to § 30-19.1:4 of the Code of Virginia, the estimated amount of the necessary appropriation cannot be determined for periods of commitment to the custody of the Department of Juvenile Justice.”

The 2020 amendments.

The 2020 amendment by c. 542, in subdivision A 1, inserted “requests a service pursuant to a membership or a service agreement”; and in subsection B, substituted “A 1, 3, 4, 5, or 6” for “A 3, 4, 5, or 6” in the first sentence and added the second sentence.

The 2020 amendments by cc. 1227 and 1246, effective January 1, 2021, are identical, and rewrote the introductory language of subsection A, which formerly read: “No merchant may scan the machine-readable zone of a Department of Motor Vehicles-issued identification card or driver’s license, except for the following purposes”; substituted “driver’s license or other document” for “identification card or driver’s license” or similar language throughout the section; substituted “the laws of the Commonwealth” for “state” in subdivision A 4; and inserted the first occurrence of “federal” in subdivision A 6.

§ 59.1-444. Damages.

A person aggrieved by a violation of any provision of this chapter, except § 59.1-443.2, shall be entitled to institute an action to recover damages in the amount of $100 per violation. In addition, if the aggrieved party prevails, he may be awarded reasonable attorney’s fees and court costs. Actions under this section shall be brought in the general district court for the city or county in which the transaction or other violation that gave rise to the action occurred. A violation of the provisions of § 59.1-443.2 is a prohibited practice under the Virginia Consumer Protection Act (§ 59.1-196 et seq.).

History. 1992, c. 807; 1993, c. 453; 2004, c. 241; 2005, c. 640.

The 2004 amendments.

The 2004 amendment by c. 241 rewrote the first and next-to-last sentences and substituted “or other violation that” for “which” in the last sentence.

The 2005 amendments.

The 2005 amendment by c. 640 inserted “any provision of” preceding “this chapter,” “except § 59.1-443.2” preceding “shall be entitled,” and added the last sentence.

Chapter 35.1. Security Freezes.

§ 59.1-444.1. Definitions.

As used in this chapter:

“Consumer” means an individual who is also a resident of this state.

“Consumer reporting agency” has the same meaning as in § 603(f) of the Fair Credit Reporting Act (15 U.S.C. § 1681a(f)).

“Credit report” means a “consumer report,” as defined in § 603(d) of the Fair Credit Reporting Act (15 U.S.C. § 1681a(d)); provided, however, that for purposes of this chapter, a credit report is limited to information that a consumer reporting agency furnishes to a person that it has reason to believe intends to use the information as a factor in establishing the consumer’s eligibility for credit to be used primarily for personal, family or household purposes.

“Proper identification” means proper identification as defined in 15 U.S.C. § 1681h(a)(1).

History. 2008, cc. 480, 496; 2014, c. 570.

The 2014 amendments.

The 2014 amendment by c. 570, effective January 1, 2015, deleted the definition of “Security freeze.”

§ 59.1-444.2. Security freezes.

  1. As used in this section, “security freeze” means a notice placed in a consumer’s credit report, at the request of the consumer and subject to certain exceptions, that prohibits the consumer reporting agency from releasing the consumer’s credit report or score relating to the extension of credit.
  2. A consumer may request that a security freeze be placed on his or her credit report by sending a request in writing by certified mail, or such other secure method authorized by a consumer reporting agency, to a consumer reporting agency at an address designated by the consumer reporting agency to receive such requests. This subsection does not prevent a consumer reporting agency from advising a third party that a security freeze is in effect with respect to the consumer’s credit report.
  3. A consumer reporting agency shall place a security freeze on a consumer’s credit report no later than three business days after receiving from the consumer:
    1. A written request described in subsection B; and
    2. Proper identification.A consumer reporting agency shall place a security freeze on a consumer’s credit report no later than one business day after receiving such a request, if such request is made electronically at an address designated by the consumer reporting agency to receive such requests.
  4. The consumer reporting agency shall send a written confirmation of the placement of the security freeze to the consumer within 10 business days. Upon placing the security freeze on the consumer’s credit report, the consumer reporting agency shall provide the consumer with a unique personal identification number or password, or similar device to be used by the consumer when providing authorization for the release of his credit report for a specific period of time or for a specific party.
  5. If the consumer wishes to allow his credit report to be accessed for a specific period of time or for a specific party while a freeze is in place, he shall contact the consumer reporting agency using a point of contact designated by the consumer reporting agency, request that the freeze be temporarily lifted, and provide the following:
    1. Proper identification;
    2. The unique personal identification number or password provided by the consumer reporting agency pursuant to subsection D; and
    3. The proper information regarding the time period or the specific party for which the report shall be available to users of the credit report.
  6. A consumer reporting agency:
    1. Shall comply with a request made under subsection E:
      1. Within three business days after receiving the request if the request is made at a postal address designated by the agency to receive such requests; or
      2. Within 15 minutes after the consumer’s request is received by the consumer reporting agency through the electronic contact method chosen by the consumer reporting agency in accordance with this section;
        1. An act of God, including fire, earthquakes, hurricanes, storms, or similar natural disaster or phenomena;
        2. Unauthorized or illegal acts by a third party, including terrorism, sabotage, riot, vandalism, labor strikes or disputes disrupting operations, or similar occurrence;
        3. Operational interruption, including electrical failure, unanticipated delay in equipment or replacement part delivery, computer hardware or software failures inhibiting response time, or similar disruption;
        4. Governmental action, including emergency orders or regulations, judicial or law-enforcement action, or similar directives;
        5. Regularly scheduled maintenance, during other than normal business hours, of, or updates to, the consumer reporting agency’s systems; or
        6. Commercially reasonable maintenance of, or repair to, the consumer reporting agency’s systems that is unexpected or unscheduled; and
  7. A consumer reporting agency shall remove or temporarily lift a freeze placed on a consumer’s credit report only in the following cases:
    1. Upon a consumer request, pursuant to subsection E or subsection J; or
    2. If the consumer’s credit report was frozen due to a material misrepresentation of fact by the consumer. If a consumer reporting agency intends to remove a freeze upon a consumer’s credit report pursuant to this subdivision, the consumer reporting agency shall notify the consumer in writing prior to removing the freeze on the consumer’s credit report.
  8. If a third party requests access to a consumer credit report on which a security freeze is in effect, and this request is in connection with an application for credit or any other use, and the consumer does not allow his or her credit report to be accessed for that period of time, the third party may treat the application as incomplete.
  9. If a consumer requests a security freeze, the consumer reporting agency shall disclose the process of placing and temporarily lifting a freeze and the process for allowing access to information from the consumer’s credit report for a period of time while the freeze is in place.
  10. A security freeze shall remain in place until the consumer requests, using a point of contact designated by the consumer reporting agency, that the security freeze be removed. A consumer reporting agency shall remove a security freeze within three business days of receiving a request for removal from the consumer, who provides:
    1. Proper identification; and
    2. The unique personal identification number or password or similar device provided by the consumer reporting agency pursuant to subsection D.
  11. A consumer reporting agency shall require proper identification of the person making a request to place or remove a security freeze.
  12. The provisions of this section do not apply to the use of a consumer credit report by any of the following:
    1. A person or entity, or a subsidiary, affiliate, or agent of that person or entity, or an assignee of a financial obligation owing by the consumer to that person or entity, or a prospective assignee of a financial obligation owing by the consumer to that person or entity in conjunction with the proposed purchase of the financial obligation, with which the consumer has or had prior to assignment an account or contract, including a demand deposit account, or to whom the consumer issued a negotiable instrument, for the purposes of reviewing the account or collecting the financial obligation owing for the account, contract, or negotiable instrument. For purposes of this paragraph, “reviewing the account” includes activities related to account maintenance, monitoring, credit line increases, and account upgrades and enhancements;
    2. A subsidiary, affiliate, agent, assignee, or prospective assignee of a person to whom access has been granted for purposes of facilitating the extension of credit or other permissible use;
    3. Any state or local agency, law-enforcement agency, trial court, or private collection agency acting pursuant to a court order, warrant, or subpoena;
    4. A child support agency acting pursuant to Title IV-D of the Social Security Act (42 U.S.C. § 654 et seq.);
    5. The Commonwealth or its agents or assigns acting to investigate fraud or acting to investigate or collect delinquent taxes or unpaid court orders or to fulfill any of its other statutory responsibilities provided such responsibilities are consistent with a permissible purpose under 15 U.S.C. § 1681b;
    6. The use of credit information for the purposes of prescreening or postscreening as provided for by the federal Fair Credit Reporting Act;
    7. Any person or entity administering a credit file monitoring subscription or similar service to which the consumer has subscribed;
    8. Any person or entity for the purpose of providing a consumer with a copy of his credit report or score upon the consumer’s request;
    9. Any person or entity for use in setting or adjusting a rate, adjusting a claim, or underwriting for insurance purposes; or
    10. Any employer in connection with any application for employment with the employer.
  13. A consumer reporting agency shall not charge a fee for any service performed under this section.
  14. If a security freeze is in place, a consumer reporting agency shall not change any of the following official information in a consumer credit report without sending a written confirmation of the change to the consumer within 30 days of the change being posted to the consumer’s file: name, date of birth, social security number, and address. Written confirmation is not required for technical modifications of a consumer’s official information, including name and street abbreviations, complete spellings, or transposition of numbers or letters. In the case of an address change, the written confirmation shall be sent to both the new address and to the former address.
  15. The following entities are not required to place a security freeze on a credit report:
    1. A consumer reporting agency that acts only as a reseller of credit information by assembling and merging information contained in the database of another consumer reporting agency or multiple consumer credit reporting agencies, and does not maintain a permanent database of credit information from which new consumer credit reports are produced. However, a consumer reporting agency acting as a reseller shall honor any security freeze placed on a consumer credit report by another consumer reporting agency;
    2. A check services or fraud prevention services company, which issues reports on incidents of fraud or authorizations for the purpose of approving or processing negotiable instruments, electronic funds transfers, or similar methods of payments;
    3. A deposit account information service company, which issues reports regarding account closures due to fraud, substantial overdrafts, ATM abuse, or similar negative information regarding a consumer, to inquiring banks or other financial institutions for use only in reviewing a consumer request for a deposit account at the inquiring bank or financial institution; and
    4. A consumer reporting agency’s database or file that consists of information concerning, and used for, one or more of the following: criminal record information, fraud prevention or detection, personal loss history information, and employment, tenant, or background screening.
  16. At any time a consumer is required to receive a summary of rights required under 15 U.S.C. § 1681g(d), the following notice shall be included:“Virginia Consumers Have the Right to Obtain a Security Freeze.You have a right to place a “security freeze” on your credit report, which will prohibit a consumer reporting agency from releasing information in your credit report without your express authorization. A security freeze must be requested in writing by certified mail. The security freeze is designed to prevent credit, loans, and services from being approved in your name without your consent. However, you should be aware that using a security freeze to take control over who gets access to the personal and financial information in your credit report may delay, interfere with, or prohibit the timely approval of any subsequent request or application you make regarding a new loan, credit, mortgage, government services or payments, rental housing, employment, investment, license, cellular phone, utilities, digital signature, Internet credit card transaction, or other services, including an extension of credit at point of sale. When you place a security freeze on your credit report, you will be provided a personal identification number or password to use if you choose to remove the freeze on your credit report or authorize the release of your credit report for a period of time or for a specific party after the freeze is in place. To provide that authorization you must contact the consumer reporting agency and provide all of the following:
    1. The personal identification number or password;
    2. Proper identification to verify your identity; and
    3. The proper information regarding the period of time or the specific party for which the report shall be available.A consumer reporting agency must authorize the release of your credit report no later than three business days after receiving the above information. A consumer credit reporting agency must authorize the release of your credit report no later than 15 minutes after receiving the request.A security freeze does not apply to a person or entity, or its affiliates, or collection agencies acting on behalf of the person or entity, with which you have an existing account, that requests information in your credit report for the purposes of reviewing or collecting the account. Reviewing the account includes activities related to account maintenance, monitoring, credit line increases, and account upgrades and enhancements.You have a right to bring civil action against anyone, including a consumer reporting agency, who improperly obtains access to a file, knowingly or willfully misuses file data, or fails to correct inaccurate file data.A consumer reporting agency does not have the right to charge you a fee to place a freeze on your credit report.”
  17. Any person who willfully fails to comply with any requirement imposed under this section or § 59.1-444.3 with respect to any consumer is liable to that consumer in an amount equal to the sum of:
    1. Any actual damages sustained by the consumer as a result of the failure or damages of not less than $100 and not more than $1,000;
    2. Such amount of punitive damages as the court may allow; and
    3. In the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney fees as determined by the court.
  18. Any person who obtains a consumer report, requests a security freeze, requests the temporary lift of a freeze, or requests the removal of a security freeze from a consumer reporting agency under false pretenses or in an attempt to violate federal or state law shall be liable to the consumer reporting agency for actual damages sustained by the consumer reporting agency or $1,000, whichever is greater.
  19. Any person who is negligent in failing to comply with any requirement imposed under this section with respect to any consumer is liable to that consumer in an amount equal to the sum of:
    1. Any actual damages sustained by the consumer as a result of the failure; and
    2. In the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney fees as determined by the court.
  20. Upon a finding by the court that an unsuccessful pleading, motion, or other paper filed in connection with an action under this section was filed in bad faith or for purposes of harassment, the court shall award to the prevailing party attorney fees reasonable in relation to the work expended in responding to the pleading, motion, or other paper.
  21. Notwithstanding any other provision of law:
    1. The exclusive authority to bring an action for any violation of subdivision F 1 b shall be with the Attorney General. In any action brought under this subsection, the Attorney General may cause an action to be brought in the name of the Commonwealth to enjoin the violation and to recover damages for aggrieved consumers consistent with the limits stated in subsections Q and S for such violations.
    2. In any action brought under this subsection, if the court finds a willful violation, the court may, in its discretion, also award a civil penalty of not more than $1,000 per violation, to be deposited in the Literary Fund of the Commonwealth.
    3. In any action brought under this subsection, the Attorney General may recover any costs, the reasonable expenses incurred in investigating and preparing the case, and attorney fees.

2. Is not required to temporarily lift a security freeze within the time provided in subdivision 1 b if:

a. The consumer fails to meet the requirements of subsection E; or

b. The consumer reporting agency’s ability to temporarily lift the security freeze within 15 minutes is prevented by:

3. May develop procedures involving the use of telephone, fax, the Internet, or other electronic media to receive and process a request from a consumer to temporarily lift a freeze on a credit report pursuant to subsection E in an expedited manner.

History. 2008, cc. 480, 496; 2009, c. 406; 2014, c. 570; 2018, cc. 264, 303; 2020, c. 243.

The 2009 amendments.

The 2009 amendment by c. 406, in the last paragraph of subsection B, substituted “On and after July 1, 2009” for “Within one year of this Act’s effective date” at the beginning and added the language beginning “if such request is made electronically” at the end.

The 2014 amendments.

The 2014 amendment by c. 570, effective January 1, 2015, added subsection A, inserted the subsection B designation, and redesignated the remaining subsections accordingly; in the last paragraph of subdivision C 3 substituted “A” for “On and after July 1, 2009, a”; in subdivision F 1 b substituted “Within” for “After September 1, 2008”; deleted “E” preceding “1 b” in subdivision F 2; in subdivision F 3 substituted “3. May” for “F. A consumer reporting agency may”; in subsections M, S and T substituted “section” for “chapter”; in the paragraph following subdivision P 3, substituted “A” for “After September 1, 2008”; in subsection Q substituted “section or § 59.1-444.3” for “chapter”; and made minor stylistic changes.

The 2018 amendments.

The 2018 amendments by cc. 264 and 303 are identical, and substituted “$5” for “$10” in subdivision C 3 and subsections M and P.

The 2020 amendments.

The 2020 amendment by c. 243 deleted subdivision C 3, which read: “Payment of a fee not to exceed $5, if applicable”; rewrote subsection M, which formerly read: “This section does not prevent a consumer reporting agency from charging a fee of no more than $5 to a consumer to place each freeze, except that a consumer reporting agency may not charge a fee to a victim of identity theft who has submitted a valid police report to the consumer reporting agency”; rewrote the last paragraph of subsection P, which read: “Unless you are a victim of identity theft with a police report to verify the crimes, a consumer reporting agency has the right to charge you up to $5 to place a freeze on your credit report”; and in subsection R, inserted “requests” preceding “the removal of.”

§ 59.1-444.3. Security freezes for protected consumers.

  1. As used in this section, unless the context requires a different meaning:“Protected consumer” means a consumer who is either:
    1. Under the age of 16 years at the time a request for the placement of a security freeze is made; or
    2. An incapacitated person for whom a guardian or conservator has been appointed in accordance with Chapter 20 (§ 64.2-2000 et seq.) of Title 64.2.“Record” means a compilation of information regarding a specific identified protected consumer, which compilation is created by a consumer reporting agency solely for the purpose of complying with the requirement for a record’s establishment set forth in subsection D.“Representative” means a person who provides to a consumer reporting agency sufficient proof of authority to act on behalf of a protected consumer.“Security freeze” means:
  2. This section does not apply to the use of a protected consumer’s credit report or record by:
    1. A person administering a credit file monitoring subscription service to which the protected consumer has subscribed or the representative of the protected consumer has subscribed on behalf of the protected consumer;
    2. A person providing the protected consumer or the protected consumer’s representative with a copy of the protected consumer’s credit report on request of the protected consumer or the protected consumer’s representative; or
    3. An entity listed in subsection O of § 59.1-444.2.
  3. A consumer reporting agency shall place a security freeze for a protected consumer if:
    1. The consumer reporting agency receives a request from the protected consumer’s representative for the placement of the security freeze under this section; and
    2. The protected consumer’s representative:
      1. Submits the request to the consumer reporting agency at the address or other point of contact and in the manner specified by the consumer reporting agency;
      2. Provides to the consumer reporting agency sufficient proof of identification of the protected consumer and the representative; and
      3. Provides to the consumer reporting agency sufficient proof of authority to act on behalf of the protected consumer.
  4. If a consumer reporting agency does not have a file pertaining to a protected consumer when the consumer reporting agency receives a request under subsection C from the protected consumer’s representative for the placement of a security freeze, the consumer reporting agency shall create a record for the protected consumer. A record may not be created or used to consider the protected consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living for the purpose of serving as a factor in establishing the consumer’s eligibility for (i) credit or insurance to be used primarily for personal, family, or household purposes or (ii) employment.
  5. Within 30 days after receiving a request that meets the requirements of subsection C, a consumer reporting agency shall place a security freeze for the protected consumer.
  6. Unless a security freeze for a protected consumer is removed in accordance with subsection H or K, a consumer reporting agency may not release the protected consumer’s credit report, any information derived from the protected consumer’s credit report, or any record created for the protected consumer.
  7. A security freeze for a protected consumer placed under subsection E shall remain in effect until:
    1. The protected consumer or the protected consumer’s representative requests the consumer reporting agency to remove the security freeze in accordance with subsection H; or
    2. The security freeze is removed in accordance with subsection K.
  8. If a protected consumer or a protected consumer’s representative wishes to remove a security freeze for the protected consumer, the protected consumer or the protected consumer’s representative shall:
    1. Submit a request for the removal of the security freeze to the consumer reporting agency at the address or other point of contact and in the manner specified by the consumer reporting agency; and
    2. Provide to the consumer reporting agency:
      1. In the case of a request by the protected consumer:
        1. Proof that the sufficient proof of authority for the protected consumer’s representative to act on behalf of the protected consumer is no longer valid; and
        2. Sufficient proof of identification of the protected consumer; or
      2. In the case of a request by the representative of a protected consumer:
        1. Sufficient proof of identification of the protected consumer and the representative; and
        2. Sufficient proof of authority to act on behalf of the protected consumer.
  9. Within 30 days after receiving a request that meets the requirements of subsection H, the consumer reporting agency shall remove the security freeze for the protected consumer.
  10. A consumer reporting agency shall not charge a fee for any service performed under this section.
  11. A consumer reporting agency may remove a security freeze for a protected consumer or delete a record of a protected consumer if the security freeze was placed or the record was created based on a material misrepresentation of fact by the protected consumer or the protected consumer’s representative.
  12. Any person who obtains a consumer report, requests a security freeze, requests the temporary lift of a freeze, or requests the removal of a security freeze from a consumer reporting agency under false pretenses or in an attempt to violate federal or state law shall be liable to the consumer reporting agency for damages sustained by the consumer reporting agency as provided in subsection R of § 59.1-444.2.
  13. Notwithstanding any other provision of law:
    1. The exclusive authority to bring an action for any violation of subsection E shall be with the Attorney General. In any action brought under this subsection, the Attorney General may cause an action to be brought in the name of the Commonwealth to enjoin the violation and to recover damages for aggrieved protected consumers.
    2. In any action brought under this subsection, if the court finds a willful violation, the court may, in its discretion, also award a civil penalty of not more than $1,000 per violation, to be deposited in the Literary Fund.
    3. In any action brought under this subsection, the Attorney General may recover any costs, the reasonable expenses incurred in investigating and preparing the case, and attorney fees.

1. If a consumer reporting agency does not have a file pertaining to a protected consumer, a restriction that (i) is placed on the protected consumer’s record in accordance with this section and (ii) prohibits the consumer reporting agency from releasing the protected consumer’s record except as provided in this section; or

2. If a consumer reporting agency has a file pertaining to the protected consumer, a restriction that (i) is placed on the protected consumer’s credit report in accordance with this section and (ii) prohibits the consumer reporting agency from releasing the protected consumer’s credit report or any information derived from the protected consumer’s credit report except as provided in this section. “Sufficient proof of authority” means documentation that shows a representative has authority to act on behalf of a protected consumer. “Sufficient proof of authority” includes (i) an order issued by a court of law, (ii) a lawfully executed and valid power of attorney, (iii) a birth certification; or (iv) a written, notarized statement signed by a representative that expressly describes the authority of the representative to act on behalf of the protected consumer. “Sufficient proof of identification” means information or documentation that identifies a protected consumer or a representative of a protected consumer. “Sufficient proof of identification” includes (i) a social security number or a copy of a social security card issued by the U.S. Social Security Administration; (ii) a certified or official copy of a birth certificate issued by the entity authorized to issue the birth certificate; (iii) a copy of a driver’s license, an identification card issued by the Department of Motor Vehicles, or any other government-issued identification; or (iv) a copy of a bill, including a bill for telephone, sewer, septic tank, water, electric, oil, or natural gas services, that shows a name and home address.

History. 2014, c. 570; 2018, cc. 264, 303, 480; 2020, c. 243.

Editor’s note.

Acts 2014, c. 570, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2015.”

The 2018 amendments.

The 2018 amendments by cc. 264 and 303 are identical, and substituted “$5” for “$10” in subsection J.

The 2018 amendment by c. 480, in subsection A, in the definition for “Sufficient proof of authority,” added clauses (iii) and (iv) and made a related change.

The 2020 amendments.

The 2020 amendment by c. 243 deleted subdivision C 2 d, which read: “Pays to the consumer reporting agency a fee as provided in subsection J”; deleted subdivision H 3, which read: “Pays to the consumer reporting agency a fee as provided in subsection J”; and in subsection J, substituted “shall” for “may” and deleted “except for a reasonable fee, not exceeding $5, for each placement or removal of a security freeze for a protected consumer. Notwithstanding the foregoing, a consumer reporting agency shall not charge any fee for the placement or removal of a security freeze for a protected consumer if” and deleted subdivisions J 1 and J 2.

Research References.

Virginia Forms (Matthew Bender). No. 6-703. Petition for Appointment of Guardian and Conservator, etc.

Chapter 36. The Virginia Travel Club Act.

§ 59.1-445. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Accommodations” means any real property improvement provided by the travel club to its members for lodging purposes, including, without limitation, condominiums, hotels, motels or motor courts.

“Board” means the Virginia Board of Agriculture and Consumer Services.

“Carrier” means any person engaged in the business of transporting persons for hire.

“Commissioner” means the Commissioner of the Department of Agriculture and Consumer Services or his designee.

“Contract” shall be synonymous with “travel services agreement.”

“Offer,” or “offering” means any act to sell, solicit, induce, advertise, or execute a travel services agreement.

“Purchaser” means any person who enters into an agreement in whole or in part within this Commonwealth with a travel club for travel services.

“Travel club” means a for-profit organization that provides, in return for either an advance fee for membership or an annual charge for membership of more than $100, the privilege for its members or participants to arrange or obtain future travel services through or from the organization. Travel club shall exclude credit card issuers whose cards are honored at any one time by 100 or more merchants, other than the issuer.

“Travel services” means transportation by carrier; accommodations; rental of motor vehicles; or any other service related to travel. For purposes of this chapter, “travel services” shall not include investments in time shares.

“Travel services agreement” means the agreement executed in whole or in part in this Commonwealth between the travel club and the purchaser of the membership in such club and does not include arrangements or agreements for specific travel transportation, accommodation or other specific services.

History. 1993, c. 760; 1994, c. 482.

Cross references.

As to crime of promoting travel for prostitution, see § 18.2-348.1 .

§ 59.1-446. Registration; fees.

  1. It shall be unlawful for any travel club to offer or cause to be executed in this Commonwealth by the purchaser any travel services agreement unless such travel club at the time of such offering, or execution thereof has been properly registered with the Commissioner. Such registration shall (i) disclose the address, ownership, and nature of business of the travel club and (ii) be accompanied by an annual fee of $350 per registration and annual renewal.
  2. All fees shall be remitted to the State Treasurer and shall be placed to the credit and special fund of the Virginia Department of Agriculture and Consumer Services to be used in the administration of this chapter.

History. 1993, c. 760; 1994, c. 482.

§ 59.1-447. Bond or letter of credit required.

  1. Every travel club, before entering into a travel services agreement with a purchaser of travel services, shall file and maintain with the Commissioner, in a form and substance satisfactory to him, a bond with corporate surety from a company authorized to transact business in the Commonwealth, or a letter of credit from a bank insured by the Federal Insurance Deposit Corporation, or cash in the amounts indicated below:

    Click to view

  2. The bond or letter of credit required by subsection A of this section shall be in favor of the Commonwealth of Virginia for the benefit of any purchaser who is damaged by any violation of this chapter.
  3. The aggregate liability of the bond or letter of credit to all persons for all breaches of the conditions of the bond or letter of credit shall in no event exceed the amount of the bond or letter of credit. The bond or letter of credit shall not be canceled or terminated except with the consent of the Commissioner. Bonds may be withdrawn by giving sixty-day advance written notice to the Commissioner, thereby releasing the surety from accruing future liability beyond the effective date of withdrawal. Such withdrawal shall not release the surety or otherwise cancel or terminate any liability existing at the time of the effective date of the withdrawal.

Number of Contracts Amount of Cash, Bond, or Letter of Credit 0 to 1500 $60,000 1501 to 1750 $70,000 1751 to 2000 $80,000 2001 or more $100,000

History. 1993, c. 760; 1994, c. 482.

§ 59.1-447.1. Escrow of deposits.

  1. Any deposit made in connection with the execution of a travel services agreement shall be held in escrow. All cash deposits shall be held in a separate bank account labeled and designated solely for that purpose.Such escrow account shall be insured by an instrumentality of the federal government and located in Virginia. All deposits shall be held in escrow until (i) delivered to the travel club upon expiration of the purchaser’s cancellation period, provided the purchaser’s right of cancellation has not been exercised, or (ii) delivered to the travel club because of purchaser’s default under the travel services agreement or (iii) refunded to the purchaser. Failure to establish escrow accounts or to make the deposits as required by this section is prima facie evidence of willful violation of this section.
  2. The travel club shall disclose in the travel services agreement that the deposit may not be held in escrow after expiration of the cancellation period and that such deposit is not protected as an escrow after expiration of the cancellation period. This disclosure shall include a statement of whether or not the travel club reserves the option to sell or assign any promissory note given by a purchaser to another entity, whether or not such entity is affiliated with the travel club. Both disclosures shall appear in boldface type of a minimum size of ten points.
  3. There shall be posted a fidelity bond, written so as to protect all deposits escrowed pursuant to subsection A, in favor of all purchasers. The bond shall be in an amount equal to the total of the deposits in escrow at any given time or $25,000, whichever is greater. Such bond shall be filed with the Commissioner and shall be maintained for so long as the travel club offers travel services in Virginia. The bond shall be with a surety company authorized to do business in Virginia. The travel club may post cash in lieu of the bond.

History. 1994, c. 482.

§ 59.1-448. Travel services agreement; disclosure.

  1. The travel services agreement shall contain a written disclosure of all limitations on and terms of the membership and shall be provided to the purchaser at the time the agreement is executed. The disclosure shall clearly and conspicuously include:
    1. The name, business address and telephone number of the travel club;
    2. The amount due, the date of payment, the purpose of the payment and an itemized statement of the balance due, if any;
    3. A detailed description of any other service provided in conjunction with the agreement;
    4. The conditions, if any, upon which the travel services agreement or membership in the travel club may be canceled and the rights and obligations of all parties in the event of such cancellation; and
    5. A description of all contingencies, limitations or conditions of the agreement.
  2. The purchaser may cancel the travel service agreement until midnight of the seventh calendar day after execution of the contract by use of the form prescribed in subsection C of this section; however, notice of cancellation need not take the form prescribed and shall be sufficient if it indicates the intention of the purchaser not to be bound. Notice of cancellation, if given by mail, shall be deemed given when deposited in a mailbox, properly addressed and postage prepaid. If the seventh calendar day falls on a Sunday or legal holiday, then the right to cancel the travel service agreement shall expire on the day immediately following that Sunday or legal holiday.
  3. The written disclosure shall include, in addition to the requirements of subsections A and B of this section, the following statement which shall appear immediately above the buyer’s signature under the conspicuous caption, “BUYER’S NONWAIVABLE RIGHT TO CANCEL,” which caption shall be printed in no less than ten-point, bold-faced type:YOU MAY CANCEL THIS TRANSACTION, WITHOUT ANY PENALTY OR OBLIGATION, WITHIN SEVEN CALENDAR DAYS FROM YOUR EXECUTION OF THIS CONTRACT UNLESS YOU HAVE ALREADY USED THE TRAVEL SERVICES PROVIDED IN CONNECTION WITH THIS TRAVEL SERVICES AGREEMENT. IF YOU HAVE ALREADY USED THE TRAVEL SERVICES PROVIDED IN CONNECTION WITH THIS TRAVEL SERVICES AGREEMENT, YOU MAY STILL CANCEL THIS TRANSACTION WITHIN SEVEN CALENDAR DAYS FROM YOUR EXECUTION HEREOF, BUT YOU ARE NOT ENTITLED TO A REFUND OF ANY PRIOR PAYMENTS MADE FOR THE SPECIFIC TRAVEL SERVICES UTILIZED.TO CANCEL THIS TRANSACTION, MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR ANY OTHER WRITTEN NOTICE OR SEND A TELEGRAM TO:

    Click to view

  4. Within forty-five days after notice of cancellation is received, the travel club shall refund to the purchaser any payments made by the purchaser pursuant to the travel services agreement. However, the travel club may retain payments made for specific travel services utilized. The refund may be made by crediting the purchaser’s credit card account if a credit card was used to make a payment and if the travel club informs the purchaser in writing that the credit card account has been credited.
  5. The right of cancellation afforded the purchaser by this chapter is nonwaivable and any provision in any instrument to the contrary shall be null and void.

(Name of Seller) AT (Address of Seller) NOT LATER THAN Place of Business MIDNIGHT OF THE SEVENTH DAY AFTER RECEIPT OF THIS DISCLOSURE (Date) I HEREBY CANCEL THIS TRANSACTION (Date) (Purchaser’s Signature)

History. 1993, c. 760; 1994, c. 482.

§ 59.1-448.1. Public offering statement.

  1. The travel club shall prepare and distribute to any prospective purchaser, before execution thereby of a travel services agreement, a public offering statement which discloses fully and accurately the characteristics of the travel club and its travel services, the membership offered and shall make known to prospective purchasers all material circumstances affecting the travel club and its travel services. The proposed public offering statement shall be filed with the Commissioner, shall be in a form prescribed by his rules and shall include the following to the extent applicable:
    1. The name and principal address of the travel club, including:
      1. The name, principal occupation and address of every director, partner, or trustee of the travel club;
      2. The name and address of each person owning or controlling an interest of twenty percent or more in the travel club;
      3. The particulars of any indictment, conviction, judgment, decree or order of any court or administrative agency against the travel club for violation of a federal, state, local or foreign country law or regulation in connection with activities relating to the rendition of travel services;
      4. A statement of any unsatisfied judgments against the travel club, the status of any pending suits involving the rendition of travel services to which the travel club or any general partner, executive officer, director, or majority stockholder thereof is a defending party, and the status of any pending suits of significance to the travel club; and
      5. The name and address of the travel club’s agent for service of process.
  2. If any prospective purchaser of a travel club membership is offered the opportunity to subscribe to or participate in any exchange program registered under the Virginia Real Estate Time-Share Act (§ 55.1-2200 et seq.), the public offering statement shall include as an exhibit or supplement, the disclosure document prepared by the exchange company in accordance with § 55.1-2219 and a brief narrative description of the exchange program which shall include the following:
    1. A statement of whether membership or participation in the program is voluntary or mandatory;
    2. The name and address of the exchange company together with the names of the principal officers and all directors of the exchange company;
    3. A statement of whether the exchange company or any of its officers or directors are holders of a ten percent or greater interest in the travel club;
    4. A statement of whether the travel club or any of its officers or directors are holders of a ten percent or greater interest in an exchange company;
    5. A statement that the purchaser’s contract with the exchange company is a contract separate and distinct from the purchaser’s contract with the travel club; and
    6. A brief narrative description of the procedure whereby exchanges are conducted.
  3. The travel club shall amend the public offering statement to reflect any material change in the travel club membership. The travel club shall file with the Commissioner the public offering statement amended to reflect any material change. The Commissioner may at any time require the travel club to alter or supplement the form or substance of the public offering statement to assure full and fair disclosure to prospective purchasers.The following events shall not be deemed to be a material change necessitating an amendment to the public offering statement:
    1. A change correcting spelling, grammar, omissions, or other similar errors not affecting the substance of the public offering statement;
    2. A change in the fees, dues, or assessments of the purchasers or other similar recurring expense items;
    3. A change which is an aspect or result of the orderly development, operation, or management of the travel club in accordance with the travel services agreement, including, without limitation, the addition or deletion of accommodations, transportation or other service related to travel;
    4. A change resulting from the adoption of a new budget;
    5. A change occurring in the issuance of an exchange company’s updated annual report or disclosure documents provided upon its receipt by the travel club it shall commence distribution of same in lieu of all others; and
    6. A change in the ownership of the travel club, provided the change affects less than an ownership interest of twenty percent.

2. A general description of the travel services offered by the travel club which are made available to purchasers.

3. A general description of the travel club and its more significant features including without limitation the duration of membership, the types of membership offered, all fees, costs, and charges imposed on the purchaser thereby, and any provision for its cancellation by the purchaser other than by default.

4. Provisions, if any, that have been made by the travel club for fulfilling the demand of the purchaser for accommodations in lodgings.

5. If the travel club’s net worth is less than $500,000, a copy of the travel club’s current audited balance sheet; if such club’s net worth exceeds said amount, a statement by such travel club that its equity exceeds $500,000.

6. Any initial or special fee due from the purchaser for membership in the travel club together with a description of the purpose and method of calculating the fee.

7. A general description of any financing offered by or available through the travel club.

8. A statement that the purchaser has a right to cancel the travel service agreement directing the purchaser to see such travel services agreement for the particulars of such right of cancellation.

9. Any restraints on alienation of the travel club membership by the purchaser.

10. A description of any insurance coverage provided for the benefit of the purchaser.

11. Any services which the travel club provides or expense it pays and which it expects may become at any subsequent time an expense of the purchaser and which is to be paid thereby.

12. A description of the terms of the deposit escrow requirements, including a statement that deposits may be removed from escrow at the termination of the cancellation period.

13. Any other information required by the Commissioner to assure full and fair disclosure to prospective purchasers.

14. A statement, expressed in terms of a percentage, of the number of purchasers who applied for accommodations from the travel club during the preceding year in contrast to the total number of purchasers who actually received such accommodations for the same preceding year. For purposes of calculation, an application shall be treated as only one application notwithstanding that the purchaser contemporaneously requests accommodations at a number of different real property improvements. Such statement shall be prepared by an independent certified public accounting firm and may take the form of an exhibit to the public offering statement.

History. 1994, c. 482.

Editor’s note.

To conform to the recodification of Title 55 by Acts 2019, c. 712, effective October 1, 2019, the following substitutions were made at the direction of the Virginia Code Commission: substituted “55.1-2200” for “55-360” and “55.1-2219” for “55-374.2.”

§ 59.1-449. Prohibited practices by travel club.

It shall be unlawful for any travel club to engage in any or all of the following practices:

  1. Offer any other type of promotional inducement where the cost of the package equals or exceeds the cost which would have been incurred without the travel club membership;
  2. Misrepresent the type or size of aircraft, vehicle, ship or train; time of departure or arrival; points served; route to be traveled; stops to be made; total trip-time from point of departure to destination; type or size of lodging or other accommodation; availability of lodging or other accommodation; or other services available, reserved or contracted for in connection with any trip, tour or other travel services, unless such misrepresentation resulted from a reasonable belief as to the services available based upon representations made by the person offering such services;
  3. Misrepresent the fares and charges for transportation or services in connection therewith, unless the misrepresentation resulted from a reasonable belief as to the fares and charges applicable based upon representations made by the person offering such services;
  4. Misrepresent that special priorities for reservations are available when such special considerations are in fact granted to members of the public generally;
  5. Sell transportation to any person on a reservation or charter basis for specified space, flight or time or represent that such definite reservation or charter is or will be available or has been arranged, without a binding commitment with a carrier for the furnishing of such definite reservation or charter as represented or sold;
  6. Sell or issue tickets or other documents to be exchanged or used for transportation if the tickets or other documents will not be or cannot be legally honored by carriers for transportation;
  7. Misrepresent the requirements that must be met by a person in order to qualify for charter or group fare rates, unless such misrepresentation resulted from a reasonable belief as to the requirements applicable based upon representations made by the person offering the charter or group fare;
  8. Offer accommodations in lodgings when the travel club has no written evidence of its legal right to possession of such lodgings; or
  9. Use in any offering, advertisement, or promotion of any type or description the following terms: “time-share,” “vacation ownership,” “interval ownership,” “time-share benefit” or “incidental benefit.”

History. 1993, c. 760; 1994, c. 482.

§ 59.1-450. Regulations.

The Board is authorized to prescribe reasonable regulations in order to implement the provisions of this chapter. These regulations shall be adopted, amended, or repealed in accordance with the Administrative Process Act (§ 2.2-4000 et seq.).

History. 1993, c. 760.

§ 59.1-451. Investigations.

  1. The Commissioner may, with respect to a travel club or travel services agreements:
    1. Make necessary public and private investigations within or without this Commonwealth to determine whether any person has violated, or is about to violate, the provisions of this chapter or any rule, regulation, or order issued pursuant to this chapter;
    2. Require or permit any person to file a statement in writing, under oath or otherwise as the Commissioner determines, as to all facts and circumstances concerning the matter under investigation; and
    3. Administer oaths or affirmations and, upon motion or upon request of any party, may subpoena witnesses, compel their attendance, take evidence, and require the production of any matter that is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things; the identity and location of persons having knowledge of relevant facts; or any other matter reasonably calculated to lead to the discovery of material evidence.
  2. Any proceeding or hearing of the Commissioner pursuant to this chapter, in which witnesses are subpoenaed and their attendance required for evidence to be taken, or any matter produced to ascertain material evidence shall take place within the City of Richmond.
  3. If any person fails to obey the subpoena or to answer questions propounded by the Commissioner and upon reasonable notice to all persons affected thereby, the Commissioner may apply to the Circuit Court of the City of Richmond for an order compelling compliance.

History. 1993, c. 760.

§ 59.1-452. Production of records.

Every travel club, upon written request of the Commissioner, shall make available to the Commissioner its travel-services records for inspection and copying to enable the Commissioner to reasonably determine compliance with this chapter. Every club promoter shall maintain a true copy of each agreement between the travel club and a purchaser, and such agreement shall be maintained for its term plus two years.

History. 1993, c. 760.

§ 59.1-453. Exemptions.

This chapter shall not apply to:

  1. Any agreement which meets the definition of “contract” under, and is subject to, the provisions of the Virginia Real Estate Time-Share Act (§ 55.1-2200 et seq.) or the Virginia Membership Camping Act (§ 59.1-311 et seq.); or
  2. An “exchange program” as defined by the Virginia Real Estate Time-Share Act (§ 55.1-2200 et seq.) and offered by an exchange company registered under the Virginia Real Estate Time-Share Act; or
  3. [Expired.]
  4. A “product” as defined in the Virginia Real Estate Time-Share Act which is registered in accordance with its provisions.

History. 1993, c. 760; 1994, c. 482.

Editor’s note.

To conform to the recodification of Title 55 by Acts 2019, c. 712, effective October 1, 2019, the following substitution was made at the direction of the Virginia Code Commission: substituted “55.1-2200” for “55-360” twice.

§ 59.1-454. Violations of chapter; penalty.

Any violation of the provisions of this chapter or any travel services agreement executed therewith shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.).

History. 1993, c. 760.

Chapter 37. Contracts; Independent Sales Representatives.

§ 59.1-455. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Commission” means compensation accruing to a sales representative for payment by a principal, the rate of which is expressed as a percentage of the total dollar amount of orders or sales or as a specified amount per order or per sale.

“Principal” means a person who manufactures, produces, imports or distributes a product for wholesale and who contracts with a sales representative to solicit orders or sales for such product and compensates the sales representative, in whole or in part, by commission.

“Sales representative” means a person other than an employee who contracts with a principal to solicit wholesale orders or sales and who is compensated, in whole or in part, by commission, but shall not include a person who purchases exclusively for his own account for resale.

History. 1993, c. 736.

The numbers of §§ 59.1-455 through 59.1-459 were assigned by the Virginia Code Commission, the numbers in the act having been 59.1-445 through 59.1-449.

§ 59.1-456. Contracts between principals and sales representatives.

When a principal contracts with a sales representative to solicit wholesale orders within this Commonwealth, such contract shall (i) be in writing, (ii) disclose the method by which the commission is to be computed and paid, (iii) disclose the territory of the sales representative and whether such territory is exclusive, (iv) be signed by the principal and the sales representative, and (v) be provided to the sales representative.

History. 1993, c. 736.

§ 59.1-457. Payment of sales commission.

  1. Every sales representative shall be paid the earned commission and all other compensation earned or payable in accordance with the terms of the contract.
  2. When a contract between a principal and a sales representative is terminated, for any reason, except by mutual agreement, all earned commissions shall be paid within a period specified in the contract, but in no event shall such period exceed thirty days from the date of termination or, in the case of orders processed subsequent to termination, thirty days from shipment.  Such commission and other compensation shall be paid to the sales representative at the usual place of payment unless the sales representative requests that the commission be sent to him through regular mail.  If the commission is sent through regular mail, it is deemed to have been paid for purposes of this subsection on the date that it is postmarked.

History. 1993, c. 736.

§ 59.1-458. Waiver prohibited.

Any provision of any agreement intending to waive the rights of any party to any provision of this chapter shall be void.

History. 1993, c. 736.

§ 59.1-459. Absence of contract not affirmative defense.

The failure to execute a contract as required by § 59.1-456 shall not constitute an affirmative defense in any action relating to the provisions of this chapter.

History. 1993, c. 736.

Chapter 38. Virginia Music Licensing Fees Act.

§ 59.1-460. Definitions.

As used in this chapter:

“Copyright owner” means the owner of a copyright of a nondramatic musical or similar work recognized and enforceable under the copyright laws of the United States pursuant to Title 17 of the United States Code, P.L. 94-553 (17 U.S.C. § 101 et seq.).

“Performing rights society” means an association or corporation that licenses the public performance of nondramatic musical works on behalf of copyright owners, such as the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC, Inc.

“Proprietor” means the owner of a retail establishment, restaurant, inn, bar, tavern, sports or entertainment facility or any other similar place of business or professional office located in the Commonwealth in which the public may assemble and in which nondramatic musical works or similar copyrighted works may be performed, broadcast, or otherwise transmitted for the enjoyment of members of the public there assembled.

“Royalty” or “royalties” means the fees payable to a copyright owner or performing rights society for the public performance of nondramatic musical or other similar works.

History. 1995, c. 648.

§ 59.1-461. Notice and schedule to be provided.

No performing rights society shall enter into, or offer to enter into, a contract for the payment of royalties by a proprietor unless at the time of the offer, or any time thereafter, but no later than seventy-two hours prior to the execution of that contract, it provides to the proprietor, in writing, notice that such performing rights society:

  1. Has filed for public inspection, within the previous twelve months, with the State Corporation Commission (i) a certified copy of each form of performing rights contract or license agreement providing for the payment of royalties made available from such performing rights society to any Virginia proprietor; (ii) the most current available list of such performing rights society’s members or affiliates; and (iii) the most current available listing of the copyrighted musical works in such performing rights society’s repertory;
  2. Will make available, upon request, to any proprietor, by electronic means or otherwise, information as to whether specific copyrighted musical works are in its repertory;
  3. Will make available, upon written request of any proprietor, any of the information referred to in subdivision 1 of this section, at the sole expense of the proprietor, provided that such notice shall specify the means by which such information can be secured; and
  4. Complies with federal law and orders of courts having appropriate jurisdiction regarding the rates and terms of royalties and the circumstances under which licenses for rights of public performance are offered to any proprietor.

History. 1995, c. 648.

§ 59.1-462. Royalty contract requirements.

Every contract for the payment of royalties between a proprietor and a performing rights society executed, issued or renewed in the Commonwealth on or after July 1, 1995, shall be:

  1. In writing;
  2. Signed by the parties;
  3. Written to include, at a minimum, the following information:
    1. The proprietor’s name and business address and the name and location of each place of business to which the contract applies;
    2. The name of the performing rights society;
    3. The duration of the contract; and
    4. The schedule of rates and terms of the royalties to be collected under the contract, including any sliding scale or schedule for any increase or decrease of such rates for the duration of the contract.

History. 1995, c. 648.

§ 59.1-463. Prohibited conduct.

  1. No performing rights society or any agent or employee thereof shall:
    1. Enter onto the premises of a proprietor’s business for the purpose of discussing or inquiring about a contract for the payment of royalties with the proprietor or his employees, without first identifying himself to the proprietor or his employees and making known to them the purpose of the discussion or inquiry;
    2. Engage in any coercive conduct, act or practice that is substantially disruptive of a proprietor’s business;
    3. Use or attempt to use any unfair or deceptive act or practice in negotiating with a proprietor; or
    4. Fail to comply with or fulfill the obligations imposed by §§ 59.1-461 and 59.1-462.
  2. However, nothing in this chapter shall be construed to prohibit a performing rights society from conducting investigations to determine the existence of music use by a proprietor or informing a proprietor of the proprietor’s obligation under the U.S. Copyright Law, Title 17 of the United States Code.

History. 1995, c. 648.

§ 59.1-464. Remedies; injunction.

Any person who suffers a violation of this chapter may bring an action to recover actual damages and reasonable attorney’s fees and seek an injunction or any other remedy available at law or in equity.

History. 1995, c. 648.

§ 59.1-465. Remedies cumulative.

The rights, remedies and prohibitions contained in this chapter shall be in addition to and cumulative of any other right, remedy or prohibition accorded by common law, federal law or the statutes of the Commonwealth, and nothing contained herein shall be construed to deny, abrogate or impair any such common law or statutory right, remedy or prohibition.

History. 1995, c. 648.

§ 59.1-466. Exceptions.

This chapter shall not apply to contracts between copyright owners or performing rights societies and broadcasters licensed by the Federal Communications Commission, or to contracts with cable operators, programmers or other transmission services. Nor shall this chapter apply to musical works performed in synchronization with an audio/visual film or tape, or to the gathering of information for determination of compliance with or activities related to the enforcement of Chapter 3.1 (§ 59.1-41.1 et seq.) of Title 59.1.

History. 1995, c. 648.

Chapter 38.1. Truth in Music Advertising Act.

§ 59.1-466.1. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Performing group” means a vocal or instrumental group seeking to use the name of another group that has previously released a commercial sound recording under that name.

“Recording group” means a vocal or instrumental group at least one of whose members has previously released a commercial sound recording under that group’s name and in which the member or members have a legal right by virtue of use or operation under the group name without having abandoned the name or affiliation with the group.

“Sound recording” means a work that results from the fixation on a material object of a series of musical, spoken, or other sounds regardless of the nature of the material object, such as a disk, tape, or other phono-record, in which the sounds are embodied.

History. 2007, c. 261.

§ 59.1-466.2. Production.

It shall be unlawful for any performer or performing group, or its agent, to advertise or conduct a live musical performance or production in the Commonwealth through the use of an affiliation, connection, or association, known to be false, deceptive or misleading, with the intent to defraud the public, between a performing group and a recording group. The provisions of this chapter shall not apply if:

  1. The performing group is the authorized registrant and owner of a federal service mark for that group registered in the United States Patent and Trademark Office;
  2. At least one member of the performing group was a member of the recording group and has a legal right by virtue of use or operation under the group name without having abandoned the name or affiliation with the group;
  3. The live musical performance or production is identified in all advertising and promotion as a salute or tribute, or the name of the vocal or instrumental group performing is not so closely related or similar to that used by the recording group that it would tend to confuse or mislead the public;
  4. The advertising does not relate to a live musical performance or production taking place in the Commonwealth; or
  5. The performance or production is expressly authorized by the recording group.

History. 2007, c. 261.

§ 59.1-466.3. Restraining prohibited acts.

Whenever an attorney for the Commonwealth has reason to believe that any performer or performing group, or its agent, is advertising or conducting, or is about to advertise or conduct, a live musical performance or production in violation of § 59.1-466.2 and that proceedings would be in the public interest, the attorney for the Commonwealth may bring an action in the name of the Commonwealth against the person to restrain by temporary or permanent injunction that practice.

History. 2007, c. 261.

§ 59.1-466.4. Penalty.

Any performer or performing group, or its agent, who violates § 59.1-466.2 shall be liable to the Commonwealth for a civil penalty of not less than $5,000 nor more than $15,000 per violation, which civil penalty shall be in addition to any other relief that may be granted under § 59.1-466.3. The civil penalty collected pursuant to this section shall be payable to the State Treasurer for deposit to the general fund. Each performance or production declared unlawful by § 59.1-466.2 shall constitute a separate violation. Nothing in this section shall be construed as affecting any private cause of action that may exist under Virginia law.

History. 2007, c. 261.

Chapter 38.2. Ticket Resale Rights Act.

§ 59.1-466.5. Definitions.

As used in this chapter, “event” means any professional concert, professional sporting event, or professional theatrical production, open to the public for which tickets are ordinarily sold.

History. 2017, cc. 261, 268.

§ 59.1-466.6. Ticket resale limitations; prohibition; exception.

  1. No person that issues tickets for admission to an event shall issue any such ticket solely through a delivery method that substantially prevents the purchaser of the ticket from lawfully reselling the ticket on the Internet ticketing platform of the ticket purchaser’s choice.
  2. No person shall be discriminated against or denied admission to an event solely on the basis that the person resold a ticket, or purchased a resold ticket, on a specific Internet ticketing platform.
  3. This section shall not apply to (i) student tickets issued for an event at an auxiliary enterprise facility financed with bonds issued under Article X, Section 9(d) of the Constitution of Virginia and supported in part by student fees or (ii) any concert or theater venue located within or adjacent to a national park that offers yearly memberships that include concert or theater tickets as part of the membership benefit.

History. 2017, cc. 261, 268.

§ 59.1-466.7. Enforcement; penalties.

  1. The Attorney General may cause an action to be brought in the name of the Commonwealth to enjoin any violation of § 59.1-466.6 by any person and to recover a civil penalty in the amount of not less than $1,000 nor more than $5,000 for each such violation. Civil penalties paid pursuant to this section shall be deposited to the Literary Fund.
  2. In an action brought under this section, the Attorney General may recover damages and such other relief allowed by law, including restitution on behalf of consumers injured by violations of § 59.1-466.6.
  3. In an action brought under this section, the Attorney General may recover reasonable expenses incurred in investigating and preparing the case, and attorneys’ fees.
  4. Whenever the Attorney General has reasonable cause to believe that any person has engaged in, is engaging in, or is about to engage in, any violation of § 59.1-466.6, the Attorney General is empowered to issue a civil investigative demand. The provisions of § 59.1-9.10 shall apply, mutatis mutandis, to civil investigative demands issued pursuant to this section.
  5. Nothing in this section shall be construed as affecting any private cause of action that may exist under any law of the Commonwealth.

History. 2017, cc. 261, 268.

Chapter 39. Electronic Signatures.

§§ 59.1-467 through 59.1-469.

Repealed by Acts 2000, c. 995, cl. 2.

Cross references.

As to the Uniform Computer Information Transactions Act, see § 59.1-501.1 et seq.

Chapter 40. Virginia Assistive Technology Device Warranties Act.

§ 59.1-470. Definitions.

As used in this chapter:

“Assistive device dealer” means a person or company that is in the business of selling assistive devices, including a manufacturer who sells assistive technology devices directly to consumers.

“Assistive device lessor” means a person or company that leases an assistive device to a consumer, or who holds the lessor’s rights, under a written lease.

“Assistive technology device,” “assistive device,” or “device” means any new device, including a demonstrator, that a consumer purchases or accepts transfer of in this Commonwealth which is used for a major life activity or any other assistive device that enables a person with a disability to communicate, see, hear, or maneuver. These devices include (i) manual wheelchairs, motorized wheelchairs, motorized scooters, and other aids that enhance the mobility of an individual; (ii) hearing aids, telephone communication devices for the deaf (TTD/TTY), assistive listening devices, visual and audible signal systems, and other aides that enhance an individual’s ability to hear; and (iii) voice-synthesized computer modules, optical scanners, talking software, Braille printers, and other devices that enhance a sight-impaired individual’s ability to communicate.

“Authorized dealer” means any seller of an assistive device that (i) has, within a specified geographic area, an exclusive distribution arrangement with any person or entity that manufacturers or assembles such device or (ii) is designated by the person or company that manufactures or assembles such device to repair or accept for repair such device.

“Collateral costs” means expenses incurred by a consumer in connection with the repair of a nonconformity, including the reasonable costs of obtaining an alternative assistive device.

“Consumer” means:

  1. A person with a disability as defined in the Americans With Disabilities Act, 42 U.S.C. § 12102 (2), or his legal representative, (i) who has purchased an assistive device from an assistive device dealer or manufacturer for purposes other than resale; (ii) to whom the assistive device is transferred for purposes other than resale, if the transfer occurs before the expiration of any warranty established by this chapter; or (iii) who leases a new assistive device from an assistive device lessor under a written lease;
  2. An entity which purchases or leases an assistive device using state or federal funds for the use of a person with a disability; or
  3. An insurer or self-insurer which purchases or leases an assistive device for the use of a person with a disability.“Demonstrator” means an assistive device used primarily for the purpose of demonstration to the public.“Manufacturer” means a person or company that manufactures or assembles assistive devices and agents of that person or company, including an authorized dealer, an importer, a distributor, factory branch, distributor branch and any warrantors of the manufacturer’s assistive device, but does not include a professional who fabricates, without charge, a device for use in the course of treatment.“Nonconformity” means a condition or defect that significantly impairs the use, value, function or safety of an assistive device or any of its components, but does not include a condition or defect of the device that is the result of (i) abuse, misuse or neglect by a consumer, (ii) modifications or alterations not authorized by the manufacturer, (iii) normal wear, (iv) normal use which may be resolved through a fitting adjustment, routine maintenance, preventative maintenance or proper care, or (v) a consumer’s failure to follow any manufacturer’s written service and maintenance guidelines furnished to the customer at the time of purchase.“Reasonable attempt to repair” means that within one year after the date of first delivery of the assistive device:

1. The same nonconformity has been subject to repair three or more times by the manufacturer, assistive device lessor or any assistive device dealer authorized by the manufacturer to repair such device, and the nonconformity continues to exist and interfere with the device’s operation; or

2. The assistive device is out of service, with no fungible loaner available, for a cumulative total of at least thirty days, exclusive of any necessary time in shipment, due to repair by the manufacturer, assistive device lessor or any assistive device dealer authorized by the manufacturer to repair such device, all of which is due to warranty nonconformities. The provisions of this subdivision shall not be applicable if the repairs could not be performed because of conditions beyond the control of the manufacturer, its agents or authorized dealers, including war, invasion, strike, fire, flood or other natural disasters.

History. 1998, cc. 67, 242.

Law Review.

For an article, “Technology and the Law,” see 32 U. Rich. L. Rev. 1383 (1998).

§ 59.1-471. Implied warranty; responsibility for repair, return, or replacement.

  1. Notwithstanding any other provision of law, in addition to any express warranty furnished by the manufacturer of an assistive device, such manufacturer shall also be deemed to have warranted to any consumer purchasing or leasing such device within this Commonwealth, that for a period of one year from date of first delivery to the consumer (i) the device, when used as intended, will be free from any nonconformity and (ii) any nonconformity will be repaired (parts and labor) by the manufacturer or its agent, without charge to the consumer.
  2. If, after reasonable attempt to repair, any nonconformity is not repaired, the manufacturer shall either:
    1. Accept return of the nonconforming assistive technology device and refund to the consumer or consumers, to the extent of each consumer’s participation in the initial purchase or lease of the device or collateral costs, within fourteen days thereof, (i) the manufacturer’s suggested retail price, if available, (ii) the full purchase price of the device, excluding the cost of services associated with the device’s initial purchase, together with reasonable collateral costs, or (iii) if the device was leased, all lease payments made through the date of return together with a proportional share of any required deposit; or
    2. Accept return of the nonconforming assistive technology device and replace such nonconforming device with one of comparable market value, function and usefulness within thirty days of such request.

History. 1998, cc. 67, 242.

§ 59.1-472. Returned devices; subsequent sale or lease; disclosure.

No assistive device returned due to a nonconformity under the provisions of § 59.1-471 by a consumer or assistive device lessor in this Commonwealth or any other state, may be sold or leased again in this Commonwealth unless full disclosure of the reason for such return is made to any prospective buyer or lessee.

History. 1998, cc. 67, 242.

§ 59.1-473. Legal action or arbitration.

  1. The remedies afforded by this chapter are cumulative and not exclusive and shall be in addition to any other legal or equitable remedies otherwise available to the consumer.
  2. In addition to any other remedies otherwise available to him, any consumer who suffers loss as a result of any violation of this chapter may bring an action to recover damages. Such damages may also be recovered through the arbitration mechanism described in subsection C.
  3. All persons subject to this chapter shall have the option of submitting any disputes arising under the provisions of this chapter to the arbitration mechanism established and administered by the Division of Consumer Counsel of the Department of Law, pursuant to subdivision C 2 of § 2.2-517 . Such mechanism shall ensure that the arbitration is conducted by a neutral third party.

History. 1998, cc. 67, 242; 2012, cc. 803, 835.

Editor’s note.

Acts 2012, cc. 803 and 835, cl. 16 provides: “That the Governor may transfer an appropriation or any portion thereof within a state agency established, abolished, or otherwise affected by the provisions of the 13th enactment of this act, or from one such agency to another, to support the changes in organization or responsibility resulting from or required by the provisions of the 13th enactment of this act, provided that any such transfer shall be limited to salary and fringe benefits for any personnel transferred and reasonable administrative overhead and costs.”

The 2012 amendments.

The 2012 amendments by cc. 803 and 835, cl. 13, are identical, and substituted “Division of Consumer Counsel of the Department of Law, pursuant to subdivision C 2 of § 2.2-517 ” for “Dispute Resolution Unit of the Office of Consumer Affairs, Division of Consumer Protection, pursuant to subdivision B 3 of § 3.2-102” at the end of the first sentence in subsection C.

The 2012 amendments by cc. 803 and 835, cl. 106, effective January 1, 2013, are identical and substituted “subdivision B 2” for “subdivision B 3” in subsection C. The amendment will not be given effect at the direction of the Virginia Code Commission.

§ 59.1-474. Certain actions deemed void.

  1. Any manufacturer’s exclusion or limitation of the implied warranties or consumer remedies prescribed by this chapter shall be deemed void.
  2. Any purported waiver of rights to legal action or arbitration by a consumer within an assistive device purchase agreement shall be deemed void.

History. 1998, cc. 67, 242.

Chapter 41. Structured Settlement Protection Act.

§ 59.1-475. Definitions.

For purposes of this chapter:

“Annuity issuer” means an insurer that has issued a contract to fund periodic payments under a structured settlement.

“Applicable federal rate” means the most recently published applicable federal rate for determining the present value of an annuity, as prescribed by the U.S. Internal Revenue Service pursuant to 26 U.S.C. § 7520, as amended.

“Assignee” means a party acquiring or proposing to acquire structured settlement payment rights directly or indirectly from a transferee of such rights.

“Dependents” include a payee’s spouse and minor children and all other persons for whom the payee is legally obligated to provide support, including alimony.

“Discounted present value” means the present value of future payments determined by discounting such payments to the present using the most recently published Applicable Federal Rate for determining the present value of an annuity, as issued by the United States Internal Revenue Service.

“Gross advance amount” means the sum payable to the payee or for the payee’s account as consideration for a transfer of structured settlement payment rights before any reductions for transfer expenses or other deductions to be made from such consideration.

“Independent professional advice” means advice of an attorney, certified public accountant, actuary or other licensed professional adviser.

“Interested parties” means, with respect to any structured settlement:

  1. The payee;
  2. Any beneficiary irrevocably designated under the annuity contract to receive payments following the payee’s death or, if such beneficiary is a minor, the designated beneficiary’s parent or guardian;
  3. The annuity issuer;
  4. The structured settlement obligor; and
  5. Any other party to such structured settlement that has continuing rights or obligations to receive or make payments under such structured settlement.“Net advance amount” means the gross advance amount less the aggregate amount of the actual and estimated transfer expenses required to be disclosed under subdivision 5 of § 59.1-475.1.“Payee” means an individual who is receiving tax free payments under a structured settlement and proposes to make a transfer of payment rights thereunder.“Periodic payments” includes both recurring payments and scheduled future lump sum payments.“Qualified assignment agreement” means an agreement providing for a qualified assignment within the meaning of § 130 of the United States Internal Revenue Code, United States Code Title 26, as amended from time to time.“Settled claim” means the original tort claim resolved by a structured settlement.“Structured settlement” means an arrangement for periodic payment of damages for personal injuries or sickness established by settlement or judgment in resolution of a tort claim.“Structured settlement agreement” means the agreement, judgment, stipulation, or release embodying the terms of a structured settlement.“Structured settlement obligor” means, with respect to any structured settlement, a party that has a continuing obligation to make periodic payments to the payee under a structured settlement agreement or a qualified assignment agreement.“Structured settlement payment rights” means rights to receive periodic payments under a structured settlement, whether from the structured settlement obligor or the annuity issuer, where the payee is domiciled in the Commonwealth or the structured settlement agreement was approved by a court in the Commonwealth.“Terms of the structured settlement” include, with respect to any structured settlement, the terms of the structured settlement agreement, the annuity contract, any qualified assignment agreement, and any order or other approval of any court or other government authority that authorized or approved such structured settlement.“Transfer” means any sale, assignment, pledge, hypothecation, or other alienation or encumbrance of structured settlement payment rights made by a payee for consideration; however, the term “transfer” shall not include the creation or perfection of a security interest in structured settlement payment rights under a blanket security agreement entered into with an insured depository institution, in the absence of any action to redirect the structured settlement payments to such insured depository institution, or an agent or successor in interest thereof, or otherwise to enforce such blanket security interest against the structured settlement payment rights.“Transfer agreement” means the agreement providing for transfer of structured settlement payment rights.“Transfer expenses” means all expenses of a transfer that are required under the transfer agreement to be paid by the payee or deducted from the gross advance amount, including, without limitation, court filing fees, attorneys’ fees, escrow fees, lien recordation fees, judgment and lien search fees, finders’ fees, commissions, and other payments to a broker or other intermediary; however, “transfer expenses” shall not include preexisting obligations of the payee payable for the payee’s account from the proceeds of a transfer.“Transferee” means a party acquiring or proposing to acquire structured settlement payment rights through a transfer.

History. 1999, c. 993; 2001, c. 537; 2006, c. 786; 2016, cc. 273, 739.

Editor’s note.

Acts 2001, c. 537, cl. 2, repealed Acts 1999, c. 993, cl. 2, which had provided: “That the provisions of this act shall expire on July 1, 2001, unless federal legislation has been enacted by such date establishing a federal standard applicable to transfers of structured settlement payment rights.” Hence, Chapter 41 will not expire.

Acts 2016, cc. 273 and 739, cl. 2 provides: “That the provisions of this act shall apply to any transfer of structured settlement payment rights under a transfer agreement that is entered into on or after July 1, 2016.”

The 2001 amendments.

The 2001 amendment by c. 537 substituted “a contract” for “an insurance contract used” in the definition of “Annuity issuer”; deleted the former definition pertaining to “Applicable law”; in the definition of “Discounted present value,” deleted “fair” following “means the,” deleted “as” preceding “determined by,” and substituted “Applicable Federal Rate” for “applicable federal rate”; deleted the former definition pertaining to “Federal hardship standard”; inserted the definitions of “Gross advance amount” and “Independent professional advice”; inserted “irrevocably” in the definition of “Interested parties”; inserted the definition of “Net advance amount”; deleted “damage” following “receiving tax free” in the definition of “Payee”; inserted the definition of “Periodic payments”; inserted “or sickness” in the definition of “Structured settlement”; deleted “(including the rights of the payee to receive periodic payments)” following “structured settlement” in the definition of “Structured settlement agreement”; in the definition of “Structured settlement obligor,” deleted “periodic payment” preceding “obligation” and inserted “to make periodic payments” following “obligation”; in the definition of “Structured settlement payment rights,” deleted “(including lump sum payments)” following “periodic payments,” inserted “structured” preceding “settlement obligor” twice, inserted “is domiciled in, or the domicile or principal place of business of,” substituted “located in, this Commonwealth” for “domiciled in, this state” and substituted “Commonwealth; or the structured settlement agreement is expressly governed by the laws of this Commonwealth” for “state”; in the definition of “Terms of the structured settlement,” substituted “other approval of any court, or responsible” for “approval of any court, responsible” and substituted “authority that authorized or approved” for “authority authorizing or approving”; in the definition of “Transfer,” deleted “form of” preceding “alienation or encumbrance,” inserted “of structured settlement payment rights” and added the language beginning “however, the term ‘transfer’ shall not include”; deleted “from a payee to a transferee” following “payment rights” in the definition of “Transfer agreement”; added the definitions of “Transfer expenses” and “Transferee.”

The 2006 amendments.

The 2006 amendment by c. 786 deleted “or worker’s compensation claim” following “tort claim” in the paragraph defining “Settled claim”; and deleted “or for periodic payments in settlement of a workers’ compensation claim” following “tort claim” in the paragraph defining “Structured settlement.”

The 2016 amendments.

The 2016 amendments by cc. 273 and 739 are identical, and inserted the definitions for “Applicable federal rate”, “Assignee”; rewrote the definition of “interested parties” by inserting subdivision designations, “if such beneficiary is a minor, the designated beneficiary’s parent or guardian,” “to such structured settlement,” and “to receive or make payments”; deleted the definition of “Responsible administrative authority”; and in the definition of “Structured settlement payment rights,” deleted “or the domicile or principal place of business of the structured settlement obligor or the annuity issuer is located in,” preceding “the Commonwealth“ and “or responsible administrative authority in this Commonwealth; or the structured settlement agreement is expressly governed by the laws of this” preceding “Commonwealth”; and made minor stylistic changes. For applicability clause, see Editor’s note.

Research References.

Bryson on Virginia Civil Procedure (Matthew Bender). Chapter 1 Extra-Judicial Procedures. § 1.03 Joint Action of Both Parties. Bryson.

Friend’s Virginia Pleading and Practice (Matthew Bender). Chapter 14 Compromise, Settlement and Release. § 14.03 Release. Friend.

Virginia Forms (Matthew Bender). No. 13-401 General Release, etc.

CASE NOTES

Inapplicable to a contract entered into prior to effective date. —

While the legislature enacted § 59.1-475, that required several important disclosures and ultimately court approval before structured settlement payments could validly be assigned to a factoring company, that statute did not apply to the case brought by a creditor, the purchaser of the debtor’s annuity payments, because the contract between the debtor and the purchaser was formed over two years before the effective date of the statute. Granati v. Stone St. Capital, Inc., 307 Bankr. 827, 2002 U.S. Dist. LEXIS 27608 (E.D. Va. 2002), aff'd, 63 Fed. Appx. 741, 2003 U.S. App. LEXIS 10461 (4th Cir. 2003).

Company could not enforce loan transaction. —

Deceased’s daughter, as the named beneficiary, was entitled to annuity payments from the deceased’s personal injury settlement agreement because the deceased’s transaction with the loan company was legally invalid and against the public policy of the Virginia Structured Settlement Protection Act, § 59.1-475 et seq. Liberty Life Assur. Co. v. Gilbert, 507 F.3d 952, 2007 FED App. 0449P, 2007 U.S. App. LEXIS 26326 (6th Cir. 2007).

CIRCUIT COURT OPINIONS

Effect of foreign state’s dismissal. —

In an action before the court pursuant to § 59.1-475 et seq. seeking approval of the proposed transfer of certain structured settlement proceeds payable to an Illinois resident, Virginia had no interest in the matter that would compel it to ignore the provisions of Illinois law or an Illinois dismissal order. It would have been inappropriate for a Virginia court to offer an opportunity to circumvent Illinois law, particularly after an Illinois court had ruled on the matter. In re Morey, 71 Va. Cir. 435, 2005 Va. Cir. LEXIS 186 (Portsmouth Nov. 7, 2005).

Workers’ compensation awards exempted. —

All matters falling within the purview of the Virginia Workers’ Compensation Act, § 65.2-100 et seq., were the exclusive province of the Virginia Workers’ Compensation Commission, and a clear meaning of the words used exempted lump sum workers’ compensation awards from the Virginia Structured Settlement Protection Act; a worker’s petition seeking approval of a transfer of a structured settlement payment rights relating to a workers’ compensation award in a circuit court was dismissed. In re Moore, 68 Va. Cir. 139, 2005 Va. Cir. LEXIS 67 (Portsmouth June 9, 2005).

§ 59.1-475.1. Required disclosures to payee.

Not less than three days prior to the date on which a payee signs a transfer agreement, the transferee shall provide to the payee a separate disclosure statement, in bold type no smaller than fourteen points, setting forth:

  1. The amounts and due dates of the structured settlement payments to be transferred;
  2. The aggregate amount of such payments;
  3. The discounted present value of the payments to be transferred, which shall be identified as the “calculation of current value of the transferred structured settlement payments under federal standards for valuing annuities,” and the amount of the Applicable Federal Rate used in calculating such discounted present value;
  4. The gross advance amount;
  5. An itemized listing of all applicable transfer expenses, other than attorney fees and related disbursements payable in connection with the transferee’s application for approval of the transfer, and the transferee’s best estimate of the amount of any such fees and disbursements;
  6. The effective annual interest rate, which shall be disclosed in a statement in the following form: “On the basis of the net amount that you will receive from us and the amounts and timing of the structured settlement payments that you are transferring to us, you will in effect be paying interest to us at a rate of  _______________  percent per year”;
  7. The net advance amount;
  8. The amount of any penalties or liquidated damages payable by the payee in the event of any breach of the transfer agreement by the payee; and
  9. A statement that the payee has the right to cancel the transfer agreement, without penalty or further obligation, not later than the third business day after the date the agreement is signed by the payee.

History. 2001, c. 537; 2016, cc. 273, 739.

Editor’s note.

Acts 2016, cc. 273 and 739, cl. 2 provides: “That the provisions of this act shall apply to any transfer of structured settlement payment rights under a transfer agreement that is entered into on or after July 1, 2016.”

The 2016 amendments.

The 2016 amendments by cc. 273 and 739 are identical, and in subdivision 5, substituted “attorney” for “attorneys”’; added subdivision 6, and renumbered remaining subdivisions accordingly. For applicability clause, see Editor’s note.

§ 59.1-476. Approval of transfers of structured settlement payment rights.

No direct or indirect transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to any transferee or assignee of structured settlement payment rights unless the transfer has been authorized in advance in a final court order based on express findings by such court that:

  1. The transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents;
  2. The payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received such advice or knowingly waived in writing the opportunity to seek and receive such advice; and
  3. The transfer does not contravene any applicable statute or the order of any court or other government authority.

History. 1999, c. 993; 2001, c. 537; 2016, cc. 273, 739.

Editor’s note.

Acts 2001, c. 537, cl. 2, repealed Acts 1999, c. 993, cl. 2, which had provided: “That the provisions of this act shall expire on July 1, 2001, unless federal legislation has been enacted by such date establishing a federal standard applicable to transfers of structured settlement payment rights.” Hence, Chapter 41 will not expire.

Acts 2016, cc. 273 and 739, cl. 2 provides: “That the provisions of this act shall apply to any transfer of structured settlement payment rights under a transfer agreement that is entered into on or after July 1, 2016.”

The 2001 amendments.

The 2001 amendment by c. 537 rewrote the section.

The 2016 amendments.

The 2016 amendments by cc. 273 and 739 are identical, and in the introductory paragraph, inserted “or assignee,” deleted “or order of a responsible administrative authority” following “final court order,” and deleted “or responsible administrative authority” following “findings by such court”; in subdivision 2, substituted “in writing the opportunity to seek and receive such advice” for “such advice in writing.” For applicability clause, see Editor’s note.

§ 59.1-476.1. Effects of transfer of structured settlement payment rights.

Following issuance of a court order approving a transfer of structured settlement payment rights under this chapter:

  1. The structured settlement obligor and the annuity issuer may rely on the court order in redirecting periodic payments to an assignee or transferee in accordance with the order and shall, as to all parties except the transferee or an assignee designated by the transferee, be discharged and released from any and all liability for the redirected payments, and such discharge and release shall not be affected by the failure of any party to the transfer to comply with this chapter or with the order of the court approving the transfer;
  2. The transferee shall be liable to the structured settlement obligor and the annuity issuer:
    1. If the transfer contravenes the terms of the structured settlement, for any taxes incurred by such parties as a consequence of the transfer; and
    2. For any other liabilities or costs, including reasonable costs and attorney fees, arising from compliance by the structured settlement obligor or annuity issuer with the order of the court or from the failure of any party to the transfer to comply with this chapter;
  3. Neither the annuity issuer nor the structured settlement obligor may be required to divide any periodic payment between the payee and any transferee or assignee or between two or more transferees or assignees; and
  4. Any further transfer of structured settlement payment rights by the payee may be made only after compliance with all of the requirements of this chapter.

History. 2001, c. 537; 2016, cc. 273, 739.

Editor’s note.

Acts 2016, cc. 273 and 739, cl. 2 provides: “That the provisions of this act shall apply to any transfer of structured settlement payment rights under a transfer agreement that is entered into on or after July 1, 2016.”

The 2016 amendments.

The 2016 amendments by cc. 273 and 739 are identical, and in the introductory paragraph, inserted “issuance of a court order approving”; in subdivision 1, inserted “may rely on the court order in redirecting periodic payments to an assignee or transferee in accordance with the order and,” and “or an assignee designated by the transferee,” substituted “redirected payments” for “transferred payments” and inserted “and such discharge and release shall not be affected by the failure of any party to the transfer to comply with this chapter or with order of the court approving the transfer”; in subdivision 2 b, substituted “attorney” for “attorneys’,” “the structured settlement obligor or annuity issuer” for “such parties,” and “from the failure of any party to the transfer” for “responsible administrative authority or arising as a consequence of the transferee’s failure.” For applicability clause, see Editor’s note.

§ 59.1-477. Procedure for approval of transfers.

  1. An application under this chapter for approval of a transfer of structured settlement payment rights shall be made by the transferee and shall be brought in the circuit court for the county or city in which the payee is domiciled in the Commonwealth, except that if the payee is not domiciled in the Commonwealth, the application may be brought in the court in the Commonwealth that approved the structured settlement agreement. The circuit court may refer the matter to a commissioner of accounts for a report to such court and a recommendation on the findings required by § 59.1-476. Such report and recommendation shall be filed with the court and mailed to all interested parties served under subsection B of this section, and such report and recommendation and any exceptions thereto shall be examined by the court and confirmed or corrected as provided in § 64.2-1212 .
  2. A timely hearing shall be held on an application for approval of a transfer of structured settlement payment rights. The payee shall appear in person at the hearing unless the court determines that good cause exists to excuse the payee from appearing in person. Not less than 20 days prior to the scheduled hearing on an application for approval of a transfer of structured settlement payment rights under § 59.1-476, the transferee shall file with the court and serve on all interested parties a notice of the proposed transfer and the application for its approval. In addition to complying with the other requirements of this chapter, the application shall include:
    1. A copy of the transfer agreement;
    2. A copy of the disclosure statement required under § 59.1-475.1;
    3. The payee’s name, age, and county or city of domicile and the number and ages of each of the payee’s dependents;
    4. A summary of:
      1. Any prior transfers by the payee to the transferee or an affiliate, or through the transferee or an affiliate to an assignee, within the four years preceding the date of the transfer agreement and any proposed transfers by the payee to the transferee or an affiliate, or through the transferee or an affiliate, applications for approval of which were denied within the two years preceding the date of the transfer agreement; and
      2. Any prior transfers by the payee to any person or entity other than the transferee or an affiliate or an assignee of the transferee or an affiliate within the three years preceding the date of the transfer agreement and any prior proposed transfers by the payee to any person or entity other than the transferee or an affiliate or an assignee of a transferee or affiliate, applications for approval of which were denied within the one year preceding the date of the current transfer agreement, to the extent that the transfers or proposed transfers have been disclosed to the transferee by the payee in writing or otherwise are actually known by the transferee;

5. Notification that any interested party is entitled to support, oppose or otherwise respond to the transferee’s application, either in person or by counsel, by submitting written comments to the court or by participating in the hearing; and

6. Notification of the time and place of the hearing and notification of the manner in which and the time by which written responses to the application must be filed, which shall be not less than five days prior to the hearing, in order to be considered by the court.

History. 1999, c. 993; 2001, c. 537; 2016, cc. 273, 739.

Editor’s note.

Acts 2001, c. 537, cl. 3, repeals Acts 1999, c. 993, cl. 2, which had provided: “That the provisions of this act shall expire on July 1, 2001, unless federal legislation has been enacted by such date establishing a federal standard applicable to transfers of structured settlement payment rights.” Hence, Chapter 41 will not expire.

At the direction of the Virginia Code Commission, the reference to “26-33” was changed to “64.2-1212” to conform to the recodification of Title 64.1 by Acts 2012, c. 614, effective October 1, 2012.

Acts 2016, cc. 273 and 739, cl. 2 provides: “That the provisions of this act shall apply to any transfer of structured settlement payment rights under a transfer agreement that is entered into on or after July 1, 2016.”

The 2001 amendments.

The 2001 amendment by c. 537, combined the text of former subsection A and former subdivision A 1 by deleting the 1 designator; in subsection A, substituted the present first sentence for “An application for authorization under § 59.1-476 of a transfer of structured settlement payment rights shall be made and prosecuted by the transferee and may be brought:” and for “In the circuit court for a Virginia city or county in which the payee, the settlement obligor, the annuity issuer or the transferee resides,” inserted “Applications brought in Virginia shall be brought in circuit court” in the second sentence, deleted “subsection A of” preceding “§ 59.1-476” and deleted “or” following “§ 26-33”; deleted former subdivision A 2, which read: “In any court which approved the structured settlement agreement or before any responsible administrative authority which approved the structured settlement agreement; or” and deleted former subdivision A 3, which read: “In any other court of general jurisdiction which has jurisdiction to issue a final order pursuant to subsection A of § 59.1-476”; in subsection B, substituted “approval of a transfer” for “authorization of a transfer,” deleted “the” following “with the court or” and substituted “approval, including with such notice” for “authorization, including in such notice”; deleted “to the court or the responsible administrative authority” from the end of subdivision B 1; substituted “§ 59.1-475.1” for “§ 59.1-476” in subdivision B 3; inserted subdivision B 4; redesignated former subdivisions B 4 and 5 as present subdivisions B 5 and 6; in subdivision B 5, deleted “the” following “comments to the court or” and added “and” at the end; deleted “and” from the end of subdivision B 6; and deleted former subdivision B 6, which read: “Once a transfer of structured settlement payment rights is approved by a final order pursuant to this chapter, no party to the proceeding shall thereafter refuse to honor the approved transfer.”

The 2016 amendments.

The 2016 amendments by cc. 273 and 739 are nearly identical, and rewrote section. For applicability clause, see Editor’s note.

§ 59.1-477.1. General provisions, construction.

  1. Compliance with the provisions of this chapter may not be waived by any payee.
  2. Any transfer agreement entered into on or after the effective date of the act of the General Assembly enacting this section by a payee who resides in the Commonwealth shall provide that disputes under such transfer agreement, including any claim that the payee has breached the agreement, shall be determined in and under the laws of the Commonwealth. No such transfer agreement shall authorize the transferee or any other party to confess judgment or consent to entry of judgment against the payee.
  3. No transfer of structured settlement payment rights shall extend to any payments that are life-contingent unless, prior to the date on which the payee signs the transfer agreement, the transferee has established and has agreed to maintain procedures reasonably satisfactory to the annuity issuer and the structured settlement obligor for periodically confirming the payee’s survival, and giving the annuity issuer and the structured settlement obligor prompt written notice in the event of the payee’s death.
  4. No payee who proposes to make a transfer of structured settlement payment rights shall incur any penalty, forfeit any application fee or other payment, or otherwise incur any liability to the proposed transferee or any assignee based on any failure of such transfer to satisfy the conditions of this chapter.
  5. Nothing contained in this chapter shall be construed to authorize any transfer of structured settlement payment rights in contravention of any law. A court shall not be precluded from hearing an application for approval of a transfer of payment rights under a structured settlement where the terms of the structured settlement prohibit the sale, assignment, or encumbrance of such payment rights, nor shall the interested parties be precluded from waiving or asserting their rights under those terms. The provisions of this chapter shall not be applicable to transfers of workers’ compensation claims, awards, benefits, settlements or payments made or payable pursuant to Title 65.2.
  6. Compliance with the requirements set forth in § 59.1-475.1 and fulfillment of the conditions set forth in §§ 59.1-476 and 59.1-477 shall be solely the responsibility of the transferee in any transfer of structured settlement payment rights, and neither the structured settlement obligor nor the annuity issuer shall bear any responsibility for, or any other liability arising from, non-compliance with such requirements or failure to fulfill such conditions.

History. 2001, c. 537; 2006, c. 786; 2016, cc. 273, 739.

Editor’s note.

Acts 2016, cc. 273 and 739, cl. 2 provides: “That the provisions of this act shall apply to any transfer of structured settlement payment rights under a transfer agreement that is entered into on or after July 1, 2016.”

The 2006 amendments.

The 2006 amendment by c. 786, in the second sentence of subsection E, inserted “transfers of workers’ compensation claims, awards, benefits, settlements or” and “or payable” and substituted “Title 65.2” for “§ 65.2-522 .”

The 2016 amendments.

The 2016 amendments by cc. 273 and 739 are identical, and in subsection A, inserted “Compliance with”; in subsection B, substituted “the” for “this” preceding “Commonwealth”; in subsection E, deleted “or to imply that any transfer under a transfer agreement entered into prior to July 1, 2001, is valid or invalid” at the end of the first sentence and added the second sentence; and in subsection F, substituted “§§ 59.1-476 and 59.1-477” for “§ 59.1-476.” For applicability, see Editor’s note.

CIRCUIT COURT OPINIONS

Workers’ compensation awards exempted. —

All matters falling within the purview of the Virginia Workers’ Compensation Act, § 65.2-100 et seq., were the exclusive province of the Virginia Workers’ Compensation Commission, and a clear meaning of the words used exempted lump sum workers’ compensation awards from the Virginia Structured Settlement Protection Act, § 59.1-475 et seq.; a worker’s petition seeking approval of a transfer of a structured settlement payment rights relating to a workers’ compensation award in a circuit court was dismissed. In re Moore, 68 Va. Cir. 139, 2005 Va. Cir. LEXIS 67 (Portsmouth June 9, 2005).

Chapter 42. Fingerprinting in Connection with Business Transaction.

§ 59.1-478. Fingerprinting in connection with business, commercial or financial transaction.

Whenever any person requires another to furnish a fingerprint or fingerprints in conjunction with any business, commercial or financial transaction, unless the parties otherwise agree, within twenty-one days of the transaction’s completion or termination the original record of such prints and all copies of such prints, including electronic or facsimile copies shall be (i) returned to the person providing such prints or (ii) destroyed by the person requiring and obtaining such prints.

The provisions of this section shall not apply in the case of fingerprints affixed to instruments governed by Titles 8.3 A and 8.4.

History. 1999, c. 715.

OPINIONS OF THE ATTORNEY GENERAL

Pharmacist may obtain fingerprint from customer as proof of customer’s identification. —

Prior to filling a prescription, a pharmacist may obtain a fingerprint from a customer as proof of the customer’s identification, provided that the pharmacist returns or destroys the fingerprint within 21 days of the transaction’s completion or termination. See opinion of Attorney General to The Honorable K. Mike Fleenor Jr., Commonwealth’s Attorney for Pulaski County, 01-086, (1/11/02).

Chapter 42.1. Uniform Electronic Transactions Act.

§ 59.1-479. Title.

This chapter may be cited as the “Uniform Electronic Transactions Act.”

History. 2000, c. 995.

Cross references.

For provision authorizing the State Board of Elections to conduct a pilot program providing for electronic notice and signing, consistent with this chapter, of a registered voter’s change of address, see § 24.2-424 A.

For provisions of the Uniform Real Property Electronic Recording Act, see § 55.1-661 et seq.

Uniform law cross references.

For other signatory state provisions, see:

Alabama: Code of Ala. §§ 8-1 A-1 to 8-1 A-20.

Alaska: Alaska Stat. §§ 09.80.010 to 09.80.195.

Arkansas: A.C.A. §§ 25-32-101 to 25-32-120.

California: California Civ. Code § 1633.1 et seq.

Colorado: C.R.S. §§ 24-71.3-101 to 24-71.3-121.

Connecticut: Conn. Gen. Stat. §§ 1-266 to 1-286.

Delaware: 6 Del. C. §§ 12A-101 to 12A-117.

District of Columbia: D.C. Code §§ 28-4901 to 28-4918.

Florida: Fla. Stat. § 668.50.

Georgia: O.C.G.A. § 10-12-1 et seq.

Hawaii: H.R.S. §§ 489E-1 to 489E-19.

Idaho: Idaho Code §§ 28-50-101 to 28-50-120.

Indiana: Burns Ind. Code Ann. §§ 26-2-8-101 to 26-2-8-302.

Iowa: Iowa Code §§ 554D.101 to 554D.124.

Kansas: K.S.A. §§ 16-1601 to 16-1620.

Kentucky: K.R.S. §§ 369.101 to 369.120.

Louisiana: La. R.S. §§ 9:2601 to 9:2620.

Maine: 10 M.R.S. §§ 9401 to 9420.

Maryland: Md. Commercial Law Code Ann. §§ 21-101 to 21-120 .

Massachusetts: ALM GL ch. 110G, §§ 1 to 18.

Michigan: M.C.L.S. §§ 450.831 to 450.849.

Minnesota: Minn. Stat. §§ 325L.01 to 325L.19.

Mississippi: Miss. Code Ann. §§ 75-12-1 to 75-12-39.

Missouri: §§ 432.200 to 432.295 R.S. Mo.

Montana: Mont. Code Anno. §§ 30-18-101 to 30-18-118.

Nevada: Nev. Rev. Stat. Ann. §§ 719.010 to 719.350.

Nebraska: R.R.S. Neb. §§ 86-612 to 86-643.

New Hampshire: R.S.A. §§ 294-E:1 to 294-E:20.

New Jersey: N.J. Stat. §§ 12A:12-1 to 12A:12-26.

New Mexico: N.M. Stat. Ann. § 14-16-1 et seq.

North Carolina: N.C. Gen. Stat. §§ 66-311 to 66-330.

Ohio: O.R.C. Ann. §§ 1306.01 to 1306.23.

Oklahoma: 12A Okl. Stat. §§ 15-101 to 15-121.

Oregon: ORS §§ 84.001 to 84.061.

Pennsylvania: 73 P.S. §§ 2260.301 to 2260.312.

Rhode Island: R.I. Gen. Laws §§ 42-127.1-1 to 42-107.1-20.

South Carolina: S.C. Code Ann. §§ 26-6-10 to 26-6-210.

Tennessee: Tenn. Code Ann. §§ 47-10-101 to 47-10-123.

Texas: Tex. Bus. and Com. Code § 322.001 et seq.

Utah: Utah Code Ann. 46-4-101 et seq.

Vermont: 9 V.S.A. §§ 270 to 290.

West Virginia: W. Va. Code §§ 39A-1-1 to 39A-1-17.

Wisconsin: Wis. Stat. § 137.11 et seq.

Wyoming: Wyo. Stat. §§ 40-21-101 to 40-21-119.

Editor’s note.

Acts 2001, c. 212 provides: “That the Attorney General of Virginia, in consultation with the Secretary of Technology, shall develop and provide guidelines to the Uniform Electronic Transactions Act (§ 59.1-479 et seq.) and its implications on the state agencies’ electronic transactions implementations. Upon receiving such guidelines, each agency shall examine provisions of the Code of Virginia specific to that agency and identify if any changes are necessary to facilitate the agency’s implementation of electronic transactions and report such findings to the Secretary of Technology.”

Law Review.

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

For 2000 survey of Virginia technology law, see 34 U. Rich. L. Rev. 1051. (2000).

For 2002 survey of Virginia technology law, see 37 U. Rich. L. Rev. 341 (2002).

Research References.

Friend’s Virginia Pleading and Practice (Matthew Bender). Chapter 6 Pleadings Generally. § 6.02 Filing of Pleadings. Friend.

Virginia Forms (Matthew Bender). No. 8A-248 Provision — Counterparts and Facsimiles, etc.

OPINIONS OF THE ATTORNEY GENERAL

Voter registration applications. —

Although no law requires the acceptance of mailed voter registration applications with electronic signatures, the State Board of Elections is not precluded from directing that general registrars accept such applications, and the State Board, in its discretion, may do so. The State Board also has discretionary authority to establish criteria to preserve the security of confidential voter information and to ensure the authenticity and validity of electronic signatures. See opinion of Attorney General to Messrs. James M. Hinshaw, Daniel H. Haworth, W. Donald Brown, City of Norfolk Electoral Board, 13-111, 2014 Va. AG LEXIS 47 (9/26/14).

OFFICIAL COMMENT

Prefatory Note.

With the advent of electronic means of communication and information transfer, business models and methods for doing business have evolved to take advantage of the speed, efficiencies, and cost benefits of electronic technologies. These developments have occurred in the face of existing legal barriers to the legal efficacy of records and documents which exist solely in electronic media. Whether the legal requirement that information or an agreement or contract must be contained or set forth in a pen and paper writing derives from a statute of frauds affecting the enforceability of an agreement, or from a record retention statute that calls for keeping the paper record of a transaction, such legal requirements raise real barriers to the effective use of electronic media.

One striking example of electronic barriers involves so called check retention statutes in every State. A study conducted by the Federal Reserve Bank of Boston identified more than 2500 different state laws which require the retention of canceled checks by the issuers of those checks. These requirements not only impose burdens on the issuers, but also effectively restrain the ability of banks handling the checks to automate the process. Although check truncation is validated under the Uniform Commercial Code, if the bank’s customer must store the canceled paper check, the bank will not be able to deal with the item through electronic transmission of the information. By establishing the equivalence of an electronic record of the information, the Uniform Electronic Transactions Act (UETA) removes these barriers without affecting the underlying legal rules and requirements.

It is important to understand that the purpose of the UETA is to remove barriers to electronic commerce by validating and effectuating electronic records and signatures. It is NOT a general contracting statute — the substantive rules of contracts remain unaffected by UETA. Nor is it a digital signature statute. To the extent that a State has a Digital Signature Law, the UETA is designed to support and compliment that statute.

  1. Scope of the Act and Procedural Approach.  The scope of this Act provides coverage which sets forth a clear framework for covered transactions, and also avoids unwarranted surprises for unsophisticated parties dealing in this relatively new media. The clarity and certainty of the scope of the Act have been obtained while still providing a solid legal framework that allows for the continued development of innovative technology to facilitate electronic transactions.
  2. Procedural Approach.  Another fundamental premise of the Act is that it be minimalist and procedural. The general efficacy of existing law in an electronic context, so long as biases and barriers to the medium are removed, validates this approach. The Act defers to existing substantive law. Specific areas of deference to other law in this Act include: (1) the meaning and effect of “sign” under existing law, (2) the method and manner of displaying, transmitting and formatting information in Section 8, [§ 59.1-486] (3) rules of attribution in Section 9 [§ 59.1-487], and (4) the law of mistake in Section 10 [§ 59.1-488].

With regard to the general scope of the Act, the Act’s coverage is inherently limited by the definition of “transaction.” The Act does not apply to all writings and signatures, but only to electronic records and signatures relating to a transaction, defined as those interactions between people relating to business, commercial and governmental affairs. In general, there are few writing or signature requirements imposed by law on many of the “standard” transactions that had been considered for exclusion. A good example relates to trusts, where the general rule on creation of a trust imposes no formal writing requirement. Further, the writing requirements in other contexts derived from governmental filing issues. For example, real estate transactions were considered potentially troublesome because of the need to file a deed or other instrument for protection against third parties. Since the efficacy of a real estate purchase contract, or even a deed, between the parties is not affected by any sort of filing, the question was raised why these transactions should not be validated by this Act if done via an electronic medium. No sound reason was found. Filing requirements fall within Sections 17-19 [§§ 59.1-495 to 59.1-497] on governmental records. An exclusion of all real estate transactions would be particularly unwarranted in the event that a State chose to convert to an electronic recording system, as many have for Article 9 financing statement filings under the Uniform Commercial Code.

The exclusion of specific Articles of the Uniform Commercial Code reflects the recognition that, particularly in the case of Articles 5, 8 and revised Article 9, electronic transactions were addressed in the specific contexts of those revision processes. In the context of Articles 2 and 2A the UETA provides the vehicle for assuring that such transactions may be accomplished and effected via an electronic medium. At such time as Articles 2 and 2A are revised the extent of coverage in those Articles/Acts may make application of this Act as a gap-filling law desirable. Similar considerations apply to the recently promulgated Uniform Computer Information Transactions Act (“UCITA”).

The need for certainty as to the scope and applicability of this Act is critical, and makes any sort of a broad, general exception based on notions of inconsistency with existing writing and signature requirements unwise at best. The uncertainty inherent in leaving the applicability of the Act to judicial construction of this Act with other laws is unacceptable if electronic transactions are to be facilitated.

Finally, recognition that the paradigm for the Act involves two willing parties conducting a transaction electronically, makes it necessary to expressly provide that some form of acquiescence or intent on the part of a person to conduct transactions electronically is necessary before the Act can be invoked. Accordingly, Section 5 [§ 59.1-483] specifically provides that the Act only applies between parties that have agreed to conduct transactions electronically. In this context, the construction of the term agreement must be broad in order to assure that the Act applies whenever the circumstances show the parties’ intention to transact electronically, regardless of whether the intent rises to the level of a formal agreement.

The Act’s treatment of records and signatures demonstrates best the minimalist approach that has been adopted. Whether a record is attributed to a person is left to law outside this Act. Whether an electronic signature has any effect is left to the surrounding circumstances and other law. These provisions are salutary directives to assure that records and signatures will be treated in the same manner, under currently existing law, as written records and manual signatures.

The deference of the Act to other substantive law does not negate the necessity of setting forth rules and standards for using electronic media. The Act expressly validates electronic records, signatures and contracts. It provides for the use of electronic records and information for retention purposes, providing certainty in an area with great potential in cost savings and efficiency. The Act makes clear that the actions of machines (“electronic agents”) programmed and used by people will bind the user of the machine, regardless of whether human review of a particular transaction has occurred. It specifies the standards for sending and receipt of electronic records, and it allows for innovation in financial services through the implementation of transferable records. In these ways the Act permits electronic transactions to be accomplished with certainty under existing substantive rules of law.

§ 59.1-480. Definitions.

As used in this chapter:

  1. “Agreement” means the bargain of the parties in fact, as found in their language or inferred from other circumstances and from rules, regulations, and procedures given the effect of agreements under laws otherwise applicable to a particular transaction.
  2. “Automated transaction” means a transaction conducted or performed, in whole or in part, by electronic means or electronic records, in which the acts or records of one or both parties are not reviewed by an individual in the ordinary course in forming a contract, performing under an existing contract, or fulfilling an obligation required by the transaction.
  3. “Computer program” means a set of statements or instructions to be used directly or indirectly in an information processing system in order to bring about a certain result.
  4. “Contract” means the total legal obligation resulting from the parties’ agreement as affected by this chapter and other applicable law.
  5. “Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.
  6. “Electronic agent” means a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual.
  7. “Electronic record” means a record created, generated, sent, communicated, received, or stored by electronic means.
  8. “Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.
  9. “Information” means data, text, images, sounds, codes, computer programs, software, databases, or the like.
  10. “Information processing system” means an electronic system for creating, generating, sending, receiving, storing, displaying, or processing information.
  11. “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, public body, public corporation, or any other legal or commercial entity.
  12. “Public body” shall have the same meaning as defined in § 2.2-3701 and shall also include locally elected constitutional officers, and anyone performing the duties of locally elected constitutional officers.
  13. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
  14. “Security procedure” means a procedure employed for the purpose of verifying that an electronic signature, record, or performance is that of a specific person or for detecting changes or errors in the information in an electronic record. The term includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, or callback or other acknowledgment procedures.
  15. “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States. The term includes an Indian tribe or band, or an Alaskan native village, which is recognized by federal law or formally acknowledged by a state.
  16. “Transaction” means an action or set of actions occurring between two or more persons relating to the conduct of business, commercial, or governmental affairs.

History. 2000, c. 995; 2005, c. 417.

The 2005 amendments.

The 2005 amendment by c. 417 inserted “and shall also include locally elected constitutional officers, and anyone performing the duties of locally elected constitutional officers” at the end of subdivison (12).

OPINIONS OF THE ATTORNEY GENERAL

Voter registration applications. —

Although no law requires the acceptance of mailed voter registration applications with electronic signatures, the State Board of Elections is not precluded from directing that general registrars accept such applications, and the State Board, in its discretion, may do so. The State Board also has discretionary authority to establish criteria to preserve the security of confidential voter information and to ensure the authenticity and validity of electronic signatures. See opinion of Attorney General to Messrs. James M. Hinshaw, Daniel H. Haworth, W. Donald Brown, City of Norfolk Electoral Board, 13-111, 2014 Va. AG LEXIS 47 (9/26/14).

OFFICIAL COMMENT

1. “Agreement.”

Whether the parties have reached an agreement is determined by their express language and all surrounding circumstances. The Restatement 2d Contracts § 3 provides that, “An agreement is a manifestation of mutual assent on the part of two or more persons.” See also Restatement 2d Contracts, Section 2, Comment b. The Uniform Commercial Code specifically includes in the circumstances from which an agreement may be inferred “course of performance, course of dealing andusage of trade . . .” as defined in the UCC. Although the definition of agreement in this Act does not make specific reference to usage of trade and other party conduct, this definition is not intended to affect the construction of the parties’ agreement under the substantive law applicable to a particular transaction. Where that law takes account of usage and conduct in informing the terms of the parties’ agreement, the usage or conduct would be relevant as “other circumstances” included in the definition under this Act.

Where the law applicable to a given transaction provides that system rules and the like constitute part of the agreement of the parties, such rules will have the same effect in determining the parties’ agreement under this Act. For example, UCC Article 4 (Section 4-103(b)) provides that Federal Reserve regulations and operating circulars and clearinghouse rules have the effect of agreements. Such agreements by law properly would be included in the definition of agreement in this Act.

The parties’ agreement is relevant in determining whether the provisions of this Act have been varied by agreement. In addition, the parties’ agreement may establish the parameters of the parties’ use of electronic records and signatures, security procedures and similar aspects of the transaction. See Model Trading Partner Agreement, 45 Business Lawyer Supp. Issue (June 1990). See Section 5(b) [§ 59.1-483(b)] and Comments thereto.

2. “Automated Transaction.”

An automated transaction is a transaction performed or conducted by electronic means in which machines are used without human intervention to form contracts and perform obligations under existing contracts. Such broad coverage is necessary because of the diversity of transactions to which this Act may apply.

As with electronic agents, this definition addresses the circumstance where electronic records may result in action or performance by a party although no human review of the electronic records is anticipated. Section 14 [§ 59.1-492] provides specific rules to assure that where one or both parties do not review the electronic records, the resulting agreement will be effective.

The critical element in this definition is the lack of a human actor on one or both sides of a transaction. For example, if one orders books from Bookseller.com through Bookseller’s website, the transaction would be an automated transaction because Bookseller took and confirmed the order via its machine. Similarly, if Automaker and supplier do business through Electronic Data Interchange, Automaker’s computer, upon receiving information within certain pre-programmed parameters, will send an electronic order to supplier’s computer. If Supplier’s computer confirms the order and processes the shipment because the order falls within pre-programmed parameters in Supplier’s computer, this would be a fully automated transaction. If, instead, the Supplier relies on a human employee to review, accept, and process the Buyer’s order, then only the Automaker’s side of the transaction would be automated. In either case, the entire transaction falls within this definition.

3. “Computer program.”

This definition refers to the functional and operating aspects of an electronic, digital system. It relates to operating instructions used in an electronic system such as an electronic agent. (See definition of “Electronic Agent.”)

4. “Electronic.”

The basic nature of most current technologies and the need for a recognized, single term warrants the use of “electronic” as the defined term. The definition is intended to assure that the Act will be applied broadly as new technologies develop. The term must be construed broadly in light of developing technologies in order to fulfill the purpose of this Act to validate commercial transactions regardless of the medium used by the parties. Current legal requirements for “writings” can be satisfied by almost any tangible media, whether paper, other fibers, or even stone. The purpose and applicability of this Act covers intangible media which are technologically capable of storing, transmitting and reproducing information in human perceivable form, but which lack the tangible aspect of paper, papyrus or stone.

While not all technologies listed are technically “electronic” in nature (e.g., optical fiber technology), the term “electronic” is the most descriptive term available to describe the majority of current technologies. For example, the development of biological and chemical processes for communication and storage of data, while not specifically mentioned in the definition, are included within the technical definition because such processes operate on electromagnetic impulses. However, whether a particular technology may be characterized as technically “electronic,” i.e., operates on electromagnetic impulses, should not be determinative of whether records and signatures created, used and stored by means of a particular technology are covered by this Act. This Act is intended to apply to all records and signatures created, used and stored by any medium which permits the information to be retrieved in perceivable form.

5. “Electronic agent.”

This definition establishes that an electronic agent is a machine. As the term “electronic agent” has come to be recognized, it is limited to a tool function. The effect on the party using the agent is addressed in the operative provisions of the Act (e.g., Section 14 [§ 59.1-492]).

An electronic agent, such as a computer program or other automated means employed by a person, is a tool of that person. As a general rule, the employer of a tool is responsible for the results obtained by the use of that tool since the tool has no independent volition of its own. However, an electronic agent, by definition, is capable within the parameters of its programming, of initiating, responding or interacting with other parties or their electronic agents once it has been activated by a party, without further attention of that party.

While this Act proceeds on the paradigm that an electronic agent is capable of performing only within the technical strictures of its preset programming, it is conceivable that, within the useful life of this Act, electronic agents may be created with the ability to act autonomously, and not just automatically. That is, through developments in artificial intelligence, a computer may be able to “learn through experience, modify the instructions in their own programs, and even devise new instructions.” Allen and Widdison, “Can Computers Make Contracts?” 9 Harv. J.L. & Tech 25 (Winter, 1996). If such developments occur, courts may construe the definition of electronic agent accordingly, in order to recognize such new capabilities.

The examples involving Bookseller.com and Automaker in the Comment to the definition of Automated Transaction are equally applicable here. Bookseller acts through an electronic agent in processing an order for books. Automaker and the supplier each act through electronic agents in facilitating and effectuating the just-in-time inventory process through EDI.

6. “Electronic record.”

An electronic record is a subset of the broader defined term “record.” It is any record created, used or stored in a medium other than paper (see definition of electronic). The defined term is also used in this Act as a limiting definition in those provisions in which it is used.

Information processing systems, computer equipment and programs, electronic data interchange, electronic mail, voice mail, facsimile, telex, telecopying, scanning, and similar technologies all qualify as electronic under this Act. Accordingly information stored on a computer hard drive or floppy disc, facsimiles, voice mail messages, messages on a telephone answering machine, audio and video tape recordings, among other records, all would be electronic records under this Act.

7. “Electronic signature.”

The idea of a signature is broad and not specifically defined. Whether any particular record is “signed” is a question of fact. Proof of that fact must be made under other applicable law. This Act simply assures that the signature may be accomplished through electronic means. No specific technology need be used in order to create a valid signature. One’s voice on an answering machine may suffice if the requisite intention is present. Similarly, including one’s name as part of an electronic mail communication also may suffice, as may the firm name on a facsimile. It also may be shown that the requisite intent was not present and accordingly the symbol, sound or process did not amount to a signature. One may use a digital signature with the requisite intention, or one may use the private key solely as an access device with no intention to sign, or otherwise accomplish a legally binding act. In any case the critical element is the intention to execute or adopt the sound or symbol or process for the purpose of signing the related record.

The definition requires that the signer execute or adopt the sound, symbol, or process with the intent to sign the record. The act of applying a sound, symbol or process to an electronic record could have differing meanings and effects. The consequence of the act and the effect of the act as a signature are determined under other applicable law. However, the essential attribute of a signature involves applying a sound, symbol or process with an intent to do a legally significant act. It is that intention that is understood in the law as a part of the word “sign”, without the need for a definition.

This Act establishes, to the greatest extent possible, the equivalency of electronic signatures and manual signatures. Therefore the term “signature” has been used to connote and convey that equivalency. The purpose is to overcome unwarranted biases against electronic methods of signing and authenticating records. The term “authentication,” used in other laws, often has a narrower meaning and purpose than an electronic signature as used in this Act. However, an authentication under any of those other laws constitutes an electronic signature under this Act.

The precise effect of an electronic signature will be determined based on the surrounding circumstances under Section 9(b) [§ 59.1-487(b)].

This definition includes as an electronic signature the standard webpage click through process. For example, when a person orders goods or services through a vendor’s website, the person will be required to provide information as part of a process which will result in receipt of the goods or services. When the customer ultimately gets to the last step and clicks “I agree,” the person has adopted the process and has done so with the intent to associate the person with the record of that process. The actual effect of the electronic signature will be determined from all the surrounding circumstances, however, the person adopted a process which the circumstances indicate s/he intended to have the effect of getting the goods/services and being bound to pay for them. The adoption of the process carried the intent to do a legally significant act, the hallmark of a signature.

Another important aspect of this definition lies in the necessity that the electronic signature be linked or logically associated with the record. In the paper world, it is assumed that the symbol adopted by a party is attached to or located somewhere in the same paper that is intended to be authenticated, e.g., an allonge firmly attached to a promissory note, or the classic signature at the end of a long contract. These tangible manifestations do not exist in the electronic environment, and accordingly, this definition expressly provides that the symbol must in some way be linked to, or connected with, the electronic record being signed. This linkage is consistent with the regulations promulgated by the Food and Drug Administration. 21 CFR Part 11 (March 20, 1997).

A digital signature using public key encryption technology would qualify as an electronic signature, as would the mere inclusion of one’s name as a part of an e-mail message — so long as in each case the signer executed or adopted the symbol with the intent to sign.

8. “Governmental agency.”

This definition is important in the context of optional Sections 17-19 [§§ 59.1-495 to 59.1-497].

9. “Information processing system.”

This definition is consistent with the UNCITRAL Model Law on Electronic Commerce. The term includes computers and other information systems. It is principally used in Section 15 [§ 59.1-493] in connection with the sending and receiving of information. In that context, the key aspect is that the information enter a system from which a person can access it.

10. “Record.”

This is a standard definition designed to embrace all means of communicating or storing information except human memory. It includes any method for storing or communicating information, including “writings.” A record need not be indestructible or permanent, but the term does not include oral or other communications which are not stored or preserved by some means. Information that has not been retained other than through human memory does not qualify as a record. As in the case of the terms “writing” or “written,” the term “record” does not establish the purposes, permitted uses or legal effect which a record may have under any particular provision of substantive law. ABA Report on Use of the Term “Record,” October 1, 1996.

11. “Security procedure.”

A security procedure may be applied to verify an electronic signature, verify the identity of the sender, or assure the informational integrity of an electronic record. The definition does not identify any particular technology. This permits the use of procedures which the parties select or which are established by law. It permits the greatest flexibility among the parties and allows for future technological development.

The definition in this Act is broad and is used to illustrate one way of establishing attribution or content integrity of an electronic record or signature. The use of a security procedure is not accorded operative legal effect, through the use of presumptions or otherwise, by this Act. In this Act, the use of security procedures is simply one method for proving the source or content of an electronic record or signature.

A security procedure may be technologically very sophisticated, such as an asymmetric cryptographic system. At the other extreme the security procedure may be as simple as a telephone call to confirm the identity of the sender through another channel of communication. It may include the use of a mother’s maiden name or a personal identification number (PIN). Each of these examples is a method for confirming the identity of a person or accuracy of a message.

12. “Transaction.”

The definition has been limited to actions between people taken in the context of business, commercial or governmental activities. The term includes all interactions between people for business, commercial, including specifically consumer, or governmental purposes. However, the term does not include unilateral or non-transactional actions. As such it provides a structural limitation on the scope of the Act as stated in the next section.

It is essential that the term commerce and business be understood and construed broadly to include commercial and business transactions involving individuals who may qualify as “consumers” under other applicable law. If Alice and Bob agree to the sale of Alice’s car to Bob for $2000 using an internet auction site, that transaction is fully covered by this Act. Even if Alice and Bob each qualify as typical “consumers” under other applicable law, their interaction is a transaction in commerce. Accordingly their actions would be related to commercial affairs, and fully qualify as a transaction governed by this Act.

Other transaction types include:

  1. A single purchase by an individual from a retail merchant, which may be accomplished by an order from a printed catalog sent by facsimile, or by exchange of electronic mail.
  2. Recurring orders on a weekly or monthly basis between large companies which have entered into a master trading partner agreement to govern the methods and manner of their transaction parameters.
  3. A purchase by an individual from an online internet retail vendor. Such an arrangement may develop into an ongoing series of individual purchases, with security procedures and the like, as a part of doing ongoing business.
  4. The closing of a business purchase transaction via facsimile transmission of documents or even electronic mail. In such a transaction, all parties may participate through electronic conferencing technologies. At the appointed time all electronic records are executed electronically and transmitted to the other party. In such a case, the electronic records and electronic signatures are validated under this Act, obviating the need for “in person” closings.

A transaction must include interaction between two or more persons. Consequently, to the extent that the execution of a will, trust, or a health care power of attorney or similar health care designation does not involve another person and is a unilateral act, it would not be covered by this Act because they are not occurring as a part of a transaction as defined in this Act. However, this Act does apply to all electronic records and signatures related to a transaction, and so does cover, for example, internal auditing and accounting records related to a transaction.

§ 59.1-481. Scope.

  1. Except as otherwise provided in subsection (b), this chapter applies to electronic records and electronic signatures relating to a transaction.
  2. This chapter does not apply to a transaction to the extent it is governed by:
    1. A law governing the creation and execution of wills, codicils, or testamentary trusts; and
    2. Title 8.1A except § 8.1A-306 , Title 8.3A, Title 8.4, Title 8.4A, Title 8.5A, Title 8.7, Title 8.8A, Title 8.9A, Title 8.10, and Title 8.11.
  3. This chapter applies to an electronic record or electronic signature otherwise excluded from the application of this chapter under subsection (b) to the extent it is governed by law other than those specified in subsection (b).
  4. A transaction subject to this chapter is also subject to other applicable substantive law.

History. 2000, c. 995; 2001, c. 86; 2003, c. 353; 2011, c. 369.

The 2001 amendments.

The 2001 amendment by c. 86 inserted “and” at the end of subdivision (b)(1), deleted “and” at the end of subdivision (b)(2), and deleted former subdivision (b)(3), which read: “Article 4 (§ 17.1-255 et seq.) of Chapter 2 of Title 17.1.”

The 2003 amendments.

The 2003 amendment by c. 353, in subdivision (a)(2), substituted “8.1A” for “8.1” and “§ 8.1A-306 ” for “§§ 8.1-107 and 8.1-206.”

The 2011 amendments.

The 2011 amendment by c. 369 deleted “Title 8.6A” following “Title 8.5A” in subdivision (b) (2).

OPINIONS OF THE ATTORNEY GENERAL

Voter registration applications. —

Although no law requires the acceptance of mailed voter registration applications with electronic signatures, the State Board of Elections is not precluded from directing that general registrars accept such applications, and the State Board, in its discretion, may do so. The State Board also has discretionary authority to establish criteria to preserve the security of confidential voter information and to ensure the authenticity and validity of electronic signatures. See opinion of Attorney General to Messrs. James M. Hinshaw, Daniel H. Haworth, W. Donald Brown, City of Norfolk Electoral Board, 13-111, 2014 Va. AG LEXIS 47 (9/26/14).

OFFICIAL COMMENT

  1. The scope of this Act is inherently limited by the fact that it only applies to transactions related to business, commercial (including consumer) and governmental matters. Consequently, transactions with no relation to business, commercial or governmental transactions would not be subject to this Act. Unilaterally generated electronic records and signatures which are not part of a transaction also are not covered by this Act. See Section 2 [§ 59.1-480], Comment 12.
  2. This Act affects the medium in which information, records and signatures may be presented and retained under current legal requirements. While this Act covers all electronic records and signatures which are used in a business, commercial (including consumer) or governmental transaction, the operative provisions of the Act relate to requirements for writings and signatures under other laws. Accordingly, the exclusions in subsection (b) focus on those legal rules imposing certain writing and signature requirements which will not  be affected by this Act.
  3. The exclusions listed in subsection (b) provide clarity and certainty regarding the laws which are and are not affected by this Act. This section provides that transactions subject to specific laws are unaffected by this Act and leaves the balance subject to this Act.
  4. Paragraph (1) excludes wills, codicils and testamentary trusts. This exclusion is largely salutary given the unilateral context in which such records are generally created and the unlikely use of such records in a transaction as defined in this Act (i.e., actions taken by two or more persons in the context of business, commercial or governmental affairs). Paragraph (2) excludes all of the Uniform Commercial Code other than UCC Sections 1-107 and 1-206 , and Articles 2 and 2A. This Act does not apply to the excluded UCC articles, whether in “current” or “revised” form. The Act does apply to UCC Articles 2 and 2A and to UCC Sections 1-107 and 1-206 .
  5. Articles 3, 4 and 4A of the UCC impact payment systems and have specifically been removed from the coverage of this Act. The check collection and electronic fund transfer systems governed by Articles 3, 4 and 4A involve systems and relationships involving numerous parties beyond the parties to the underlying contract. The impact of validating electronic media in such systems involves considerations beyond the scope of this Act. Articles 5, 8 and 9 have been excluded because the revision process relating to those Articles included significant consideration of electronic practices. Paragraph 4 provides for exclusion from this Act of the Uniform Computer Information Transactions Act (UCITA) because the drafting process of that Act also included significant consideration of electronic contracting provisions.
  6. The very limited application of this Act to Transferable Records in Section 16 [§ 59.1-494] does not affect payment systems, and the section is designed to apply to a transaction only through express agreement of the parties. The exclusion of Articles 3 and 4 will not affect the Act’s coverage of Transferable Records. Section 16 [§ 59.1-494] is designed to allow for the development of systems which will provide “control” as defined in Section 16 [§ 59.1-494]. Such control is necessary as a substitute for the idea of possession which undergirds negotiable instrument law. The technology has yet to be developed which will allow for the possession of a unique electronic token embodying the rights associated with a negotiable promissory note. Section 16’s [§ 59.1-494’s] concept of control is intended as a substitute for possession.
  7. This Act does apply, in toto, to transactions under unrevised Articles 2 and 2A. There is every reason to validate electronic contracting in these situations. Sale and lease transactions do not implicate broad systems beyond the parties to the underlying transaction, such as are present in check collection and electronic funds transfers. Further sales and leases generally do not have as far reaching effect on the rights of third parties beyond the contracting parties, such as exists in the secured transactions system. Finally, it is in the area of sales, licenses and leases that electronic commerce is occurring to its greatest extent today. To exclude these transactions would largely gut the purpose of this Act.
  8. An electronic record/signature may be used for purposes of more than one legal requirement, or may be covered by more than one law. Consequently, it is important to make clear, despite any apparent redundancy, in subsection (c) that an electronic record used for purposes of a law which is not   affected by this Act under subsection (b) may nonetheless be used and validated for purposes of other laws not excluded by subsection (b). For example, this Act does not apply to an electronic record of a check when used for purposes of a transaction governed by Article 4 of the Uniform Commercial Code, i.e., the Act does not validate so-called electronic checks. However, for purposes of check retention statutes, the same electronic record of the check is covered by this Act, so that retention of an electronic image/record of a check will satisfy such retention statutes, so long as the requirements of Section 12 [§ 59.1-490] are fulfilled.
  9. Additional exclusions under subparagraph (b)(4) should be limited to laws which govern electronic records and signatures which may be used in transactions as defined in Section 2(16) [§ 59.1-480(16)]. Records used unilaterally, or which do not relate to business, commercial (including consumer), or governmental affairs are not governed by this Act in any event, and exclusion of laws relating to such records may create unintended inferences about whether other records and signatures are covered by this Act.

The provisions in Section 16 [§ 59.1-494] operate as free standing rules, establishing the rights of parties using Transferable Records under this Act . The references in Section 16 [§ 59.1-494] to UCC Sections 3-302, 7-501, and 9-308 (R9-330(d)) are designed to incorporate the substance of those provisions into this Act for the limited purposes noted in Section 16(c) [§ 59.1-494(c)]. Accordingly, an electronic record which is also a Transferable Record, would not be used for purposes of a transaction governed by Articles 3, 4, or 9, but would be an electronic record used for purposes of a transaction governed by Section 16 [§ 59.1-494]. However, it is important to remember that those UCC Articles will still apply to the transferable record in their own right. Accordingly, any other substantive requirements, e.g., method and manner of perfection under Article 9, must be complied with under those other laws. See Comments to Section 16 [§ 59.1-494].

In the event that Articles 2 and 2A are revised and adopted in the future, UETA will only apply to the extent provided in those Acts.

In another context, subsection (c) would operate to allow this Act to apply to what would appear to be an excluded transaction under subsection (b). For example, Article 9 of the Uniform Commercial Code applies generally to any transaction that creates a security interest in personal property. However, Article 9 excludes landlord’s liens. Accordingly, although this Act excludes from its application transactions subject to Article 9, this Act would apply to the creation of a landlord lien if the law otherwise applicable to landlord’s liens did not provide otherwise, because the landlord’s lien transaction is excluded from Article 9.

It is also important that additional exclusions, if any, be incorporated under subsection (b)(4). As noted in Comment 8 above, an electronic record used in a transaction excluded under subsection (b), e.g., a check used to pay one’s taxes, will nonetheless be validated for purposes of other, non-excluded laws under subsection (c), e.g., the check when used as proof of payment. It is critical that additional exclusions, if any, be incorporated into subsection (b) so that the salutary effect of subsection (c) apply to validate those records in other, non-excluded transactions. While a legislature may determine that a particular notice, such as a utility shutoff notice, be provided to a person in writing on paper, it is difficult to see why the utility should not be entitled to use electronic media for storage and evidentiary purposes. Legislative Note Regarding Possible Additional Exclusions under Section 3(b)(4) [not included in § 59.1-481].

The following discussion is derived from the Report dated September 21, 1998 of The Task Force on State Law Exclusions (the “Task Force”) presented to the Drafting Committee. After consideration of the Report, the Drafting Committee determined that exclusions other than those specified in the Act were not warranted. In addition, other inherent limitations on the applicability of the Act (the definition of transaction, the requirement that the parties acquiesce in the use of an electronic format) also militate against additional exclusions. Nonetheless, the Drafting Committee recognized that some legislatures may wish to exclude additional transactions from the Act, and determined that guidance in some major areas would be helpful to those legislatures considering additional areas for exclusion.

Because of the overwhelming number of references in state law to writings and signatures, the following list of possible transactions is not exhaustive. However, they do represent those areas most commonly raised during the course of the drafting process as areas that might be inappropriate for an electronic medium. It is important to keep in mind, however, that the Drafting Committee determined that exclusion of these additional areas was not warranted.

1. Trusts (other than testamentary trusts). Trusts can be used for both business and personal purposes. By virtue of the definition of transaction, trusts used outside the area of business and commerce would not be governed by this Act. With respect to business or commercial trusts, the laws governing their formation contain few or no requirements for paper or signatures. Indeed, in most jurisdictions trusts of any kind may be created orally. Consequently, the Drafting Committee believed that the Act should apply to any transaction where the law leaves to the parties the decision of whether to use a writing. Thus, in the absence of legal requirements for writings, there is no sound reason to exclude laws governing trusts from the application of this Act.

2. Powers of Attorney. A power of attorney is simply a formalized type of agency agreement. In general, no formal requirements for paper or execution were found to be applicable to the validity of powers of attorney.

Special health powers of attorney have been established by statute in some States. These powers may have special requirements under state law regarding execution, acknowledgment and possibly notarization. In the normal case such powers will not arise in a transactional context and so would not be covered by this Act. However, even if such a record were to arise in a transactional context, this Act operates simply to remove the barrier to the use of an electronic medium, and preserves other requirements of applicable substantive law, avoiding any necessity to exclude such laws from the operation of this Act. Especially in light of the provisions of Sections 8 and 11 [§§ 59.1-486 and 59.1-489], the substantive requirements under such laws will be preserved and may be satisfied in an electronic format.

3. Real Estate Transactions. It is important to distinguish between the efficacy of paper documents involving real estate between the parties, as opposed to their effect on third parties. As between the parties it is unnecessary to maintain existing barriers to electronic contracting. There are no unique characteristics to contracts relating to real property as opposed to other business and commercial (including consumer) contracts. Consequently, the decision whether to use an electronic medium for their agreements should be a matter for the parties to determine. Of course, to be effective against third parties state law generally requires filing with a governmental office. Pending adoption of electronic filing systems by States, the need for a piece of paper to file to perfect rights against third parties, will be a consideration for the parties. In the event notarization and acknowledgment are required under other laws, Section 11 [§ 59.1-489] provides a means for such actions to be accomplished electronically.

With respect to the requirements of government filing, those are left to the individual States in the decision of whether to adopt and implement electronic filing systems. (See optional Sections 17-19 [§§ 59.1-495 to 59.1-497].) However, government recording systems currently require paper deeds including notarized, manual signatures. Although California and Illinois are experimenting with electronic filing systems, until such systems become widespread, the parties likely will choose to use, at the least, a paper deed for filing purposes. Nothing in this Act precludes the parties from selecting the medium best suited to the needs of the particular transaction. Parties may wish to consummate the transaction using electronic media in order to avoid expensive travel. Yet the actual deed may be in paper form to assure compliance with existing recording systems and requirements. The critical point is that nothing in this Act prevents the parties from selecting paper or electronic media for all or part of their transaction.

4. Consumer Protection Statutes. Consumer protection provisions in state law often require that information be disclosed or provided to a consumer in writing. Because this Act does apply to such transactions, the question of whether such laws should be specifically excluded was considered. Exclusion of consumer transactions would eliminate a huge group of commercial transactions which benefit consumers by enabling the efficiency of the electronic medium. Commerce over the internet is driven by consumer demands and concerns and must be included.

At the same time, it is important to recognize the protective effects of many consumer statutes. Consumer statutes often require that information be provided in writing, or may require that the consumer separately sign or initial a particular provision to evidence that the consumer’s attention was brought to the provision. Subsection (1) requires electronic records to be retainable by a person whenever the law requires information to be delivered in writing. The section imposes a significant burden on the sender of information. The sender must assure that the information system of the recipient is compatible with, and capable of retaining the information sent by, the sender’s system. Furthermore, nothing in this Act permits the avoidance of legal requirements of separate signatures or initialing. The Act simply permits the signature or initialing to be done electronically.

Other consumer protection statutes require (expressly or implicitly) that certain information be presented in a certain manner or format. Laws requiring information to be presented in particular fonts, formats or in similar fashion, as well as laws requiring conspicuous displays of information are preserved. Section 8(b)(3) [§ 59.1-487(b)(3)] specifically preserves the applicability of such requirements in an electronic environment. In the case of legal requirements that information be presented or appear conspicuous, the determination of what is conspicuous will be left to other law. Section 8 [§ 59.1-487] was included to specifically preserve the protective functions of such disclosure statutes, while at the same time allowing the use of electronic media if the substantive requirements of the other laws could be satisfied in the electronic medium.

Formatting and separate signing requirements serve a critical purpose in much consumer protection legislation, to assure that information is not slipped past the unsuspecting consumer. Not only does this Act not disturb those requirements, it preserves those requirements. In addition, other bodies of substantive law continue to operate to allow the courts to police any such bad conduct or overreaching, e.g., unconscionability, fraud, duress, mistake and the like. These bodies of law remain applicable regardless of the medium in which a record appears.

The requirement that both parties agree to conduct a transaction electronically also prevents the imposition of an electronic medium on unwilling parties. See Section 5(b) [§ 59.1-483(b)]. In addition, where the law requires inclusion of specific terms or language, those requirements are preserved broadly by Section 5(e) [§ 59.1-483(e)].

Requirements that information be sent to, or received by, someone have been preserved in Section 15. As in the paper world, obligations to send do not impose any duties on the sender to assure receipt, other than reasonable methods of dispatch. In those cases where receipt is required legally, Sections 5, 8, and 15 [§§ 59.1-483, 59.1-487, and 59.1-493] impose the burden on the sender to assure delivery to the recipient if satisfaction of the legal requirement is to be fulfilled.

The preservation of existing safeguards, together with the ability to opt out of the electronic medium entirely, demonstrate the lack of any need generally to exclude consumer protection laws from the operation of this Act. Legislatures may wish to focus any review on those statutes which provide for post-contract formation and post-breach notices to be in [on] paper. However, any such consideration must also balance the needed protections against the potential burdens which may be imposed. Consumers and others will not be well served by restrictions which preclude the employment of electronic technologies sought and desired by consumers.

§ 59.1-482. Prospective application.

This chapter applies to any electronic record or electronic signature created, generated, sent, communicated, received, or stored on or after the effective date of this chapter.

History. 2000, c. 995.

OFFICIAL COMMENT

This section makes clear that the Act only applies to validate electronic records and signatures which arise subsequent to the effective date of the Act. Whether electronic records and electronic signatures arising before the effective date of this Act are valid is left to other law.

§ 59.1-483. Use of electronic records and electronic signatures; variation by agreement.

  1. This chapter does not require a record or signature to be created, generated, sent, communicated, received, stored, or otherwise processed or used by electronic means or in electronic form.
  2. This chapter applies only to transactions between parties each of which has agreed to conduct transactions by electronic means. Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct. Except for a separate and optional agreement the primary purpose of which is to authorize a transaction to be conducted by electronic means, an agreement to conduct a transaction electronically may not be contained in a standard form contract unless that term is conspicuously displayed and separately consented to. An agreement to conduct a transaction electronically may not be inferred solely from the fact that a party has used electronic means to pay an account or register a purchase warranty. This subsection may not be varied by agreement.
  3. A party that agrees to conduct a transaction by electronic means may refuse to conduct other transactions by electronic means. The right granted by this subsection may not be waived by agreement.
  4. Except as otherwise provided in this chapter, the effect of any of the provisions of this chapter may be varied by agreement. The presence in this chapter of the words “unless otherwise agreed,” or words of similar import, does not imply that the effect of other provisions may not be varied by agreement.
  5. Whether an electronic record or electronic signature has legal consequences is determined by this chapter and other applicable law.

History. 2000, c. 995.

OPINIONS OF THE ATTORNEY GENERAL

Voter registration applications. —

Although no law requires the acceptance of mailed voter registration applications with electronic signatures, the State Board of Elections is not precluded from directing that general registrars accept such applications, and the State Board, in its discretion, may do so. The State Board also has discretionary authority to establish criteria to preserve the security of confidential voter information and to ensure the authenticity and validity of electronic signatures. See opinion of Attorney General to Messrs. James M. Hinshaw, Daniel H. Haworth, W. Donald Brown, City of Norfolk Electoral Board, 13-111, 2014 Va. AG LEXIS 47 (9/26/14).

OFFICIAL COMMENT

This section limits the applicability of this Act to transactions which parties have agreed to conduct electronically. Broad interpretation of the term agreement is necessary to assure that this Act has the widest possible application consistent with its purpose of removing barriers to electronic commerce.

  1. This section makes clear that this Act is intended to facilitate the use of electronic means, but does not require the use of electronic records and signatures. This fundamental principle is set forth in subsection (a) and elaborated by subsections (b) and (c), which require an intention to conduct transactions electronically and preserve the right of a party to refuse to use electronics in any subsequent transaction.
  2. The paradigm of this Act is two willing parties doing transactions electronically. It is therefore appropriate that the Act is voluntary and preserves the greatest possible party autonomy to refuse electronic transactions. The requirement that party agreement be found from all the surrounding circumstances is a limitation on the scope of this Act.
  3. If this Act is to serve to facilitate electronic transactions, it must be applicable under circumstances not rising to a full fledged contract to use electronics. While absolute certainty can be accomplished by obtaining an explicit contract before relying on electronic transactions, such an explicit contract should not be necessary before one may feel safe in conducting transactions electronically. Indeed, such a requirement would itself be an unreasonable barrier to electronic commerce, at odds with the fundamental purpose of this Act. Accordingly, the requisite agreement, express or implied, must be determined from all available circumstances and evidence.
  4. Subsection (b) provides that the Act applies to transactions in which the parties have agreed to conduct the transaction electronically. In this context it is essential that the parties’ actions and words be broadly construed in determining whether the requisite agreement exists. Accordingly, the Act expressly provides that the party’s agreement is to be found from all circumstances, including the parties’ conduct. The critical element is the intent of a party to conduct a transaction electronically. Once that intent is established, this Act applies. See Restatement 2d Contracts, Sections 2, 3, and 19.

Examples of circumstances from which it may be found that parties have reached an agreement to conduct transactions electronically include the following:

  1. Automaker and supplier enter into a Trading Partner Agreement setting forth the terms, conditions and methods for the conduct of business between them electronically.
  2. Joe gives out his business card with his business e-mail address. It may be reasonable, under the circumstances, for a recipient of the card to infer that Joe has agreed to communicate electronically for business purposes. However, in the absence of additional facts, it would not necessarily be reasonable to infer Joe’s agreement to communicate electronically for purposes outside the scope of the business indicated by use of the business card.
  3. Sally may have several e-mail addresses — home, main office, office of a non-profit organization on whose board Sally sits. In each case, it may be reasonable to infer that Sally is willing to communicate electronically with respect to business related to the business/purpose associated with the respective e-mail addresses. However, depending on the circumstances, it may not be reasonable to communicate with Sally for purposes other than those related to the purpose for which she maintained a particular e-mail account.
D. Among the circumstances to be considered in finding an agreement would be the time when the assent occurred relative to the timing of the use of electronic communications. If one orders books from an on-line vendor, such as Bookseller.com, the intention to conduct that transaction and to receive any correspondence related to the transaction electronically can be inferred from the conduct. Accordingly, as to information related to that transaction it is reasonable for Bookseller to deal with the individual electronically.

The examples noted above are intended to focus the inquiry on the party’s agreement to conduct a transaction electronically. Similarly, if two people are at a meeting and one tells the other to send an e-mail to confirm a transaction — the requisite agreement under subsection (b) would exist. In each case, the use of a business card, statement at a meeting, or other evidence of willingness to conduct a transaction electronically must be viewed in light of all the surrounding circumstances with a view toward broad validation of electronic transactions.

5. Just as circumstances may indicate the existence of agreement, express or implied from surrounding circumstances, circumstances may also demonstrate the absence of true agreement. For example:

  1. If Automaker, Inc. were to issue a recall of automobiles via its Internet website, it would not be able to rely on this Act to validate that notice in the case of a person who never logged on to the website, or indeed, had no ability to do so, notwithstanding a clause in a paper purchase contract by which the buyer agreed to receive such notices in such a manner.
  2. Buyer executes a standard form contract in which an agreement to receive all notices electronically is set forth on page 3 in the midst of other fine print. Buyer has never communicated with Seller electronically, and has not provided any other information in the contract to suggest a willingness to deal electronically. Not only is it unlikely that any but the most formalistic of agreements may be found, but nothing in this Act prevents courts from policing such form contracts under common law doctrines relating to contract formation, unconscionability and the like.

6. Subsection (c) has been added to make clear the ability of a party to refuse to conduct a transaction electronically, even if the person has conducted transactions electronically in the past. The effectiveness of a party’s refusal to conduct a transaction electronically will be determined under other applicable law in light of all surrounding circumstances. Such circumstances must include an assessment of the transaction involved.

A party’s right to decline to act electronically under a specific contract, on the ground that each action under that contract amounts to a separate “transaction,” must be considered in light of the purpose of the contract and the action to be taken electronically. For example, under a contract for the purchase of goods, the giving and receipt of notices electronically, as provided in the contract, should not be viewed as discreet transactions. Rather such notices amount to separate actions which are part of the “transaction” of purchase evidenced by the contract. Allowing one party to require a change of medium in the middle of the transaction evidenced by that contract is not the purpose of this subsection. Rather this subsection is intended to preserve the party’s right to conduct the next purchase in a non-electronic medium.

7. Subsection (e) is an essential provision in the overall scheme of this Act. While this Act validates and effectuates electronic records and electronic signatures, the legal effect of such records and signatures is left to existing substantive law outside this Act except in very narrow circumstances. See, e.g., Section 16 [§ 59.1-494]. Even when this Act operates to validate records and signatures in an electronic medium, it expressly preserves the substantive rules of other law applicable to such records. See, e.g., Section 11 [§ 59.1-489].

For example, beyond validation of records, signatures and contracts based on the medium used, Section 7 [§ 59.1-485] (a) and (b) should not be interpreted as establishing the legal effectiveness of any given record, signature or contract. Where a rule of law requires that the record contain minimum substantive content, the legal effect of such a record will depend on whether the record meets the substantive requirements of other applicable law.

Section 8 [§ 59.1-486] expressly preserves a number of legal requirements in currently existing law relating to the presentation of information in writing. Although this Act now would allow such information to be presented in an electronic record, Section 8 [§ 59.1-486] provides that the other substantive requirements of law must be satisfied in the electronic medium as well.

§ 59.1-484. Construction and application.

This chapter shall be construed and applied to:

  1. Facilitate electronic transactions consistent with other applicable law;
  2. Be consistent with reasonable practices concerning electronic transactions and with the continued expansion of those practices; and
  3. Effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it.

History. 2000, c. 995.

OFFICIAL COMMENT

1. The purposes and policies of this Act are:
  1. to facilitate and promote commerce and governmental transactions by validating and authorizing the use of electronic records and electronic signatures;
  2. to eliminate barriers to electronic commerce and governmental transactions resulting from uncertainties relating to writing and signature requirements;
  3. to simplify, clarify and modernize the law governing commerce and governmental transactions through the use of electronic means;
  4. to permit the continued expansion of commercial and governmental electronic practices through custom, usage and agreement of the parties;
  5. to promote uniformity of the law among the States (and worldwide) relating to the use of electronic and similar technological means of effecting and performing commercial and governmental transactions;
  6. to promote public confidence in the validity, integrity and reliability of electronic commerce and governmental transactions; and
  7. to promote the development of the legal and business infrastructure necessary to implement electronic commerce and governmental transactions.
2. This Act has been drafted to permit flexible application consistent with its purpose to validate electronic transactions. The provisions of this Act validating and effectuating the employ[ment] of electronic media allow the courts to apply them to new and unforeseen technologies and practices. As time progresses, it is anticipated that what is new and unforeseen today will be commonplace tomorrow. Accordingly, this legislation is intended to set a framework for the validation of media which may be developed in the future and which demonstrate the same qualities as the electronic media contemplated and validated under this Act.

§ 59.1-485. Legal recognition of electronic records, electronic signatures, and electronic contracts.

  1. A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
  2. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
  3. If a law requires a record to be in writing, an electronic record satisfies the law.
  4. If a law requires a signature, or provides for certain consequences in the absence of a signature, an electronic signature satisfies the law.

History. 2000, c. 995.

OPINIONS OF THE ATTORNEY GENERAL

Electronic notarial acts

currently performed by Virginia notaries would constitute valid notarial acts under the Uniform Electronic Transactions Act, provided such acts comply with all other applicable statutes and regulations. See opinion of Attorney General to The Honorable John T. Frey, Clerk of the Circuit Court for Fairfax County, 08-089, 2009 Va. AG LEXIS 8 (2/2/09).

OFFICIAL COMMENT

  1. This section sets forth the fundamental premise of this Act: namely, that the medium in which a record, signature, or contract is created, presented or retained does not affect its legal significance. Subsections (a) and (b) are designed to eliminate the single element of medium as a reason to deny effect or enforceability to a record, signature, or contract. The fact that the information is set forth in an electronic, as opposed to paper, record is irrelevant.
  2. Under Restatement 2d Contracts Section 8, a contract may have legal effect and yet be unenforceable. Indeed, one circumstance where a record or contract may have effect but be unenforceable is in the context of the Statute of Frauds. Though a contract may be unenforceable, the records may have collateral effects, as in the case of a buyer that insures goods purchased under a contract unenforceable under the Statute of Frauds. The insurance company may not deny a claim on the ground that the buyer is not the owner, though the buyer may have no direct remedy against the seller for failure to deliver. See Restatement 2d Contracts, Section 8, Illustration 4.

While this section would validate an electronic record for purposes of a statute of frauds, if an agreement to conduct the transaction electronically cannot reasonably be found (See Section 5(b) [§ 59.1-483(b)]) then a necessary predicate to the applicability of this Act would be absent and this Act would not validate the electronic record. Whether the electronic record might be valid under other law is not addressed by this Act.

3. Subsections (c) and (d) provide the positive assertion that electronic records and signatures satisfy legal requirements for writings and signatures. The provisions are limited to requirements in laws that a record be in writing or be signed. This section does not address requirements imposed by other law in addition to requirements for writings and signatures. See, e.g., Section 8 [§ 59.1-486].

Subsections (c) and (d) are particularized applications of subsection (a). The purpose is to validate and effectuate electronic records and signatures as the equivalent of writings, subject to all of the rules applicable to the efficacy of a writing, except as such other rules are modified by the more specific provisions of this Act.

Illustration 1: A sends the following e-mail to B: “I hereby offer to buy widgets from you, delivery next Tuesday. /s/ A.” B responds with the following e-mail: “I accept your offer to buy widgets for delivery next Tuesday. /s/ B.” The e-mails may not be denied effect solely because they are electronic. In addition, the e-mails do qualify as records under the Statute of Frauds. However, because there is no quantity stated in either record, the parties’ agreement would be unenforceable under existing UCC Section 2-201(1).

Illustration 2: A sends the following e-mail to B: “I hereby offer to buy 100 widgets for $1000, delivery next Tuesday. /s/ A.” B responds with the following e-mail: “I accept your offer to purchase 100 widgets for $1000, delivery next Tuesday. /s/ B.” In this case the analysis is the same as in Illustration 1 except that here the records otherwise satisfy the requirements of UCC Section 2-201(1). The transaction may not be denied legal effect solely because there is not a pen and ink “writing” or “signature”.

4. Section 8 [§ 59.1-486] addresses additional requirements imposed by other law which may affect the legal effect or enforceability of an electronic record in a particular case. For example, in Section 8(a) [§ 59.1-486(a)] the legal requirement addressed is the provision of information in writing. The section then sets forth the standards to be applied in determining whether the provision of information by an electronic record is the equivalent of the provision of information in writing. The requirements in Section 8 [§ 59.1-486] are in addition to the bare validation that occurs under this section.
5. Under the substantive law applicable to a particular transaction within this Act, the legal effect of an electronic record may be separate from the issue of whether the record contains a signature. For example, where notice must be given as part of a contractual obligation, the effectiveness of the notice will turn on whether the party provided the notice regardless of whether the notice was signed (See Section 15 [§ 59.1-493]). An electronic record attributed to a party under Section 9 [§ 59.1-487] and complying with the requirements of Section 15 [§ 59.1-493] would suffice in that case, notwithstanding that it may not contain an electronic signature.

OPINIONS OF THE ATTORNEY GENERAL

Voter registration applications. —

Although no law requires the acceptance of mailed voter registration applications with electronic signatures, the State Board of Elections is not precluded from directing that general registrars accept such applications, and the State Board, in its discretion, may do so. The State Board also has discretionary authority to establish criteria to preserve the security of confidential voter information and to ensure the authenticity and validity of electronic signatures. See opinion of Attorney General to Messrs. James M. Hinshaw, Daniel H. Haworth, W. Donald Brown, City of Norfolk Electoral Board, 13-111, 2014 Va. AG LEXIS 47 (9/26/14).

§ 59.1-486. Provision of information in writing; presentation of records.

  1. If parties have agreed to conduct a transaction by electronic means and a law requires a person to provide, send, or deliver information in writing to another person, the requirement is satisfied if the information is provided, sent, or delivered, as the case may be, in an electronic record capable of retention by the recipient at the time of receipt. An electronic record is not capable of retention by the recipient if the sender or its information processing system inhibits the ability of the recipient to print or store the electronic record.
  2. If a law other than this chapter requires a record (i) to be posted or displayed in a certain manner, (ii) to be sent, communicated, or transmitted by a specified method, or (iii) to contain information that is formatted in a certain manner, the following rules apply:
    1. The record shall be posted or displayed in the manner specified in the other law.
    2. Except as otherwise provided in subsection (d) (2), the record shall be sent, communicated, or transmitted by the method specified in the other law.
    3. The record shall contain the information formatted in the manner specified in the other law.
  3. If a sender inhibits the ability of a recipient to store or print an electronic record, the electronic record is not enforceable against the recipient.
  4. The requirements of this section may not be varied by agreement, except:
    1. To the extent a law other than this chapter requires information to be provided, sent, or delivered in writing but permits that requirement to be varied by agreement, the requirement under subsection (a) that the information be in the form of an electronic record capable of retention may also be varied by agreement; and
    2. A requirement under a law other than this chapter to send, communicate, or transmit a record by United States mail, may be varied by agreement to the extent permitted by the other law.
  5. Notwithstanding subsections (b) and (d), a governmental agency may by regulation alter requirements governing (i) the method of posting or display, (ii) the manner of communication or transmittal, including First Class or other United States mail requirements, or (iii) formatting requirements, with respect to the matters over which that agency has jurisdiction and with respect to transactions that the parties have agreed to conduct by electronic means.

History. 2000, c. 995.

OFFICIAL COMMENT

  1. This section is a savings provision, designed to assure, consistent with the fundamental purpose of this Act, that otherwise applicable substantive law will not be overridden by this Act. The section makes clear that while the pen and ink provisions of such other law may be satisfied electronically, nothing in this Act vitiates the other requirements of such laws. The section addresses a number of issues related to disclosures and notice provisions in other laws.
  2. This section is independent of the prior section. Section 7 [§ 59.1-485] refers to legal requirements for a writing. This section refers to legal requirements for the provision of information in writing or relating to the method or manner of presentation or delivery of information. The section addresses more specific legal requirements of other laws, provides standards for satisfying the more particular legal requirements, and defers to other law for satisfaction of requirements under those laws.
  3. Under subsection (a), to meet a requirement of other law that information be provided in writing, the recipient of an electronic record of the information must be able to get to the electronic record and read it, and must have the ability to get back to the information in some way at a later date. Accordingly, the section requires that the electronic record be capable of retention for later review.
  4. Subsection (b) is a savings provision for laws which provide for the means of delivering or displaying information and which are not affected by the Act. For example, if a law requires delivery of notice by first class US mail, that means of delivery would not be affected by this Act. The information to be delivered may be provided on a disc, i.e., in electronic form, but the particular means of delivery must still be via the US postal service. Display, delivery and formatting requirements will continue to be applicable to electronic records and signatures. If those legal requirements can be satisfied in an electronic medium, e.g., the information can be presented in the equivalent of 20 point bold type as required by other law, this Act will validate the use of the medium, leaving to the other applicable law the question of whether the particular electronic record meets the other legal requirements. If a law requires that particular records be delivered together, or attached to other records, this Act does not preclude the delivery of the records together in an electronic communication, so long as the records are connected or associated with each other in a way determined to satisfy the other law.
  5. Subsection (c) provides incentives for senders of information to use systems which will not inhibit the other party from retaining the information. However, there are circumstances where a party providing certain information may wish to inhibit retention in order to protect intellectual property rights or prevent the other party from retaining confidential information about the sender. In such cases inhibition is understandable, but if the sender wishes to enforce the record in which the information is contained, the sender may not inhibit its retention by the recipient. Unlike subsection (a), subsection (c) applies in all transactions and simply provides for unenforceability against the recipient. Subsection (a) applies only where another law imposes the writing requirement, and subsection (a) imposes a broader responsibility on the sender to assure retention capability by the recipient.

The section specifically provides that any inhibition on retention imposed by the sender or the sender’s system will preclude satisfaction of this section. Use of technological means now existing or later developed which prevents the recipient from retaining a copy of the information would result in a determination that information has not been provided under subsection (a). The policies underlying laws requiring the provision of information in writing warrant the imposition of an additional burden on the sender to make the information available in a manner which will permit subsequent reference. A difficulty does exist for senders of information because of the disparate systems of their recipients and the capabilities of those systems. However, in order to satisfy the legal requirement of other law to make information available, the sender must assure that the recipient receives and can retain the information. However, it is left for the courts to determine whether the sender has complied with this subsection if evidence demonstrates that it is something peculiar to the recipient’s system which precludes subsequent reference to the information.

6. The protective purposes of this section justify the non-waivability provided by subsection (d). However, since the requirements for sending and formatting and the like are imposed by other law, to the extent other law permits waiver of such protections, there is no justification for imposing a more severe burden in an electronic environment.

§ 59.1-487. Attribution and effect of electronic record and electronic signature.

  1. An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.
  2. The effect of an electronic record or electronic signature attributed to a person under subsection (a) is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties’ agreement, if any, and otherwise as provided by law.

History. 2000, c. 995.

OFFICIAL COMMENT

  1. Under subsection (a), so long as the electronic record or electronic signature resulted from a person’s action it will be attributed to that person — the legal effect of that attribution is addressed in subsection (b). This section does not alter existing rules of law regarding attribution. The section assures that such rules will be applied in the electronic environment. A person’s actions include actions taken by human agents of the person, as well as actions taken by an electronic agent, i.e., the tool, of the person. Although the rule may appear to state the obvious, it assures that the record or signature is not ascribed to a machine, as opposed to the person operating or programing the machine.

In each of the following cases, both the electronic record and electronic signature would be attributable to a person under subsection (a):

  1. The person types his/her name as part of an e-mail purchase order;
  2. The person’s employee, pursuant to authority, types the person’s name as part of an e-mail purchase order;
  3. The person’s computer, programmed to order goods upon receipt of inventory information within particular parameters, issues a purchase order which includes the person’s name, or other identifying information, as part of the order.

In each of the above cases, law other than this Act would ascribe both the signature and the action to the person if done in a paper medium. Subsection (a) expressly provides that the same result will occur when an electronic medium is used.

2. Nothing in this section affects the use of a signature as a device for attributing a record to a person. Indeed, a signature is often the primary method for attributing a record to a person. In the foregoing examples, once the electronic signature is attributed to the person, the electronic record would also be attributed to the person, unless the person established fraud, forgery, or other invalidating cause. However, a signature is not the only method for attribution.

3. The use of facsimile transmissions provides a number of examples of attribution using information other than a signature. A facsimile may be attributed to a person because of the information printed across the top of the page that indicates the machine from which it was sent. Similarly, the transmission may contain a letterhead which identifies the sender. Some cases have held that the letterhead actually constituted a signature because it was a symbol adopted by the sender with intent to authenticate the facsimile. However, the signature determination resulted from the necessary finding of intention in that case. Other cases have found facsimile letterheads NOT to be signatures because the requisite intention was not present. The critical point is that with or without a signature, information within the electronic record may well suffice to provide the facts resulting in attribution of an electronic record to a particular party.

In the context of attribution of records, normally the content of the record will provide the necessary information for a finding of attribution. It is also possible that an established course of dealing between parties may result in a finding of attribution. Just as with a paper record, evidence of forgery or counterfeiting may be introduced to rebut the evidence of attribution.

4. Certain information may be present in an electronic environment that does not appear to attribute but which clearly links a person to a particular record. Numerical codes, personal identification numbers, public and private key combinations all serve to establish the party to whom an electronic record should be attributed. Of course, security procedures will be another piece of evidence available to establish attribution.

The inclusion of a specific reference to security procedures as a means of proving attribution is salutary because of the unique importance of security procedures in the electronic environment. In certain processes, a technical and technological security procedure may be the best way to convince a trier of fact that a particular electronic record or signature was that of a particular person. In certain circumstances, the use of a security procedure to establish that the record and related signature came from the person’s business might be necessary to overcome a claim that a hacker intervened. The reference to security procedures is not intended to suggest that other forms of proof of attribution should be accorded less persuasive effect. It is also important to recall that the particular strength of a given procedure does not affect the procedure’s status as a security procedure, but only affects the weight to be accorded the evidence of the security procedure as tending to establish attribution.

5. This section does apply in determining the effect of a “click-through” transaction. A “click-through” transaction involves a process which, if executed with an intent to “sign,” will be an electronic signature. See definition of Electronic Signature. In the context of an anonymous “click-through,” issues of proof will be paramount. This section will be relevant to establish that the resulting electronic record is attributable to a particular person upon the requisite proof, including security procedures which may track the source of the click-through.

6. Once it is established that a record or signature is attributable to a particular party, the effect of a record or signature must be determined in light of the context and surrounding circumstances, including the parties’ agreement, if any. Also informing the effect of any attribution will be other legal requirements considered in light of the context. Subsection (b) addresses the effect of the record or signature once attributed to a person.

§ 59.1-488. Effect of change or error.

If a change or error in an electronic record occurs in a transmission between parties to a transaction, the following rules apply:

  1. If the parties have agreed to use a security procedure to detect changes or errors and one party has conformed to the procedure, but the other party has not, and the nonconforming party would have detected the change or error had that party also conformed, the conforming party may avoid the effect of the changed or erroneous electronic record.
  2. In an automated transaction involving an individual, the individual may avoid the effect of an electronic record that resulted from an error made by the individual in dealing with the electronic agent of another person if the electronic agent did not provide an opportunity for the prevention or correction of the error and, at the time the individual learns of the error, the individual:
    1. Promptly notifies the other person of the error and that the individual did not intend to be bound by the electronic record received by the other person;
    2. Takes reasonable steps, including steps that conform to the other person’s reasonable instructions, to return to the other person or, if instructed by the other person, to destroy the consideration received, if any, as a result of the erroneous electronic record; and
    3. Has not used or received any benefit or value from the consideration, if any, received from the other person.
  3. If neither paragraph (1) nor paragraph (2) applies, the change or error has the effect provided by other law, including the law of mistake, and the parties’ contract, if any.
  4. Paragraphs (2) and (3) may not be varied by agreement.

History. 2000, c. 995.

OFFICIAL COMMENT

  1. This section is limited to changes and errors occurring in transmissions between parties — whether person to person (paragraph 1) or in an automated transaction involving an individual and a machine (paragraphs 1 and 2). The section focuses on the effect of changes and errors occurring when records are exchanged between parties. In cases where changes and errors occur in contexts other than transmission, the law of mistake is expressly made applicable to resolve the conflict.
  2. Paragraph (1) deals with any transmission where the parties have agreed to use a security procedure to detect changes and errors. It operates against the non-conforming party, i.e., the party in the best position to have avoided the change or error, regardless of whether that person is the sender or recipient. The source of the error/change is not indicated, and so both human and machine errors/changes would be covered. With respect to errors or changes that would not be detected by the security procedure even if applied, the parties are left to the general law of mistake to resolve the dispute.
  3. Paragraph (1) applies only in the situation where a security procedure would detect the error/change but one party fails to use the procedure and does not detect the error/change. In such a case, consistent with the law of mistake generally, the record is made avoidable at the instance of the party who took all available steps to avoid the mistake. See Restatement 2d Contracts, Sections 152-154.
  4. As with paragraph (1), paragraph (2), when applicable, allows the mistaken party to avoid the effect of the erroneous electronic record. However, the subsection is limited to human error on the part of an individual when dealing with the electronic agent of the other party. In a transaction between individuals there is a greater ability to correct the error before parties have acted on it. However, when an individual makes an error while dealing with the electronic agent of the other party, it may not be possible to correct the error before the other party has shipped or taken other action in reliance on the erroneous record.
  5. The party acting through the electronic agent/machine is given incentives by this section to build in safeguards which enable the individual to prevent the sending of an erroneous record, or correct the error once sent. For example, the electronic agent may be programed to provide a “confirmation screen” to the individual setting forth all the information the individual initially approved. This would provide the individual with the ability to prevent the erroneous record from ever being sent. Similarly, the electronic agent might receive the record sent by the individual and then send back a confirmation which the individual must again accept before the transaction is completed. This would allow for correction of an erroneous record. In either case, the electronic agent would “provide an opportunity for prevention or correction of the error,” and the subsection would not apply. Rather, the effect of any error is governed by other law.
  6. Paragraph (2) also places additional requirements on the mistaken individual before the paragraph may be invoked to avoid an erroneous electronic record. The individual must take prompt action to advise the other party of the error and the fact that the individual did not intend the electronic record. Whether the action is prompt must be determined from all the circumstances including the individual’s ability to contact the other party. The individual should advise the other party both of the error and of the lack of intention to be bound (i.e., avoidance) by the electronic record received. Since this provision allows avoidance by the mistaken party, that party should also be required to expressly note that it is seeking to avoid the electronic record, i.e., lacked the intention to be bound.

The section covers both changes and errors. For example, if Buyer sends a message to Seller ordering 100 widgets, but Buyer’s information processing system changes the order to 1000 widgets, a “change” has occurred between what Buyer transmitted and what Seller received. If on the other hand, Buyer typed in 1000 intending to order only 100, but sent the message before noting the mistake, an error would have occurred which would also be covered by this section.

Making the erroneous record avoidable by the conforming party is consistent with Sections 153 and 154 of the Restatement 2d Contracts because the non-conforming party was in the best position to avoid the problem, and would bear the risk of mistake. Such a case would constitute mistake by one party. The mistaken party (the conforming party) would be entitled to avoid any resulting contract under Section 153 because s/he does not have the risk of mistake and the non-conforming party had reason to know of the mistake.

Paragraph (2) applies only to errors made by individuals. If the error results from the electronic agent, it would constitute a system error. In such a case the effect of that error would be resolved under paragraph (1) if applicable, otherwise under paragraph (3) and the general law of mistake.

Second, restitution is normally required in order to undo a mistaken transaction. Accordingly, the individual must also return or destroy any consideration received, adhering to instructions from the other party in any case. This is to assure that the other party retains control over the consideration sent in error.

Finally, and most importantly in regard to transactions involving intermediaries which may be harmed because transactions cannot be unwound, the individual cannot have received any benefit from the transaction. This section prevents a party from unwinding a transaction after the delivery of value and consideration which cannot be returned or destroyed. For example, if the consideration received is information, it may not be possible to avoid the benefit conferred. While the information itself could be returned, mere access to the information, or the ability to redistribute the information, would constitute a benefit precluding the mistaken party from unwinding the transaction. It may also occur that the mistaken party receives consideration which changes in value between the time of receipt and the first opportunity to return. In such a case restitution cannot be made adequately, and the transaction would not be avoidable. In each of the foregoing cases, under subparagraph (2)(c), the individual would have received the benefit of the consideration and would NOT be able to avoid the erroneous electronic record under this section.

7. In all cases not covered by paragraphs (1) or (2), where error or change to a record occur, the parties’ contract, or other law, specifically including the law of mistake, applies to resolve any dispute. In the event that the parties’ contract and other law would achieve different results, the construction of the parties’ contract is left to the other law. If the error occurs in the context of record retention, Section 12 [§ 59.1-490] will apply. In that case the standard is one of accuracy and retrievability of the information.
8. Paragraph (4) makes the error correction provision in paragraph (2) and the application of the law of mistake in paragraph (3) non-variable. Paragraph (2) provides incentives for parties using electronic agents to establish safeguards for individuals dealing with them. It also avoids unjustified windfalls to the individual by erecting stringent requirements before the individual may exercise the right of avoidance under the paragraph. Therefore, there is no reason to permit parties to avoid the paragraph by agreement. Rather, parties should satisfy the paragraph’s requirements.

§ 59.1-489. Notarization and acknowledgment.

If a law requires a signature or record to be notarized, acknowledged, verified, or made under oath, the requirement is satisfied if the electronic signature of the person authorized to perform those acts, together with all other information required to be included by other applicable law, is attached to or logically associated with the signature or record.

History. 2000, c. 995.

Editor’s note.

Acts 2009, c. 160, cl. 2, effective March 16, 2009, provides: “That any document notarized electronically pursuant to the provisions of § 59.1-489 of the Code of Virginia that otherwise appears on its face to be properly notarized shall be presumed to have been notarized properly in accordance with the laws and regulations of the Commonwealth.”

Research References.

Virginia Forms (Matthew Bender). No. 16-1801 Acknowledgment by Notary Public, etc.

OPINIONS OF THE ATTORNEY GENERAL

Electronic notarial acts

currently performed by Virginia notaries would constitute valid notarial acts under the Uniform Electronic Transactions Act, provided such acts comply with all other applicable statutes and regulations. See opinion of Attorney General to The Honorable John T. Frey, Clerk of the Circuit Court for Fairfax County, 08-089, 2009 Va. AG LEXIS 8 (2/2/09).

OFFICIAL COMMENT

This section permits a notary public and other authorized officers to act electronically, effectively removing the stamp/seal requirements. However, the section does not eliminate any of the other requirements of notarial laws, and consistent with the entire thrust of this Act, simply allows the signing and information to be accomplished in an electronic medium.

For example, Buyer wishes to send a notarized Real Estate Purchase Agreement to Seller via e-mail. The notary must appear in the room with the Buyer, satisfy him/herself as to the identity of the Buyer, and swear to that identification. All that activity must be reflected as part of the electronic Purchase Agreement and the notary’s electronic signature must appear as a part of the electronic real estate purchase contract.

As another example, Buyer seeks to send Seller an affidavit averring defects in the products received. A court clerk, authorized under state law to administer oaths, is present with Buyer in a room. The Clerk administers the oath and includes the statement of the oath, together with any other requisite information, in the electronic record to be sent to the Seller. Upon administering the oath and witnessing the application of Buyer’s electronic signature to the electronic record, the Clerk also applies his electronic signature to the electronic record. So long as all substantive requirements of other applicable law have been fulfilled and are reflected in the electronic record, the sworn electronic record of Buyer is as effective as if it had been transcribed on paper.

§ 59.1-490. Retention of electronic record.

  1. If a law requires that a record be retained, the requirement is satisfied by retaining an electronic record of the information in the record which:
    1. Accurately reflects the information set forth in the record at the time and after it was first generated in its final form as an electronic record or otherwise; and
    2. Remains accessible for later reference.
  2. A requirement to retain a record in accordance with subsection (a) does not apply to any information the sole purpose of which is to enable the record to be sent, communicated, or received.
  3. A person may satisfy subsection (a) by using the services of another person if the requirements of that subsection are satisfied.
  4. If a law requires a record to be presented or retained in its original form, or provides consequences if the record is not presented or retained in its original form, that law is satisfied by an electronic record retained in accordance with subsection (a).
  5. If a law requires retention of a check, that requirement is satisfied by retention of an electronic record of the information on the front and back of the check in accordance with subsection (a).
  6. A record retained as an electronic record in accordance with subsection A satisfies a law requiring a person to retain a record for evidentiary, audit, or like purposes, unless a law enacted after the effective date of this chapter specifically prohibits the use of an electronic record for the specified purpose.
  7. This section does not preclude a public body of the Commonwealth from specifying additional requirements for the retention of a record subject to such public body’s jurisdiction.

History. 2000, c. 995.

OFFICIAL COMMENT

  1. This section deals with the serviceability of electronic records as retained records and originals. So long as there exists reliable assurance that the electronic record accurately reproduces the information, this section continues the theme of establishing the functional equivalence of electronic and paper-based records. This is consistent with Fed.R.Evid. 1001(3) and Unif.R.Evid. 1001(3) (1974). This section assures that information stored electronically will remain effective for all audit, evidentiary, archival and similar purposes.
  2. In an electronic medium, the concept of an original document is problematic. For example, as one drafts a document on a computer the “original” is either on a disc or the hard drive to which the document has been initially saved. If one periodically saves the draft, the fact is that at times a document may be first saved to disc then to hard drive, and at others vice versa. In such a case the “original” may change from the information on the disc to the information on the hard drive. Indeed, it may be argued that the “original” exists solely in RAM and, in a sense, the original is destroyed when a “copy” is saved to a disc or to the hard drive. In any event, in the context of record retention, the concern focuses on the integrity of the information, and not with its “originality.”
  3. Subsection (a) requires accuracy and the ability to access at a later time. The requirement of accuracy is derived from the Uniform and Federal Rules of Evidence. The requirement of continuing accessibility addresses the issue of technology obsolescence and the need to update and migrate information to developing systems. It is not unlikely that within the span of 5-10 years (a period during which retention of much information is required) a corporation may evolve through one or more generations of technology. More to the point, these technologies may be incompatible with each other necessitating the reconversion of information from one system to the other.
  4. Subsections (b) and (c) simply make clear that certain ancillary information or the use of third parties, does not affect the serviceability of records and information retained electronically. Again, the relevance of particular information will not be known until that information is required at a subsequent time.
  5. Subsection (d) continues the theme of the Act as validating electronic records as originals where the law requires retention of an original. The validation of electronic records and electronic information as originals is consistent with the Uniform Rules of Evidence. See Uniform Rules of Evidence 1001(3), 1002, 1003 and 1004.
  6. Subsection (e) specifically addresses particular concerns regarding check retention statutes in many jurisdictions. A Report compiled by the Federal Reserve Bank of Boston identifies hundreds of state laws which require the retention or production of original canceled checks. Such requirements preclude banks and their customers from realizing the benefits and efficiencies related to truncation processes otherwise validated under current law. The benefits to banks and their customers from electronic check retention are effectuated by this provision.
  7. Subsections (f) and (g) generally address other record retention statutes. As with check retention, all businesses and individuals may realize significant savings from electronic record retention. So long as the standards in Section 12 [§ 59.1-490] are satisfied, this section permits all parties to obtain those benefits. As always the government may require records in any medium, however, these subsections require a governmental agency to specifically identify the types of records and requirements that will be imposed.

For example, certain operating systems from the early 1980’s, e.g., memory typewriters, became obsolete with the development of personal computers. The information originally stored on the memory typewriter would need to be converted to the personal computer system in a way meeting the standards for accuracy contemplated by this section. It is also possible that the medium on which the information is stored is less stable. For example, information stored on floppy discs is generally less stable, and subject to a greater threat of disintegration, than information stored on a computer hard drive. In either case, the continuing accessibility issue must be satisfied to validate information stored by electronic means under this section.

This section permits parties to convert original written records to electronic records for retention so long as the requirements of subsection (a) are satisfied. Accordingly, in the absence of specific requirements to retain written records, written records may be destroyed once saved as electronic records, satisfying the requirements of this section.

The subsection refers to the information contained in an electronic record, rather than relying on the term electronic record, as a matter of clarity that the critical aspect in retention is the information itself. What information must be retained is determined by the purpose for which the information is needed. If the addressing and pathway information regarding an e-mail is relevant, then that information should also be retained. However if it is the substance of the e-mail that is relevant, only that information need be retained. Of course, wise record retention would include all such information since what information will be relevant at a later time will not be known.

§ 59.1-491. Admissibility of evidence.

  1. In any proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form.
  2. In determining the evidentiary weight to be given a particular electronic signature, the trier of fact shall consider whether the electronic signature is: (i) unique to the signer, (ii) capable of verification, (iii) under the signer’s sole control, (iv) linked to the record in such a manner that it can be determined if any data contained in the record was changed subsequent to the electronic signature being affixed to the record, and (v) created by a method appropriately reliable for the purpose for which the electronic signature was used. The trier of fact may consider any other relevant and probative evidence affecting the authenticity and/or validity of the electronic signature.

History. 2000, c. 995.

OFFICIAL COMMENT

Like Section 7 [§ 59.1-485], this section prevents the nonrecognition of electronic records and signatures solely on the ground of the media in which information is presented.

Nothing in this section relieves a party from establishing the necessary foundation for the admission of an electronic record. See Uniform Rules of Evidence 1001(3), 1002, 1003 and 1004.

§ 59.1-492. Automated transactions.

In an automated transaction, the following rules apply:

  1. A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents’ actions or the resulting terms and agreements.
  2. A contract may be formed by the interaction of an electronic agent and an individual, acting on the individual’s own behalf or for another person, including by an interaction in which the individual performs actions that the individual is free to refuse to perform and which the individual knows or has reason to know will cause the electronic agent to complete the transaction or performance.
  3. The terms of the contract are determined by the substantive law applicable to the contract.

History. 2000, c. 995.

Law Review.

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

OFFICIAL COMMENT

  1. This section confirms that contracts can be formed by machines functioning as electronic agents for parties to a transaction. It negates any claim that lack of human intent, at the time of contract formation, prevents contract formation. When machines are involved, the requisite intention flows from the programming and use of the machine. As in other cases, these are salutary provisions consistent with the fundamental purpose of the Act to remove barriers to electronic transactions while leaving the substantive law, e.g., law of mistake, law of contract formation, unaffected to the greatest extent possible.
  2. The process in paragraph (2) validates an anonymous click-through transaction. It is possible that an anonymous click-through process may simply result in no recognizable legal relationship, e.g., A goes to a person’s website and acquires access without in any way identifying herself, or otherwise indicating agreement or assent to any limitation or obligation, and the owner’s site grants A access. In such a case no legal relationship has been created.
  3. In the transaction set forth in Comment 2, the record of the transaction also will include an electronic signature. By clicking “I agree”, A adopted a process with the intent to “sign,” i.e., bind herself to a legal obligation, the resulting record of the transaction. If a “signed writing” were required under otherwise applicable law, this transaction would be enforceable. If a “signed writing” were not required, it may be sufficient to establish that the electronic record is attributable to A under Section 9 [§ 59.1-487]. Attribution may be shown in any manner reasonable including showing that, of necessity, A could only have gotten the information through the process at the website.

On the other hand it may be possible that A’s actions indicate agreement to a particular term. For example, A goes to a website and is confronted by an initial screen which advises her that the information at this site is proprietary, that A may use the information for her own personal purposes, but that, by clicking below, A agrees that any other use without the site owner’s permission is prohibited. If A clicks “agree” and downloads the information and then uses the information for other, prohibited purposes, should not A be bound by the click? It seems the answer properly should be, and would be, yes.

If the owner can show that the only way A could have obtained the information was from his website, and that the process to access the subject information required that A must have clicked the “I agree” button after having the ability to see the conditions on use, A has performed actions which A was free to refuse, which A knew would cause the site to grant her access, i.e., “complete the transaction.” The terms of the resulting contract will be determined under general contract principles, but will include the limitation on A’s use of the information, as a condition precedent to granting her access to the information.

§ 59.1-493. Time and place of sending and receipt.

  1. Unless otherwise agreed between the sender and the recipient, an electronic record is sent when it:
    1. Is addressed properly or otherwise directed properly to an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve the electronic record;
    2. Is in a form capable of being processed by that system; and
    3. Enters an information processing system outside the control of the sender or of a person that sent the electronic record on behalf of the sender or enters a region of the information processing system designated or used by the recipient which is under the control of the recipient.
  2. Unless otherwise agreed between a sender and the recipient, an electronic record is received when:
    1. It enters an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve the electronic record; and
    2. It is in a form capable of being processed by that system.
  3. Subsection (b) applies even if the place the information processing system is located is different from the place the electronic record is deemed to be received under subsection (d).
  4. Unless otherwise expressly provided in the electronic record or agreed between the sender and the recipient, an electronic record is deemed to be sent from the sender’s place of business and to be received at the recipient’s place of business. For purposes of this subsection, the following rules apply:
    1. If the sender or recipient has more than one place of business, the place of business of that person is the place having the closest relationship to the underlying transaction.
    2. If the sender or the recipient does not have a place of business, the place of business is the sender’s or recipient’s residence, as the case may be.
  5. An electronic record is received under subsection (b) even if no individual is aware of its receipt.
  6. Receipt of an electronic acknowledgment from an information processing system described in subsection (b) establishes that a record was received but, by itself, does not establish that the content sent corresponds to the content received.
  7. If a person is aware that an electronic record purportedly sent under subsection (a), or purportedly received under subsection (b), was not actually sent or received, the legal effect of the sending or receipt is determined by other applicable law. Except to the extent permitted by the other law, the requirements of this subsection may not be varied by agreement.

History. 2000, c. 995.

OFFICIAL COMMENT

  1. This section provides default rules regarding when and from where an electronic record is sent and when and where an electronic record is received. This section does not address the efficacy of the record that is sent or received. That is, whether a record is unintelligible or unusable by a recipient is a separate issue from whether that record was sent or received. The effectiveness of an illegible record, whether it binds any party, are questions left to other law.
  2. Subsection (a) furnishes rules for determining when an electronic record is sent. The effect of the sending and its import are determined by other law once it is determined that a sending has occurred.
  3. Subsection (b) provides simply that when a record enters the system which the recipient has designated or uses and to which it has access, in a form capable of being processed by that system, it is received. Keying receipt to a system accessible by the recipient removes the potential for a recipient leaving messages with a server or other service in order to avoid receipt. However, the section does not resolve the issue of how the sender proves the time of receipt.
  4. Subsections (c) and (d) provide default rules for determining where a record will be considered to have been sent or received. The focus is on the place of business of the recipient and not the physical location of the information processing system, which may bear absolutely no relation to the transaction between the parties. It is not uncommon for users of electronic commerce to communicate from one State to another without knowing the location of information systems through which communication is operated. In addition, the location of certain communication systems may change without either of the parties being aware of the change. Accordingly, where the place of sending or receipt is an issue under other applicable law, e.g., conflict of laws issues, tax issues, the relevant location should be the location of the sender or recipient and not the location of the information processing system.
  5. Subsection (e) makes clear that receipt is not dependent on a person having notice that the record is in the person’s system. Receipt occurs when the record reaches the designated system whether or not the recipient ever retrieves the record. The paper analog is the recipient who never reads a mail notice.
  6. Subsection (f) provides legal certainty regarding the effect of an electronic acknowledgment. It only addresses the fact of receipt, not the quality of the content, nor whether the electronic record was read or “opened.”
  7. Subsection (g) limits the parties’ ability to vary the method for sending and receipt provided in subsections (a) and (b), when there is a legal requirement for the sending or receipt. As in other circumstances where legal requirements derive from other substantive law, to the extent that the other law permits variation by agreement, this Act does not impose any additional requirements, and provisions of this Act may be varied to the extent provided in the other law.

In order to have a proper sending, the subsection requires that information be properly addressed or otherwise directed to the recipient. In order to send within the meaning of this section, there must be specific information which will direct the record to the intended recipient. Although mass electronic sending is not precluded, a general broadcast message, sent to systems rather than individuals, would not suffice as a sending.

The record will be considered sent once it leaves the control of the sender, or comes under the control of the recipient. Records sent through e-mail or the internet will pass through many different server systems. Accordingly, the critical element when more than one system is involved is the loss of control by the sender.

However, the structure of many message delivery systems is such that electronic records may actually never leave the control of the sender. For example, within a university or corporate setting, e-mail sent within the system to another faculty member is technically not out of the sender’s control since it never leaves the organization’s server. Accordingly, to qualify as a sending, the e-mail must arrive at a point where the recipient has control. This section does not address the effect of an electronic record that is thereafter “pulled back,” e.g., removed from a mailbox. The analog in the paper world would be removing a letter from a person’s mailbox. As in the case of providing information electronically under Section 8 [§ 59.1-486], the recipient’s ability to receive a message should be judged from the perspective of whether the sender has done any action which would preclude retrieval. This is especially the case in regard to sending, since the sender must direct the record to a system designated or used by the recipient.

To assure that the recipient retains control of the place of receipt, subsection (b) requires that the system be specified or used by the recipient, and that the system be used or designated for the type of record being sent. Many people have multiple e-mail addresses for different purposes. Subsection (b) assures that recipients can designate the e-mail address or system to be used in a particular transaction. For example, the recipient retains the ability to designate a home e-mail for personal matters, work e-mail for official business, or a separate organizational e-mail solely for the business purposes of that organization. If A sends B a notice at his home which relates to business, it may not be deemed received if B designated his business address as the sole address for business purposes. Whether actual knowledge upon seeing it at home would qualify as receipt is determined under the otherwise applicable substantive law.

Subsection (d) assures individual flexibility in designating the place from which a record will be considered sent or at which a record will be considered received. Under subsection (d), a person may designate the place of sending or receipt unilaterally in an electronic record. This ability, as with the ability to designate by agreement, may be limited by otherwise applicable law to places having a reasonable relationship to the transaction.

§ 59.1-494. Transferable records.

  1. In this section, “transferable record” means an electronic record that:
    1. Would be a note under Title 8.3A or a document under Title 8.7 if the electronic record were in writing; and
    2. The issuer of the electronic record expressly has agreed is a transferable record.
  2. A person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.
  3. A system satisfies subsection (b), and a person is deemed to have control of a transferable record, if the transferable record is created, stored, and assigned in such a manner that:
    1. A single authoritative copy of the transferable record exists which is unique, identifiable, and, except as otherwise provided in  subdivisions (4), (5), and (6), unalterable;
    2. The authoritative copy identifies the person asserting control as:
      1. The person to which the transferable record was issued; or
      2. If the authoritative copy indicates that the transferable record has been transferred, the person to which the transferable record was most recently transferred;
    3. The authoritative copy is communicated to and maintained by the person asserting control or its designated custodian;
    4. Copies or revisions that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control;
    5. Each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and
    6. Any revision of the authoritative copy is readily identifiable as authorized or unauthorized.
  4. Except as otherwise agreed, a person having control of a transferable record is the holder, as defined in § 8.1A-201 (21), of the transferable record and has the same rights and defenses as a holder of an equivalent record or writing under Titles 8.1 A through 8.11, including, if the applicable statutory requirements under §§ 8.3A-302 (a) , 8.7-501 , or § 8.9A-330 are satisfied, the rights and defenses of a holder in due course, a holder to which a negotiable document of title has been duly negotiated, or a purchaser, respectively. Delivery, possession, and endorsement are not required to obtain or exercise any of the rights under this subsection.
  5. Except as otherwise agreed, an obligor under a transferable record has the same rights and defenses as an equivalent obligor under equivalent records or writings under Titles 8.1 A through 8.11.
  6. If requested by a person against which enforcement is sought, the person seeking to enforce the transferable record shall provide reasonable proof that the person is in control of the transferable record. Proof may include access to the authoritative copy of the transferable record and related business records sufficient to review the terms of the transferable record and to establish the identity of the person having control of the transferable record.

History. 2000, c. 995; 2001, c. 86; 2003, c. 353.

The 2001 amendments.

The 2001 amendment by c. 86 substituted “§ 8.9A-330 ” for “§ 8.9-308” in subsection (d).

The 2003 amendments.

The 2003 amendment by c. 353, in subdivision (c)(1), substituted “subdivisions” for “paragraphs”; in subsection (d), substituted “8.1A-201 (21)” for “8.1-201 (20)” and “8.1A” for “8.1”; and in subsection (e), substituted “8.1A” for “8.1.”

OFFICIAL COMMENT

  1. Paper negotiable instruments and documents are unique in the fact that a tangible token — a piece of paper — actually embodies intangible rights and obligations. The extreme difficulty of creating a unique electronic token which embodies the singular attributes of a paper negotiable document or instrument dictates that the rules relating to negotiable documents and instruments not be simply amended to allow the use of an electronic record for the requisite paper writing. However, the desirability of establishing rules by which business parties might be able to acquire some of the benefits of negotiability in an electronic environment is recognized by the inclusion of this section on Transferable Records.
  2. The definition of transferable record is limited in two significant ways. First, only the equivalent of paper promissory notes and paper documents of title can be created as transferable records. Notes and Documents of Title do not impact the broad systems that relate to the broader payment mechanisms related, for example, to checks. Impacting the check collection system by allowing for “electronic checks” has ramifications well beyond the ability of this Act to address. Accordingly, this Act excludes from its scope transactions governed by UCC Articles 3 and 4. The limitation to promissory note equivalents in Section 16 [§ 59.1-494] is quite important in that regard because of the ability to deal with many enforcement issues by contract without affecting such systemic concerns.
  3. Under Section 16 [§ 59.1-494] acquisition of “control” over an electronic record serves as a substitute for “possession” in the paper analog. More precisely, “control” under Section 16 [§ 59.1-494] serves as the substitute for delivery, indorsement and possession of a negotiable promissory note or negotiable document of title. Section 16(b) [§ 59.1-494(b)] allows control to be found so long as “a system employed for evidencing the transfer of interests in the transferable record reliably establishes [the person claiming control] as the person to which the transferable record was issued or transferred.” The key point is that a system, whether involving third party registry or technological safeguards, must be shown to reliably establish the identity of the person entitled to payment. Section 16(c) [§ 59.1-494(c)] then sets forth a safe harbor list of very strict requirements for such a system. The specific provisions listed in Section 16(c) [§ 59.1-494(c)] are derived from Section 105 of Revised Article 9 of the Uniform Commercial Code. Generally, the transferable record must be unique, identifiable, and except as specifically permitted, unalterable. That “authoritative copy” must (i) identify the person claiming control as the person to whom the record was issued or most recently transferred, (ii) be maintained by the person claiming control or its designee, and (iii) be unalterable except with the permission of the person claiming control. In addition any copy of the authoritative copy must be readily identifiable as a copy and all revisions must be readily identifiable as authorized or unauthorized.
  4. It is important to note what the section does not provide. Issues related to enforceability against intermediate transferees and transferors (i.e., indorser liability under a paper note), warranty liability that would attach in a paper note, and issues of the effect of taking a transferable record on the underlying obligation, are NOT addressed by this section. Such matters must be addressed, if at all, by contract between and among the parties in the chain of transmission and transfer of the transferable record. In the event that such matters are not addressed by the contract, the issues would need to be resolved under otherwise applicable law. Other law may include general contract principles of assignment and assumption, or may include rules from Article 3 of the Uniform Commercial Code applied by analogy.
  5. Current business models exist which rely for their efficacy on the benefits of negotiability. A principal example, and one which informed much of the development of Section 16 [§ 59.1-494], involves the mortgage backed securities industry. Aggregators of commercial paper acquire mortgage secured promissory notes following a chain of transfers beginning with the origination of the mortgage loan by a mortgage broker. In the course of the transfers of this paper, buyers of the notes and lenders/secured parties for these buyers will intervene. For the ultimate purchaser of the paper, the ability to rely on holder in due course and good faith purchaser status creates the legal security necessary to issue its own investment securities which are backed by the obligations evidenced by the notes purchased. Only through their HIDC status can these purchasers be assured that third party claims will be barred. Only through their HIDC status can the end purchaser avoid the incredible burden of requiring and assuring that each person in the chain of transfer has waived any and all defenses to performance which may be created during the chain of transfer.
  6. This section is a stand-alone provision. Although references are made to specific provisions in Article 3, Article 7, and Article 9 of the Uniform Commercial Code, these provisions are incorporated into this Act and made the applicable rules for purposes of this Act. The rights of parties to transferable records are established under subsections (d) and (e). Subsection (d) provides rules for determining the rights of a party in control of a transferable record. The subsection makes clear that the rights are determined under this section, and not under other law, by incorporating the rules on the manner of acquisition into this statute. The last sentence of subsection (d) is intended to assure that requirements related to notions of possession, which are inherently inconsistent with the idea of an electronic record, are not incorporated into this statute.
  7. Subsection (e) accords to the obligor of the transferable record rights equal to those of an obligor under an equivalent paper record. Accordingly, unless a waiver of defense clause is obtained in the electronic record, or the transferee obtains HDC rights under subsection (d), the obligor has all the rights and defenses available to it under a contract assignment. Additionally, the obligor has the right to have the payment noted or otherwise included as part of the electronic record.
  8. Subsection (f) grants the obligor the right to have the transferable record and other information made available for purposes of assuring the correct person to pay. This will allow the obligor to protect its interest and obtain the defense of discharge by payment or performance. This is particularly important because a person receiving subsequent control under the appropriate circumstances may well qualify as a holder in duecourse who can enforce payment of the transferable record.

This section provides legal support for the creation, transferability and enforceability of electronic note and document equivalents, as against the issuer/obligor. The certainty created by the section provides the requisite incentive for industry to develop the systems and processes, which involve significant expenditures of time and resources, to enable the use of such electronic documents.

The importance of facilitating the development of systems which will permit electronic equivalents is a function of cost, efficiency and safety for the records. The storage cost and space needed for the billions of paper notes and documents is phenomenal. Further, natural disasters can wreak havoc on the ability to meet legal requirements for retaining, retrieving and delivering paper instruments. The development of electronic systems meeting the rigorous standards of this section will permit retention of copies which reflect the same integrity as the original. As a result storage, transmission and other costs will be reduced, while security and the ability to satisfy legal requirements governing such paper records will be enhanced.

Section 16 [§ 59.1-494] provides for the creation of an electronic record which may be controlled by the holder, who in turn may obtain the benefits of holder in due course and good faith purchaser status. If the benefits and efficiencies of electronic media are to be realized in this industry it is essential to establish a means by which transactions involving paper promissory notes may be accomplished completely electronically. Particularly as other aspects of such transactions are accomplished electronically, the drag on the transaction of requiring a paper note becomes evident. In addition to alleviating the logistical problems of generating, storing and retrieving paper, the mailing and transmission costs associated with such transactions will also be reduced.

Second, not only is Section 16 [§ 59.1-494] limited to electronic records which would qualify as negotiable promissory notes or documents if they were in writing, but the issuer of the electronic record must expressly agree that the electronic record is to be considered a transferable record. The definition of transferable record as “an electronic record that . . . the issuer of the electronic record expressly has agreed is a transferable record” indicates that the electronic record itself will likely set forth the issuer’s agreement, though it may be argued that a contemporaneous electronic or written record might set forth the issuer’s agreement. However, conversion of a paper note issued as such would not be possible because the issuer would not be the issuer, in such a case, of an electronic record. The purpose of such a restriction is to assure that transferable records can only be created at the time of issuance by the obligor. The possibility that a paper note might be converted to an electronic record and then intentionally destroyed, and the effect of such action, was not intended to be covered by Section 16 [§ 59.1-494].

The requirement that the obligor expressly agree in the electronic record to its treatment as a transferable record does not otherwise affect the characterization of a transferable record (i.e., does not affect what would be a paper note) because it is a statutory condition. Further, it does not obligate the issuer to undertake to do any other act than the payment of the obligation evidenced by the transferable record. Therefore, it does not make the transferable record “conditional” within the meaning of Section 3-104(a)(3) of the Uniform Commercial Code.

The control requirements may be satisfied through the use of a trusted third party registry system. Such systems are currently in place with regard to the transfer of securities entitlements under Article 8 of the Uniform Commercial Code, and in the transfer of cotton warehouse receipts under the program sponsored by the United States Department of Agriculture. This Act would recognize the use of such a system so long as the standards of subsection (c) were satisfied. In addition, a technological system which met such exacting standards would also be permitted under Section 16 [§ 59.1-494].

For example, a borrower signs an electronic record which would be a promissory note or document if it were paper. The borrower specifically agrees in the electronic record that it will qualify as a transferable record under this section. The lender implements a newly developed technological system which dates, encrypts, and stores all the electronic information in the transferable record in a manner which lender can demonstrate reliably establishes lender as the person to which the transferable record was issued. In the alternative, the lender may contract with a third party to act as a registry for all such transferable records, retaining records establishing the party to whom the record was issued and all subsequent transfers of the record. An example of this latter method for assuring control is the system established for the issuance and transfer of electronic cotton warehouse receipts under 7 C.F.R. section 735 et seq.

Of greatest importance in the system used is the ability to securely and demonstrably be able to transfer the record to others in a manner which assures that only one “holder” exists. The need for such certainty and security resulted in the very stringent standards for a system outlined in subsection (c). A system relying on a third party registry is likely the most effective way to satisfy the requirements of subsection (c) that the transferable record remain unique, identifiable and unalterable, while also providing the means to assure that the transferee is clearly noted and identified.

It must be remembered that Section 16 [§ 59.1-494] was drafted in order to provide sufficient legal certainty regarding the rights of those in control of such electronic records, that legal incentives would exist to warrant the development of systems which would establish the requisite control. During the drafting of Section 16 [§ 59.1-494], representatives from the Federal Reserve carefully scrutinized the impact of any electronicization of any aspect of the national payment system. Section 16 [§ 59.1-494] represents a compromise position which, as noted, serves as a bridge pending more detailed study and consideration of what legal changes, if any, are necessary or appropriate in the context of the payment systems impacted. Accordingly, Section 16 [§ 59.1-494] provides limited scope for the attainment of important rights derived from the concept of negotiability, in order to permit the development of systems which will satisfy its strict requirements for control.

For example, Issuer agrees to pay a debt by means of a transferable record issued to A. Unless there is agreement between issuer and A that the transferable record “suspends” the underlying obligation (see Section 3-310 of the Uniform Commercial Code), A would not be prevented from enforcing the underlying obligation without the transferable record. Similarly, if A transfers the transferable record to B by means granting B control, B may obtain holder in due course rights against the obligor/issuer, but B’s recourse against A would not be clear unless A agreed to remain liable under the transferable record. Although the rules of Article 3 may be applied by analogy in an appropriate context, in the absence of an express agreement in the transferable record or included by applicable system rules, the liability of the transferor would not be clear.

If a person establishes control, Section 16(d) [§ 59.1-494(d)] provides that that person is the “holder” of the transferable record which is equivalent to a holder of an analogous paper negotiable instrument. More importantly, if the person acquired control in a manner which would make it a holder in due course of an equivalent paper record, the person acquires the rights of a HIDC. The person in control would therefore be able to enforce the transferable record against the obligor regardless of intervening claims and defenses. However, by pulling these rights into Section 16 [§ 59.1-494], this Act does NOT validate the wholesale electronification of promissory notes under Article 3 of the Uniform Commercial Code.

Further, it is important to understand that a transferable record under Section 16 [§ 59.1-494], while having no counterpart under Article 3 of the Uniform Commercial Code, would be an “account,” “general intangible,” or “payment intangible” under Article 9 of the Uniform Commercial Code. Accordingly, two separate bodies of law would apply to that asset of the obligee. A taker of the transferable record under Section 16 [§ 59.1-494] may acquire purchaser rights under Article 9 of the Uniform Commercial Code, however, those rights may be defeated by a trustee in bankruptcy of a prior person in control unless perfection under Article 9 of the Uniform Commercial Code by filing is achieved. If the person in control also takes control in a manner granting it holder in due course status, of course that person would take free of any claim by a bankruptcy trustee or lien creditor.

9. Section 16 [§ 59.1-494] is a singular exception to the thrust of this Act to simply validate electronic media used in commercial transactions. Section 16 [§ 59.1-494] actually provides a means for expanding electronic commerce. It provides certainty to lenders and investors regarding the enforceability of a new class of financial services. It is hoped that the legal protections afforded by Section 16 [§ 59.1-494] will engender the development of technological and business models which will permit realization of the significant cost savings and efficiencies available through electronic transacting in the financial services industry. Although only a bridge to more detailed consideration of the broad issues related to negotiability in an electronic context, Section 16 [§ 59.1-494] provides the impetus for that broader consideration while allowing continuation of developing technological and business models.

§ 59.1-495. Creation and retention of electronic records and conversion of written records by public bodies of the Commonwealth.

Upon providing protection to preserve security and confidentiality, every public body of the Commonwealth may create and retain electronic records and convert written records to electronic records.

History. 2000, c. 995.

OFFICIAL COMMENT

See Comments following Section 19 [§ 59.1-497].

§ 59.1-496. Acceptance and distribution of electronic records by public bodies; electronic filing of information permitted.

  1. Except as otherwise provided in subsection (f) of § 59.1-490, and upon providing protection to preserve security and confidentiality, public bodies of the Commonwealth may (i) accept the electronic filing of any information required or permitted to be filed with such public body and (ii) prescribe the methods of executing, recording, reproducing, and certifying electronically filed information pursuant to subsection (b). Unless otherwise provided for in the Code of Virginia, electronic filing in the courts of this Commonwealth shall be governed by the Rules adopted by the Supreme Court of Virginia.
  2. To the extent that public bodies of the Commonwealth use electronic records and electronic signatures and accept electronic filings under subsection (a), the following rules apply:
    1. Public bodies of the Commonwealth may specify the manner and format in which the electronic records must be created, generated, sent, communicated, received, and stored and the systems established for those purposes;
    2. Public bodies of the Commonwealth may specify the type of electronic signature required, the manner and format in which the electronic signature must be affixed to the electronic record, and the identity of, or criteria that must be met by, any third party used by a person filing a document to facilitate the process;
    3. Public bodies of the Commonwealth may specify control processes and procedures as appropriate to ensure adequate preservation, disposition, integrity, security, confidentiality, and auditability of electronic records; and
    4. Public bodies of the Commonwealth may establish other criteria to ensure the authenticity and validity of electronic signatures.
  3. Except as otherwise provided in § 59.1-490 (f), this chapter does not require public bodies of the Commonwealth to use or permit the use of electronic records or signatures.

History. 2000, c. 995.

Cross references.

As to the promulgation of policies concerned with the use of electronic signatures by the Chief Information Officer, see § 2.2-2007 .

OPINIONS OF THE ATTORNEY GENERAL

Voter registration applications. —

Although no law requires the acceptance of mailed voter registration applications with electronic signatures, the State Board of Elections is not precluded from directing that general registrars accept such applications, and the State Board, in its discretion, may do so. The State Board also has discretionary authority to establish criteria to preserve the security of confidential voter information and to ensure the authenticity and validity of electronic signatures. See opinion of Attorney General to Messrs. James M. Hinshaw, Daniel H. Haworth, W. Donald Brown, City of Norfolk Electoral Board, 13-111, 2014 Va. AG LEXIS 47 (9/26/14).

OFFICIAL COMMENT

See Comments following Section 19 [§ 59.1-497].

§ 59.1-497. Interoperability.

A public body of the Commonwealth that adopts standards pursuant to § 59.1-496 and the Secretary of Administration may encourage and promote consistency and interoperability with similar requirements adopted by other public bodies of the Commonwealth, other states and the federal government and nongovernmental persons interacting with public bodies of the Commonwealth. If appropriate, those standards may specify differing levels of standards from which public bodies of the Commonwealth may choose in implementing the most appropriate standard for a particular application.

History. 2000, c. 995; 2020, c. 738.

The 2020 amendments.

The 2020 amendment by c. 738 substituted “that” for “which” and “Administration” for “Technology” in the first sentence.

OFFICIAL COMMENT

  1. Sections 17-19 [§§ 59.1-495 to 59.1-497] have been bracketed as optional provisions to be considered for adoption by each State. Among the barriers to electronic commerce are barriers which exist in the use of electronic media by state governmental agencies — whether among themselves or in external dealing with the private sector. In those circumstances where the government acts as a commercial party, e.g., in areas of procurement, the general validation provisions of this Act will apply. That is to say, the government must agree to conduct transactions electronically with vendors and customers of government services.
  2. The provisions in Sections 17-19 [§§ 59.1-495 to 59.1-497] are broad and very general. In many States they will be unnecessary because enacted legislation designed to facilitate governmental use of electronic records and communications is in place. However, in many States broad validating rules are needed and desired. Accordingly, this Act provides these sections as a baseline.
  3. The provisions in Sections 17-19 [§§ 59.1-495 to 59.1-497] are broad and general to provide the greatest flexibility and adaptation to the specific needs of the individual States. The differences and variations in the organization and structure of governmental agencies mandates this approach. However, it is imperative that each State always keep in mind the need to prevent the erection of barriers through appropriate coordination of systems and rules within the parameters set by the State.
  4. Section 17 [§ 59.1-495] authorizes state agencies to use electronic records and electronic signatures generally for intra-governmental purposes, and to convert written records and manual signatures to electronic records and electronic signatures. By its terms the section gives enacting legislatures the option to leave the decision to use electronic records or convert written records and signatures to the governmental agency or assign that duty to a designated state officer. It also authorizes the destruction of written records after conversion to electronic form.
  5. Section 18 [§ 59.1-496] broadly authorizes state agencies to send and receive electronic records and signatures in dealing with non-governmental persons. Again, the provision is permissive and not obligatory (see subsection (c)). However, it does provide specifically that with respect to electronic records used for evidentiary purposes, Section 12 [§ 59.1-490] will apply unless a particular agency expressly opts out.
  6. Section 19 [§ 59.1-497] is the most important section of the three. It requires governmental agencies or state officers to take account of consistency in applications and interoperability to the extent practicable when promulgating standards. This section is critical in addressing the concern that inconsistent applications may promote barriers greater than currently exist. Without such direction the myriad systems that could develop independently would be new barriers to electronic commerce, not a removal of barriers. The key to interoperability is flexibility and adaptability. The requirement of a single system may be as big a barrier as the proliferation of many disparate systems.

However, there are other circumstances when government ought to establish the ability to proceed in transactions electronically. Whether in regard to records and communications within and between governmental agencies, or with respect to information and filings which must be made with governmental agencies, these sections allow a State to establish the ground work for such electronicization.

Of paramount importance in all States however, is the need for States to assure that whatever systems and rules are adopted, the systems established are compatible with the systems of other governmental agencies and with common systems in the private sector. A very real risk exists that implementation of systems by myriad governmental agencies and offices may create barriers because of a failure to consider compatibility, than would be the case otherwise.

Legislative Note Regarding Adoption of Sections 17-19 [§§ 59.1-495 to 59.1-497] 1. Sections 17-19 [§§ 59.1-495 to 59.1-497] are optional sections for consideration by individual legislatures for adoption, and have been bracketed to make this clear. The inclusion or exclustion of Sections 17-19 [§§ 59.1-495 to 59.1-497] will not have a detrimental impact on the uniformity of adoption of this Act, so long as Sections 1-16 [§§ 59.1-479 to 59.1-494] are adopted uniformly as presented. In some States Sections 17-19 [§§ 59.1-495 to 59.1-497] will be unnecessary because legislation is already in place to authorize and implement government use of electronic media. However, the general authorization provided by Sections 17-19 [§§ 59.1-495 to 59.1-497] may be critical in some States which desire to move forward in this area.

2. In the event that a state legislature chooses to adopt Sections 17-19 [§§ 59.1-495 to 59.1-497], a number of issues must be addressed:

  1. Is the general authorization to adopt electronic media, provided by Sections 17-19 [§§ 59.1-495 to 59.1-497] sufficient for the needs of the particular jurisdiction, or is more detailed and specific authorization necessary? This determination may be affected by the decision regardig the appropriate entity or person to oversee implementation of the use of electronic media (See next paragraph). Sections 17-19 [§§ 59.1-495 to 59.1-497] are broad and general in the authorization granted. Certainly greater specificity can be added subsequent to adoption of these sections. The question for the legislature is whether greater direction and specificity is needed at this time. If so, the legislature should not enact Sections 17-19 [§§ 59.1-495 to 59.1-497] at this time.
  2. Assuming a legislature decides to enact Sections 17-19 [§§ 59.1-495 to 59.1-497], what entity or person should oversee implementation of the government’s use of electronic media? As noted in each of Sections 17-19 [§§ 59.1-495 to 59.1-497], again by brackets, a choice must be made regarding the entity to make critical decisions regarding the systems and rules which will govern the use of electronic media by the State. Each State will need to consider its particular structure and administration in making this determination. However, legislatures are strongly encouraged to make compatibility and interoperability considerations paramount in making this determination.
  3. Finally, a decision will have to be made regarding the process by which coordination of electronic systems will occur between the various branches of state government and among the various levels of government within the State. Again this will require consideration of the unique situation in each State.

3. If a State chooses not to enact Sections 17-19 [§§ 59.1-495 to 59.1-497], UETA Sections 1-16 [§§ 59.1-479 to 59.1-494] will still apply to governmental entities when acting as a “person” engaging in “transactions” within its scope. The definition of transaction includes “governmental affairs.” Of course, like any other party, the circumstances surrounding a transaction must indicate that the governmental actor has agreed to act electronically (See Section 5(b) [§ 59.1-483(b)]), but otherwise all the provisions of Sections 1-16 [§§ 59.1-479 to 59.1-494] will apply to validate the use of electronic records and signatures in transactions involving governmental entities.

If a State does choose to enact Sections 17-19 [§§ 59.1-495 to 59.1-497], Sections 1-16 [§§ 59.1-479 to 59.1-494] will continue to apply as above. In addition, Sections 17-19 [§§ 59.1-495 to 59.1-497] will provide authorization for intra-governmental uses of electronic media. Finally, Sections 17-19 [§§ 59.1-495 to 59.1-497] provide a broader authorization for the State to develop systems and procedures for the use of electronic media in its relations with non-governmental entities and persons.

§§ 59.1-498 through 59.1-501. Reserved.

Chapter 43. Uniform Computer Information Transactions Act.

Article 1. General Provisions.

§ 59.1-501.1. Title.

This chapter may be cited as the Uniform Computer Information Transactions Act.

History. 2000, cc. 101, 996.

Uniform law cross references.

For other signatory state provisions, see:

Maryland: Md. Commercial Law Code Ann. §§ 22-101 to 22-816.

Editor’s note.

Acts 2000, c. 996, cl. 3, provides: “That the provisions of this act creating Chapter 43 (§ 59.1-501.1 et seq.) of Title 59.1 shall become effective on July 1, 2001.”

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

Effective date.

This chapter became effective July 1, 2001.

Law Review.

For a symposium, “Convergence: The Future of Technology & Competition Policy,” see 8 Geo. Mason L. Rev. 619 (2000).

For an article, “The Impact of Convergence and the Gramm-Leach-Bliley Act on the Insurance Industry,” see 8 Geo. Mason L. Rev. 623 (2000).

For an article, “The Cable Open Access Debate: The Case for a Wholesale Market,” see 8 Geo. Mason L. Rev. 653 (2000).

For an article, “Non-regulation of Advanced Internet Services,” see 8 Geo. Mason L. Rev. 681 (2000).

For an article, “Technology and Bank Competition Policy,” see 8 Geo. Mason L. Rev. 721 (2000).

For an article, “Harmonizing Regulation By Promoting Facilities-Based Competition,” see 8 Geo. Mason L. Rev. 729 (2000).

For a comment, “Cable Open Access: The FCC Should Establish a National Policy of Staying Out of the Way of Broadband Competition,” see 8 Geo. Mason L. Rev. 749 (2000).

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

For 2000 survey of Virginia technology law, see 34 U. Rich. L. Rev. 1051 (2000).

For a lecture, “The Death of Cyberspace,” see 57 Wash. & Lee L. Rev. 337 (2000).

For 2002 survey of Virginia technology law, see 37 U. Rich. L. Rev. 341 (2002).

Editor’s note.

Official Comments in Chapter: Copyright /fcrt 2002 by the National Conference of Commissioners on Uniform State Laws. Reprinted with permission.

§ 59.1-501.2. Definitions.

  1. As used in this chapter:
    1. “Access contract” means a contract to obtain by electronic means access to, or information from, an information processing system of another person, or the equivalent of such access.
    2. “Access material” means any information or material, such as a document, address, or access code, that is necessary to obtain authorized access to information or control or possession of a copy.
    3. “Aggrieved party” means a party entitled to a remedy for breach of contract.
    4. “Agreement” means the bargain of the parties in fact as found in their language or by implication from other circumstances, including course of performance, course of dealing, and usage of trade as provided in this chapter.
    5. “Attribution procedure” means a procedure to verify that an electronic authentication, display, message, record, or performance is that of a particular person or to detect changes or errors in information. The term includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, or callback or other acknowledgment.
    6. “Authenticate” means (i) to sign or (ii) with the intent to sign a record, to execute or adopt an electronic symbol, sound, message, or process referring to, attached to, included in, or logically associated or linked with, that record.
    7. “Automated transaction” means a transaction in which a contract is formed in whole or part by electronic actions of one or both parties that are not previously reviewed by an individual in the ordinary course.
    8. “Cancellation” means the ending of a contract by a party because of breach of contract by another party.
    9. “Computer” means an electronic device that accepts information in digital or similar form and manipulates it for a result based on a sequence of instructions.
    10. “Computer information” means information in electronic form that is obtained from or through the use of a computer or that is in a form capable of being processed by a computer. The term includes a copy of the information and any documentation or packaging associated with the copy.
    11. “Computer information transaction” means an agreement or the performance of it to create, modify, transfer, or license computer information or informational rights in computer information. The term includes a support contract under § 59.1-506.12. The term does not include a transaction merely because the parties’ agreement provides that their communications about the transaction will be in the form of computer information.
    12. “Computer program” means a set of statements or instructions to be used directly or indirectly in a computer to bring about a certain result. The term does not include separately identifiable informational content.
    13. “Consequential damages” resulting from breach of contract includes (i) any loss resulting from general or particular requirements and needs of which the breaching party at the time of contracting had reason to know and which could not reasonably be prevented, and (ii) any injury to an individual or damage to property other than the subject matter of the transaction proximately resulting from breach of warranty. The term does not include direct damages or incidental damages.
    14. “Conspicuous,” with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. A term in an electronic record intended to evoke a response by an electronic agent is conspicuous if it is presented in a form that would enable a reasonably configured electronic agent to take it into account or react to it without review of the record by an individual. With respect to a person, conspicuous terms include (i) a heading in capitals in a size equal to or greater than, or in contrasting type, font, or color to, the surrounding text, (ii) language in the body of a record or display in larger or other contrasting type, font, or color or set off from the surrounding text by symbols or other marks that draw attention to the language, and (iii) a term prominently referenced in an electronic record or display which is readily accessible or reviewable from the record or display. With respect to a person or an electronic agent, conspicuous terms include a term, or reference to a term, that is so placed in a record or display that the person or electronic agent cannot proceed without taking action with respect to the particular term or reference.
    15. “Consumer” means an individual who is a licensee of information or informational rights that the individual at the time of contracting intended to be used primarily for personal, family, or household purposes. The term does not include an individual who is a licensee primarily for professional or commercial purposes, including agriculture, business management, and investment management other than management of the individual’s personal or family investments.
    16. “Consumer contract” means a contract between a merchant licensor and a consumer.
    17. “Contract” means the total legal obligation resulting from the parties’ agreement as affected by this chapter and other applicable law.
    18. “Contract fee” means the price, fee, rent, or royalty payable in a contract under this chapter or any part of the amount payable.
    19. “Contractual use term” means an enforceable term that defines or limits the use, disclosure of, or access to licensed information or informational rights, including a term that defines the scope of a license.
    20. “Copy” means the medium on which information is fixed on a temporary or permanent basis and from which it can be perceived, reproduced, used, or communicated, either directly or with the aid of a machine or device.
    21. “Course of dealing” means a sequence of previous conduct between the parties to a particular transaction which establishes a common basis of understanding for interpreting their expressions and other conduct.
    22. “Course of performance” means repeated performances, under a contract that involves repeated occasions for performance, which are accepted or acquiesced in without objection by a party having knowledge of the nature of the performance and an opportunity to object to it.
    23. “Court” includes an arbitration or other dispute-resolution forum if the parties have agreed to use of that forum or its use is required by law.
    24. “Delivery,” with respect to a copy, means the voluntary physical or electronic transfer of possession or control.
    25. “Direct damages” means compensation for losses measured by § 59.1-508.8 (b) (1) or § 59.1-508.9 (a) (1). The term does not include consequential damages or incidental damages.
    26. “Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.
    27. “Electronic agent” means a computer program, or electronic or other automated means, used independently to initiate an action, or to respond to electronic messages or performances, on the person’s behalf without review or action by an individual at the time of the action or response to the message or performance.
    28. “Electronic message” means a record or display that is stored, generated, or transmitted by electronic means for the purpose of communication to another person or electronic agent.
    29. “Financial accommodation contract” means an agreement under which a person extends a financial accommodation to a licensee and which does not create a security interest governed by Title 8.9A. The agreement may be in any form, including a license or lease.
    30. “Financial services transaction” means an agreement that provides for, or a transaction that is, or entails access to, use, transfer, clearance, settlement, or processing of:
      1. a deposit, loan, funds, or monetary value represented in electronic form and stored or capable of storage by electronic means and retrievable and transferable by electronic means, or other right to payment to or from a person;
      2. an instrument or other item;
      3. a payment order, credit card transaction, debit card transaction, funds transfer, automated clearing house transfer, or similar wholesale or retail transfer of funds;
      4. a letter of credit, document of title, financial asset, investment property, or similar asset held in a fiduciary or agency capacity; or
      5. related identifying, verifying, access-enabling, authorizing, or monitoring information.
    31. “Financier” means a person that provides a financial accommodation to a licensee under a financial accommodation contract and either (i) becomes a licensee for the purpose of transferring or sublicensing the license to the party to which the financial accommodation is provided or (ii) obtains a contractual right under the financial accommodation contract to preclude the licensee’s use of the information or informational rights under a license in the event of breach of the financial accommodation contract. The term does not include a person that selects, creates, or supplies the information that is the subject of the license, owns the informational rights in the information, or provides support for, modifications to, or maintenance of the information.
    32. “Good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.
    33. “Goods” means all things that are movable at the time relevant to the computer information transaction. The term includes the unborn young of animals, growing crops, and other identified things to be severed from realty which are covered by § 8.2-107 . The term does not include computer information, money, the subject matter of foreign exchange transactions, documents, letters of credit, letter-of-credit rights, instruments, investment property, accounts, chattel paper, deposit accounts, or general intangibles.
    34. “Incidental damages” resulting from breach of contract:
      1. means compensation for any commercially reasonable charges, expenses, or commissions reasonably incurred by an aggrieved party with respect to (i) inspection, receipt, transmission, transportation, care, or custody of identified copies or information that is the subject of the breach; (ii) stopping delivery, shipment, or transmission; (iii) effecting cover or retransfer of copies or information after the breach; (iv) other efforts after the breach to minimize or avoid loss resulting from the breach; and (v) matters otherwise incident to the breach; and
      2. does not include consequential damages or direct damages.
    35. “Information” means data, text, images, sounds, mask works, or computer programs, including collections and compilations of them.
    36. “Information processing system” means an electronic system for creating, generating, sending, receiving, storing, displaying, or processing information.
    37. “Informational content” means information that is intended to be communicated to or perceived by an individual in the ordinary use of the information, or the equivalent of that information.
    38. “Informational rights” include all rights in information created under laws governing patents, copyrights, mask works, trade secrets, trademarks, publicity rights, or any other law that gives a person, independently of contract, a right to control or preclude another person’s use of or access to the information on the basis of the rights holder’s interest in the information.
    39. “Insurance services transaction” means an agreement between an insurer and an insured that provides for, or a transaction that is or entails access to, use, transfer, clearance, settlement, or processing of:
      1. an insurance policy, contract, or certificate; or
      2. a right to payment under an insurance policy, contract or certificate.
    40. “Knowledge,” with respect to a fact, means actual knowledge of the fact.
    41. “License” means a contract that authorizes access to, or use, distribution, performance, modification, or reproduction of, information or informational rights, but expressly limits the access or uses authorized or expressly grants fewer than all rights in the information, whether or not the transferee has title to a licensed copy. The term includes an access contract, a lease of a computer program, and a consignment of a copy. The term does not include a reservation or creation of a security interest to the extent the interest is governed by Title 8.9A.
    42. “Licensee” means a person entitled by agreement to acquire or exercise rights in, or to have access to or use of, computer information under an agreement to which this chapter applies. A licensor is not a licensee with respect to rights reserved to it under the agreement.
    43. “Licensor” means a person obligated by agreement to transfer or create rights in, or to give access to or use of, computer information or informational rights in it under an agreement to which this chapter applies. Between the provider of access and a provider of the informational content to be accessed, the provider of content is the licensor. In an exchange of information or informational rights, each party is a licensor with respect to the information, informational rights, or access it gives.
    44. “Mass-market license” means a standard form used in a mass-market transaction.
    45. “Mass-market transaction” means a transaction that is:
      1. a consumer contract; or
      2. any other transaction with an end-user licensee if:
        1. the transaction is for information or informational rights directed to the general public as a whole, including consumers, under substantially the same terms for the same information;
        2. the licensee acquires the information or informational rights in a retail transaction under terms consistent with an ordinary transaction in a retail market; and
        3. the transaction is not (a) a contract for redistribution or for public performance or public display of a copyrighted work; (b) a transaction in which the information is customized or otherwise specially prepared by the licensor for the licensee, other than minor customization using a capability of the information intended for that purpose; (c) a site license; or (d) an access contract.
    46. “Merchant” means a person:
      1. who deals in information or informational rights of the kind involved in the transaction;
      2. who by the person’s occupation holds himself out as having knowledge or skill peculiar to the relevant aspect of the business practices or information involved in the transaction; or
      3. to whom the knowledge or skill peculiar to the practices or information involved in the transaction may be attributed by the person’s employment of an agent or broker or other intermediary who by his occupation holds himself out as having the knowledge or skill.
    47. “Nonexclusive license” means a license that does not preclude the licensor from transferring to other licensees the same information, informational rights, or contractual rights within the same scope. The term includes a consignment of a copy.
    48. “Notice” of a fact means knowledge of the fact, receipt of notification of the fact, or reason to know the fact exists.
    49. “Notify” or “give notice” means to take such steps as may be reasonably required to inform the other person in the ordinary course, whether or not the other person actually comes to know of it.
    50. “Party” means a person that engages in a transaction or makes an agreement under this chapter.
    51. “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, governmental subdivision, instrumentality, or agency, public corporation, or any other legal or commercial entity.
    52. “Published informational content” means informational content prepared for or made available to recipients generally, or to a class of recipients, in substantially the same form. The term does not include informational content that is (i) customized for a particular recipient by one or more individuals acting as or on behalf of the licensor, using judgment or expertise or (ii) provided in a special relationship of reliance between the provider and the recipient.
    53. “Receipt” means:
      1. with respect to a copy, taking delivery; or
      2. with respect to a notice:
        1. coming to a person’s attention; or
        2. being delivered to and available at a location or system designated by agreement for that purpose or, in the absence of an agreed location or system: (a) being delivered at the person’s residence, or the person’s place of business through which the contract was made, or at any other place held out by the person as a place for receipt of communications of the kind; or (b) in the case of an electronic notice, coming into existence in an information processing system or at an address in that system in a form capable of being processed by or perceived from a system of that type by a recipient, if the recipient uses, or otherwise has designated or holds out, that place or system for receipt of notices of the kind to be given and the sender does not know that the notice cannot be accessed from that place.
    54. “Receive” means to take receipt.
    55. “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
    56. “Release” means an agreement by a party not to object to, or exercise any rights or pursue any remedies to limit, the use of information or informational rights which agreement does not require an affirmative act by the party to enable or support the other party’s use of the information or informational rights. The term includes a waiver of informational rights.
    57. “Return,” with respect to a record containing contractual terms that were rejected, refers only to the computer information and means:
      1. in the case of a licensee that rejects a record regarding a single information product transferred for a single contract fee, a right to reimbursement of the contract fee paid from the person to which it was paid or from another person that offers to reimburse that fee, on (i) submission of proof of purchase and (ii) proper redelivery of the computer information and all copies within a reasonable time after initial delivery of the information to the licensee;
      2. in the case of a licensee that rejects a record regarding an information product provided as part of multiple information products integrated into and transferred as a bundled whole but retaining their separate identity:
        1. a right to reimbursement of any portion of the aggregate contract fee identified by the licensor in the initial transaction as charged to the licensee for all bundled information products which was actually paid, on (i) rejection of the record before or during the initial use of the bundled product; (ii) proper redelivery of all computer information products in the bundled whole and all copies of them within a reasonable time after initial delivery of the information to the licensee; and (iii) submission of proof of purchase; or
        2. a right to reimbursement of any separate contract fee identified by the licensor in the initial transaction as charged to the licensee for the separate information product to which the rejected record applies, on (i) submission of proof of purchase and (ii) proper redelivery of that computer information product and all copies within a reasonable time after initial delivery of the information to the licensee; or
    58. “Scope,” with respect to terms of a license, means:
      1. the licensed copies, information, or informational rights involved;
      2. the use or access authorized, prohibited, or controlled;
      3. the geographic area, market, or location; or
      4. the duration of the license.
    59. “Seasonable,” with respect to an act, means taken within the time agreed or, if no time is agreed, within a reasonable time.
    60. “Send” means, with any costs provided for and properly addressed or directed as reasonable under the circumstances or as otherwise agreed, to deposit a record in the mail or with a commercially reasonable carrier, to deliver a record for transmission to or re-creation in another location or information processing system, or to take the steps necessary to initiate transmission to or re-creation of a record in another location or information processing system. In addition, with respect to an electronic message, the message must be in a form capable of being processed by or perceived from a system of the type the recipient uses or otherwise has designated or held out as a place for the receipt of communications of the kind sent. Receipt within the time in which it would have arrived if properly sent, has the effect of a proper sending.
    61. “Standard form” means a record or a group of related records containing terms prepared for repeated use in transactions and so used in a transaction in which there was no negotiated change of terms by individuals except to set the price, quantity, method of payment, selection among standard options, or time or method of delivery.
    62. “State” means a State of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
    63. “Term,” with respect to an agreement, means that portion of the agreement that relates to a particular matter.
    64. “Termination” means the ending of a contract by a party pursuant to a power created by agreement or law otherwise than because of breach of contract.
    65. “Transfer”:
      1. with respect to a contractual interest, includes an assignment of the contract, but does not include an agreement merely to perform a contractual obligation or to exercise contractual rights through a delegate or sublicensee; and
      2. with respect to computer information, includes a sale, license, or lease of a copy of the computer information and a license or assignment of informational rights in computer information.
    66. “Usage of trade” means any practice or method of dealing that has such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question.

(C) in the case of a licensor that rejects a record proposed by the licensee, a right to proper redelivery of the computer information and all copies from the licensee, to stop delivery or access to the information by the licensee, and to reimbursement from the licensee of amounts paid by the licensor with respect to the rejected record, on reimbursement to the licensee of contract fees that it paid with respect to the rejected record, subject to recoupment and setoff.

(b) The following definitions in other titles apply to this chapter:

(1) “Burden of establishing” § 8.1A-201 .

(2) “Document of title” § 8.1A-201 .

(3) “Financial asset” § 8.8A-102 .

(4) “Funds transfer” § 8.4A-104 .

(5) “Identification” to the contract § 8.2-501 .

(6) “Instrument” § 8.9A-102 .

(7) “Investment property” § 8.9A-102 .

(8) “Item” § 8.4-104 .

(9) “Letter of credit” § 8.5A-102 .

(10) “Payment order” § 8.4A-103 .

(11) “Sale” § 8.2-106 .

History. 2000, cc. 101, 996; 2001, c. 763; 2003, c. 353; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 763 substituted “independently” for “by a person” in subdivision (a) (27); deleted “and in a quantity” following “under terms” in subdivision (a) (44) (B) (ii); substituted “§ 8.9A-102 ” for “§ 8.9-105” in subdivision (b) (6), and substituted “§ 8.9A-102 ” for “§ 8.9-115” in subdivision (b) (7).

The 2003 amendments.

The 2003 amendment by c. 353 substituted “that” for “which” in two places in subdivision (a)(10), and in subdivisions (65)(b)(1) and (65)(b)(2), substituted “8.1A-201” for “8.1-201.”

The 2004 amendments.

The 2004 amendment by c. 794 inserted subdivision (a) (39) and redesignated the remaining subdivisions accordingly.

Law Review.

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

OFFICIAL COMMENT

  1. “Access contract.” An access contract is an agreement that authorizes access to, or obtaining information from, an electronic facility, including a computer or Internet site, or that allows an equivalent form of access.  The term does not include contracts that merely grant a right to enter a building or other physical location that contains information, or the mere purchase of a television, radio, or similar goods that merely create technological ability to access information.
  2. “Agreement.” This definition derives from Uniform Commercial Code § 1-201(3) (1998 Official Text). The term includes full recognition of usage of trade, course of dealing, course of performance and the surrounding circumstances as effective parts of an agreement.  The meaning of the agreement is determined by the language the parties use and their actions, interpreted in the light of commercial practice and other surrounding circumstances.  See Section 116(b) [§ 59.1-501.16(b)]; Section 301 [§ 59.1-503.1] (parol evidence rule).   Whether an agreement has legal effect is determined by this Act or other applicable law. Section 117(d) [§ 59.1-501.17(d)].
  3. “Attribution procedure.” An “attribution procedure” is a procedure used to identify the person who sent an electronic message or to verify the integrity of its content.  In general, an attribution procedure has substantive effect only if it was agreed to or adopted by the parties or established by applicable law. Agreement to or adoption of a procedure may occur directly between the two parties or through a third party.  For example, the operator of a system that includes information provided by third parties may arrange with database providers and customers for use of a particular attribution procedure. Those arrangements establish an attribution procedure between the customers and the database providers. An attribution procedure may also be established by two parties in the expectation that a third party may rely on it.  For example, a digital signature may be issued to an individual pursuant to an agreement between the issuer and the individual, but then accepted or relied on by another party in a separate transaction.  Use of the signature is an attribution procedure in that transaction. Similarly, a group of member companies may establish attribution procedures intended to bind members in dealing with one another.  Such arrangements are attribution procedures under this Act. The substantive provisions on attribution are in Sections 108, 212 and 213 [§§ 59.1-501.8, 59.1-502.13, and 59.1-502.14].
  4. “Authenticate.” This term replaces “signature” and “signed.” A similar change in terminology is made in Uniform Commercial Code Article 9 (1998 Official Text).  In this Act, the term “sign” has the meaning used in Uniform Commercial Code § 1-201 (1998 Official Text), except that it is not limited to authenticating a writing. The definition is technologically neutral. This makes clear that qualifying electronic systems fulfill former paper-based requirements. This is consistent with the policies of the federal Electronic Signatures in Global and National Commerce Act that preclude discrimination against electronic records and signatures solely because they are electronic in character.
  5. “Automated transaction.” This term refers to contracts formed automatically and which are effective even though one or both parties operates through an electronic agent instead of a human being (an individual). The term is not inconsistent with a system in which, when an aspect of the transaction appears irregular, or when a message or transaction fails automated system edits, repair or review by an employee occurs. The transaction qualifies as an automated transaction if such review does not occur in the ordinary course when no system problems exist and there was no review in the particular case by an employee authorized to act on behalf of the employer in the particular case.
  6. “Cancellation.” This definition follows Uniform Commercial Code § 2-106(4) (1998 Official Text); no substantive change is intended by language variations. Cancellation is a remedy for breach. The effect of cancellation is stated in Section 802 [§ 59.1-508.2].
  7. “Computer.” The definition of “computer” draws on definitions in federal and state criminal law, tax law and other resources. The term does not include a traditional television set, radio or toaster even though such goods may contain a microprocessor.   It might include new generations of machines that combine computation, word processing, Internet access, and traditional broadcast reception. The definition should be applied by the courts with common sense. In various states, unauthorized access to a computer is a crime, but while the definition of computer in those statutes is broad, courts exercise common sense in applying the definition, an approach that should also be true here. Thus, while an automobile might contain a computer or several computers, the automobile is not itself a computer.  A microwave oven with timing and heat operations controlled by software is not a computer, but  ordinary goods enhanced by software.  On the other hand, a desktop computer that receives telephone calls, music, television images, or fax messages is still a computer.
  8. “Computer information.” This term covers information that is in electronic form and that is obtained from, accessible with, or usable by, a computer; it includes the information, the copy of it (e.g., a diskette containing the information), and its documentation (including non-electronic documentation).  As defined, “electronic” includes digital information or information in another form having similar capabilities. This covers analog and future computational technologies, eliminating the possibility that the Act might be limited to current technology.  The term does not include information merely because it could be scanned or entered into a computer; it is limited to electronic information in a form capable of being directly processed in a computer. “Computer information” does not generally include printed information or information in other non-electronic formats.
  9. “Computer information transaction.” This term helps to define the scope of this Act.  Section 103 [§ 59.1-501.3].  It requires an agreement involving computer information.  The term includes transfers (e.g., licenses, assignments, or sales of copies) of computer programs or multimedia products, software and multimedia development contracts, access contracts, and contracts to obtain information for use in a program, access contract, or multimedia product. However, the mere fact that parties agree to communicate in digital form does not bring a transaction within this definition, nor does a decision by one party to use computer information when the contract does not require this.

An “access contract” is typified by “on-line” services. It also includes contracts for remote data processing, remote access to applications software or data stored on a third party computer, third party e-mail systems, and contracts for automatic updating from a remote facility to a database held by the licensee. The term does not cover interactions among computer programs within a person’s own system — the access must be to another person’s system or data. Thus, if a licensee of a spreadsheet program uses it to interact with the licensee’s computers and data on the licensee’s own network, that arrangement is not an access contract. However, a person can provide the equivalent of access, and thereby create an access contract, even though the information is only used on the licensee’s system, such as where an on-line data provider elects to provide access to data in part by allowing its database to be loaded into the computer of a client. This performance retains all characteristics of an access contract and is within the definition. The same is true if a database loaded into the user’s system is intermittently updated with data from remote systems. On the other hand, if a software publisher downloads licensed software into a licensee’s system, the continuing right to use the software after it is downloaded is not an access contract.

An access provider may, or may not, provide contractual rights in the information accessed. Some transactions entail a three-party framework: in addition to the customer, one licensor provides access, while another (the content provider) licenses the information. This transaction involves two and, in some cases, three contracts. The first is between the content provider and the access provider. The second is between the access provider and the end user. The third arises if the content provider contracts directly with the end user; that too is an access contract. The contracts are independent of each other.

ATM cards, “smart cards,” home banking products, and the like enable a customer to obtain information from an information processing system maintained by a financial institution, and would therefore reflect “access contracts” were they not excluded by section 103(d)(1) [§ 59.1-501.3(d)(1)] as a “financial services transaction” (excludes “related identifying, verifying, access-enabling, authorizing or monitoring information).” The parties may otherwise agree to use the contract formation provisions of this Act to enter into the initial customer relationship and thereafter to obtain an ATM card, smart card, or home banking software. They may further agree that the licensing aspects of their relationship will be governed by this Act. If so, the agreement is an “access contract.” The agreement does not subject any transaction effected through use of an ATM card or home banking product to this Act, or alter the rules that would otherwise apply to such transaction.

Any “signature” under other law is an authentication under this Act. In addition, authentication includes qualifying use of any identifier, such as a personal identification number (PIN) or a typed or otherwise signed name. It can include actions or sounds such as encryption, voice and biological identification, and other technologically enabled acts if done with proper intent. See Parma Tile Mosaic & Marble Co. v. Short, 87 N.Y.2d 524, 663 N.E.2d 633 (N.Y. 1996) (intent requirement not met). There is no requirement under this Act that the authenticated record be retained by a party, but that requirement may exist under other law.

An authentication may be on, logically associated with, or linked to the record. With digital technology, the analogy between signing a record electronically and signing a paper is not precise. “Logically associated” makes it clear that the association between an authentication and a record need not be physical in nature. However, the association must support the inference that the authenticating party intends to adopt or accept the associated or referenced record. See Parma Tile Mosaic & Marble Co. v. Short, 663 N.E.2d 633 (N.Y. 1996) (intent requirement not met). “Referring to” or “linked to” captures the traditional concept of incorporating a record or term by reference, as well as use of an electronic connection, such as an Internet hyperlink.

An “authentication” may express various intended effects. What effects are intended are determined by the context and objective indicia associated with that context.

This definition focuses on the essence or basic nature of the transaction. Thus, an agreement to use e-mail to communicate about a contract for the shipment of petroleum or to file an application in digital form does not bring the transaction within this definition. A contract for an airline ticket is not a computer information transaction simply because the ticket is in digital form. The subject matter of that agreement is not the computer information, but the service — air transportation. Similarly, this term does not cover professional services or alter standards of professional conduct, such as services rendered by a member of a regulated profession like a doctor or a lawyer. Merely because such professional services are rendered using computer information or the product is delivered in the form of computer information does not convert these professional services to a computer information transaction. See Comments to Section 103 [§ 59.1-501.3]. Standards of professional behavior involving interaction with individual clients govern professional services, such as the giving of legal advice or the performance of an operation, and the standards are not affected by this Act. On the other hand, the term does include an agreement to develop a computer program, even if the person developing the program is also a member of a regulated profession.

A transaction is not for the “creation” of computer information in the sense intended here if the contracted-for activities are merely secretarial, ministerial, or clerical in nature. The computer information must be created (i.e., produced or developed) through some business, professional, artistic, imaginative, or similar effort. Of course, a transaction that otherwise qualifies and that occurs with respect to information already in the form of computer information is within the definition regardless of how the information was put into that form.

10. “Computer program.” The first sentence follows copyright law. 17 U.S.C. § 101 (1998). The second sentence distinguishes between computer programs as operating instructions communicated to a computer and “informational content” communicated to human beings. This distinction parallels that used in discussions of formal programming languages between syntax (grammar) and semantics (meaning). As used in this Act, “computer program” refers to functional and operating aspects of a digital or similar system, whereas “informational content” refers to material that communicates to a person. In resolving an issue that turns on this distinction, the test lies in whether the issue concerns operations (program) or communicated content (informational content). The definition pertains solely to contract law issues. It does not relate to the copyright law issue of distinguishing between a process and copyrightable expression. It is more like that in copyright law between a computer program as a “literary work” (code) and output as an “audiovisual work” (images, sounds). In copyright, that distinction relates to property rights and infringement issues. In this Act, the distinction relates to contract law issues such as liability risk and performance obligations.
11. “Consequential damages.” This definition is from Uniform Commercial Code § 2-715(2) (1998 Official Text). Except for the clarification regarding “direct damages” and “incidental damages,” no change is intended. For example, while the definition does not specifically exclude losses that could be avoided by mitigation through cover or otherwise, a duty to mitigate exists under Section 807 [§ 59.1-508.7]. A party can recover compensation only for losses that it could not reasonably have avoided. Of course, the idea of avoidance through reasonable steps such as cover or otherwise must be assessed with due regard to how damages are being measured. For example, if recovery is based on a formula related to lost volume, the damages measure itself assumes that engaging in another transaction is not a substitute for the lost transaction and, thus, mitigation through a replacement transaction is not relevant. See discussion of substitute transactions in Sections 808 and 809 [§§ 59.1-508.8 and 59.1-508.9].

Consequential damages do not include “direct” or “incidental” damages. Consequential loss includes loss of anticipated benefits as a result of not being able to exploit or rely on the expected contractual performance, such as lost profits of the injured party, lost third-party royalties that would have accrued from a licensee’s proper performance, and lost income from wrongful gains realized by another party from misuse of confidential information. Consequential damages also include damage to reputation, loss of privacy, lost value of a trade secret from wrongful disclosure or use, and losses or damage to data or property caused by a breach.

Except as provided in Section 807 [§ 59.1-508.7] or as limited by agreement, consequential damages may be recovered by either party. The losses must be an ordinary and predictable result of the breach and must have been foreseeable. For purposes of damages computation, the term “reason to know” should be interpreted in a manner consistent with cases under Uniform Commercial Code Article 2. For an injured party to recover for economic losses resulting from its special circumstances, the party in breach must have had notice of those circumstances at the time of contracting. In contrast, losses from ordinary, general requirements can often be presumed to have been within the contemplation of the other party. To be foreseeable, the losses must not result from atypical risk taking by the aggrieved party, such as in a failure reasonably to maintain back-up systems for retrieval of data.

Damage to other property (i.e., not the property that is the subject of the contract itself) may be consequential damage. If injury follows use of a computer program without discovery of a defect causing the damage, the question of “proximate” cause includes whether it was reasonable for the injured party to use the information without inspection that would have revealed the defect. Proximate causation may not exist where damages result from misuse or from a use that violates clear warnings against the particular type of use.

12. “Conspicuous.” This definition follows Uniform Commercial Code § 1-201(10) (1998 Official Text), but is updated for electronic commerce. Whether a term is conspicuous is determined by the court. Section 117 [§ 59.1-501.17]. The definition of “conspicuous” does not change requirements of other law that specify the content, timing or location of disclosures or warnings. If such requirements exist, they govern. Sections 104 [§ 59.1-501.4:1] and 116 [§ 59.1-501.16]. Section 104 specifically provides that a standard of conspicuousness in an applicable consumer protection law applies with respect to that law.

In contexts governed by this Act, a term is conspicuous if it is so positioned or presented that the attention of an ordinary person reasonably ought to have been called to it. Conspicuous terms are often contained in a record, but the concept includes oral or automated voice presentations that meet the standard. For electronic records, whether a term is conspicuous is gauged by the condition of the message as it would be received or first viewed by a person using a system that the parties adopted for such records, a system that the sender knows the recipient is using or, in the absence of the foregoing, an ordinary system or method of receiving or reviewing such messages. For an electronic agent, presentation of the term must be capable of invoking a response from a reasonably configured electronic agent.

As in Uniform Commercial Code Section 1-201 (10) (1998 Official Text), this Act describes several methods of making a term conspicuous. The illustrations are not exclusive. For cases outside their terms, the general standard governs.

The definition adapts the U.C.C. standard to cover electronic commerce. Paragraph (A)(ii) contemplates setting off a term or label by symbols so that conspicuous formatting can be reliably transferred electronically (font size, color and other attributes might not always be transferable). Paragraph (A)(iii) deals with hyperlinks and related Internet technologies. It contemplates a case in which a computer screen displays an image or term or a summary or reference to it, and the party using the screen, by taking an action with reference to it, is promptly transferred to a different display or location wherein the contract term is available. To be conspicuous, the image, term, summary or reference must be prominent and its use must readily enable review of the actual term. The access must be from the display and not require taking other actions such as a telephone call or driving to a store. When the term is accessed, it must be readily reviewable. The fact that an entire contract is prominently referenced does not automatically mean that a particular term in it is conspicuous.

Paragraph (B) is independent of paragraph (A). It recognizes a procedure by which, without taking action with respect to the term or reference, the party cannot proceed. Thus, a screen that states: “There are no warranties of accuracy with respect to the information” in a manner that precludes the user from proceeding without assenting to or rejecting this term suffices.

13. “Consumer” and “consumer contract.” A “consumer” is an individual (human being) who obtains information primarily for personal, household, or family purposes. Whether an individual is a consumer with reference to a transaction is determined at the time of contracting and in light of the then-intended use of the information. For computer information, many contracts for personal use are not consumer contracts (e.g., stock broker personally using software to monitor client investments). The definition distinguishes profit-making, professional, or business use, from non-business or family use. Only when the contract is primarily for the latter is there a consumer contract. A license of software distributed for general personal use and acquired solely for tracking household finances is a consumer contract, but a transaction acquiring software for use in an investment management business is not a consumer transaction. The profit-making standard is followed in other areas of law. See, e.g., Thoms v. Sundance Properties, 726 F.2d 1417 (9th Cir. 1984); In re Booth, 858 F.2d 1051 (5th Cir. 1988); In re Circle Five, Inc., 75 Bankr. 686 (Bankr. D. Idaho 1987); Truth in Lending Act, 15 U.S.C. § 1603 (excludes extensions of credit “primarily for business, commercial, or agricultural purposes”). A purpose stated in the agreement ordinarily determines the purpose of the transaction for purposes of this definition.
14. “Contract.” This definition is from Uniform Commercial Code § 1-201(11) (1998 Official Text).
15. “Contract fee.” This term includes any monetary payment under a contract, including royalties. It does not include other forms of consideration exchanged in a transaction or their value.
16. “Contractual use term.” This term includes any enforceable contractual term that defines or limits access to, use or disclosure of information or informational rights. Use terms ordinarily relate only to the copies and information provided under the contract or copies made of them. Unless otherwise agreed, a contractual use term does not govern the same information lawfully obtained from other sources. For this definition, the use restriction must come from a contract and not simply from regulatory or property law. The term must be enforceable to be within the definition. Thus, if trade secret law bars enforcement of a particular term, that term is not a contractual use term under this Act to the extent it is unenforceable.

Terms establishing the scope of a license are contractual use terms. Under intellectual property law, however, with respect to determining whether an infringement occurs, not all contract terms are equal. See Sun Microsystems v. Microsoft Corp., 188 F.3d 1115 (9th Cir. 1999). This Act does not alter the distinction with reference to infringement claims. In contract law, however, breach of any contractual use term breaches the contract. Whether there is also a right of action for infringement is determined by other law.

17. “Copy.” This term refers to the medium containing the information. The medium can be tangible or electronic. The time during which information is fixed on the medium can be temporary if this fulfills the required performance. The copyright law question of when a copy occurs within computer memory or in a transient image does not relate to contract law issues and is not dealt with in this Act. Stenograph L.L.C. v. Bossard Assoc., Inc., 46 U.S.P.Q.2d 1936 (D.C. Cir. 1998); MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993).
18. “Course of dealing.” This term is from Uniform Commercial Code § 1-205 (1998 Official Text). It refers to a sequence of conduct between the parties prior to the agreement at issue.
19. “Course of performance.” This term is from Uniform Commercial Code § 2-208 (1998 Official Text). It refers to conduct during performance of the agreement; conduct prior to the agreement may be a “course of dealing.” Both terms are part of the commercial approach in this Act to interpreting contracts in a practical manner. The parties know best what their agreement meant; their conduct is often the best indication of that meaning. A course of performance is relevant to determine the meaning of the agreement. Uniform Commercial Code § 1-205, comment 2 (1998 Official Text).
20. “Delivery.” Delivery can occur by transfer of possession of a tangible copy or by electronic transfer. In electronic delivery, a copy of information may not move from one location to another, but delivery involves copying the information into another location or making it available in a system shared or accessible by the recipient. There are many ways to transfer possession or control. For example, in an electronic delivery, a transfer of possession or control occurs when information comes into existence in an information processing system or at an address in a form capable of being processed by or perceived from a system of that type if the recipient uses, or otherwise has designated or holds out, that place or system for receipt of copies of the kind.
21. “Direct damages.” Direct damages are compensation for losses associated with the value of the contracted for performance itself as contrasted to loss of a benefit expected from use of the performance or its results. Direct damages are measured by Sections 808(b) and 809(a) [§§ 59.1-508.8(b) and 59.1-508.9(a)]. They are capped by the contracted-for price or market value for the performance as appropriate. This Act rejects cases that treat as direct damages losses that relate to anticipated benefits from use such as Chatlos Systems, Inc. v. National Cash Register Corp., 670 F.2d 1304 (3d Cir. 1982), cert. dism., National Cash Register Corp. v. Chatlos Systems, Inc., 457 U.S. 1112 (1982). Those are consequential damages. Thus, if a computer program is purchased for $1,000 and, if merchantable, would yield profits or cost-savings in business of $10,000, but it is totally defective, “direct” damages are $1,000. If recoverable, the lost profits or expected cost-savings are consequential damages.
22. “Electronic.” This term is technology neutral, and encompasses forms of information-processing technology that may be developed in the future.
23. “Electronic agent.” This term refers to an automated means for making or performing contracts. The agent must act independently in a manner relevant to creating or performing a contract. Mere use of a telephone or e-mail system is not use of an electronic agent. The automated system must have been selected, programmed or otherwise intentionally used for that purpose by the person that is bound by its operations. The legal relationship between the person and the electronic agent is not equivalent to common law agency since the “agent” is not a human. However, parties that use electronic agents are ordinarily bound by the results of their operations.
24. “Electronic Message.” A message is distinguished from a “record” by the fact that a message is intended for communication to another person or an electronic agent. Communication of a message may be by copying it into another location or making it available in a system shared by or accessible to the recipient. In effect, it is stored or generated for purposes of communicating to another.
25. “Financial accommodation contract.” A financial accommodation contract is 1) a loan in whole or in part to acquire computer information or 2) a lease of a copy of software or other computer information. The recipient of the accommodation is the licensee. If a finance contract creates or provides for a security interest governed by Article 9 of the Uniform Commercial Code, the contract is not a “financial accommodation contract”; the interest is governed by Uniform Commercial Code Article 9 and not this Act. An agreement in which royalties for use are paid periodically is not a financial accommodation contract, but simply a royalty-bearing license (or assignment).
26. “Financial services transaction.” This term includes a variety of financial system activities and transactions that are excluded from this Act under section 103(d) [§ 59.1-501.3(d)]. Many are governed by federal law or by the Uniform Commercial Code. The phrase “monetary value represented in electronic form” includes electronic currency. The term “financial services transaction” does not include contracts to acquire software for use in banking or other financial service activities even if the transactions that the software is used to process are financial services transactions that are excluded from the Act. Section 103(d). Nor does it apply to non-regulated information services, such as a virtual mall, provided on the financial institution’s website.
27. “Financier.” A financier is a creditor or a lessor dealing with the licensee under a financial accommodation contract. The financier may have any of several relationships to licensed computer information. In one the financier obtains rights as a licensee for purposes of transfer to the eventual licensee, which is the accommodated party. This is like a finance lease under Uniform Commercial Code Article 2A, but the focus is licensed computer information, rather than leased goods. A second kind of relationship arises where the party giving the accommodation does not obtain rights in the license as against the licensor, but obtains a contractual right to prevent the licensee’s use of the information in the event of breach of the financial accommodation contract.

The licensor in the underlying license is not a financier for purposes of this Act. A licensor may obtain a security interest under Article 9 and would, with respect to that interest, have the rights of a secured party under Article 9.

28. “Good Faith.” This definition adopts and expands on Uniform Commercial Code § 2-103(b) (1998 Official Text). It rejects pure “honesty in fact” as the sole standard of good faith. However, good faith is not a negligence or reasonable care standard. “Observance of reasonable commercial standards of fair dealing” is concerned with the fairness of the conduct rather than the care with which an act is performed. Both fair dealing and ordinary reasonable care are judged in light of reasonable commercial standards, but those standards in each case are directed to different aspects of commercial conduct.

While good faith in performance is an element of all contracts covered by this Act, the obligation of good faith does not override express contract terms or the right to enforce them. See Kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351 (7th Cir. 1990); Amoco Oil Co. v. Ervin, 908 P.2d 493 (Colo. 1995); Badgett v. Security State Bank, 116 Wn.2d 563, 807 P.2d 356 (1991). The primary application of the concept is that, when a party has discretion under the contract, that discretion should be exercised in a good faith manner. Davis v. Sears, Roebuck & Co., 873 F.2d 888 (6th Cir. 1989). Good faith does not require that a party act to benefit or avoid harm to the other at the cost of rights that it fairly has under the agreement.

29. “Goods.” This definition clarifies that computer information, including computer programs, are not goods for purposes of this Act. The definition does not alter the definition of goods in any consumer protection law. Some but not all of the items or transactions treated as financial services transactions in this Act are also excluded from this definition of goods. No inference is intended that those not so excluded, such as payment orders or loans, are thereby treated as goods.
30. “Incidental damages.” This term corresponds to Uniform Commercial Code Article 2 (1998 Official Text). Incidental damages are expenses incurred after breach. They include the cost of seeking or arranging for mitigation, but not the actual expenditure for the mitigation itself, which is covered in measuring direct or consequential damages.
31. “Information.” This term embraces a wide range of subject matter, but as used in this Act it is limited to transactions within the scope of the Act. “Information” is not limited to subject matter in which informational property rights exist. It includes, for example, factual data if subject to a contractual relationship. As used here, “data” refers to facts whether or not organized or interpreted. “Mask work” is defined in federal law; it refers to a representational technology used in creation of semiconductor products.
32. “Information processing system.” This term includes computers and other information processing systems. The term is used primarily in reference to sending and receiving notices.
33. “Informational content.” This is information whose ordinary use involves communication of the information to a human being (individual). It is information that humans read, see, hear and otherwise experience. For example, if an electronic database includes images or text and a program enabling display of or access to them, the images are informational content while the search program is not. A Westlaw search program is not informational content, but the text of the cases is. The term applies even if the person creating the informational content does not intend to reveal it to others; this is because preparation involves an intent that the information be perceivable at least by its creator. Informational content need not actually be communicated; it merely must be information that in ordinary use is communicated to individuals. For example, stock quotes are informational content even if an investor uses an electronic agent to make orders and never reads the actual quotes themselves. However, the term does not include computer program instructions in object code that merely control interaction of a computer program with other programs or with a machine or device.
34. “Informational rights.” This term includes “intellectual property” rights. It also includes rights created under any law that gives a person a right to control use of information independent of contract, such as may be developing in privacy law. As in traditional intellectual property law, the rights need not be exclusive as to all other persons and all uses. Other law determines when such rights exist; this Act does not modify those laws. The term does not include mere tort claims such as the right to sue for defamation.
35. “Insurance services transaction.” This term parallels that of “financial services transactions” with language changes to reflect the nature of insurance-related transactions. It identifies transactions that are subject to extensive regulation and separately developed law and excludes them because they are regulated. Section 103. It refers to an agreement between the insurer and insured relating to access to, use, transfer, clearance, settlement, or processing of the policy or contract, or payments or rights to payment under it. As with financial services transactions, the term does not include contracts to acquire software, nor does it apply to non-regulated information services, such as a virtual mall, provided on the insurance institution’s website.
36. “Knowledge.” This term is from Uniform Commercial Code § 1-201(25) (1998 Official Text). It does not include constructive notice or any duty to inquire.
37. “License.” A license is an agreement the terms of which entail a limited or conditional transfer of information or a grant of limited or restricted contractual rights or permissions to use information. A contract “right” is an affirmative commitment that a licensee may engage in a specific use, while a contract “permission” means simply that the licensor will not object to the use. Either can be the basis of a license. No specific formality of language is required. For purposes of this Act, the term includes consignments of copies of information but does not otherwise alter the legal nature of a consignment. The definition is solely for purposes of this Act and does not alter treatment under other laws, such as tax law.

A transaction is not a license merely because as a matter of law a transferor retains informational property rights that restrict the transferee’s ability to use the information. The term thus does not include an unrestricted sale of a copy of a copyrighted work; an unrestricted sale does not involve express contractual terms restricting use of the information. Similarly, a “copyright notice” in a book that merely states the restrictions on use that remain after a first sale under copyright law is not a license. On the other hand, a software agreement whose terms expressly govern use of the software is a license even if the agreement also gives the licensee ownership of the copy. A license exists if a contract grants greater rights or privileges than a first sale, if it restricts rights or privileges that might otherwise exist, or if it deals with other issues of scope of use.

Whether a contract is a license does not depend on who has title to a copy. Title to a copy is distinct from questions about the extent to which use of information is controlled by contract. DSC v. Pulse Communications, Inc., 170 F.3d 1354 (Fed. Cir. 1999), cert. den. 528 U.S. 923 (1999) indicates how the issues can be treated. Restrictions in a license that are materially inconsistent with ownership of a delivered copy may result in the holder of the copy not being its owner.

Licenses are contracts. Whether the terms of a license are enforceable is determined under this Act and other applicable law, including copyright law. The requirements for an enforceable agreement must be met. The term does not include the myriad non-commercial, casual or other exchanges of information that occur in normal political or social discourse, even if there may be incidental restrictions on use of the information because they do not involve a contractual relationship or a computer information transaction.

38. “Licensor” and “Licensee.” These definitions refer to the transferor and transferee in any contract covered by this Act, whether or not the contract is a license. In situations where each party supplies computer information to the other, each is a licensor as to the information it provides and a licensee as to the information it receives. Between a provider of access in an access contract and its customer, the provider is the licensor. Between the provider of access and a provider of the information to be accessed, the provider of the information is the licensor.
39. “Mass-market license” and “mass-market transaction.” The term “mass market license” is new and the definition must be applied in light of its intended and limited function. That function is to describe small dollar value, routine transactions involving information that is directed to the general public when the transaction occurs in a retail market available to and used by the general public. The term includes all consumer contracts and also some transactions between businesses if they are in a retail market. One purpose of the term is to avoid artificial distinctions among business and consumer transferees in an ordinary retail market. Mass-market transactions do not include commercial transactions between businesses using ordinary commercial methods, such as purchase orders, terms offered to businesses but not to consumers, or online and access systems focused on the business-business marketplace.

A “mass-market” transaction is characterized by 1) the market in which the transaction occurs, 2) the terms of the transaction, and 3) the type of information involved. The market is a retail market where information is made available in pre-packaged form under generally similar terms to the general public as a whole and in which the general public, including consumers, is a frequent participant. “Retail market” has its standard dictionary meaning, which refers to sales (or other transfers) of commodities in small quantities primarily to consumers. The prototypical retail context is a department store, grocery store, gas station, shopping center, or the like. It does not include contexts that center on the business-business trade. Retail locations are open to, and in fact attract, the general public as a whole. The products are available to anyone who enters the retail location and pays the standard retail price. While retail merchants make transactions with other businesses, the predominant type of transaction involves consumers. Transactions in a retail market involve small quantities, non-negotiated terms, and transfers to end users rather than transferees who plan to resell or re-license the product. The phrase “in a quantity” is inherent in the idea of retail and emphasizes that the concept involves purchases of small quantities.

The computer information must be of a type aimed at the general public as a whole, including consumers. This does not include information earmarked for a business or professional audience and which is not ordinarily acquired by consumers, nor does it include information earmarked for members of an organization or persons with a separate relationship to the information provider. For example, software provided to and usable only by members of an association or customers of a particular institution, even if otherwise within this Act, are not mass-market transactions. In determining when the term applies, courts should be guided by the purpose of the definition which is to avoid artificial distinctions among business and consumer purchasers in an ordinary retail market. The covered transactions do not include specialty information for business or professional uses, information for specially targeted limited audiences, information distributed in non-retail transactions, or professional use information. The transactions involve computer information routinely acquired by consumers or that tend to appeal to a general public audience as a whole, including consumers. Generally, this is inconsistent with substantial customization of the information for a particular end user. Customization that is routine in mass markets or that is done by the licensee after acquiring the information does not take the transaction outside the concept of a mass-market transaction.

The transaction must be with an end user. An end user is a licensee that intends to use the information or informational rights in its own business or personal affairs. An end user is not engaged in reselling, distributing, sublicensing, commercial public performances of the information, or otherwise making the information commercially available to third parties, directly or indirectly.

All consumer transactions are mass-market. For non-consumer transactions, subsection (B)(iii) expressly excludes several transactions commonly not associated with routine retail transactions. It excludes any transaction intended for redistribution of the information by further license, loan or sale, or for public performance of a copyrighted work. Such transactions involve no attributes of a retail market. For purposes of this Act, public performance or display does not include use by a library patron of software acquired by the library in the mass market. In online contracts, consumer contracts are mass-market transactions, but business to business transactions are not. Business acquisition of software through online access and other non-retail transactions are outside of the definition. This gives electronic commerce room to develop without regulation while preserving consumer interests.

40. “Merchant.” This definition is from Uniform Commercial Code § 2-104 (1998 Official Text). The definition covers a person that holds itself out as experienced even if the person has not actually engaged in prior transactions of the type. The term “merchant” has roots in the “law merchant” concept of an expert or professional in business. This status may be based on specialized knowledge as to the information or general or specialized knowledge about business practices, or both. Which type of knowledge is sufficient for merchant status is determined by the nature of the issue to which the term applies. In this Act, as relevant to business practices, “merchant” refers primarily to businesses with general knowledge of business practices in any field, rather than to expertise in a specific field. Section 401(a) and (e) [§ 59.1-504.1(a) and (e)] and Section 403 [§ 59.1-504.3], however, require a more focused expertise in the particular type of information.

When a party employs an agent, merchant status does not always depend on the principal’s knowledge. An organization is charged with the expertise of its employees. Even persons such as universities, for example, can come within the definition of merchant if they have regular purchasing departments or personnel familiar with business practices.

41. “Non-exclusive license.” In a nonexclusive license, the licensor does not foreclose itself from making additional licenses involving the same subject matter and same general scope. A nonexclusive license has been described as nothing more than a promise not to sue. It does not convey property rights in the information to the licensee.
42. “Notice.” This definition is from Uniform Commercial Code § 1-201(25) (1998 Official Text). Notice exists when a person has knowledge or has received notification or has reason to know of a fact. When or if notice may cease to be effective is not governed by this Act, but by other law.
43. “Notify” or “give notice.” This definition is from Uniform Commercial Code § 1-201(26) (1998 Official Text). This term is used when the essential event is the dispatch of notice, not its receipt. If receipt is the relevant standard, that is stated in the statute.
44. “Party.” This definition is from Uniform Commercial Code § 1-201(29) (1998 Official Text). Reference to a “party” includes a person acting through an agent.
45. “Person.” This term refers to individuals (human beings) and to business or other organizations, whether or not treated in law as formal entities. It is distinguished from the narrower term, “individual,” which refers only to a natural human being, whether acting as a representative or on the individual’s own behalf.
46. “Published informational content.” This is the type of information most closely associated with free expression. In previous technology, this type of information refers to newspapers, books, phonorecords and the like (which are outside the scope of this Act). To be within this definition, the information must be informational content, that is, intended to communicate to a human being. Informational content is published content when created for or distributed to a group of recipients as a whole in generally the same form. The term includes interactive content and content made publicly available in a database, even if only portions of it are used by individual recipients who, for example, may search the database using a computer program. The information is still generally available; the end user selects from available information. That is like the reader of a newspaper who reads part, but not all, of the newspaper. The term also includes the informational product of automated systems that supply selected portions of a larger database to individual licensees based on programmed parameters.

Published informational content does not include content tailored by individuals (human beings) acting on behalf of the licensor to meet a specific recipient’s needs, nor does it apply to information provided in a special relationship of reliance. The phrase “special relationship of reliance” refers to transactions in which the provider knows that a particular licensee plans to rely on particular data provided by the licensor and that the licensee expects the licensor to tailor the information to the client’s specific business or personal needs. That type of relationship arises only with respect to licensors who possess unique or specialized expertise or who are in a special position of confidence and trust with the particular licensee such that reliance is justified and the licensor has a duty to act with care. In a special relationship of reliance the information provider is specifically aware of and personally tailors information to the needs of the particular licensee as an integral part of the provider’s primary business. A reliance relationship does not arise for information made generally available to a group in standard form, even if those who receive the information subscribe to the service because they believe it is relevant to their commercial or personal needs.

47. “Receive.” This definition distinguishes between performances and notices. As to performances, it corresponds to Uniform Commercial Code § 2-103(1)(e) (1998 Official Text). With respect to notices, a notice is received when a message is delivered to a place designated or held out by the recipient for such notices even if the place is controlled by a third party. Arrival at an appropriate private post office box is receipt even if the addressee does not remove or read the message until later. Similarly, arrival at an appropriate electronic mail address is receipt by the addressee. The definition is met by arrival at a location only if the person holds out that location or system as a place for receiving notices of the kind. Parties often require that notice be to a particular address or person. If parties agree to send notice to a particular e-mail address, arrival at that location suffices; delivery to a different e-mail address does not.

The message must be capable of being processed by an ordinary system of the type involved. This refers to the type of system in its general, reasonably expected configuration and not to an atypical configuration known or knowable only to the party operating the system. Whether the message actually is processed is not relevant to receipt; similarly, a letter placed in a party’s post office box is received even if not opened.

48. “Record.” A record must be in, or capable of being retrieved in, perceivable form. Electronic text recorded in a computer memory that could be printed or displayed from that memory constitutes a record. Similarly, a tape recording of an oral conversation or a video taping of actions could be a record.
49. “Release.” A release is a waiver or a nonexclusive permission not accompanied by other commercial attributes such as an ongoing obligation to pay or an obligation to provide the means to make use of the information. A release is a form of license. The term is used in this Act to identify transactions in which the sole purpose is to permit use and applies where agreements of the type are often made on a less formal basis than a commercial license. Some releases are enforceable as “quasi-contracts.” This Act does not change that law.
50. “Return.” In this Act, a “return” refers to acts that restore a party to its initial position if the party rejected contract terms in a record and, as a result, the transaction will not be carried forward. See sections 113, 208, and 209 [§§ 59.1-501.13:1, 59.1-502.8, and 59.1-502.9]. A return requires redelivery to the licensor or its agent of any computer information already delivered that would have been covered by the rejected contract. When a licensee declines the contract, “return” entails reimbursement of any fees paid on re-delivery of all copies of the information and documentation. The information and documentation must be re-delivered in their original condition. By consent of the licensor, the copies can be destroyed in accordance with its instructions. A right to a return under this Act applies only to computer information and does not affect goods, such as a computer that contains the software.

Return is not a remedy for breach. It is a right created by this Act or the agreement that arises if a party refuses contract terms but had previously committed to, or actually paid the contract fee. A right of return allows the party a meaningful opportunity to decide to accept or reject the contract. If a party accepts contract terms, there is no right to a return, but if the computer information is defective, the aggrieved party may have a right to refuse the product and recover the contract fee and any other appropriate damages as a remedy for breach.

A return must be sought within a reasonable time. What is a reasonable time depends on the terms of the agreement or, if the agreement is silent, the commercial context. Section 117 [§ 59.1-501.17].

A right to a return may arise in “bundled” information products (products that include separate information products transferred as a whole for a single fee). Pricing in bundled transactions is not based on summing the fees that would be required for each product in an unbundled setting; often, bundled products include information products provided for no or a lesser charge, even though the information might have a different price in other transactions. In some cases, there is no fee attributable to any of the bundled information products included with other products, such as a computer.

If separate bundled products are separately priced, a return is for the contract fee for the information product as to which the contract terms were rejected. Otherwise, a return must be of the entire bundled product and reimbursement of the entire price, if any, attributed to that entire product. For a return for a separately stated price to occur, the contract price for the item must be separately stated in the sense that the agreement identified an amount for the particular information. A court cannot unbundle products and estimate appropriate prices in what is often a complex commercial arrangement premised on the economics of bundling multiple products. If no price is attributed in the agreement to the bundled information products, a return does not require reimbursement of a fee since none has been charged.

51. “Scope.” This definition refers to contract terms that define the central elements of a license that relate to aspects of use of the information. Scope terms define the product. The same computer information has entirely different commercial characteristics and value depending on the scope of rights licensed. See Sun Microsystems, Inc. v. Microsoft Corp., 188 F.3d 1115 (9th Cir. 1999); Graham v. James, 144 F.3d 229 (2d Cir. 1998). A license that allows use of a word processing program in a single computer is not the same product as a license to make and distribute copies of that word processing software throughout a region. Neither license is the same product as a license that transfers a copy but limits use to three days at home. They are all different even though the program and the copy may be exactly the same and the differences can only be determined by reading the license.

53. “Standard form.” The definition refers to forms, not standard terms. A form consists of record containing a group of terms prepared for frequent use as a contract. The definition does not cover a tailored contract comprised of “terms” selected from multiple prior agreements. The form must have been actually used without negotiation other than of the terms noted in the definition. If a standard form is offered but then negotiated or changed other than with respect to those ordinarily tailored terms, the resulting record of the contract is not a standard form. “Negotiated” for purposes of this definition means actually bargained for or about, or pointed out with an opportunity for meaningful bargaining, even if assented to without actual bargaining.

54. “Term.” This definition is from Uniform Commercial Code § 1-201 (42) (1998 Official Text). The word refers to a discernible element of an agreement. The word “clause” has the same meaning.

55. “Termination.” This definition is from Uniform Commercial Code § 2-106 (1998 Official Text). The effect of terminating a contract is discussed in Sections 616-618 [§§ 59.1-506.16 to 59.1-506.18].

56. “Transfer.” This word, as used with respect to conveyances of contractual interests, refers to actual transfers of a contractual interest, as contrasted to agreements that merely employ another person to act on behalf of the transferor under a delegation or sublicense. Some of these transfers might be described as an assignment of the contract.

57. “Usage of trade.” This term is from Uniform Commercial Code § 1-205 (1998 Official Text). This Act treats usage of trade as a factor in determining the commercial meaning of the agreement. The language of an agreement is interpreted as meaning what it may fairly be expected to mean to parties involved in the particular commercial transaction in a given locality or in a given vocation or trade. A usage of trade must have the “regularity of observance” indicated in the text. It is not required that a usage be “ancient or immemorial,” “universal” or the like. Full recognition is available for new uses and for uses currently observed by the majority of merchants, even though some do not. There is room also for appropriate recognition of usage agreed by merchants in trade codes.

58. Subsection b refers to various provisions of the Uniform Commercial Code that define additional terms used in this Act. Unless otherwise expressly indicated, the reference is to the Official Text as of 1998.

§ 59.1-501.3. Scope; exclusions.

  1. This chapter applies to computer information transactions.
  2. Except for subject matter excluded in subsection (d), if a computer information transaction includes subject matter other than computer information or subject matter excluded under subsection (d), the following rules apply:
    1. If a transaction includes computer information and goods, this chapter applies to the part of the transaction involving computer information, informational rights in it, and creation or modification of it. However, if a copy of a computer program is contained in and sold or leased as part of goods, this chapter applies to the copy and the computer program only if:
      1. the goods are a computer or computer peripheral; or
      2. giving the buyer or lessee of the goods access to or use of the program is ordinarily a material purpose of transactions in goods of the type sold or leased.
    2. Subject to subsection (d)(2)(A), if a transaction includes an agreement for creating or for obtaining rights to create computer information and a motion picture, this chapter does not apply to the agreement if the dominant character of the agreement is for creating or obtaining rights to create a motion picture. In all other such agreements, this chapter does not apply to the part of the agreement that involves a motion picture excluded under subsection (d)(2), but does apply to the computer information.
    3. In all other cases, this chapter applies to the entire transaction if the computer information and informational rights, or access to them, is the primary subject matter, but otherwise applies only to the part of the transaction involving computer information, informational rights in it, and creation or modification of it.
  3. To the extent of a conflict between this chapter and Title 8.9A, Title 8.9A governs.
  4. This chapter does not apply to:
    1. a financial services transaction;
    2. an insurance services transaction;
    3. an agreement to create, perform or perform in, include information in, acquire, use, distribute, modify, reproduce, have access to, adapt, make available, transmit, license, or display:
      1. a motion picture or audio or visual programming other than in (i) a mass-market transaction or (ii) a submission of an idea or information or release of informational rights that may result in making a motion picture or a similar information product; or
      2. sound recording, musical work, or phonorecord as defined or used in Title 17 of the United States Code as of July 1, 1999, or an enhanced sound recording, other than in the submission of an idea or information or release of informational rights that may result in the creation of such material or a similar information product.
    4. a compulsory license;
    5. a contract of employment of an individual, other than an individual hired as an independent contractor, unless such independent contractor is a freelancer in the news reporting industry as that term is commonly understood in that industry;
    6. a contract that does not require that information be furnished as computer information or in which under the agreement the form of the information as computer information is otherwise insignificant with respect to the primary subject matter of the part of the transaction pertaining to the information;
    7. unless otherwise agreed in a record between the parties:
      1. telecommunications products or services provided pursuant to federal or state tariffs; or
      2. telecommunications products or services provided pursuant to agreements required or permitted to be filed by the service provider with a federal or state authority regulating these services or under pricing subject to approval by a federal or state regulatory authority; or
    8. subject matter within the scope of Titles 8.3 , 8.4, 8.4A, 8.5A, 8.7, or 8.8A.
  5. As used in subsection (d)(2)(B), “enhanced sound recording” means a separately identifiable product or service the dominant character of which consists of recorded sounds but which includes (i) statements or instructions whose purpose is to allow or control the perception, reproduction, or communication of those sounds or (ii) other information so long as recorded sounds constitute the dominant character of the product or service despite the inclusion of the other information.
  6. As used in this section, “motion picture” means:
    1. “motion picture” as defined in Title 17 of the United States Code as of July 1, 1999; or
    2. a separately identifiable product or service the dominant character of which consists of a linear motion picture, but which includes (i) statements or instructions whose purpose is to allow or control the perception, reproduction, or communication of the motion picture or (ii) other information so long as the motion picture constitutes the dominant character of the product or service despite the inclusion of the other information.
  7. As used in this section, “audio or visual programming” means audio or visual programming that is provided by broadcast, satellite, or cable as defined or used in the federal Communications Act of 1934 (47 U.S.C. § 151 et seq.) and related regulations as they existed on July 1, 1999, or by similar methods of delivery.

History. 2000, cc. 101, 996; 2001, c. 763; 2004, c. 794; 2011, c. 369.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 763 inserted “or subject matter excluded under subsection (d)” in subsection (b); inserted “Subject to subsection (d) (2) (A)” at the beginning of subdivision (b) (2); rewrote subdivision (d) (2) (A), which formerly read: “audio or visual programming that is provided by broadcast, satellite, or cable as defined or used in the Federal Communications Act and related regulations as they existed on July 1, 1999, or by similar methods of delivering that programming”; inserted “other than in the submission of an idea or information or release of informational rights that may result in the creation of such material or a similar information product” at the end of subdivision (d) (2) (B) and deleted “or” at the end thereof; deleted former subdivision (d) (2) (C), which formerly read: “a motion picture, other than in a mass-market transaction or a submission of an idea or information or release of informational rights that may result in making a motion picture or a similar information product”; added present subdivision (d) (6); redesignated former subdivision (d) (6) as present subdivision (d) (7); added the subdivision (f) (1) and (2) designators; and added subsection (g).

The 2004 amendments.

The 2004 amendment by c. 794 deleted “and as otherwise provided in § 59.1-501.4” following “subsection (d)” in subsection (b), inserted subdivision (d) (2), redesignated former subdivisions (d) (3) through (d) (7) as present subdivisions (d) (4) through (d) (8), and deleted “or” at the end of present (d) (4).

The 2011 amendments.

The 2011 amendment by c. 369 deleted “8.6A” following “8.5A” in subdivision (d)(8).

Law Review.

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Consumer”;

“Computer”;

“Computer information”;

“Computer information transaction”;

“Consumer”;

“Copy”;

“Electronic”;

“Financial services transaction”;

“Good faith”;

“Goods”;

“Information”;

“Insurance services transaction”;

“License”;

“Mass-market transaction”;

“Party”.

  1. General Structure. This section states the scope of this Act. Subsection (a) states the affirmative scope. Subsections (b) and (c) establish rules for transactions where more than one subject matter is involved and not all of the subject matter is within subsection (a).   Subsection (d) sets out exclusions from the Act.
  2. Transactions in Computer Information. This Act deals with contracts and not property law. It applies to computer information transactions. In a computer information transaction, the transferee seeks the information and contractual rights to use it. Unlike a buyer of goods, a purchaser (e.g., buyer, lessee, or licensee) of computer information has little interest in the diskette or tape that originally contained the information after that information has been loaded into a computer, unless the information remains on that media and nowhere else. Indeed, in online transactions in computer information, there is often no tangible medium at all.
    1. Contracts to Create or Develop Computer Information. This Act applies to contracts to develop, modify, or create software and other computer information, such as a computer database.  Section 102(a)(11) [§ 59.1-501.2(a)(11)]. Except as excluded in subsection (d), the Act covers all software development contracts, thus resolving conflicts in prior case law.
    2. Computer Programs. This Act applies to transactions involving distribution of, or grant of a right to use, a computer program, whether they involve a license or an unrestricted sale of a copy of a program. Section 102(a)(11) [§ 59.1-501.2(a)(11)]. The difference between a license and an unrestricted sale, however, is relevant within the Act. A license may involve either a more substantial retention of rights or a greater transfer of rights than an unrestricted sale of a copy. While most provisions of this Act apply to all transactions within its scope, some are limited solely to licenses. The coverage of each section is explicit in the section.
    3. Access and Internet Contracts. This Act applies to access contracts. Section 102(a)(1) [§ 59.1-501.2(a)(1)].  This includes Internet and similar systems for access to or use of computer information on a remote system.  It generally includes contracts under which data, text or images are provided to licensees by access to the provider’s system or location on Internet.
    4. Digital Multimedia Works. This Act applies to agreements to create or distribute multimedia works. Section 102(a)(11) [§ 59.1-501.2(a)(11)].  Multimedia works are those that, through digital technology, combine multiple forms of authorship and multiple types of information into an integrated, often interactive work.  Interactivity is a characteristic of software-based products. For a discussion of what is a multimedia work, see Copyright Office Circular (Multimedia Circular).
    5. Data Processing Contracts. This Act covers contracts for data processing or data analysis of computer information.  Section 102(a)(1)(11)(41) [§ 59.1-501.2].
      1. General Rule. If a transaction involves goods and computer information (e.g., a computer and software), the general rule is that Article 2 or Article 2A applies to the aspect of the transaction pertaining to the sale or lease of goods, but this Act applies to the computer information and aspects of the agreement relating to the creation, modification, access to, or transfer of it.  Section 103(b)(1) [§ 59.1-501.3(b)(1)]. Each body of law governs as to its own subject matter. Some describe this as a “gravamen of the action” standard.  The law applicable to an issue depends on whether the issue pertains to goods or to computer information. A similar distinction exists in copyright law between ownership of a copy and ownership of the copyright. See, e.g., 17 U.S.C. § 202; DSC Communications Corp. v. Pulse Communications, Inc., 170 F.3d 1354 (Fed. Cir. 1999), cert. den. 528 U.S. 923 (1999).
      2. Exceptions to General Rule: Copy and Documentation. There are exceptions to the general rule’s gravamen test. Thus, this Act treats the medium that carries the computer information as part of the computer information and within this Act, whether the medium is a tangible object or electronic. This Act applies to the copy, documentation, and packaging of computer information; these are within the definition of computer information itself. Section 102. They are mere incidents of the transfer of the information.
      3. Exceptions to General Rule: Embedded Programs. If a computer program is embedded and contained in goods, the general rule ordinarily applies. This Act applies to the program, while goods law applies to the goods. In some cases, however, an embedded program is a mere part of the goods and this Act should not apply.
    6. Voluntary Use of Computer Information. Under Subsection (d)(6) an agreement is not brought into this Act merely because one party elects to use computer information to transmit information to the other, when not required to do so. An author that contracts to submit an article to a publisher for publication in a print journal and elects to send the text by E-mail, does not thereby bring the contract into this Act. A developer allowed by agreement to deliver information in any form it chooses, including print, is not within this Act merely because it elects to use digital systems.
    7. Form is Insignificant. There may be cases in which the form of the information as computer information is such a minor part of the transaction that the Act should not apply at all. Subsection (d)(6) provides a court with the basis to reach this judgment if the form of the information as computer information is insignificant. This is a narrow exception, applicable only if the form of the information, as compared to the information itself, is trivial. The exception does not ask a court to compare the cost or value of the computer information to the cost or value of the overall transaction.
  3. Transactions Outside the Act. The scope of this Act is limited by the affirmative definitions of “computer information” and “computer information transaction,” which exclude print and various other forms of information distribution, and by the exclusions in subsection (d).  As a result, the Act leaves unaffected all transactions in the traditional core businesses of non-digital information industries.  Whether a magazine, book or newspaper publisher can contractually limit or expand rights of use of information by purchasers of copies and what contract liability arises for print works is outside this Act, as are the following:
  4. Mixed Transactions. A computer information transaction may involve computer information and other subject matter. This presents a question of  whether all or any part of the transaction is governed by this Act, common law, or an article of the Uniform Commercial Code.  The circumstance that a contract is governed by more than one source of contract law is common in modern commerce. For example:
  5. Exclusions. Subsection (d) states several exclusions from this Act. They are based on a judgment that rules in this Act should not apply to the excluded subject matter unless the parties so agree, because the excluded transactions are different in type from those covered by this Act or are extensively covered by other contract law or regulations.

The scope of this Act turns initially on the definition of “computer information transaction.” Section 102(11) [§ 59.1-501.2(a)(11)]. “Computer information transactions” are agreements that deal with the creation, modification, access to, license, or distribution of computer information. Section 102(a)(11) [§ 59.1-501.2(a)(11)]. “Computer information” is information in a form directly capable of being processed by, or obtained from, a computer and any copy, associated documentation, or packaging. Section 102(a)(10) [§ 59.1-501.2(a)(10)]. As stated in subsections (b) and (c), if a transaction is a computer information transaction but also involves other subject matter, this Act ordinarily applies only to the aspects of the transaction that involve “computer information.”

This Act deals with a variety of transactions central to the information economy where the contractual subject matter is computer information. However, the mere fact that communications about a transaction, such as an application for a loan or employment, are sent or recorded in digital form does not place the transaction within this Act. Thus, a contract for airplane transportation is not a computer information transaction even though the ticket is in digital form. The subject matter is not computer information, but the service — transportation. A contract to create and publish a print book does not become a computer information transaction simply because the author chooses or is required to deliver the work on a computer diskette. Similarly, an insurance policy prepared in digital form is not a computer information transaction; it is a contract for insurance coverage the terms of which are evidenced in digital form. A contract for a digital signature certificate is a contract for certification or identification services, not a contract whose subject matter is the computer information.

• Sales or leases of goods

• Contracts for personal services (except computer information development and support agreements)

• Casual exchanges of information

• Contracts where computer information is not required by the agreement

• Employment contracts

• Contracts where computer information is insignificant (de minimus)

• Computers, televisions, VCR’s, DVD players, or similar goods

• Financial services transactions

• Insurance services transactions

• Contracts for print books, magazines, or newspapers

• Contracts for sound recordings and musical works

• Contracts for regulated telecommunications services and products

• Contracts for motion pictures, broadcast or cable programming (except as in Section 103(b)(d)) [see now § 59.1-501.3(d)]

This Act applies to contracts and agreements regarding computer information.

• A contract to produce a motion picture is governed by the common law of services, common law relating to information, labor law, copyright law, and other regulatory law.

• A contract to buy a toaster may be governed by Article 2, common law, consumer law, and various federal or state regulations.

• A contract to develop a multimedia product may be governed by common law of services, of information contracts and of licensing, copyright law, and other intellectual property law.

Indeed, virtually all contracts of all types involve “mixed” law. Thus, the issue is not whether multiple sources of contract law apply, but to what extent this Act applies in lieu of other law. Subsections (b) and (c) address that question based on the issue presented, the type of transaction, and applicable commercial policies.

a. Computer Information and U.C.C. Subject Matter. If a transaction includes computer information and subject matter governed by an article of the Uniform Commercial Code, in the absence of contrary agreement, the general rule is that the rules of the Uniform Commercial Code apply to their subject matter and this Act applies to its subject matter. That rule is stated in subsection (b)(1), subsection (c), and subsection (d)(8). For example, under subsection (d)(8), Uniform Commercial Code Article 8, and not this Act, deals with investment securities, while Articles 4 and 4A, and not this Act, deal with payments, checks, and funds transfers. Under subsection (c), if there is a conflict between a provision of this Act and Article 9 of the Uniform Commercial Code, Article 9 prevails. This preserves uniformity in Article 9’s application across a wide variety of personal property financing transactions.

b. Computer Information and Goods Generally. Some transactions include goods and computer information. “Goods” is defined for purposes of this Act in Section 102 [§ 59.1-501.2]. Generally, there is no overlap between goods and computer information since computer information and informational rights are not goods. See, e.g., United States v. Stafford, 136 F.3d 1109 (7th Cir. 1998), cert. den., Allison v. United States, 525 U.S. 849 (1998); Specht v. Netscape Communications Corp., — F.3d —, 2002 WL 31166784 (Fed. Cir. 2002); Fink v. DeClassis 745 F. Supp. 509, 515 (N.D. Ill. 1990) (trademarks, tradenames, advertising, artwork, customer lists, goodwill and licenses are not “goods”). A diskette is a tangible object but the information on the diskette does not become goods simply because it is copied on tangible medium, any more than the information in a book is governed by the law of goods because the book binding and paper may be Article 2 goods. See, e.g., Winter v. G.P. Putnam’s Sons, 938 F.2d 1033 (9th Cir. 1991); Grappo v. Alitalia Linee Aeree Italiane, S.p.A., 56 F.3d 427 (2d Cir. 1995); Gilmer v Buena Vista Home Video, Inc., 939 F Supp. 665 (W.D. Ark. 1996); Architectonics, Inc. v. Control Systems, Inc., 935 F Supp 425 (S.D.N.Y. 1996); Cardozo v. True, 342 So.2d 1053 (Fla. Dist.Ct.App.1977), cert. den., 353 So.2d 674 (Fla. 1977).

With respect to the materiality standard, this Act excludes a copy of the computer program if the copy is embedded in, inseparable from, and sold or leased as an indistinguishable part of goods.

The standards for determining when this exception to the general rule arise focus on the nature of the goods containing the copy and on the importance of the program and access to it in the transaction in those goods. Thus, for example, this Act does not apply to a copy of a program on a computer chip embedded as part of an automobile engine and sold or leased as an indistinguishable part of the automobile containing the engine. On the other hand, this Act does apply to a copy of a program contained on a computer chip in a computer and transferred along with the computer. Uniform Commercial Code Article 9 (2000 Official Text) addresses a similar issue, but the rules there deal with issues about creating and perfecting security interests under that statute; they are not pertinent to general contract law and are not adopted here.

Subsection (b)(1) sets out the applicable standards under this Act.

First: This Act applies to the computer program and the copy of it if the goods in which the copy is embedded is a computer or a computer peripheral. As stated in Official Comment 7 to Section 102, “computer” should be given a common sense definition. Thus, a commercial choice to distribute a program in embedded form, rather than in a form that requires it to be loaded into a computer or peripheral does not affect the applicability of this Act. For example, software for a medical imaging device that relies on computer program capabilities is within this Act whether the program is embedded in the imaging device or loaded into it after purchase. On the other hand a chip in a toaster that controls the ordinary functions of an ordinary toaster is not a “computer” in a common sense application of the term. Of course, this Act does not apply to the computer, but only to the program (and copy) and other computer information.

Second: If a copy of a computer program is sold or leased as part of goods other than a computer or computer peripheral, this Act applies to the program (and the copy) if giving the buyer or lessee of the goods access to or use of the program is ordinarily a “material purpose” of this type of transaction. If not, this Act does not apply to the copy of the program. While this test may involve close decisions in individual cases, bright line tests are not possible and that result is inevitable as the digital information revolution continues to transform commerce. The blurred nature of the issue of determining whether the embedded program should be treated separately is recognized in other contexts. For example, in reference to tax law determinations, accounting standards refer to whether the program is a mere incident of the goods and recognize that determining when or whether this is true cannot involve a firm line, but rather a factual or contextual determination. See AICPA, Statement of Position 97-2 (1997). The issues for contract law differ from those involved in tax (or secured lending), but the nature of the distinction in each context is not one susceptible to bright line determination.

Materiality is judged on an objective sense, reflecting transactions of the type, rather than the subjective goals or intent of the particular parties. Furthermore, materiality focuses on ordinary transactions in goods of the type. Thus, the fact that a program is contained in and sold or leased as a part of goods that are a small part of a billion dollar transaction involving many other assets does not take it out of this Act if, as to the particular goods or system containing the program, access to the program is material.

The basic issue is whether the program and its capabilities are ordinarily important to the purpose in obtaining the goods. Courts should rely on the aspects of the ordinary commercial context. One issue involves between whom the pertinent part of a transaction occurs. Some transactions involve three parties and two agreements. If goods are sold by a vendor but the buyer must obtain a license from a publisher for use of the program, as to the license between the publisher and buyer, the computer information is clearly material. Beyond that, factors pertaining to whether access to or use of the program is material include the extent to which the computer program’s capabilities are a material part of the appeal of the product, the extent to which negotiation focused on that capability, the extent to which the agreement made the program’s capacity a separate focus, whether there are significant post-transaction obligations of program support, and the extent to which the program is or could be made available commercially separate and apart from the goods. Compare AICPA, Statement of Position 97-2 (1997). Materiality is ordinarily clear if the program is separately licensed as part of the transaction. A separately licensed program for a digital camera that enables the camera to link to a computer is within this Act. On the other hand, the mere fact that ordinary functions of ordinary goods rely on a program embedded in the goods does not indicate that program is governed by this Act. The braking functions of an automobile may be controlled by embedded programs, but in a retail transaction, the purpose is obtaining the automobile’s functionality rather than the program; this Act would not apply to a copy of brake software contained in and sold as part of a car. Upstream contracts to develop or supply the program to the manufacturer, however, are within this Act. A sale of an ordinary television that uses a computer program to preset channels is not in this Act.

c. Computer Information and Subject Matter not within the U.C.C. If a computer information transaction also involves subject matter not governed by the U.C.C. or this Act, the general rule is that this Act applies to its own subject matter, but not to aspects involving the other subject matter. As with respect to the treatment of goods, however, this general principle is tailored to reflect commercial and practical interests in some cases. Subsections (b)(2) and (3) state how to determine the applicability of this Act in such cases. However, this Act never applies to subject matter excluded under subsection (d) unless the parties agree to such coverage.

(1) Motion Picture Rights Contracts. Subsection (b)(2) provides the basic rule applied when the other subject matter involves a motion picture as defined in subsection (f). The rule in subsection (b)(2) must be read in connection with subsection (d)(3)(A).

Under subsection (b)(2), if the dominant character of an agreement is to create or to obtain rights to create a motion picture and that part of the agreement is excluded under subsection (d), this Act does not apply to any part of the agreement. Contracting practices in this part of the motion picture industry follow established, unique patterns. The rule here applies only to the extent that the motion picture aspect of the transaction is excluded under subsection (d)(3)(A). If an agreement is for rights to make a motion picture from the book Tractor Monster, but also includes rights to create a Tractor Monster computer game, this Act does not apply to the agreement at all if the dominant character of the agreement is one for creating or obtaining rights to create the motion picture.

As used here, “dominant character” does not mean merely a material or primary part. It requires more than in the “predominant purpose” test applied by some courts in relation to goods and services. The term refers to the fundamental character of the agreement. The motion picture rights must clearly be the focus of the agreement for both parties; it is not sufficient merely that their value or price ultimately exceeds the value of other aspects of the agreement. Whether motion picture rights are the dominant character is determined by an objective analysis of the circumstances of the transaction and transactions of the particular type. The dominance of motion picture rights must be clear and other rights secondary such that the transaction would not reasonably be viewed as other than as for motion picture rights.

When creating or obtaining rights to create a motion picture comprise the dominant character of the agreement, this Act does not apply. If the motion picture rights are not the dominant character of the agreement or if the contract does not involve creating or rights to create a motion picture, this Act applies to the computer information (e.g., the computer game) and other law applies to the motion picture to the extent excluded under subsection (d)(3)(A). If both computer information and motion picture rights are equally important, the dominant character rule does not apply because neither subject matter comprises the sole dominant character of the agreement; this Act applies to the computer information, while other law applies to the motion picture aspect excluded under subsection (d). Where there is a third subject matter involved (e.g., services or goods), other rules of this subsection apply with respect to the coverage by this Act of the other subject matter.

If a transaction includes several agreements among different parties related to a common goal, the character of each agreement is determined with respect to the particular agreement. For example, an agreement to use encryption or imaging software in a particular project is a software license and that agreement is not affected by the coexistence of a related but separate agreement for motion picture rights. Under general law, the parties can in all cases agree about whether the transaction is or is not governed entirely by this Act.

(2) Other Subject Matter. For other subject matter, the basic gravamen rule generally applies. That basic rule is restated in subsection (b)(3), which also provides for a limited exception to that rule.

If obtaining the computer information or informational rights in it is the primary purpose of the transaction, this Act applies to the entire transaction, except for subject matter excluded by subsection (d). The test asks a court to consider whether the computer information or other subject matter (e.g., services) is the main focus. This adopts, for mixed information and services transactions, a variant of the predominant purpose test used under Article 2 with respect to goods and services. In this Act, however, the test only asks whether this Act should apply to other subject matter. In all cases, this Act will apply to the computer information. The primary purpose test requires less than the dominant character test in subsection (b)(2). In considering whether, under the primary purpose test, this Act should apply to the entire transaction, a court should consider the type of transaction envisioned by the parties. While cases under Article 2 provide guidance, it is appropriate to consider additional factors. Courts should consider the extent to which the transaction as a whole corresponds to the framework of information transactions, such as: 1) the nature of any underlying intellectual property rights involved, including differences in the rights provided for different types of works, 2) the extent to which clear allocation of liability risk is a concern, and 3) the extent to which coverage by this Act of the other subject matter in the transaction will correspond to reasonable expectations of the parties as to how the legal issues should be handled.

The same test applies throughout the various levels of use or distribution, but the results may differ at each level for the same information. For example, a courier company that licenses communications software from a software publisher is engaged in a transaction entirely within this Act. If the courier company provides the software to customers to access data on the location of their packages, the primary purpose may have to do with the services the courier provides. Even then, however, this Act applies to the software. If the software publisher enters into a license with the end user, as between the publisher and the end user, that license is entirely within this Act because the primary purpose of that agreement is the software.

The rules of subsection (b) do not apply if the agreement specifies to what extent this Act governs. If the parties elect coverage under this Act, that agreement generally governs as would an agreement that this Act should not apply at all. Agreement here, as elsewhere, can be found in the express terms of the contract as well as in the usage of trade or course of dealing between the parties, or as inferred from the commercial circumstances of the contracting.

a. Core Financial and Insurance Functions. Subsection (d)(1) excludes core banking, payment and financial services activities because they are subject to regulation under federal and other state law. Subsection (d)(2) provides a parallel exclusion for insurance services transactions. Also, payment and similar functions are largely within the scope of the U.C.C. and thus outside UCITA.

Similar considerations apply for insurance services transactions in that they are subject to extensive regulation and separately developed law. In addition, these insurance transactions deal with insurance coverage and payment matters, rather than with computer information as the focus. The exclusion of insurance transactions refers to agreements between insurer and insured relating to access to, use, transfer, clearance, settlement, or processing of the policy or contract, or payments or rights to payment under it.

“Financial services transaction” is defined in Section 102 [§ 59.1-501.2]. Financial services transactions are similar in many ways to computer information transactions in that they entail trade in symbols, albeit symbols of very different use and effect, and share some common legal issues: e.g., authenticity, data integrity, and authority. See Section 102, comment 26. However, they will often be governed by very different rules in that, in many cases, the digital subject matter of a financial transaction is the value it represents. An appropriate book entry, for example, is a securities entitlement. UCC § 8-501(b)(1)(1998 Official Text). Also, core financial services practices are mature subjects of other bodies of law, such as UCC Articles 3, 4, 4A, 5, 7, 8 and UCC Article 9. For all of these reasons it was deemed essential to exclude financial services transactions from the scope of this Act and to define financial services transaction broadly.

The exclusion under subsection (d)(1) does not exclude banks as entities. Many financial services regulations (e.g., Regulation E of the Board of Governors of the Federal Reserve System) do not apply solely to banks but to any holder of a qualifying account. To the extent that non-banks engage in the activities covered by the exclusion, those activities are excluded from this Act. On the other hand, banks engage as licensors and as licensees in many computer information transactions; those transactions, if not covered by this exclusion, are within this Act. Examples include licensing computer software and contracts providing on-line shopping and access to third-party databases. Where a bank provides software to a customer to be used in part in online access, this Act would govern the software license except to the extent the issue involves questions excluded by this subsection or dealt with in an article of the U.C.C., such as Article 4A, or in preemptive federal law.

b. Telecommunication Services. Subsection (d)(7) excludes regulated telecommunications products and services, and such products and services that are subject to filing or approval procedures as stated in subsection (d)(7)(B). The latter refers to interconnection and similar agreements that are subject to regulatory overview. Overall, the exclusion reflects the existence of extensive state and federal regulations. These telecommunications services would most likely not be included within the definition of a computer information transaction, but the exclusion makes that result clear. The exclusion does not apply to contracts to acquire software for use in telecommunications, nor does it apply to non-regulated information services.

c. Core Entertainment, Cable and Broadcast. Subsection (d)(3) excludes many agreements relating to motion pictures and broadcast and cable programming, in addition to agreements relating to musical works, sound recordings and enhanced sound recordings. The exclusion covers contracts regarding the traditional core activities of these information industries or, in the case of enhanced sound recordings, a enhanced version of a traditional activity. It is intended to be comprehensive as to the excluded activities. The exclusion leaves contract issues to other law with respect to the excluded subject matter.

Business practices in reference to these excluded transactions differ substantially from practices involving computer information. However, this is not an industry exclusion. To the extent that motion picture, broadcast and other covered companies engage in software licensing or other forms of computer information transactions that are not excluded, this Act applies. Also, the exclusion does not apply to contract issues pertaining to submission of information or ideas, or to releases of informational property rights. Here, practices are similar and it is often impractical to distinguish between an idea or a release in terms of whether it is associated with one or another type of informational work. Coverage of all such transactions reflects these factors.

Also, the exclusion does not apply to mass-market transactions involving audio-visual programming or motion pictures. The information industries are rapidly converging and, for those engaged in computer information based transactions, the convergence is most pronounced in the mass market. Limiting the exclusion with respect to such transactions reduces the circumstances in which potentially artificial distinctions are drawn between digital information products.

The exclusions in subsection (d)(3) include agreements to create, perform or include information in the excluded subject matter. To be within the exclusion, both parties must know that the agreement is for a particular work that entails such subject matter. For example, a license generally authorizing use of digital graphics for multiple purposes is not within the exclusion simply because a particular licensee uses the graphics in a motion picture. To be in the exclusion, the agreement must be to include the digital graphics in the motion picture, sound recording or other excluded subject matter. A license for editing or effects software that can be used for multiple purposes, is covered by this Act and not excluded by subsection (d)(3) even if one of its uses is in the creation of a motion picture. Similarly, a software license for use of encryption software generally in products that are motion pictures or sound recordings is not excluded.

The terms “motion picture,” “sound recording,” “musical work,” and “phonorecord” have the meanings associated with those terms in the Copyright Act as of the indicated date and also the meaning set out in subsections (e) and (f). That interpretation applies as of that date for all purposes and with reference to all sources as of that date, including final decisions of courts. The exclusion includes creation or distribution of these works in digital form. The Copyright Act and registration system makes distinctions among and between various types of works, such as audiovisual works, literary works, computer programs, motion pictures, and sound recordings. These distinctions are followed here. The exclusion additionally employs a slightly expanded definition of “motion picture,” and a new term, “enhanced sound recording,” to cover digital products that have elements beyond ordinary sound recordings or motion pictures (e.g., a program to allow use of the work), but which do not change the fundamental nature of the work as a sound recording or linear motion picture. In each case, the intent is that including instructions or other information does not affect the exclusion so long as the product’s dominant character remains a sound recording or linear motion picture.

The term “enhanced sound recording” encompasses products such as enhanced music CDs, audio DVDs and the products commonly known as music videos. A music video qualifies as an enhanced sound recording because its dominant character consists of recorded sounds, even though it also includes visual depiction of a performance or series of performances of a nondramatic musical work or works. For purposes of this section, a music video is to be distinguished from a motion picture featuring music, a motion picture of a musical play, opera, concert or variety show, or a documentary concerning a recording artist or other music-related subject. A music video is also to be distinguished from audio or visual programming featuring music videos, which is treated under subsection (d)(3)(A).

Multimedia works are within this Act. For purposes of this Act, the term “motion picture” focuses on linear works and does not include an interactive computer game, multimedia product, or similar work, nor does it include audio-visual effects within interactive works. The term does not refer to images or visual motion within another work or within software, such as the animated help feature of a word processing program or images or motion in an interactive computer encyclopedia.

Subsection (d)(3) excludes contracts for audio and visual programming distributed by broadcast, cable, or satellite regardless of whether transmitted in digital or another form, including transmissions analogous to broadcast made through the Internet. See Subsection 103(f) [§ 59.1-501.3(g)] (defining this type of programming). The federal Communications Act and associated regulations define terms associated with this exclusion and the intent is to adopt that terminology as of the indicated date, but not subsequent changes. The terms broadcast and cable programming do not include interactive computer services or similar information services that entail a service, a system, or access software that provides or enables access by multiple users to a computer system or the information provided through or from it. See Washington Revised Code § 19.190.010; America Online, Inc. v. Greatdeals.Net, 49 F. Supp.2d 851 (E.D. Va. 1999) (“any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and such systems offered by libraries or educational institutions.”). Agreements for access to Internet and similar information services are not covered by the exclusion. Similarly, the term “programming” does not refer to software or computer programs as they may be programmed by a licensor.

d. Compulsory Licenses. Subsection (d)(4) excludes compulsory licenses pursuant to the Copyright Act and similar statutes. These transactions are not voluntary contractual relationships and the contract principles which underlie this Act are not appropriate.

e. Employment Contracts. This Act does not deal with employee contracts. Subsection (d)(5). A vast network of labor law and other regulatory rules apply to the relationship between an employee and employer; this Act leaves that law unchanged. As the second clause of subsection (d)(5) makes clear, however, this Act does apply to computer information contracts involving independent contractors other than freelancers in the news reporting industry as that term is commonly understood in the news reporting industry. Freelancers play an important role in reporting news, including news gathering, dissemination, comment, and feature or general interest reporting and traditionally their relationship with publishers has been governed by applicable state and federal law. Subjecting them to a new set of rules may inject uncertainty into the marketplace, particularly concerning whether the Act applies to a particular transaction. Subsection (d)(5) is designed to exempt the transactions involving these freelancers and their publishers so as not do disturb industry practices in this regard.

What must be insignificant is that the information is in the form of computer information as contrasted to another form, such as in written form. If the information could not be provided in any other form under the agreement and still fulfill the purpose of the agreement with respect to it, the form can never be insignificant, such as where the computer information is a computer operating system. This is true even if the software is provided in a transaction for goods that in cost far exceed the value of the software. To function as an operating system under the agreement, the form can never be insignificant. Similarly, if a party acquires a billion dollar robotics system involving robots and computers along with software that operates each, the fact that the price of the software is small as compared to the billion dollar total deal does not exclude coverage of this Act over the software aspect of the agreement. Rather, the form of the information as computer information in this transaction is essential to the agreement because the software must be in a form to operate the computer and robots.

§ 59.1-501.4. Repealed by Acts 2004, c. 794.

§ 59.1-501.4:1. Consumer protection law governs.

  1. In this section, “consumer protection law” means a consumer protection statute, rule, or regulation, or other state executive or legislative action that has the effect of law and any applicable judicial or administrative decisions interpreting those statutes, rules, regulations or actions.
  2. Except as otherwise provided in this section, this chapter does not limit, modify or supersede a consumer protection statute, administrative rule, regulation or procedure.
  3. If a consumer protection law requires a term to be conspicuous, the standard of conspicuousness under the consumer protection law applies. However, a provision in the consumer protection law requiring a term to be conspicuous does not preclude that term from being presented electronically.
  4. If a consumer protection law requires a writing or a signature, a record or authentication suffices.
  5. If a consumer protection law addresses assent, consent, or manifestation of assent, the standard of assent, consent, or manifestation of assent under the consumer protection law applies and may be accomplished electronically.
  6. The applicability of a consumer protection law is determined by that law as it would have applied in the absence of this chapter.

History. 2004, c. 794.

OFFICIAL COMMENT

Definitional Cross-References:

Section 102 [§ 59.1-501.2]: “Authentication”;

“Conspicuous”;

“Consumer”;

“Electronic”;

“Record”;

“State”;

“Term”.

Section 112 [§ 59.1-501.12], “Manifestation of assent”.

  1. Scope of the Section. This section describes the relationship of this Act to a state’s consumer protection law. The rule is that this Act does not alter the scope, applicability, or substantive effect of consumer protection laws.
  2. Consumer Law Controls. This Act does not alter the scope, applicability, or substantive effect of consumer protection laws. In cases of conflict, the consumer protection law controls. However, consistent with the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et. seq., this section permits commerce in electronic form including in consumer cases.
  3. Standard of Conspicuousness. Some consumer protection laws require that particular terms be displayed in a conspicuous manner. Subsection (c) makes clear that, as to such laws, the general principle that this Act defers to consumer protection law includes deference to how those laws interpret or define “conspicuousness” with reference to that requirement; the second sentence of subsection (c) provides a limited exception needed for electronic commerce. In cases where a conspicuousness requirement arises solely from this Act or where there is no standard in or pertaining to the consumer protection law, the definition of conspicuous under this Act controls.
  4. Records and Authentication. Subsection (d) confirms an electronic commerce principle that is widely accepted nationally: electronic signatures and records suffice to meet requirements of a writing or a signature in most laws, including most consumer protection laws. The reference to Section 905 is intended to bring in applicable federal procedural requirements for obtaining a consumer’s consent to substitute electronic disclosures for those required by law to be delivered in writing and to make it clear that this Act does not alter the provisions of other law on use of electronics for certain forms of notices if they apply to transactions covered by this Act. See 15 U.S.C. §§ 7001(c), 7003(b).
  5. Assent. Subsection (e) confirms that the basic principle making consumer protection laws controlling applies to cases where those laws establish requirements of assent and the like. That principle is subject to the rule that assent can be made electronically. In turn, when the limitations spelled out in federal law for consumer “written” disclosure laws and some notice rules apply, the UCITA rule is subject to the applicable federal rule.
  6. Applicability of Consumer Protection Law. The effect of the principle that consumer protection laws trump this Act depends on how those laws define their scope. Subsection (f) makes clear that this Act does not alter the scope of any consumer protection law, including any law giving regulatory jurisdiction to a particular state agency. Thus, a consumer protection law applicable to “services” applies to any service transactions within the scope of this Act to the same extent and without any change as it would have applied without enactment of this Act. If courts or regulators interpreted that statute to cover online services before enactment of this Act, that interpretation remains effective as to such services in this Act. If no prior interpretations were made on that issue, or if the issue of scope of the consumer protection law does arise, then that issue should be resolved by considering the policies, language and content of that consumer protection law, not this Act. The same analysis applies to a consumer protection statute that applies to “goods.” The meaning of that scope requires analysis of that statute and its policies; this Act does not alter that analysis.

This Act deals with general contract law. It does not promulgate a consumer protection code, although the Act does contain numerous consumer protections. This Act leaves further consumer protection concepts to the consumer protection law of the particular State. This approach is consistent with the approach of other general uniform law, including UCC Article 2 and Article 9, which defer to consumer protection laws. Historically, consumer protection statutes have varied State-by-State. Except for the limited e-commerce rules in this section, a State’s consumer protection statutes trump this Act whenever a conflict arises. For example, consumer protection statutes regulating advertising, mandating disclosure of the licensor’s main business office, requiring disclosure of a term in specified manner, typeface or the like, or providing for treble damages for particular acts, are not altered by this Act and their provisions over-ride any inconsistent rule contained in this Act.

A “consumer protection law” reflects the judgment of the State’s legislature expressed through statutes, or of the State’s regulatory agencies or executives expressed through regulations or equivalent actions, that a consumer should receive special protection. A statute or a provision thereof can be fairly described as a consumer protection statute only if it contains protections or rights specifically earmarked for or primarily intended to apply to consumers and that gives consumers greater protection than other parties in similar transactions. The term includes judicial or regulatory interpretations of such laws. While this Act defers to such determinations, the term does not include common law rules that are judicial in derivation.

Subsection (f) also recognizes that many consumer protection laws do not by their terms cover transactions within this Act. It would be inappropriate and beyond the prerogative of this or any Act to amend all of those laws automatically to apply to the subject matter of this Act, because many deal with particular circumstances that are not relevant to computer information transactions. Subsection (f) invites legislatures to undertake an analysis that must occur with or without enactment of this Act — an analysis to determine whether or which consumer protection laws in a state should be amended expressly to apply to the subject matter covered here and whether and what other changes need to be made to the consumer protection laws given that coverage. If a State elects to undertake this analysis, subsection (f) signals that any list included is not exclusive.

§ 59.1-501.5. Relation to federal law; fundamental public policy; transactions subject to other state law.

  1. A provision of this chapter that is preempted by federal law is unenforceable to the extent of the preemption.
  2. If a term of a contract violates a fundamental public policy, the court may refuse to enforce the contract, enforce the remainder of the contract without the impermissible term, or limit the application of the impermissible term so as to avoid a result contrary to public policy, in each case to the extent that the interest in enforcement is clearly outweighed by a public policy against enforcement of the term.
  3. In a transaction in which a copy of computer information in its final form is made generally available, a term of a contract is unenforceable to the extent that the term prohibits an end-user licensee from engaging in otherwise lawful public discussion relating to the computer information. However, this subsection does not preclude enforcement of a term that establishes or enforces rights under trade secret, trademark, defamation, commercial disparagement, or other laws. This subsection does not alter the applicability of subsection (b) to any term not rendered unenforceable under this subsection.
  4. This chapter does not apply to an intellectual property notice that is based solely on intellectual property rights and is not part of a contract. The effect of such a notice is determined by law other than this chapter.
  5. If a law of the Commonwealth in effect on the effective date of this chapter applies to a transaction governed by this chapter, the following rules apply:
    1. A requirement that a term, waiver, notice, or disclaimer be in a writing is satisfied by a record.
    2. A requirement that a record, writing, or term be signed is satisfied by an authentication.
    3. A requirement that a term be conspicuous, or the like, is satisfied by a term that is conspicuous under this chapter.
    4. A requirement of consent or agreement to a term is satisfied by a manifestation of assent to the term in accordance with this chapter.

History. 2000, cc. 101, 996; 2001, cc. 762, 763; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 762, in subsection (c), inserted “including but not limited to Part 4 of this chapter,” inserted “a consumer protection statute, administrative rule or regulation, including but not limited to,” and substituted “consumer protection statute, administrative rule or regulation” for “Virginia Consumer Protection Act.”

The 2001 amendment by c. 763, in subsection (c), inserted “a consumer protection statute, rule or regulation, including but not limited to,” and substituted “consumer protection statute, rule or regulation” for “Virginia Consumer Protection Act”; and deleted former subsection (e), which read: “If this chapter conflicts with Chapter 39 (§ 59.1-469 et seq.) of this title, Chapter 39 governs.”

The section is set out in the form above at the direction of the Virginia Code Commission.

The 2004 amendments.

The 2004 amendment by c. 794 substituted “that” for “which” in subsection (a); inserted present subsections (c) and (d); deleted former subsection (c), which read: “Except as otherwise provided in subsection (d), if this chapter, including but not limited to Part 4 of this chapter, or a term of a contract under this chapter conflicts with a consumer protection statute, administrative rule or regulation, including but not limited to the Virginia Consumer Protection Act of 1977 (§ 59.1-196 et seq.), the consumer protection statute, administrative rule or regulation governs”; and redesignated former subsection (d) as present subsection (e).

Law Review.

For a comment, “Cable Open Access: The FCC Should Establish a National Policy of Staying Out of the Way of Broadband Competition,” see 8 Geo. Mason L. Rev. 749 (2000).

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code §§ 9-104(1)(a); 2A-104(1) (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Computer information”;

“Contract”;

“Information”;

“Informational Rights”;

“Term”.

  1. General Principle and Scope of the Section. Subsections (a) and (b) clarify that this Act does not alter intellectual property or other fundamental information laws. Subsection (c) provides for invalidation of certain contract terms. Subsection (d) clarifies the treatment of non-contractual notices.
  2. Federal Law: Preemption. Subsection (a) states a rule that would apply in any event under federal law. If federal law invalidates a state contract law or contract term, federal law controls. See, e.g., Everex Systems, Inc. v. Cadtrak Corp., 89 F.3d 673 (9th Cir. 1996) patent license not transferable; Harris v. Emus Records Corp., 734 F.2d 1329 (9th Cir. 1984) copyright license not transferable; SOS, Inc. v. Payday, Inc., 886 F.2d 1084 (9th Cir. 1989) and Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corporation, 284 F3d 1323 (2002) (UCC bona fide purchaser doctrine not appropriate for non-exclusive licensees).
  3. Public Policy Invalidation. Contract terms may be unenforceable because of federal preemption under subsection (a) of this section or because they are unconscionable under section 111 [§ 59.1-501.11].  In addition, subsection (b) sets out the legal principle that, in certain circumstances, terms may be unenforceable if they violate a fundamental public policy that clearly overrides the policy favoring enforcement of private transactions as between the parties. The principle that courts may invalidate a term of a contract on public policy grounds is recognized at common law and in the Restatement (Second) of Contracts § 178 et. seq. See, e.g., Livingston v. Tapscott, 585 So. 2d 839 (Ala. 1991); Occidental Sav. & Loan Ass’n v. Venco Partnership, 293 N.W.2d 843 (Neb. 1980).
  4. Terms Prohibiting Public Comment. The rule in this subsection invalidates certain contractual terms that prohibit public comment about the performance of computer information, if the copy of the information has been made generally available to the public in its final form, such as when a licensor releases to the retail market a word processing program. Such terms are invalid unless the term is supported by other law, such as the law of trade secrets, trademark, unfair competition and the like. The term is also enforceable to the extent the term precludes otherwise unlawful comment.
  5. Non-Contractual, Intellectual Property Notices. Subsection (d) clarifies that this Act does not apply to copyright or other intellectual property notices that are not a contract. This Act applies to agreements and contracts. Thus, the Act does not apply if an academic physicist in Houston creates program code and makes it freely available to other academics or individuals as a way of contributing to the development of so-called “free software” or “open source” software. Non-contractual conduct is not covered by this Act.
  6. Digital And Electronic Signature Statutes. Subsection (e) allows States with existing laws regarding digital signature, electronic signatures, and other similar statutes, which attribute acts or performances of a party in computer information transactions, to list any provisions of such statutes that the State desires to have prevail over this Act in the case of a conflict. For example, many such statutes do not provide a consumer defense of the type provided in Section 213 [§ 59.1-502.14] of this Act.  If a State wishes to afford consumers the protections of Section 213, it should not list its other statute or should otherwise craft an appropriate exception.  It is not necessary to list the Uniform Electronic Transactions Act because, by its terms, that Act does not apply if UCITA applies.

The transition from print to digital media has created new demands for information. Because digital information is so easily copied, increased attention has been focused on the formulation of rights in information in order to encourage its creation and on the development of contracting methods that enable effective development and efficient marketing of information assets. Here, as in other parts of the economy, the fundamental policy of contract law is to enforce contractual agreements. At the same time, there remains a fundamental public interest in assuring that information in the public domain is free for all to use from the public domain and in providing access to information for public purposes such as education, research, and fair comment. While the digital environment increases the risk of unfair copying, the enforcement of contracts that permit owners to limit use of information and the development of technological measures have given the owners of information considerable means of enforcing exclusivity in the information they produce or collect. This is true not only against those in contractual privity with the owners, but also in some contexts against the world-at-large.

Balancing the rights of owners of information against the claims of those who want access is complex and has been the subject of considerable controversy and negotiation at both the federal level and internationally. The extent to which the resolution of these issues at the federal level ought to preempt state law is beyond the scope of this Act, the central purpose of which is to facilitate private transactions in information. Moreover, it is clear that limitations on the information property rights of owners that may exist in a copyright regime, where rights are good against third parties, may be inappropriate in a contractual setting where courts should be reluctant to set aside terms of a contract. Subsections (a) and (b) strike the balance between fundamental interests in contract freedom and fundamental public policies such as those regarding innovation, competition, and free expression. The use of these general principles will enable the courts to react to changing practices and technology; more specific prohibitions would lack flexibility and would inevitably fail to cover all relevant contingencies.

A contract term that varies the effect of a rule whose effect between the parties cannot be varied by agreement under the Copyright Act is unenforceable. Subsection (a) refers to preemption, but other doctrines grounded in federal law may preclude enforcement of some contract terms in some cases. Except for rules that directly regulate specific contract terms, no general preemption of contracting arises under copyright or patent law. See National Car Rental System, Inc. v. Computer Associates Int’l, Inc., 991 F.2d 426 (8th Cir. 1993); ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). Case law will continue to develop in this area. As state law, this Act does not define whether or when federal preemption may occur.

Fundamental state policies are most commonly stated by the legislature. In the absence of a legislative declaration of a particular policy, courts should be reluctant to override a contract term. In evaluating a claim that a term violates fundamental public policy, courts should consider various factors, including the extent to which enforcement or invalidation of the term will adversely affect the interests of each party to the transaction or the public, the interest in protecting expectations arising from the contract, the purpose of the challenged term, the extent to which enforcement or invalidation will adversely affect other fundamental public interests, the strength and consistency of judicial decisions applying similar policies in similar contexts, the nature of any express legislative or regulatory policies, and the values of certainty of enforcement and uniformity in interpreting contractual provisions. Where parties have negotiated terms in their agreement, courts should be even more reluctant to set aside terms of the agreement. In applying these factors, courts should consider the position taken in the Restatement (Second) of Contracts § 178, comment b (“Enforcement will be denied only if the factors that argue against enforcement clearly outweigh the law’s traditional interest in protecting the expectations of the parties, its abhorrence of any unjust enrichment, and any public interest in enforcement of the particular term.”). In light of the national and international integration of the digital economy, courts should be reluctant to invalidate terms based on purely local policies.

The offsetting public policies most likely to apply to transactions within this Act are those relating to innovation, competition, fair comment and fair use. Innovation policy recognizes the need for a balance between protecting property interests in information to encourage its creation and the importance of a rich public domain upon which most innovation ultimately depends. Competition policy prevents unreasonable restraints on publicly available information in order to protect competition. Rights of free expression may include the right of persons to comment, whether positively or negatively, on the character or quality of information in the marketplace. Free expression and the public interest in supporting public domain use of published information also underlie fair use as a restraint on information property rights. Fair use doctrine is established by Congress in the Copyright Act. Its application and the policy of fair use is one for consideration and determination there. However, to the extent that Congress has established policies on fair use, those can taken into consideration under this section.

In practice, enforcing private contracts is most often consistent with these policies, largely because contracts reflect a purchased allocation of risks and benefits and define the commercial marketplace in which much information is disseminated and acquired. Thus, a wide variety of contract terms restricting the use of information by one of the contracting parties present no significant concerns. For example, contract restrictions on libelous or obscene language in an on-line chat room promote interests in free expression and association. Such restrictions are enforced to a much broader degree if they arise out of contractual arrangements than if they are imposed by governmental regulation. However, there remains the possibility that contractual terms, particularly those arising from a context without negotiation, may be impermissible if they violate fundamental public policy.

Contracting parties may have greater freedom contractually to restrict the use of confidential information than information that is otherwise publicly available. While a term that prohibits a person from criticizing the quality of software may raise public policy concerns if included in a shrink-wrap license for software distributed in the mass market, a similar provision included in an agreement between a developer and a company applicable to experimental or early version software not yet perfected for the marketplace would not raise similar concerns. Trade secret law allows information to be transferred subject to considerable contractual limitations on disclosure which facilitates the exploitation and commercial application of new technology. On the other hand, trade secret law does not prohibit reverse engineering of lawfully acquired goods available on the open market. Striking the appropriate balance depends on a variety of contextual factors that can only be assessed on a case-by-case basis with an eye to national policies.

A term or contract that results from an agreement between commercial parties should be presumed to be valid and a heavy burden of proof should be imposed on the party seeking to escape the terms of the agreement under subsection (b). This Act and general contract law also recognize the commercial necessity of enforcing standard-form agreements mass-market transactions. The terms of such forms may not be available to the licensee prior to the payment of the price and typically are not subject to affirmative negotiations. In such circumstances, courts must be more vigilant in assuring that limitations on use of the informational subject matter of the license do not offend over-riding fundamental public policy.

Even in mass-market transactions, however, limitations in a license for software or other information, such as terms that prohibit the licensee from making multiple copies, or that prohibit the licensee or others from using the information for commercial purposes, or that limit the number of users authorized to access the information, or that prohibit the modification of software or informational content without the licensor’s permission are typically enforceable. See, e.g., Storm Impact, Inc. v. Software of the Month Club, 13 F. Supp.2d 782 (N.D. Ill. 1998) (“no commercial use” restriction in an on-line contract). On the other hand, terms in a mass-market license that prohibit persons from observing the visible operations or visible characteristics of software and using the observations to develop non-infringing commercial products, that prohibit quotation of limited material for purposes of education or criticism, or that preclude a non-profit library licensee from making an archival (back-up) copy would ordinarily be invalid in the absence of a showing of significant commercial need.

Under the general principle in subsection (b), courts also may look to federal copyright and patent laws for guidance on what types of limitations on the rights of owners of information ordinarily seem appropriate, recognizing, however, that private parties ordinarily have sound commercial reasons for contracting for limitations on use and that enforcing private ordering arrangements in itself reflects a fundamental public policy enacted throughout the Uniform Commercial Code and common law.

In part because of the transformations caused by digital information, many areas of public information policy are in flux and subject to extensive debate. In several instances these debates are conducted within the domain of copyright or patent laws, such as whether copying a copyrighted work for purposes of reverse engineering is an infringement. This Act does not address these issues of national intellectual property policy, but how they are resolved may be instructive to courts in applying this subsection. One national statement of policy on the relationship between reverse engineering, security testing, and copyright in digital information can be found at 17 U.S.C. § 1201 (1999). It recognizes a policy not to prohibit some forms of reverse engineering and also to protect security testing where it is needed to protect the integrity and security of computers, computer systems or computer networks. 17 U.S.C. § 1201(j)(1999) (“the term ‘security testing’ means accessing a computer, computer system, or computer network, solely for the purpose of good faith testing, investigating, or correcting, a security flaw or vulnerability, with the authorization of the owner or operator of such computer, computer system, or computer network . . . [It] is not a violation . . . for a person to develop, produce, distribute or employ technological means for the sole purpose of performing the acts of security testing”). This policy may or may not outweigh a contract term to the contrary. See Section 118 for provisions dealing with reverse engineering for purposes of interoperability and Official Comment 3 to that section.With reference to contract law policies that regulate the bargain of the parties, this Act makes express public policy choices. Contract law issues such as contract formation, creation and disclaimer of warranties, measuring and limiting damages, basic contractual obligations, contractual background rules, the effect of contractual choice, risk of loss, and the like, including the right of parties to alter the effect of the terms of this Act by their agreement should not be invalidated under subsection (b) of this section. This subsection deals with policies that implicate the broader public interest and the balance between enforcing private transactions and the need to protect the public domain of information.

The court, if it finds a particular term unenforceable under this section, may enforce the remainder of the contract if it is possible to do so. In considering this issue the court should consider the factors described in Restatement (Second) of Contracts § 184.

Under this provision there are cases where a party can validly, by contract, agree not to comment about, use, or disclose information except as provided by agreement. Nondisclosure and no-discussion terms may be important for trade secrecy, trademark, unfair competition and other law. Enforcing such terms is central to establishing and retaining valuable rights and provides a foundation for much of modern practice involving technology. This subsection does not disturb such contracting practices, including practices that contractually restrict disclosure or comment. It does not apply unless the information is made generally available; thus, it would not apply to ordinary trade secret and limited distribution transactions.

The policy behind this subsection is this: if the person that owns or controls rights in the information decides that it is ready for general distribution to the public, the decision to place it in the general stream of commerce places it into an arena in which persons who use the product have a strong public interest in public discussion about it. This subsection recognizes that those public interests outweigh interests in enforcing the contract term in appropriate cases. It thus applies only if there was an authorized distribution in final form. “Final form” does not include distribution of pre-test or so-called “beta” or other test versions, such as where the intent of the distribution is to collect information to make further improvements and nondisclosure rules are important to obtaining feedback without exposing the potential product to premature public discussion and criticism. Once generally released in final form, however, a product does not lose that character simply because further versions of it may be developed and released in the future. A product is in final form for purposes of this section when it has been generally released in the marketplace. “End-user licensee” reflects the intent of this subsection not to disturb relationships between manufacturers and distributors where application of such a rule could have unintended consequences. In cases where the license involves a company or other legal entity, the term includes the named entity and any individuals authorized to use the computer information under that license.

A closer question exists if a party makes software available subject to limits on its use which may or may not be interpreted as involving contractual obligations. This Act does not take a position on whether or not intellectual property notices in any particular context are contractual in nature. This Act does not apply to non-contractual relationships. The effect of an intellectual property notice that is not part of a contract is governed by other law and this Act takes no position on what that law is or its effect.

§ 59.1-501.6. Rule of construction.

  1. This chapter must be liberally construed and applied to promote its underlying purposes and policies to:
    1. support and facilitate the realization of the full potential of computer information transactions;
    2. clarify the law governing computer information transactions;
    3. enable expanding commercial practice in computer information transactions by commercial usage and agreement of the parties;
    4. promote uniformity of the law with respect to the subject matter of this chapter among States that enact it; and
    5. permit the continued expansion of commercial practices in the excluded transactions through custom, usage and agreement of the parties.
  2. Except as otherwise provided in § 59.1-501.15, the use of mandatory language or the absence of a phrase such as “unless otherwise agreed” in a provision of this chapter does not preclude the parties from varying the effect of the provision by agreement.
  3. The fact that a provision of this chapter imposes a condition for a result does not by itself mean that the absence of that condition yields a different result.
  4. To be enforceable, a term need not be conspicuous, negotiated, or expressly assented or agreed to, unless this chapter expressly so requires.

History. 2000, cc. 101, 996; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2004 amendments.

The 2004 amendment by c. 794 substituted “59.1-501.15” for “59.1-501.13 (a)” in subsection (b).

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code § 1-102(1)(2)(4).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Computer information transaction”;

“Conspicuous”;

“Contract”;

“Electronic”;

“Party”;

“Term”.

  1. Scope of the Section. This section brings together rules regarding construction and application of this Act.
  2. Purpose of the Act. This Act must be construed in light of its purposes. As stated in paragraph (1), these are not regulatory, but are intended to facilitate and support commercial practice and to support its evolution through agreement and trade practices. To construe an Act in light of its purposes does not mean that general purposes supplant specific provisions.  However, in cases of uncertainty, the meaning of this Act should be construed by reference to the stated purposes and the themes developed in the Act, as opposed to inconsistent or extraneous contract law policies that contradict those of this Act.
  3. Mandatory Language. This Act ordinarily does not use phrases such as “unless otherwise agreed” and frequently uses mandatory language such as “shall” or “must.” However, neither drafting style alters the basic rule that the agreement controls in all cases, except as indicated in Section 115(b) [§ 59.1-501.15(b)]. Paragraph (2) rejects decisions such as Suburban Trust and Savings Bank v. The University of Delaware, 910 F. Supp. 1009 (D. Del. 1995) (absence of language allowing variance by agreement indicates provision is mandatory). The agreement, including trade usage and the like, also controls the meaning of language parties use in their contract. For example, an agreement may state that a party may “terminate” for breach.  The Uniform Commercial Code and this Act define “termination” as ending a contract without breach.  The proper interpretation of the agreement is based on its context and whether use of the term corresponds to a cancellation or termination under this Act.
  4. Negative Inference. Paragraph (3) resolves issues about the existence of a negative pregnant.  In this Act, the statement of an affirmative result that occurs when certain conditions are met does not necessarily indicate that a different result occurs if the conditions are not met.  Thus, if a provision states: “If the originator of a message requests acknowledgment, the following rules apply: —-”, this does not indicate what rule governs in the absence of a request. Similarly, a provision that states that particular language or procedure yields a specific result does not indicate what result occurs with different language or procedures.  It merely states the affirmative proposition.  If a different interpretation is intended, that different interpretation is made explicit in the section.
  5. Headings. Subsection (e) follows the UCC rule that sections headings are part of the Act, but subsection headings are not.

§ 59.1-501.7. Legal recognition of electronic record and authentication; use of electronic agents.

  1. A record or authentication may not be denied legal effect or enforceability solely because it is in electronic form.
  2. This chapter does not require that a record or authentication be generated, stored, sent, received, or otherwise processed by electronic means or in electronic form.
  3. In any transaction, a person may establish requirements regarding the type of authentication or record acceptable to that person.
  4. A person using an electronic agent that he has selected for making an authentication, performance, or agreement, including manifestation of assent, is bound by the operations of the electronic agent, even if no individual was aware of or reviewed the agent’s operations or the results of the operations.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

Law Review.

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Authentication”;

“Electronic”;

“Electronic agent”;

“Person”;

“Record”;

“Receive”;

“Sent”.

Section 112 [§ 59.1-501.12]: “Manifestation of assent”.

  1. Scope of Section. This section states that statutes pertaining to subject matter within this Act requiring a “writing” or “signature” must be interpreted and applied as allowing a “record” or “authentication.” The rules apply only to transactions within this Act, whether by agreement or otherwise.
  2. Equivalence of Electronics. Under subsection (a), the fact that a message, record or authentication is electronic does not alter its legal impact.  This establishes an equivalence between electronic and other records.  The rule refers to the form of the authentication or record, not to its content.  See Section 104(4) [§ 59.1-501.4:1(d)]. Subsection (a) does not address how to prove attribution or authentication, nor does it alter evidence law relating to when an original copy of a record is required or what, in a digital world, constitutes an original.
  3. Requiring Electronics. Nothing in this Act requires parties to use electronic processes. Subsection (b). In some cases, parties may wish to require use of paper documents; this Act does not alter that choice. It merely establishes a legal framework for electronic commerce in which electronics and paper records are equivalent in law. Parties may decide to use, or not to use, that framework.
  4. Establishing requirements. Subsection (c) makes clear that parties can set their own requirements regarding the acceptability of records or authentication. This does not authorize one party unilaterally to change requirements previously established by agreement. Also, subsection (c) does not require that the parties establish requirements regarding electronics — it simply clarifies that they may if they so choose. A person can insist on conformance with requirements that are offered or agreed. Thus, while typing one’s name with the requisite intent may be an authentication under this Act, parties can require a different form of authentication, such as a digital signature using encryption. Nothing in this Act disturbs their ability to so contract. Ordinary standards of waiver, estoppel and the like, along with general rules of offer and acceptance, provide standards for dealing with issues that might arise in this context.
  5. Electronic Agents. Operations of an electronic agent generally bind the party that used the electronic agent for that purpose. Subsection (d). This rule is limited to situations where the party selects the agent, and includes cases where the party consciously elects to employ the agent on its own behalf, whether that agent was created by it, licensed from another, or otherwise adopted for this purpose. The term “selects” does not require a choice from among several electronic agents, but merely a conscious decision to use a particular agent.

The concept here embodies principles like those in agency law, but it does not depend on agency law. The electronic agent must be operating within its intended purpose. For human agents, this is often described as acting within the scope of authority. Here, the focus is on whether the agent was used for the relevant purpose. For a similar concept in a different context, see Playboy Enterprises, Inc. v. Webbworld, Inc., 991 F. Supp. 543 (N.D. Tex. 1997), aff’d, 168 F.3d 486 (5th Cir. 1999). Cases of fraud, manipulation and the like are discussed in Section 206 [§ 59.1-502.6].

§ 59.1-501.8. Proof and effect of authentication.

  1. Authentication may be proven in any manner, including a showing that a party made use of information or access that could have been available only if it engaged in conduct or operations that authenticated the record or term.
  2. Compliance with a commercially reasonable attribution procedure agreed to or adopted by the parties or established by law for authenticating a record authenticates the record as a matter of law.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Attribution procedure”;

“Authenticate”;

“Information”;

“Party”;

“Record”.

  1. Scope of the Section. This section deals with two issues pertaining to proof of an authentication.  It does not address to whom the authentication is attributed.
  2. Method of Proof. Proof of authentication can occur in any manner. In electronic commerce, one important means of proving authentication is by showing that a process existed that required an authentication in order to proceed.
  3. Authentication Procedure. Under Subsection (b), compliance with an effective or commercially reasonable attribution procedure for authentication confirms that an authentication was intended and occurred. Compliance with such a procedure does not necessarily resolve the issue of to whom the authentication is attributed, but may have weight on that question. See Section 212 [§ 59.1-502.13].

Unless established by law, the procedure must be agreed to or adopted by the parties. This is not limited to instances in which the contracting parties have communicated directly concerning use of an authentication procedure. It includes instances in which one of the contracting parties contracted with a third party offering a digital signature or other procedure with the intent to be bound thereby whenever the signature is affixed to a record and to situations in which a group composed of member companies has adopted attribution procedures to use with other members or assenting third parties.

§ 59.1-501.9. Choice of law.

  1. The parties in their agreement may choose the applicable law. However, the choice is not enforceable in a consumer contract to the extent it would vary a statute, administrative rule, or regulation that may not be varied by agreement under the law of Virginia.
  2. In the absence of an enforceable agreement on choice of law, the contract is governed by the law of Virginia.

History. 2000, cc. 101, 996; 2001, cc. 762, 763.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 762 substituted “statute, administrative rule, or regulation” for “rule” in subsection (a).

The 2001 amendment by c. 763 substituted “statute, rule, or regulation” for “rule” in subsection (a).

The section is set out in the form above at the direction of the Virginia Code Commission.

Research References.

Virginia Forms (Matthew Bender). No. 13-527 Choice of Law.

OFFICIAL COMMENT

Uniform Law Source: Restatement (Second) of Conflicts 188. Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Access contract”;

“Agreement”;

“Consumer”;

“Consumer contract”;

“Contract”;

“Copy”;

“Delivery”;

“Electronic”;

“Licensor”;

“Party”;

“State”;

“Term”.

  1. Scope of Section. This section deals with agreed terms selecting applicable law and with what law applies to a transaction in the absence of agreed terms. Subsection (a) enforces the agreement except with respect to mandatory consumer protection rules. Subsections (b) and (c) provides clarity on what law applies in the absence of an enforceable contract term.
  2. Contractual Choice of Law. Contract terms that select the law applicable to the contract are routine in commercial agreements. The information economy accentuates their importance because it allows remote parties to enter and perform contracts spanning multiple jurisdictions and in circumstances that do not depend on physical location of either party or the information. Subsection (a) enables small companies to actively engage in multinational business; if the agreement could not designate applicable law, even the smallest business would be subject to the law of all fifty states and all countries in the world. That would impose large costs and uncertainty on an otherwise efficient system of commerce; it would create barriers to entry.
    1. General Rule. This Act enforces agreed choices of law. This follows most decisions dealing with information-related contracts. See Medtronic Inc. v. Janss, 729 F.2d 1395 (11th Cir. 1984); Northeast Data Sys., Inc. v. McDonnell Douglas Computer Sys. Co., 986 F.2d 607 (1st Cir. 1993). Restatement (Second) of Conflict of Laws § 188 has a similar rule. Subsection (a) does not follow U.C.C. § 1-105 (1998 Official Text) which requires that the selected state have a “reasonable relationship” to the transaction. In a global information economy, limitations of that type are inappropriate, especially in cyberspace where physical locations are often irrelevant or not knowable. Parties may appropriately wish to select a neutral forum because neither is familiar with the law of the other’s jurisdiction. In such a case, the chosen state’s law may have no relationship at all to the transaction. See White House Report, A Framework for Global Electronic Commerce, July 1, 1997. This rule is consistent with international norms. See Inter-American Convention on the Law Applicable to International Contracts art. 7 (Mexico City 1994); Convention on the Law Applicable to Contracts for the International Sale of Goods art. 7(1) (The Hague 1986).
    2. Limitations. Agreed choices of law are subject to limitations such as in the doctrine of unconscionability and the treatment of overriding fundamental public policy of the forum state. Section 105(b) [§ 59.1-501.5(b)]; Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App.4th 881, 72 Cal. Rptr.2d 73 (Cal. App. 1998). Compare Lowry Computer Products, Inc. v. Head, 984 F. Supp. 1111 (E.D. Mich. 1997).
  3. Choice of Law: No Contract term. Subsection (b) states what choice-of-law rules govern in the absence of a contract term. These rules apply to all contract-related issues and replace common law. Contracts in computer information can be created and performed remotely, a factor emphasizing the need for tailored, understandable rules that enhance certainty and thus facilitate commerce. As to common law, see William Richman & William Reynolds, Understanding Conflict of Laws 241 (2d ed. 1992) (“[C]hoice-of-law theory today is in considerable disarray. [It] is marked by eclecticism and even eccentricity.”).
  4. Most Significant Relationship. In the absence of an agreement and except for the rules in subsections (b)(1) and (b)(2), subsection (b)(3) adopts a “most significant relationship” test. The Restatement (Second) of Conflicts of Law uses a similar test; cases interpreting that rule are applicable here. Applying this test requires consideration of factors including the: (a) place of contracting, (b) place of negotiation, (c) place of performance, (d) location of the subject matter of the contract, (e) domicile, residence, nationality, place of incorporation and place of business of one or both parties, (f) needs of the interstate and international systems, (g) relative interests of the forum and other interested states in the determination of the particular issue, (h) protection of justified expectations of the parties, and (i) promotion of certainty, predictability and uniformity of result.
  5. Foreign Countries. Subsection (c) does not apply if an enforceable contract term designates what law applies. It deals with cases where the default rules in subsection (b) select the law of a foreign country whose law is substantively inappropriate because it fails to give a party protections substantially similar to those available under this Act. The reference is solely to contract law, including this Act and general contract and related equity law of the jurisdiction. Subsection (c) allows a court to use a different choice of law rule than in (b), but courts should alter the basic rule only in extreme cases. It does not suffice merely that the foreign law is different. The differences must be substantial and adverse.

Subsection (a) further provides that, in a consumer contract, the agreed choice of law cannot override an otherwise applicable rule that could not be altered by agreement under the law of the state whose law would apply in the absence of the contractual choice. The policy of freedom of contract should not permit overriding the consumer rule if a state, having addressed the cost and benefits, determines that the consumer rule is not variable by contract.

Subsection (b)(1) specifies that, in an access contract or a contract involving electronic delivery of information, in the absence of an agreed choice of law, the agreement is governed by the law of the jurisdiction in which the licensor is located. Any other rule would require that the information provider (small or large) comply with the law of all states and all countries, since it may not be known or knowable where the contract is formed or the information sent. The rule adopted here enhances certainty in a context where an on-line vendor, large or small, makes Internet access available to the entire world. “Located” is defined in subsection (d) and does not depend on the location of the computer that contains the information.

Subsection (b)(2) applies to consumer transactions that involve delivery of tangible (physical) copies. In the absence of agreed terms, the law where the copy is or was to be delivered governs. Thus, if a consumer is to receive delivery of a tangible copy in Chicago, the transaction is subject to the law of Illinois unless the agreement indicates otherwise. This is consistent with current U.S. law and is followed in many European countries. It adopts, for the consumer, the location that is most likely to be consistent with the consumer’s expectations. It avoids surprise to the provider because the tangible copy is to be delivered into a known state.

The rules in subsection (b) deal only with contract law. They do not affect tax, copyright, or other fields of law. See Quill Corp. v. North Dakota , 504 U.S. 298, 112 S. Ct. 1904, 119 L. Ed. 2d 91 (1992); Itar-tass Russian News Agency v. Russian Kurier, Inc. , 153 F.3d 82 (2d Cir. 1998); Allarcom Pay Television, Ltd. v. General Instrument Corp. , 69 F.3d 381 (9th Cir. 1995).

§ 59.1-501.10. Contractual choice of forum.

  1. The parties in their agreement may choose an exclusive judicial forum unless the choice is unreasonable or unjust.
  2. A judicial forum specified in an agreement is not exclusive unless the agreement expressly so provides and, in a mass-market transaction, expressly and conspicuously so provides.

History. 2000, cc. 101, 996; 2001, c. 763.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 763 substituted “or unjust” for “and unjust” at the end of subsection (a), and inserted “and, in a mass-market transaction, expressly and conspicuously so provides” at the end of subsection (b).

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Party”;

“Term”.

  1. Scope of the Section. This section deals with agreements choosing an exclusive judicial or arbitral forum.
  2. General Rule. Choice of forum agreements are generally enforceable. This rule adopts the approach of Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972), and cases following that decision, which form the majority position on this issue in this country, and which treat choice of forum terms as presumptively valid. The Restatement (Second) of Conflicts of Law has a similar rule.
  3. Limitations. A choice of an exclusive forum is not enforceable if it is unreasonable or unjust; the term also is not enforceable if it is unconscionable under Section 111 [§ 59.1-501.11]. The “unreasonable or unjust” standard follows Breman and its progeny and adopts the reasoning of those cases, also applying the standard to choice of arbitral forums. The agreed term is unenforceable if it has no valid commercial purpose and has a severe and unfair impact on the other party. In such cases, the choice is both unreasonable and unjust. This may preclude enforcement of forum agreements that choose an unreasonable forum solely to defeat the other party’s ability to contest disputes. Terms may be unreasonable in that they have no commercial purpose or justification other than to defeat the rights of the other party and their impact may be unjust if the term unfairly harms the other party for no sustainable reason. On the other hand, an agreed choice of forum based on a valid commercial purpose is not invalid simply because it adversely affects one party, even if bargaining power was unequal. The burden of establishing that the clause fails lies with the party asserting its invalidity. Bremen v. Zapata Offshore Co., 407 U.S. 1 (1972); Pelleport Investors, Inc. v. Budco Quality Theaters, Inc., 741 F.2d 273 (9th Cir. 1984); Restatement (Second) of Conflicts of Law § 80, comment c (1989 rev.). A party that challenges a choice of forum clause by filing in a forum other than the designated forum does not breach the contract by doing so.
  4. Non-exclusive Forum. Subsection (b) provides that a choice of forum term is nonexclusive unless the agreement expressly provides otherwise. Requiring express exclusivity terms provides notice and follows what, in most cases, is the expectation of the parties. The enforceability of a non-exclusive forum selection clause is not addressed in this Act. Absent unconscionability or other overriding restriction, these clauses present less reason for restricting contract choices than do the clauses dealt with in this section.
  5. Forum for Decision. Subsection (c) clarifies the general rule that the enforceability of the forum selection clause will be determined by the forum in which the action is brought. The subsection refers to a decision by a court. In this Act, that term includes an arbitral forum. Thus, this section does not resolve the issue of whether the determination is to be made by a court or an arbitral panel. The forum must be of competent jurisdiction. The subsection does not disturb existing law that determines whether a challenge to a forum selection should be heard by an arbitrator or by a judicial officer. If the action is brought by a consumer in his jurisdiction or if enforcement of a judgment is challenged by the consumer in its jurisdiction,then the consumer’s jurisdiction will decide the questions of enforceability of the forum selection clause.
  6. Federal Arbitration Act. The federal Arbitration Act provides preemptive federal standards regarding the treatment of arbitration clauses and the enforceability of arbitration remedies. This Act does not alter those preemptive standards.

Agreed choices of forum are important in electronic commerce. Court decisions on jurisdiction in the Internet demonstrate the uncertainty about when merely doing business on the Internet exposes a party to jurisdiction in all States and all countries. That uncertainty affects all businesses, but it has greatest impact on small enterprises. Choice of forum agreements serve a significant commercial purpose by allowing parties to control the uncertainty and the cost it creates. See, e.g., Evolution Online Systems, Inc. v. Koninklijke Nederlan N.V., 145 F.3d 505 (2nd Cir. 1998); Caspi v. Microsoft Network, L.L.C., 323 N.J.Super. 118, 732 A.2d 528 (N.J. A.D. 1999), cert. den., 162 N.J. 199, 743 A.2d 851 (1999). The Court’s discussion in Carnival Cruise Lines, Inc. v. Shute, 111 S. Ct. 1522 (1991) in a different multi-jurisdictional context is relevant to determining reasonableness in Internet contracting:

§ 59.1-501.11. Unconscionable contract or term.

  1. If a court as a matter of law finds a contract or a term thereof to have been unconscionable at the time it was made, the court may refuse to enforce the contract, enforce the remainder of the contract without the unconscionable term, or limit the application of the unconscionable term so as to avoid an unconscionable result.
  2. If a court as a matter of law finds a contract or a term thereof has been induced by unconscionable conduct or that unconscionable conduct has occurred in the collection of a claim arising from the contract, the court may grant appropriate relief.
  3. If it is claimed or appears to the court that a contract or term thereof may be unconscionable, the parties must be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code § 2-302 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Court”;

“Term”.

  1. Scope of the Section. This section adopts the unconscionability doctrine of Uniform Commercial Code § 2-302 (1998 Official Text).
  2. Basic Policy and Effect. This section and Section 117 [§ 59.1-501.17] allow courts to rule directly on the unconscionability of the contract or a particular term. The basic test is whether, in light of the general commercial background and the commercial needs of the particular trade or case, the terms involved are so one-sided as to be unconscionable under the circumstances existing at the time the contract was made. The principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power. See Intel Corp. v. Integraph, 195 F.3d 1346 (Fed. Cir. 1999). Since its adoption in Article 2 of the U.C.C., the doctrine of unconscionability has received continuing attention from the courts and enables courts to police explicitly against the contracts or clauses which they find to be unconscionable. See, Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569 (N.Y.A.D. 1998). In this Act, the concept requiring an ‘opportunity to review’ establishes a requirement that is not clearly present in common law and that resolves many procedural issues preventing unfair surprise. Section 113 [§ 59.1-501.13:1], cmt. 2.
  3. Electronic commerce. This Act confirms the enforceability of automated contracting involving “electronic agents,” but in some cases automation may produce unexpected, potentially oppressive results due to errors in programs, problems in communication, or other unforeseen circumstances in the automation process. Common law concepts of mistake may apply, as may Sections 206 and 213 [§§ 59.1-502.6 and 59.1-502.14]. In addition, in appropriate cases, unconscionability doctrine may invalidate a term because a procedural breakdown in automated contract formation produces unexpected and oppressive results in the terms of the agreement.
  4. Remedy. The court, in its discretion, may refuse to enforce the contract as a whole if it is permeated by the unconscionability, or it may strike any single term or group of terms that are so tainted, or it may simply limit unconscionable clauses so as to avoid unconscionable results.
  5. Decision of the court. Unconscionability is a decision to be made by the court. The commercial evidence allowed under subsection (b) is for the court’s consideration, not for the jury. Only the terms of the agreement that result from the court’s action are submitted to the general triers of fact for resolution of a matter in dispute.

§ 59.1-501.12. Manifesting assent.

  1. A person manifests assent to a record or term if the person, acting with knowledge of, or after having an opportunity to review the record or term or a copy of it:
    1. authenticates the record or term with intent to adopt or accept it; or
    2. intentionally engages in conduct or makes statements with reason to know that the other party or its electronic agent may infer from the conduct or statement that the person assents to the record or term.
  2. An electronic agent manifests assent to a record or term if, after having an opportunity to review it, the electronic agent:
    1. authenticates the record or term; or
    2. engages in operations that in the circumstances indicate acceptance of the record or term.
  3. If this chapter or other law requires assent to a specific term, a manifestation of assent must relate specifically to the term.
  4. Conduct or operations manifesting assent may be proved in any manner, including showing that a person or an electronic agent obtained or used the information or informational rights and that a procedure existed by which a person or an electronic agent must have engaged in the conduct or operations in order to do so. Proof of compliance with subsection (a) (2) is sufficient if there is conduct that assents and subsequent conduct that reaffirms assent by electronic means.
  5. The effect of provisions of this section may be modified by an agreement setting out standards applicable to future transactions between the parties.
  6. Providers of online services, network access, and telecommunications services, or the operators of facilities thereof, do not manifest assent to a contractual relationship simply by their provision of these services to other parties, including but not limited to transmission, routing, or providing connections, linking, caching, hosting, information location tools, or storage of materials at the request or initiation of a person other than the service provider.

History. 2000, cc. 101, 996; 2001, c. 763; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 763 added subsection (g).

The 2004 amendments.

The 2004 amendment by c. 794 deleted subsection (e), relating to rules that apply to an opportunity to review and redesignated former subsections (f) and (g) as present subsections (e) and (f).

OFFICIAL COMMENT

Uniform Law Source: Restatement (Second) of Contracts § 19.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Authenticate”;

“Copy”;

“Electronic”;

“Electronic agent”;

“Delivery”;

“Information”;

“Informational Rights”;

“Knowledge”;

“Mass-market license”;

“Person”;

“Record”;

“Return”;

“Term”.

Section 117 [§ 59.1-501.17]: “Reason to know”.

  1. Scope of Section. This section provides standards for “manifestation of assent.” Section 113 [§ 59.1-501.13:1] deals with the related, important concept of an “opportunity to review”. In this Act, having an opportunity to review a record is a precondition to manifesting assent.
  2. General Theme. The term “manifesting assent” comes from Restatement (Second) of Contracts § 19. This section corresponds to Restatement § 19 but more fully explicates the concept.  Codification establishes uniformity that is lacking in common law.
  3. Manifesting Assent.
    1. Assent by Statements or Authentication. A person can assent to a record or term by stating or otherwise indicating its assent or by “authenticating” the record or term.  Authentication occurs if a party signs a record or does an electronic equivalent. Section 102 (a)(6) [§ 59.1-501.2 (a)(6)].
    2. Assent by Conduct. Assent occurs if a person acts or fails to act having reason to know its behavior will be viewed by the other party as indicating assent. Whether this occurs depends on the circumstances. As in common law, proof of assent does not require proof of a person’s subjective intent or purpose, but focuses on objective indicia, including whether there was an act or a failure to act voluntarily engaged in with reason to know that an inference of assent would be drawn.  Actions objectively indicating assent are assent. This follows  modern contract law doctrines of objective assent.  Doctrines of mistake, fraud, and duress apply in appropriate cases.
    3. Assent by Electronic Agents. Assent may occur through automated systems (“electronic agents”). Either or both parties (including consumers) may use electronic agents. For electronic agents, assent cannot be based on knowledge or reason to know, since computer programs are capable of neither and the automated nature of the interaction may mean that no individual is aware of it.  Subsection (b) focuses on the electronic agent’s acts, not knowledge, or reason to know. Assent occurs if the agent’s operations were an authentication or if, in the circumstances, the operations indicate assent. In this Act, manifesting assent requires a prior opportunity to review. For an electronic agent, this opportunity occurs only if the record or term was presented in such a way that a reasonably configured electronic agent could react to it. See Section 113(b) [§ 59.1-501.13:1].  The capability of an automated system to react and an assessment of the implications of its actions are the only appropriate measures of assent.
    4. Assent to Particular Terms. This Act distinguishes between assent to a record and, when required by this Act or other law, assent to a particular term in a record.  Assent to a record encompasses all terms of the record.  Section 208 [§ 59.1-502.8]. Assent to a particular term, if required, requires acts that specifically relate to that term.  This is like a requirement that a party “initial” a clause to make it effective.  One act, however, may assent to both the record and the term if the circumstances, including the language of the record, clearly indicate that this is true, such as where assent is clearly indicated as being to the record and to a term the nature of which is made clear to the assenting party.
  4. Terms of Agreement. Manifestation of assent to a record is not the only way in which parties establish the terms of their agreement.  This Act does not alter recognition in law of other methods of agreeing to terms.  For example, a product description can become part of an agreement without manifestation of assent to a record repeating that description; the product description defines the bargain itself.  A party that licenses a database of names of “consumer attorneys” need only provide a database of consumer attorneys since this is the bargain; the provider is not required to obtain assent to a record stating that deal. Similarly, the licensee can rely on the fact that the database must contain consumer attorneys, not other lawyers. If a product is clearly identified on the package or in representations to the licensee as for consumer use only, that term is effective without language in a record restating the description or conduct assenting to that record.  Of course, if the nature of the product is not obvious and there is no assent or agreement to terms defining it, hidden conditions might not be part of the agreement.
  5. Proof of Assent. Many different acts can establish assent to a contract or a contract term.  It is not possible to state them in a statute.  In electronic commerce, one important method is by showing that a procedure existed that required an authentication or other assent in order to proceed in an automated system.  This is recognized in subsection (d).
  6. Authority to Act. The person manifesting assent must be one that can bind the party seeking the benefits or being charged with the obligations or restrictions of the agreement.  In general, this Act treats this issue as a question of attribution: are the assent-producing acts attributable to this particular person?  A person that desires to enforce terms against another must establish that it dealt with an individual or agent that had authority to bind the person or, at least, establish that the person to be bound accepted the benefits of the contract or otherwise ratified the acts.  If the individual who assented did not have authority and the conduct was not ratified or otherwise adopted, there may be no assent as to the party “represented,” but only as to the individual who acted. If this occurs, both the purported principal and the relying party may be at risk: the relying party (e.g., licensor) risks loss of its terms with respect to the party it intended to have bound, while the purported principal (“licensee” using information not obtained by a proper agent) risks that use of the computer information infringes a copyright or patent, since the principal does not have the benefit of the license. There must be an adequate connection between the individual who had the opportunity to review and the one whose acts constitute assent.  Of course, a party with authority can delegate that authority to another and such delegation may be either express or implicit.  Thus, a CEO may authorize her secretary to agree to a license when the CEO instructs the secretary to sign up for legal materials online or to install a newly acquired program that is subject to an on-screen license.
  7. Modification of Rules. Subsection (e) recognizes that parties, by prior agreement, may define what constitutes assent with respect to future conduct in ongoing relationships. Compare Section 113(e). The parties may call for more or less formality than set out in this Act. This is important for cases where multiple transfers in electronic commerce occur pursuant to prior agreement. Assent in such cases can just as well be found in the original agreement as in the subsequent conduct.
  8. Third Party Service Providers. Assent requires conduct by the party to be bound or its agents.  If the party is enabled to reach a system because of services provided by a third party communications or service provider, the service provider typically does not intend or enter into in a contractual relationship with the provider of the information. While the customer’s acts may constitute assent by the customer, they do not bind the service provider since the service provider’s actions are in the nature of transmissions and enabling access, not assent to a contractual relationship.

Restatement (Second) of Contracts § 19(1) provides: ‘The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.‘ This section adopts that view. Conduct can convey assent as clearly as words. This rule is important in electronic commerce, where most interactions involve conduct rather than words. Subsection (b) adapts that principle to electronic agent contracting.

“Manifesting assent” has several roles: 1) a method by which a party agrees to a contract; 2) a method by which a party adopts terms of a record as the terms of a contract; and 3) if required by this Act, a means of assenting to a particular term. In most cases, the same act accomplishes the results under 1 and 2.

Manifesting assent does not require any specific formality of language or conduct. In this Act, however, to manifest assent to a record or term requires meeting three conditions:

First , the person must have knowledge of the record or term or an opportunity to review it before assenting. An opportunity to review requires that the record be made available in a manner that ought to call it to the attention of a reasonable person and that readily permits review. Subsection 113 may also require a right of return if the opportunity to review comes after a person becomes obligated to pay or begins performance.

Second , having had an opportunity to review, the person must manifest assent. The person may authenticate the record or term, express assent verbally, or intentionally engage in conduct with reason to know that the conduct indicates assent. Restatement (Second) of Contracts § 19. As in the Restatement this can include a failure to action if the circumstances so indicate.

Third , the conduct, statement, or authentication must be attributable in law to the person. General agency law and Section 212 [§ 59.1-502.13] provide standards for attribution.

Assent does not require that a party be able to negotiate or modify terms, but the assenting behavior must be intentional (voluntary). This same rule prevails in all other contract law. Intentional conduct is satisfied if the alternative of refusing to act exists, even if refusing leaves no alternative source for the computer information. On the other hand, conduct is not assent if it is conduct which the assenting party cannot avoid doing, such as blinking one’s eyes. Courts use common sense in applying this standard in common law and will do so under this Act. Actions in a context of a mutual reservation of the right to defer agreement to a contract do not manifest assent; neither party has any reason to believe that its conduct will suggest assent to the other party.

Knowledge that conduct or inaction is assent satisfies this rule. Also, conduct is assent if a person has “reason to know” the conduct will lead the other party to believe that there was assent. Factors that relate to this issue include: the ordinary expectations of similar persons in similar contexts; language on a display, package, or otherwise made available to the party; the fact that the party can decline and return the information, but decides to use it; information communicated before the conduct occurred; and standards and practices of the business, trade or industry of which the person has reason to know.

The “reason to know” standard is not met if the computer information is sent to a recipient unsolicited under terms that purport to create a binding contract by failure to object to the unsolicited sending. In such cases, it is not reasonable for the sending party to infer assent from silence; the threshold for manifesting assent is not met.

Often, copyright or other intellectual property notices restrict use of a product without needing assent to contract terms. For example, a video rental may place a notice on screen that limits the customer’s use such as by precluding commercial public performances. Enforceability of such notices does not depend on obtaining a manifestation of assent.

Subsection (d) also encourages use of double assent procedures as a reconfirmation showing intentional assent (“intentionally engages in conduct . . . with reason to know”). It makes clear that if the assenting party has an opportunity to confirm or deny assent before proceeding to obtain or use information, confirmation meets the requirement of subsection (a)(2). This does not alter the effectiveness of a single indication of assent. When properly set out with an opportunity to review terms and to make clear that an act such as clicking assent on-screen is assent, a single indication of assent suffices. See Caspi v. Microsoft Network, L.L.C., 323 N.J.Super. 118, 732 A.2d 528 (N.J.A.D. 1999), cert. den., 162 N.J. 199, 743 A.2d 851 (1999); Register.com, Inc., v. Verio, Inc. 126 F. Supp.2d 238 (SD NY 2000).

Illustration 1: The registration screen for NY Online prominently states: “Please read the License. It contains important terms about your use and our obligations. If you agree to the license, indicate this by clicking the ‘I agree’ button. If you do not agree, click ‘I decline’.” The on-screen buttons are clearly identified. The underlined text is a hypertext link that, if selected, promptly displays the license. A party that indicates “I agree” assents to the license and adopts its terms.

Illustration 2: The first screen of an online stock-quote service requires that the potential licensee enter its name, address and credit card number. After entering the information and striking the “enter” key, the licensee has access to the data and receives a monthly bill. Somewhere below the place to enter the information, but hidden in small print, is the statement: “Terms and conditions of service; disclaimers.” The customer’s attention is not called to this sentence, nor is the customer asked to react to it. Even though using the service creates a contract, there may be no assent to the terms of service and disclaimer, since there is no act indicating assent to those terms. If there is no assent to those terms, the court would determine contract terms on other grounds, including the rules of this Act and usage of trade.

Questions of this sort arise under agency law as augmented in this Act, such as by the provision on electronic agents in Section 211 [§ 59.1-502.12] or rules in this Act on attribution. Other law governs questions of ordinary agency law, estoppel and the like.

Subsection (f) makes clear that service providers — providers of online services, network access, or the operation of facilities thereof — do not manifest assent to a contractual relationship simply from their provision of such services, including but not limited to transmission, routing, providing connections, or linking or storage of material at the request or initiation of a person other than the service provider. If, for example, a telecommunications company provided the routing for a user to reach a particular online location, the fact that the user of the service might assent to a contract at that location does not mean that the service provider has done so. The conduct of the customer does not bind the service provider.

Of course, in some on-line systems the service provider has direct contractual relationships with the content providers or may desire access to and use the information on its own behalf, and therefore may assent to terms in order to obtain access. In the absence of these circumstances, however, the mere fact that the third-party service provider enables the customer to reach the information site does not constitute assent to the terms at that site.

§ 59.1-501.13. Repealed by Acts 2004, c. 794.

Cross references.

For current provisions concerning variation by agreement; commercial practice, see § 59.1-501.15.

§ 59.1-501.13:1. Opportunity to review.

  1. A person has an opportunity to review a record or term only if it is made available in a manner that ought to call it to the attention of a reasonable person and permit review.
  2. An electronic agent has an opportunity to review a record or term only if it is made available in a manner that would enable a reasonably configured electronic agent to react to the record or term.
  3. If a record or term is available for review only after a person becomes obligated to pay or begins its performance, the person has an opportunity to review only if he has a right to a return if he rejects the record. However, a right to a return is not required if:
    1. the record proposes a modification of contract or provides particulars of performance under § 59.1-503.5; or
    2. the primary performance is other than delivery or acceptance of a copy, the agreement is not a mass-market transaction, and the parties at the time of contracting had reason to know that a record or term would be presented after performance, use, or access to the information began.
  4. The right to a return under this section may arise by law or by agreement.
  5. The effect of this section may be modified by an agreement setting out standards applicable to future transactions between the parties.

History. 2004, c. 794.

OFFICIAL COMMENT

Definitional Cross References: Section 102 [§ 59.1-501.2]: “Agreement”;

“Copy”;

“Information”;

“Mass-market transaction”;

“Record”;

“Term”.

  1. Scope of this Section. This section sets out the basic standards for when a party has been given an opportunity to review the terms of a record. Unless there is an opportunity to review the record, under Section 112 [§ 59.1-501.12] the party cannot manifest assent to it.
  2. Opportunity to Review. A manifestation of assent to a record or term under this Act cannot occur unless there was an opportunity to review the record or term. Common law does not clearly establish this requirement, but the requirement of an opportunity to review terms reasonably made available reflects simple fairness and establishes concepts that curtail procedural aspects of unconscionability. Section 111 [§ 59.1-501.11]. For a person, an opportunity to review requires that a record be made available in a manner that ought to call it to the attention of a reasonable person and permit review. See Specht v. Netscape Communications Corp., — F.3d —, 2002 WL 31166784 n. 13 (Fed. Cir. 2002). This requirement is met if the person knows of the record or has reason to know that the record or term exists in a form and location that in the circumstances permit review of it or a copy of it. For an electronic agent, an opportunity to review exists only if the record is one to which a reasonably configured electronic agent could respond. Terms made available for review during an over-the-counter transaction or otherwise in a manner required under federal law give an opportunity to review.
    1. Declining to Use the Opportunity to Review. An opportunity to review does not require that the person use that opportunity. The condition is met even if the person does not read or actually review the record. This is not changed because the party desires to complete the transaction rapidly, is under pressure to do so, or because the party has other demands on its attention, unless the one party actively manipulates circumstances to induce the other party not to review the record. Such manipulation may vitiate the alleged opportunity to review.
    2. Permits Review. How a record is made available for review may differ for electronic and paper records. In both, however, a record is not available for review if access to it is so time-consuming or cumbersome, or if its presentation is so obscure or oblique, as to make it difficult to review. It must be presented in a way as to reasonably permit review. In an electronic system, a record promptly accessible through an electronic link ordinarily qualifies. Actions that comply with federal or other applicable consumer laws that require making contract terms or disclosure available, or that provide standards for doing so, satisfy this requirement.
    3. Right to Return. If terms in a record are not available until after there is an initial commitment to the transaction, subsection (c) indicates that ordinarily there is no opportunity to review unless the party can return the product (or for a vendor that refuses the other party’s terms, recover the product) and receive appropriate reimbursement of payments if it rejects the terms. The return right creates a situation where meaningful assent can occur. The right exists only for the first licensee. If the right to a return is created only by agreement or by an offer from the one party, rather than by law, the right must be communicated to the other person so that the person ought to become aware of it.
  3. Modifications and Layered Contracting. The right to a return provisions do not apply to proposals to modify an agreement or to cases where the agreement gives a party the right to specify particulars of performance. If the contract allows one party unilaterally to alter terms, no further agreement is required for the changed terms to be effective if the term is not unconscionable or otherwise made invalid. If that contractual right does not exist, however, and one party proposes in a record modifications of the contract (that can become effective only on the other person’s agreement to them), there must be an opportunity to review the terms before a manifestation of assent pursuant to Section 112.
  4. Modification of Rules. Subsection (e) allows parties, by prior agreement, to define what constitutes assent with respect to future conduct in ongoing relationships. The parties may call for more or less formality than set out in this Act. This is important for cases where multiple transfers in electronic commerce occur pursuant to prior agreement. Assent in such cases can just as well be found in the original agreement as in the subsequent conduct.

Computer information is frequently distributed without charge for the purpose of enabling the recipient to enter into transactions with the licensor. The “beginning of performance” under subsection (c) in such cases is typically not payment, but selection of a password or other attribution procedure or the initiation of a transaction. In such situations, with respect to a right of return, the licensor’s obligation is satisfied if it provides instructions on request for destruction or return of the information and, when applicable under Section 209 [§ 59.1-502.9], reimburses the other party for costs, if any. Although the party refusing terms has a reasonable time within which to contact the licensor and destroy the information, it must do so before it uses the information to select a security procedure or initiate a transaction.

There is no distinction between software distributed at a nominal price and software that is competitively priced. Therefore, if a financial or other institution distributes software at a nominal price that enables a customer to manage its personal finances or to engage in transactions with the distributor of the software, it must offer the right of return in the same manner as a company that distributes such at a market price.

The return right provides incentive for a licensor to make the terms of the license available up-front if commercially practicable since this avoids the right of return in this section and in Sections 209 and 613 [§§ 59.1-502.9 and 59.1-506.12]. An additional incentive, under Sections 208 and 209 [§§ 59.1-502.8 and 59.1-502.9], is that, when presentation of terms is deferred, the terms cannot become part of the contract unless the other party had reason to know that terms would be presented later. A decision to delay presentation of terms without an important commercial reason to do so may result in substantial costs and uncertainty.

Failure to provide a right to return when required does not invalidate the agreement, but creates a risk that the terms will not be assented to by the party to which they were presented. If there is no manifestation of assent to a record, the terms of the agreement are determined by considering all the circumstances, including the expectations of the parties, applicable usage of trade and course of dealing, and the property rights, if any, involved in the transaction. In such cases, courts should be careful to avoid unwarranted forfeiture or unjust enrichment. An agreement with payment and other agreed terms that reflect a right to use information for consumer purposes only cannot be transformed into an unlimited right of commercial use by a failure of assent.

Similarly, the return right does not apply where parties begin performance in the expectation that a record containing contract terms will be presented and adopted later and the performance is more than merely tendering and accepting an existing copy of computer information. Subsection (c). This is common in software development and other complex contracts; this Act does not disturb that commercial practice.

§ 59.1-501.14. Repealed by Acts 2004, c. 794.

Cross references.

For current provisions concerning supplemental principles, good faith, and commercial practice, see § 59.1-501.16.

§ 59.1-501.14:1. Pretransaction disclosures in Internet-type transactions.

This section applies to a licensor that makes its computer information available to a licensee by electronic means from its Internet or similar electronic site. In such a case, the licensor affords an opportunity to review the terms of a standard form license, which opportunity satisfies § 59.1-501.13:1 with respect to a licensee that acquires the information from that site, if the licensor:

  1. makes the standard terms of the license readily available for review by the licensee before the information is delivered or the licensee becomes obligated to pay, whichever occurs first, by:
    1. displaying prominently and in close proximity to a description of the computer information, or to instructions or steps for acquiring it, the standard terms or a reference to an electronic location from which they can be readily obtained; or
    2. disclosing the availability of the standard terms in a prominent place on the site from which the computer information is offered and promptly furnishing a copy of the standard terms on request before the transfer of the computer information; and
  2. does not take affirmative acts to prevent printing or storage of the standard terms for archival or review purposes by the licensee.

    Failure to provide an opportunity to review under this section does not preclude a person from providing a person an opportunity to review by other means pursuant to § 59.1-501.13:1 or law other than this chapter.

History. 2004, c. 794.

OFFICIAL COMMENT

Definitional Cross References: Section 102 [§ 59.1-501.2]: “Computer information”;

“Copy”;

“Electronic”;

“Information”;

“License”;

“Licensee”;

“Licensor”;

“Standard form”.

Section 113 [§ 59.1-501.13:1]: “Opportunity to review”.

  1. Scope of Section. This section deals with pre-transaction disclosures of contract terms in Internet transactions where the contract is formed on-line for an electronic delivery of information.
  2. Relation to Other Assent Rules. This section provides guidance for Internet commerce and an incentive for use of particular types of disclosures of terms and acts as an incentive-creating, safe harbor rule. The section does not foreclose use of other procedures. Failure to comply with this section does not bear on whether a license is enforceable or whether the procedures used adequately establish an opportunity to review. Whether an opportunity to review has occurred is determined under the general standards in Section 113.
  3. Disclosure and Downloading. The disclosure rules in this section are modeled the federal Magnuson-Moss Warranty Act. They combine actual disclosure with availability of terms. It is sufficient that standard terms be available on request. Terms might be made available by hyperlink on the particular site or through providing a potential licensee with an address (electronic or otherwise) from which the terms can be obtained. The terms to be made available are the standard terms of a license of the type involved. Supplying the terms can meet the requirements for providing an opportunity to review if the provisions of this section are met.

The terms or a reference to them must be in a prominent place in the site or in close proximity to the computer information or instructions for obtaining it. The intent of the close proximity standard is that the terms or the reference to them would be called to the attention of an ordinary reasonable person.

Given all other conditions being satisfied, this section is met if the licensor does not take affirmative steps to preclude printing or storage of the terms of the agreement. This does not require that the licensor adopt technologies that enable downloading or printing, although many technologies allow this. It does require that there be nothing affirmatively done to preclude use of one of those alternatives. For example, a licensor that uses a technology which would otherwise enable copying the contract terms and modifies it specifically to preclude copying does not qualify under the provisions of this section. However, one method of compliance is sufficient: if the terms include sensitive information that is more susceptible to unauthorized distribution if made available in electronic form, the licensor may preclude electronic copies. As long as it does not also preclude the ability to print a paper copy, this section is still satisfied. If the licensor links the person to another location under the control of a third party, knowing that affirmative steps will be taken at that location to prevent downloading or printing, there is no compliance with this section.

§ 59.1-501.15. Variation by agreement; commercial practice.

  1. The effect of any provision of this chapter, including an allocation of risk or imposition of a burden, may be varied by agreement of the parties.
  2. The following rules are not variable by agreement:
    1. Obligations of good faith, diligence, reasonableness, and care imposed by this chapter may not be disclaimed by agreement, but the parties by agreement may determine the standards by which the performance of the obligation is to be measured if the standards are not manifestly unreasonable;
    2. The limitations on enforceability imposed by unconscionability under § 59.1-501.11 and fundamental public policy under § 59.1-501.5 (b) may not be varied by agreement; and
    3. Limitations on enforceability of, or agreement to, a contract, term, or right expressly stated in the sections listed in the following subsections may not be varied by agreement except to the extent provided in each section:
      1. the limitations on agreed choice of law in § 59.1-501.9 (a);
      2. the limitations on agreed choice of forum in § 59.1-501.10;
      3. the requirements for manifesting assent in § 59.1-501.12 and opportunity for review in § 59.1-501.13:1;
      4. the limitations on enforceability in § 59.1-502.1;
      5. the limitations on a mass-market license in § 59.1-502.9;
      6. the consumer defense arising from an electronic error in § 59.1-502.14;
      7. the requirements for an enforceable term in §§ 59.1-503.3 (b), 59.1-503.7 (f), 59.1-504.6 (b) and (c), and 59.1-508.4 (a);
      8. the requirements of § 59.1-503.4 (b) (2);
      9. the limitations on a financier in §§ 59.1-505.7 through 59.1-505.11;
      10. the restrictions on altering the period of limitations in § 59.1-508.5 (a) and (b); and
      11. the limitations on self-help repossession in §§ 59.1-508.15 (b) and 59.1-508.16.

History. 2004, c. 794.

OFFICIAL COMMENT

Uniform Law Source: Uniform Law Source: Uniform Commercial Code §§ 1-102(3); 1-203 ; 1-205(3); 2-303.

Definitional Cross References: Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Conspicuous”;

“Financier”;

“Party”;

“Return”;

“Term”.

Section 112 [§ 59.1-501.12]: “Manifesting assent”;

Section 113 [§ 59.1-501.13:1]: “Opportunity to Review.”

  1. Scope of Section. Subsection (a) sets out basic principles on the effect and meaning of an agreement. It follows Uniform Commercial Code (1998 Official Text). Subsection (b) delineates rules that cannot be varied by agreement when they are otherwise applicable.
  2. Contract Choice. The fundamental policy of this Act is freedom of contract. Subsection (a). See also Uniform Commercial Code § 1-102(3), Official Comment 2 (1998 Official Text). With few exceptions, the parties’ agreement controls; the effect of provisions of this Act may be varied by agreement unless the provision is expressly non-variable. This reflects fundamental contract law theory in a free market economy. The absence of the phrase “unless otherwise agreed” or similar language in any provision of this Act does not change this principle.
  3. Gap-filler Rules. With exceptions stated here, all rules in this Act are “default” or “gap-filler” rules that apply only in the absence of contrary agreement. This is especially important for converging industries and richly diverse commercial practice. Agreed terms that alter default rules do not require specific reference to the default rule and ordinarily do not require use of specific language, presentation or assent, unless expressly so required by this Act. In some situations, this Act expressly imposes a requirement such as that a term be conspicuous or that there be assent to the term. Such requirements exist only if expressly set forth in this Act or in consumer protection statutes. Section 104 [§ 59.1-501.4:1].

“Agreement” that varies the effect of a provision of this Act does not require express terms in a record; “agreement” refers to the bargain of the parties in fact and can be found in express terms as well as in course of dealing, course of performance, and usage of trade. To be enforceable, an agreement must satisfy Section 201 [§ 59.1-502.1]. Of course, the agreement must be between the parties to which the provision applies. Several provisions of this Act allow a financier to finance a licensee subject to restrictions that protect rights of the licensor. An agreement between the licensee and financier cannot alter the licensor’s rights. An agreement between the financier and the licensor cannot alter rights of the licensee.

Subsection (b) lists rules that override express agreement to the contrary. In each case, the policy is that the provision enacts rules that should not be altered except as indicated in those sections. Beyond this list, all other rules can be varied by agreement. Paragraph (b)(1) follows U.C.C. § 1-102(3) (1998 Official Text) and precludes complete waivers of good faith and other stated requirements, but allows parties by agreement to establish standards for performance of the obligation. Paragraph (b)(2) recognizes that unconscionability doctrine and the doctrine in Section 105(b) [§ 59.1-501.5] trump contrary agreement.

Listed exceptions to the rule that agreements govern should be sparingly applied. For example, subparagraph (b)(3)(C) prohibits variation of certain aspects of manifest assent and opportunity to review. That is designed to protect persons who are asked to manifest assent. However, parties can agree to greater protections and, in appropriate cases, to lesser assent standards with respect to future transactions. Section 112(e).

§ 59.1-501.16. Supplemental principles; good faith; commercial practice.

  1. Unless displaced by this chapter, principles of law and equity, including the merchant law and the common law of the Commonwealth relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, and other validating or invalidating cause, supplement this chapter. Among the laws supplementing and not displaced by this chapter are trade secret laws and unfair competition laws, including application of such laws as they may deal with failure to disclose defects.
  2. Every contract or duty within the scope of this chapter imposes an obligation of good faith in its performance or enforcement.
  3. Any usage of trade in the vocation or trade in which the parties are engaged or of which the parties are or should be aware and any course of dealing or course of performance between the parties are relevant to determining the existence or meaning of an agreement.

History. 2004, c. 794.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code ” 1-102(3); 1-104; 1-203 ; 1-205(3); 2-303.

Definitional Cross References: Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Course of Dealing”;

“Course of Performance”;

“Court”;

“Good faith”;

“Usage of Trade”.

  1. Scope of Section. This section generally follows Uniform Commercial Code (1998 Official Text).
  2. Supplemental Rules. Under subsection (a), common law rules to apply to transactions under this Act unless displaced by a provision or policy of this Act. The displacing effect of this Act with respect to common law is found not only in particular provisions of the Act, but also more generally in the policies adopted in the Act. Ordinarily, the appropriate source of supplemental law should be common law, rather than statutes addressing subject matter different from that in this Act. Supplementation does not mean that a common law rule overrides rules or policies in this Act, such as a policy that requires, or does not require, a particular formality or express agreement for a particular contractual result.
  3. Good Faith. Subsection (b) follows Uniform Commercial Code § 1-203 (1998 Official Text), but this Act adopts a broader definition of “good faith.” See U.C.C. § 2-103(1)(b) (1998 Official Text); U.C.C. § 3-103(a)(4) (1998 Official Text). Good faith is relevant to the performance of all contracts within the scope of this Act. Good faith is defined in Section 102.
  4. Usage of Trade, etc. There are two ideas in subsection (c).

The list in subsection (a) is illustrative; no listing could be exhaustive. There are many broadly applicable competition, tax, regulatory, and property laws with which this Act does not deal since it is concerned with contract law. As made clear in subsection (a), trade secret law and unfair competition law are not displaced by this Act, but supplement it pursuant to the first sentence of the subsection. Thus, if trade secret or competition law renders enforcement of a contract or a contract term invalid under that law, this Act does not alter that result. A similar rule is adopted for consumer protection statutes in Section 105 [§ 59.1-501.5].

The last sentence in subsection (a) makes clear several important bodies of statutory or common law that are not displaced by the Act. Thus, trade secret laws, unfair competition laws, and the law of fraud, misrepresentation, and unfair and deceptive practices remain fully in effect and are not displaced. To the extent applicable under that body of law, concepts of fraud and unfair or deceptive practices provide a forum for analysis of the effect of material nondisclosures of known material defects in transactions under this Act. When there is a duty to disclose, the same remedies for undisclosed known defects that apply under other laws, including laws relating to goods and services if applicable, are not disturbed and continue to apply to information products. In addition, express warranties under Section 402 and implied warranties under Sections 403 to 405 [[§§ 59.1-504.2, 59.1-504.3 and 59.1-504.5] of this Act may also apply and afford remedies.

This Act does not deal with computer viruses or alter existing criminal, tort, or other law on that subject. In most States, intentional introduction of a computer virus into a computer system of another person is a criminal act. See Raymond Nimmer, Information Law § 9.04 (1997). Any remedy in contract, however, must be based on an agreement. Absent agreement, no basis for allocating risk under contract principles exists and this Act leaves the issue to other law.

While good faith in performance is an element of all contracts under this Act, the obligation of good faith does not override express contract terms or the right to enforce them. See Kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351 (7th Cir. 1990); Amoco Oil Co. v. Ervin, 908 P.2d 493 (Colo. 1995); Badgett v. Security State Bank, 116 Wn.2d 563, 807 P.2d 356 (1991). A lack of good faith is not shown simply by the fact that the party insisted on compliance with contract terms. Neither the idea of honesty nor the idea of fair dealing alters the rule that the obligation of good faith does not override or create new contractual obligations. Ohio Casualty Company v. Bank One, 1997 WL 428515 (N.D. Ill. 1997).

This section does not support an independent cause of action for failure to perform or enforce in good faith. Rather, a failure to perform or enforce in good faith a specific duty or obligation under the contract is a breach of that contract. The doctrine of good faith directs a court to interpret contracts within the commercial context in which they are created, performed, and enforced, rather than creating a separate duty of fairness and reasonableness which can be independently breached. See PEB Commentary No.10.

First, terms of an agreement must be defined in light of the commercial context in which the transaction occurs. This principle derives from U.C.C. § 1-205 (1998 Official Text). The terms of an agreement can be as easily found in express contractual language as in the commercial context, such as usage of trade, course of dealing and course of performance.

Second, these commercial factors also provide the background and give meaning to language used. The meaning of the terms of an agreement must be interpreted in light of practical considerations that reflect common commercial understanding. Abstract concepts about what an agreement should mean are not as important as are grounded interpretations of what an agreement does mean in context. Section 302 [§ 59.1-503.2].

§ 59.1-501.17. Decision for court; legal consequences; reasonable time; reason to know.

  1. Whether a term is conspicuous or is unenforceable under §§ 59.1-501.5 (a) or (b), 59.1-501.11, or § 59.1-502.9 (a) and whether an attribution procedure is commercially reasonable or effective under §§ 59.1-501.8, 59.1-502.12, or § 59.1-502.13 are questions to be determined by the court.
  2. Whether an agreement has legal consequences is determined by this chapter.
  3. Whenever this chapter requires any action to be taken within a reasonable time, what is a reasonable time for taking the action depends on the nature, purpose, and circumstances of the action. Any time that is not manifestly unreasonable may be fixed by agreement.
  4. A person has reason to know a fact if the person has knowledge of the fact or, from all the facts and circumstances known to the person without investigation, the person should be aware that the fact exists.

History. 2004, c. 794.

OFFICIAL COMMENT

  1. Issues as a Matter for the Court. As to unconscionability and conspicuousness, subsection (a) follows Uniform Commercial Code § 1-201 (10) and 2-302 (1998 Official Text) and common law on what issues are reserved for decision by a court. In addition, the section lists other issues that are also made questions for the court. The list is not exclusive. There may be further issues that are questions for the court based on the terms of the relevant section or applicable case law or procedural rules.
  2. Legal Effect. Subsection (b) derives from Uniform Commercial Code Article 1, moving this rule from the definition of “agreement” to a separate substantive section, with no substantive change in law.
  3. Reasonable Time. Subsection (c) derives from Uniform Commercial Code § 1-204 (1998 Official Text). Reasonable time, when used in this Act, is gauged by the commercial context. As in the U.C.C., nothing is stronger evidence of a reasonable time than the fixing of such time by an agreement between the parties. However, a court may disregard a contractual term which fixes a time so unreasonable that it amounts to eliminating all remedy under the contract. The parties are not required to fix the most reasonable time but may fix any time which is not manifestly unreasonable as judged at the time of contracting. The agreement that fixes the time need not be part of the main agreement, but may be separate. By virtue of the definition of “agreement,” the circumstances of the transaction, including course of dealing, course of performance, and usage of trade may be material.
  4. Reason to Know. This concept is consistent with Restatement (2d) Contracts § 19, comment b. A person has reason to know a fact if the person has information from which a reasonable person would infer that the fact does or will exist based on all the circumstances, including the overall context and ordinary expectations. The person is charged with commercial knowledge of any factors in a particular transaction that in common understanding or ordinary practice are to be expected, including reasonable expectations from usage of trade and course of dealing and widespread business practice. If a person has specialized knowledge or superior intelligence, reason to know is determined in light of whether a reasonable person with that knowledge or intelligence would draw the inference that the fact does or will exist. There is also reason to know if, from all the circumstances, a person exercising reasonable caution regarding the matter in question would infer that there is such a substantial chance that the fact does or will exist that the person would predicate its actions on the assumption of its existence.

“Reason to know” must be distinguished from knowledge. Knowledge means an actual conscious belief in or awareness of a fact. Reason to know need not entail a conscious belief in or awareness of the existence of the fact or its probable existence in the future. Of course, a person that has knowledge of a fact also has reason to know of its existence. Reason to know is also to be distinguished from “should know.” “Should know” imports a duty to ascertain facts; the term “reason to know” does not entail or assume an obligation to investigate, but is determined solely by the information available to the party. The latter term is used where the person would not be acting adequately in protecting its own interests if it did not act in light of the facts of which it had reason to know.

§§ 59.1-501.18 through 59.1-502. Reserved.

Article 2. Formation and Terms.

§ 59.1-502.1. Formal requirements.

  1. Except as otherwise provided in this section, a contract requiring payment of a contract fee of $5,000 or more is not enforceable by way of action or defense unless:
    1. the party against which enforcement is sought authenticated a record sufficient to indicate that a contract has been formed and which reasonably identifies the copy or subject matter to which the contract refers; or
    2. the agreement is a license for an agreed duration of one year or less or which may be terminated at will by the party against which the contract is asserted.
  2. A record is sufficient under subsection (a) even if it omits or incorrectly states a term, but the contract is not enforceable under that subsection beyond the number of copies or subject matter shown in the record.
  3. A contract that does not satisfy the requirements of subsection (a) is nevertheless enforceable under that subsection if:
    1. a performance was tendered or the information was made available by one party and the tender was accepted or the information accessed by the other; or
    2. the party against which enforcement is sought admits in court, by pleading or by testimony or otherwise under oath, facts sufficient to indicate a contract has been made, but the agreement is not enforceable under this paragraph beyond the number of copies or the subject matter admitted.
  4. Between merchants, if, within a reasonable time, a record in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, the record satisfies subsection (a) against the party receiving it unless notice of objection to its contents is given in a record within a reasonable time after the confirming record is received.
  5. An agreement that the requirements of this section need not be satisfied as to future transactions is effective if evidenced in a record authenticated by the person against which enforcement is sought.
  6. A transaction within the scope of this chapter is not subject to a statute of frauds contained in another law of this Commonwealth.

History. 2000, cc. 101, 996.

Editor’s note.

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2A-201 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Authenticate”;

“Contract”;

“Copy”;

“Information”;

“License”;

“Merchant”;

“Notice”;

“Party”;

“Receive”;

“Record”;

“Term”.

Section 117 [§ 59.1-501.17]: “Reason to know”.

  1. Scope of the Section. This section requires an authenticated record for enforceability of certain agreements. The section blends Uniform Commercial Code concepts with common law approaches. Failure to comply with the requirements of this section does not make the contract void, it merely precludes a party from relying on it as a defense or to bring a cause of action. Under subsection (e), EDI trading partner and similar authenticated records satisfy this section. The rules in this section also apply to agreements brought within this Act by an agreement.
  2. Relationship to Federal Law. Federal intellectual property law may require formalities for enforceability of a contract. These federal rules are not affected by this Act. Section 204(a) of the Copyright Act, for example, requires a signed writing for “transfers of copyright ownership,” which include assignments and certain other transactions. See Konigsberg International v. Rice 16 F.3d 355, 357 (9th Cir. 1994); Library Publications, Inc. v. Medical Economics, Co., 548 F. Supp 1231 (E.D. Penn 1982). In general, state law controls regarding non-exclusive licenses. See, e.g., Advent Systems, Ltd. v. Unisys Corp. 925 F.2d 670 (3rd Cir 1991); World Championship Wrestling, Inc. v. GJS Intern., Inc., 13 F. Supp.2d 725 (N.D. Ill. 1998). Friedman v. Select Information Systems, Inc., 221 U.S.P.Q. 848 (N.D. Cal. 1983). Compare Lulirama, Ltd. v. Axcess Broadcast Services 128 F.3d 872, 879 (5th Cir. 1997); I.A.E., Inc. v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996). If federal law applies, the requirements of that law must be met. See, e.g., Radio Television Espanola S.A. v. New World Entertainment,  183 F.3d. 922 (9th Cir. 1999).
  3. Basic Rule. Subject to stated exceptions, under subsection (a) an agreement requiring payment of a contract fee of $5,000 or more is not enforceable by way of action or defense unless there is an authenticated record indicating that a contract was formed and reasonably describing the subject matter or copy. The payments must be required under the agreement assuming that full performance occurs. A royalty provision that might (or might not) ultimately yield millions of dollars of revenue is not within this rule unless the agreement calls for a minimum payment of $5,000 or more. Similarly, an option that might trigger an additional payment is not relevant unless the payment is mandatory.
    1. Over One Year Rule. For a license, a record is required only if the threshold dollar amount is met and the license grants rights for an agreed term of more than one year. This reflects the common law statute of frauds, which centers on the duration of the contract, and the fact that for licenses the duration of rights is a significant, independent measure of value. A license for a perpetual duration exceeds one year as would any license that designates a term longer than one year, even if the license permits termination by a party for a reason before that time. However, an option to extend the duration of the license does not bring the contract within the statute unless the option is mandatory. A license that is subject to termination at will does not exceed a one year duration. This rule refers to the term of the license, not to associated agreements. Thus, a license for a perpetual term is within this section even if it is accompanied by a support agreement that can be terminated at will.
    2. Record Required. A record, when required, must 1) indicate that a contract was formed, 2) reasonably identify the copy or subject matter involved, and 3) have been authenticated by the party against whom the contract is asserted. No other formalities are required.
    3. Authenticated. Under the general rule, and subject to exceptions provided in this section, the record must be authenticated by the party to be bound.  See Section 108 [§ 59.1-501.8] regarding proof of authentication.
    4. Subject Matter or Copy. The record must describe the “copy” or “subject matter” covered. “Subject matter” refers to the topic of the agreement; that is, the computer information to which the agreement relates, e.g., the name of a information product, the type of program to be developed, the database to which access is given, or other identifying descriptions. This does not require a description of the detailed scope of a license or of all terms important to the contract. For example, in a license to use a digital photograph, a reference to a “photograph of Greenacre” suffices even if the record does not describe the rights granted. There is no requirement that the record describe the contract fee.
  4. Exceptions to the Basic Rule. There are four exceptions to the basic rule based on transactional circumstances that render the protective policies of this section moot.
  5. Other Agreements. Subsection (e) confirms the enforceability of trading partner or similar agreements that alter the requirements of this section with respect to covered transactions. The parties can agree in an authenticated record to conduct business without additional authenticated records. That agreement satisfies the policy of requiring minimal indication that a contract was formed. The purpose of this section is to prevent fraud, not to inhibit development of reasonable commercial practices between parties.
  6. Other Laws. Subsection (f) clarifies that the formalities required by this section supplant formalities required under other state laws for transactions within this Act. This rule applies only with respect to state law. Federal law may require more stringent formalities. For example, the Copyright Act requires that an exclusive copyright license be in a writing and makes non-exclusive licenses that are not in a writing subject to subsequent transfers of the copyright.

This section does not require that the record be retained or that it contain all material terms of the contract or even that it be designated as a contract. All that is required is that the record afford a basis for believing that offered oral evidence rests on a real agreement. A memorandum that fulfills the conditions suffices. But the record must indicate that a contract was formed, not merely that a contract was being negotiated.

Merely because a record satisfies this section does not establish that a contract exists. Nor does it establish the terms of the contract, which must be determined under other sections of this Act. Fulfilling this section merely removes the formal barrier of this section and allows a party to assert the existence of a contract as a basis for a cause of action or a defense. For the contract to actually exist, contract formation rules must be met. For example, while a record need not describe all of the scope of a license to meet this section, there is no contract if there is a material dispute about scope. Section 202 [§ 59.1-502.2]. Satisfying the statute of frauds is merely a gateway to being able to have a court consider whether or not there is a contract.

“Copy” refers to the particular copy (e.g., “the copy demonstrated on June 1”) or to a copy of identified computer information. The description must identify the copy in a manner that distinguishes it from other copies or from copies of other information. A record is adequate for this purpose if it refers to “one copy of Word Perfection.” However, a record that refers to “one copy” without designating what computer information is on the copy is inadequate.

Subsection (b) adapts a rule from Uniform Commercial Code § 2-201 (1998 Official Text). The required description of a copy or subject matter cannot be defeated for purposes of the statute of frauds by showing that it was incorrect. However, the contract is not enforceable beyond the number of copies or subject matter shown in the authenticated record. Both terms are limitations on enforcement. Thus, a record which refers to “one copy of Word Essence” cannot be enforced beyond one copy of that program. A record that refers to “access to Whisedata” cannot be enforced beyond access to that database and does not support an enforceable right to any copies of it. A term that states “one copy,” but does not say of what, fails this section entirely. A term that states “Wordperfection” may allow proof of a contract for enforceable rights in that work, but does not allow enforcement of any contract rights in or to any copies of the work.

a. Partial Performance. Under subsection (c)(1), the requirements of subsection (a) are not imposed if there was a tender of performance by one party and acceptance or access by the other. Here, the acts by both parties adequately establish that a contract may exist; the authenticated record of subsection (a) is unnecessary. Partial performance satisfies the statute of frauds in full, rather than solely with respect to the performance itself. Parol evidence rules and ordinary contract interpretation principles protect against unfounded claims of extensive contract obligations based on a tender and acceptance of limited performance.

The exception requires both tender and acceptance or access. Mere possession of a copy does not satisfy this exception, which depends on there being an authorized source that delivered the copy. Similarly, the performance tendered and accepted must be sufficient to show that a contract exists and cannot consist of minor acts of ambiguous nature. Thus, mere access to information at an Internet web site does not satisfy the statute of frauds when there is no indication that a contract exists or that the access resulted in assent to contract terms. Section 112 [§ 59.1-501.12].

Performance under this subsection merely allows the party to attempt to prove the existence of a contract. It does not prove that a contract exists or what terms govern. These must be established under other provisions of this Act. For example, in an alleged contract to develop and deliver three modules of a new computer program, tender and acceptance of one module satisfies the formalities required by the section, but whether there was actually a contract covering three modules must be proven by the party claiming that it exists.

b. Judicial Admissions. An authenticated record is not needed if the party charged with the contract obligations admits in proceedings that a contract exists. The admission confirms the existence of the contract to the extent of the subject matter admitted. Consistent with U.C.C. Article 2 (1998 Official Text), however, the admission satisfies the section only to the extent of the subject matter or copies admitted.

c. Confirming Memoranda. Subsection (d) generally follows U.C.C. § 2-201 (1998 Official Text). Between merchants, failure to respond to a record that confirms may satisfy this section with respect to both parties. The ten day rule in U.C.C. Article 2 is replaced in this Act by a “reasonable time” to better accommodate varying commercial practices. The rule in subsection (d) validates practice in many industries where the volume or nature of the transactions make it impossible to prepare and receive assent to records as part of making the initial agreement. The confirming memorandum places the other party on notice that a contract has been formed. It must object to the existence of a contract if one, in fact, does not exist or otherwise lose protection of this section. Failure to object does not establish that a contract exists or what are the terms, but merely removes the formal barrier in subsection (a). The burden of persuading a trier of fact that a contract was actually made is not affected by this rule.

§ 59.1-502.2. Formation in general.

  1. A contract may be formed in any manner sufficient to show agreement, including offer and acceptance or conduct of both parties or operations of electronic agents which recognize the existence of a contract.
  2. If the parties so intend, an agreement sufficient to constitute a contract may be found even if the time of its making is undetermined, one or more terms are left open or to be agreed upon, the records of the parties do not otherwise establish a contract, or one party reserves the right to modify terms.
  3. Even if one or more terms are left open or to be agreed upon, a contract does not fail for indefiniteness if the parties intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
  4. In the absence of conduct or performance by both parties to the contrary, a contract is not formed if there is a material disagreement about a material term, including a term concerning scope.
  5. If a term is to be adopted by later agreement and the parties intend not to be bound unless the term is so adopted, a contract is not formed if the parties do not agree to the term. In that case, each party shall deliver to the other party, or with the consent of the other party destroy, all copies of information, access materials, and other materials received or made, and each party is entitled to a return with respect to any contract fee paid for which performance has not been received, has not been accepted, or has been redelivered without any benefit being retained. The parties remain bound by any contractual use term only with respect to information or copies received or made from copies received pursuant to the agreement, but the contractual use term does not apply to information or copies properly received or obtained from another source.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Sections 2-204; 2-305(4); 2A-204 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Contract fee”;

“Contractual use term”;

“Deliver”;

“Electronic agent”;

“Information”;

“Licensee”;

“Licensor”;

“Party”;

“Record”;

“Receive”;

“Scope”;

“Term”.

  1. Scope of Section. This Act separates the issue of whether a contract is formed from issues of what the terms of the contract are or whether those terms are enforceable. This section deals with contract formation. It is subject to the specific rules on offer and acceptance in subsequent sections. Sections 208, 209, and 210 [§§ 59.1-502.8, 59.1-502.9 and 59.1-502.10] deal with establishing the terms of a contact by an agreed record or by conduct. Often, of course, the same acts that form a contract define its terms.
  2. Manner of Formation. Subsection (a) follows Uniform Commercial Code § 2-204 (1998 Official Text), the Restatement (Second) of Contracts § 19, and common law in most States. A contract can be formed in any manner sufficient to show agreement: orally, in writing, by conduct or inaction or otherwise. Of course, no contract is formed without an intent to contract. This section does not impose a contractual relationship where none was intended. In determining whether or not conduct or words establish a contract, courts must look to the entire circumstances, including applicable usage of trade or course of dealing.
  3. Time of Formation. Subsection (b) follows U.C.C. § 2-204 (1998 Official Text). If the intent to do so exists, a contract can be formed even though the exact time of its formation is not known or there are terms left open or deferred for later delineation by one party. This rule exists in both the U.C.C. and common law. It focuses on the commercial context and on whether there was an intent to contract, rather than on whether the form or format of an exchange complies with abstract concepts of when a contract should be recognized in law.
  4. Open Terms and Layered or Rolling Transactions. Under subsection (c), if the parties intend to be bound, the agreement is binding despite missing or otherwise open terms, so long as any reasonable basis exists for granting a remedy in the event of breach. This rule does not apply if the parties do not intend to be bound unless or until the remaining terms are agreed or reduced to writing. See, e.g., Evolution Online Systems, Inc. v. Koninklijke Nederlan N.V., 145 F.3d 505 (2d Cir. 1998) (applying New York law). There is a difference between preliminary negotiations and actions or statements made with intent to be bound, even though terms are left open. If the parties did not intend to be bound unless terms were later agreed to and there was no later agreement, subsection (e) gives guidance for unwinding the relationship. In law, when a contract is formed and how terms are added over time turns on the intent of the parties. In determining that intent, the more terms left open, the less likely it is that the parties intended to be bound at the outset.
  5. Disagreement on Material Terms: Scope. The existence of a contract requires a determination of intent to contract, objectively measured. In some cases, the circumstances clearly indicate that no intent to contract exists. Subsection (d) sets out one such context. A material disagreement about an important (material) term indicates that there is no intent to enter a contract. The “scope” of a license is one such term. It goes to the fundamentals of the transaction, i.e., what the licensor intends to transfer and what the licensee expects to receive. Disagreements about this fundamental issue indicate fundamental failure to agree on a contract. The reference in subsection (d) to disagreement relates to this type of failure to agree and does not refer to a later dispute about the meaning of an agreed term, a point made clear in the second sentence of subsection (d).
  6. Failure to Agree. Subsection (e) follows Uniform Commercial Code § 2-305(4) (1998 Official Text). While many cases involve layered contracting, the parties may intend not to be bound unless they agree to terms later. See Section 208, Official Comment 4. Subsection (e) deals with cases where that later agreement does not occur. The basic rule is that parties are returned to the status that would have existed in the absence of initial agreement. There is an obligation to return copies or information received during the preliminary period. Any contractual use terms in the proposed final deal do not apply because no contract was formed. If, however, the parties agreed to restrictions on the information or copies as part of the process of negotiation or discussion, the restrictions continue as to that information or those copies. The restrictions must be agreed to independent of agreement on the entire proposed contract. This often occurs with terms on nondisclosure of confidential material exchanged in preliminary discussions.

Subsection (a) recognizes that an agreement can be formed by operations of electronic agents. This is important for electronic commerce and gives force to choices by a party to use an electronic agent for formation of a contract. The agent’s operations bind the person who deployed the agent for that purpose.

This subsection lays a foundation for the layered contracting that typifies many areas of commerce and is recognized in Uniform Commercial Code § 2-204 (1998 Official Text), as well as in the common law and practice of most States. This foundation is further developed in Sections 208, 209, 304, and 305 [§§ 59.1-502.8, 59.1-502.9, 59.1-503.4 and 59.1-503.5]. Many contract terms are intended, expressly or by usage of trade or the like, to be defined over time, rather than on the occurrence of one specific event. Contract formation is often a process, rather than a single event. A rule that a contract must arise at a single point in time and that this single event defines all the terms of the contract is inconsistent with commercial practice. Contracts are often formed over time; terms are often developed during performance, rather than before performance occurs. Often, parties expect to adopt records later and that expectation itself is the agreement. Rather than modifying an existing agreement, these terms are part of the agreement itself. Treating later terms as proposed modifications is appropriate only if the deal has previously been, in the commercial understanding of both parties, fully closed with no reason to know that new terms would be provided.

During the time in which terms in a layered contract are developed or to be proposed, it is not appropriate to the apply default rules of this Act. The default rules apply only if the agreement of the parties does not deal with the subject matter of the rule. In layered contracting, the agreement is that there are no terms on the undecided issues until they are made express by the parties. Applying a default rule would be applying the rule despite contrary agreement, rather than when no such agreement exists.

The continued effect of such terms assumes an agreement in fact. Thus, a negotiation involving two mutually conditional points only one of which is “agreed to” may not create a contractual use term if the two are mutually condition and no agreement is reached on the second. In any event, the terms do not extend to authorized copies obtained from other sources. For example, a preliminary agreement restricting use of data compression software is binding as to the copies delivered, but it does not preclude the licensee from making an agreement with another authorized source for a copy of the same software. Of course, in addition to contract terms, intellectual property rights may limit a party’s use of information.

§ 59.1-502.3. Offer and acceptance in general.

Unless otherwise unambiguously indicated by the language or the circumstances:

  1. An offer to make a contract invites acceptance in any manner and by any medium reasonable under the circumstances.
  2. An order or other offer to acquire a copy for prompt or current delivery invites acceptance by either a prompt promise to ship or a prompt or current shipment of a conforming or nonconforming copy. However, a shipment of a nonconforming copy is not an acceptance if the licensor seasonably notifies the licensee that the shipment is offered only as an accommodation to the licensee.
  3. If the beginning of a requested performance is a reasonable mode of acceptance, an offeror that is not notified of acceptance or performance within a reasonable time may treat the offer as having lapsed before acceptance.
  4. If an offer in an electronic message evokes an electronic message accepting the offer, a contract is formed:
    1. when an electronic acceptance is received; or
    2. if the response consists of beginning performance, full performance, or giving access to information, when the performance is received or the access is enabled and necessary access materials are received.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Restatement (Second) of Contracts § 19; Uniform Commercial Code §§ 2A-206; 2-206 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Access Materials”;

“Copy”;

“Contract”;

“Deliver”;

“Delivery”;

“Electronic”;

“Electronic message”;

“Licensee”;

“Licensor”;

“Information”;

“Notifies”;

“Party”;

“Receive”;

“Term”.

  1. Scope of Section. This section states general rules on offer and acceptance.  Sections 204 and 205 [§§ 59.1-502.4 and 59.1-502.5] concern acceptances that vary the offer and conditional offers or acceptances; when applicable, those sections control over this section to the extent of a conflict.
  2. Reasonable Methods of Acceptance. A party has a right to control the terms under which its offer can be accepted, if it does so expressly.  In many cases, this occurs by insistence on agreement to all terms or on following a stated method for acceptance. If an offeror does not limit the method of acceptance, any reasonable manner of acceptance suffices.  This rule reflects ordinary practice and follows Restatement (Second) of Contracts § 19 and Uniform Commercial Code § 2-206 (1998 Official Text).
  3. Shipment or Promise to Ship. Paragraph (2) follows Uniform Commercial Code § 2-206(1)(b) (1998 Official Text). Either a shipment or a prompt promise to ship the copy is a proper means of acceptance of an offer looking to current shipment of a copy, unless the offer otherwise states.  The second sentence recognizes the fact that, in some cases, it is useful commercially to accommodate a request for a copy with a shipment that may not fully conform.  In such cases, there is no acceptance of the offer if the shipping party notifies the licensee that the shipment is offered only as an accommodation. Paragraph (2) has more limited application in this Act than Article 2.  It applies only to contracts that call solely for a return performance by shipment of a copy. It does not apply to a contract for a license of information since the terms of the license are not set by shipment itself.
  4. Beginning of Performance. The beginning of performance by an offeree can be an acceptance if it unambiguously indicates an intent to be bound.  Paragraph (3) follows Uniform Commercial Code § 2-206 (1998 Official Text) in limiting that effect to prevent abuse. Beginning performance as acceptance, even if a reasonable means of acceptance, requires notice to the offeror that there has been acceptance.  If this notice is not given in a reasonable time, the offeror can treat its offer as having lapsed before acceptance.
  5. Electronic Responses. Paragraph (4) adopts a time of receipt rule for an electronic acceptance or an electronic performance.  The performance may entail making access available to the other party.  In this case, acceptance by performance occurs when the access is enabled or access materials are received.

§ 59.1-502.4. Acceptance with varying terms.

  1. In this section, an acceptance materially alters an offer if it contains a term that materially conflicts with or varies a term of the offer or that adds a material term not contained in the offer.
  2. Except as otherwise provided in § 59.1-502.5, a definite and seasonable expression of acceptance operates as an acceptance, even if the acceptance contains terms that vary from the terms of the offer, unless the acceptance materially alters the offer.
  3. If an acceptance materially alters the offer, the following rules apply:
    1. A contract is not formed unless (A) a party agrees, such as by manifesting assent, to the other party’s offer or acceptance or (B) all the other circumstances, including the conduct of the parties, establish a contract.
    2. If a contract is formed by the conduct of both parties, the terms of the contract are determined under § 59.1-502.10.
  4. If an acceptance varies from but does not materially alter the offer, a contract is formed based on the terms of the offer. In addition, the following rules apply:
    1. Terms in the acceptance which conflict with terms in the offer are not part of the contract.
    2. An additional nonmaterial term in the acceptance is a proposal for an additional term. Between merchants, the proposed additional term becomes part of the contract unless the offeror gives notice of objection before, or within a reasonable time after, it receives the proposed terms.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2-207.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Delivery”;

“Merchant”;

“Give notice”;

“Party”;

“Receive”;

“Seasonable”;

“Term”.

Section 112 [§ 59.1-501.12]: “Manifest assent”.

Section 117 [§ 59.1-501.17]: “Reasonable time.”

  1. Scope of Section. This section deals with contract formation when the acceptance contains terms that vary the offer, but neither the offer nor the acceptance is expressly conditional on acceptance of all of its own terms. Conditional offers and acceptances are covered in Section 205 [§ 59.1-502.5].
  2. Basic Rule. Subsection (a) follows Uniform Commercial Code § 2-207(1) (1998 Official Text). If neither the offer nor the acceptance is expressly conditioned on acceptance of its own terms, a definite expression of acceptance may form a contract even if it contains terms that do not fully match the offer. The common law “mirror image” rule was rejected in Article 2 and is not now followed as common law in many states.
  3. Material Alteration. A material alteration of an offer by a purported acceptance precludes contract formation based on the purported acceptance.  If a contract is formed in such cases, it must be based on other factors, such as conduct that establishes a contract, another acceptance conforming to the terms of an offer, or other circumstances that clearly show that one party accepted the terms of the other.
  4. Immaterial Alteration. If a definite acceptance does not fully conform to the terms of the offer but does not materially vary it, the acceptance creates a contract. In deciding what are the terms of the contract, Section 210 [§ 59.1-502.10] does not apply, because the contract is formed by offer and acceptance, not conduct.  Under subsection (d), the terms are based on the terms of the offer and other terms as indicated. Conflicting terms in the acceptance are excluded. A conflicting term is one that covers the same subject matter of another term, but in a different way. Subsection (d) allows for inclusion of non-material additional terms in a transaction between merchants unless the offeror timely objects to those terms. An additional term is one that covers a subject not addressed in the offer.

If a purported acceptance varies from the offer, however, it forms a contract only if the accepting party indicated an intent to form the contract and enough similarity exists between the acceptance and the offer to conclude that acceptance occurred. An acceptance with varying terms must be a definite expression of acceptance. Anything less is a counter-offer or, perhaps, mere negotiation. Also, a response is not an acceptance if it materially alters the offer. One does not accept by proposing materially different terms. The conditions for treating a response that contains varying terms as an acceptance are seldom met except in cases of standard form purchase orders or invoices. In most other cases, a response with varying terms is a counter-offer, not an acceptance.

What is a material alteration depends on the commercial context. A nonmaterial alteration refers to an acceptance that adds further minor suggestions or proposals. A material change is one that would result in surprise, hardship or fundamental change if incorporated without express agreement by the other party, or one that would significantly alter the bargain proposed by the offeror. The issue must be judged by what degree of acceptable variation parties might reasonably expect in light of applicable usage of trade and course of dealing. Any change in an offer that is expressly conditional on acceptance of all of its terms is a material change.

§ 59.1-502.5. Conditional offer or acceptance.

  1. In this section, an offer or acceptance is conditional if it is conditioned on agreement by the other party to all the terms of the offer or acceptance.
  2. Except as otherwise provided in subsection (c), a conditional offer or acceptance precludes formation of a contract unless the other party agrees to its terms, such as by manifesting assent.
  3. If an offer and acceptance are in standard forms and at least one form is conditional, the following rules apply:
    1. Conditional language in a standard term precludes formation of a contract only if the actions of the party proposing the form are consistent with the conditional language, such as by refusing to perform, refusing to permit performance, or refusing to accept the benefits of the agreement, until its proposed terms are accepted.
    2. A party that agrees, such as by manifesting assent, to a conditional offer that is effective under paragraph (1) adopts the terms of the offer under § 59.1-502.8 or § 59.1-502.9, except a term that conflicts with an expressly agreed term regarding price or quantity.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Party”;

“Standard form”;

“Term”.

Section 112 [§ 59.1-501.12]: “Manifestation of assent”.

  1. Scope of Section. This section deals with conditional offers or acceptances. In a conflict between this section and general rules on formation, this section controls as to these issues.
  2. Basic Rule. Subsection (a) states the basic principle that a person can insist on preconditions for acceptance of its offer without being forced into a different relationship because the conditions are ignored. The most common conditional offer or acceptance limits the other party to acceptance of all of its terms. No principled view of contract law precludes a party from insisting on such conditions and precluding a contract on other terms.  The language of condition need not be in a record or stated in any specific form of language.
  3. Standard Forms. The rule does not change merely because the conditions are in a standard form. Conditional forms state the terms under which a party is willing to enter a transaction. The mere fact that the conditions are not tailored to each individual deal does not lessen their effect. Standardization is an ordinary and efficient means of doing business.
  4. Battle of Standard Forms. Subsection (b) deals with a situation where both parties use standard forms for offer and acceptance and one or both are conditioned on acceptance of all terms in the form. In that case, if the forms disagree, there is no contract based on the standard forms.  However, the parties often act as if a contract exists and that behavior may form a contract.

Under subsection (b), the conditional language in a standard form is enforced only if a party proposing the form acts in a manner consistent with the language in its form. If the party whose form is conditional on acceptance of its terms ignores that condition by its own conduct, the condition is not enforced and a contract is created under the section on varying terms. If, on the other hand, the party’s behavior is consistent with its conditional terms, such as by refusing to perform fully, refusing to permit performance, or refusing to accept the benefits of the contract, until the terms are accepted, there is no contract by the exchange of forms unless one party accepted the other party’s terms. If the other party accepts the terms, under paragraph (b)(2) the contract is formed based on those terms, except to the extent they might conflict with expressly agreed terms on price or quantity.

Illustration 1. Licensee sends a standard purchase order form that states that its order is conditional on the Licensor’s assent to the terms of the form. Licensor ships with an invoice conditioning the contract on assent to its terms, but takes no steps to enforce that condition. Purchaser accepts the shipment. Neither party acted consistent with the language of condition. A contract exists but neither condition is enforced. Section 204, 208, or 210 [§ 59.1-502.4, § 59.1-502.8 or § 59.1-502.10] applies.

Illustration 2. In Illustration 1, in response to the purchase order, Licensor refuses to ship unless Licensee agrees to the Licensor’s terms. Until that occurs, there is no contract. Licensor’s terms govern when agreed to by the Licensee. The same result occurs if Licensor ships, but includes in the information a code that prevents use unless the Licensee assents to the Licensor’s terms.

Illustration 3. In Illustration 1, Licensor ships pursuant to a conditional form, but when the shipment arrives, Licensee refuses it. In a telephone conversation, Licensor agrees to Licensee’s terms. Until that agreement, there is no contract; Licensee acted in a manner consistent with its conditional language. Licensee’s terms govern.

§ 59.1-502.6. Offer and acceptance; electronic agents.

  1. A contract may be formed by the interaction of electronic agents. If the interaction results in the electronic agents’ engaging in operations that under the circumstances indicate acceptance of an offer, a contract is formed, but a court may grant appropriate relief if the operations resulted from fraud, electronic mistake, or the like.
  2. A contract may be formed by the interaction of an electronic agent and an individual acting on the individual’s own behalf or for another person. A contract is formed if the individual takes an action or makes a statement that the individual can refuse to take or say and that the individual has reason to know will:
    1. cause the electronic agent to perform, provide benefits, or allow the use or access that is the subject of the contract, or send instructions to do so; or
    2. indicate acceptance, regardless of other expressions or actions by the individual to which the individual has reason to know the electronic agent cannot react.
  3. The terms of a contract formed under subsection (b) are determined under § 59.1-502.8 or § 59.1-502.9 but do not include a term provided by the individual if the individual had reason to know that the electronic agent could not react to the term.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Electronic agent”;

“Information”;

“Party”;

“Person”;

“Term”.

Section 117 [§ 59.1-501.17]: “Reason to know”.

  1. Scope of the Section. This section deals with contracts formed by interaction between electronic agents, or between an individual (acting on the individual’s own behalf or for another person such as a company) and an electronic agent.
  2. Interaction of Electronic Agents. Interaction of electronic agents creates a contract if the parties use the agents for that purpose and the operations of the electronic agents indicate that a contract exists. Conduct, even automated, can create a contract. Whether a contract is formed focuses on the operations of the agents. The issue is whether those operations indicate that a contract is formed, such as by sending and receiving the benefits of the contract, initiating orders, or indicating in records that a contract exists. The terms of the contract are determined under Section 208 and 209 [§§ 59.1-502.8 and 59.1-502.9] as applicable. However, a contract is formed only by operations taken with respect to a legally significant event. An electronic agent may accept an offer, but acceptance of a message that is not an offer (such as an advertisement) does not form a contract.
  3. Electronic Mistake and Fraud. Under subsection (a), restrictions analogous to common law concepts of fraud and mistake are made applicable to this automated context to prevent abuse or clearly unexpected results. Of course, parties may allocate risk of mistake or fraud in an agreement.
  4. Interaction of Human and Electronic Agent. Contracts may be formed by interaction of an individual (human being) and an electronic agent. Subsection (b) does not define all cases where this can occur or the results of all interactions, such as where the individual is not aware that he is dealing with an electronic agent. The section describes one setting with two elements: 1) an electronic agent programmed to make contracts, and 2) an individual, having the ability not to do so, engaging in conduct or making a statement with reason to know that this will cause the electronic agent to provide the benefits of the contract or otherwise indicate acceptance. If the individual is dealing with an electronic agent, it may be that not all statements or actions by the individual can be reacted to by the electronic agent. A contract is formed if the human makes statements or engages in conduct that indicate assent. Statements purporting to alter or vitiate agreement to which the electronic agent cannot react are ineffective.

Assent does not occur if the operations are induced by mistake, fraud or the like, such as where a party or its electronic agent manipulates the programming or response of the other electronic agent in a manner akin to fraud. Such acts vitiate the assent that would occur through normal operations of the agent. Similarly, the inference is vitiated if, because of aberrant programming or through an unexpected interaction of the two agents, operations indicating existence of a contract occur in circumstances that are not within the reasonable contemplation of the parties. Such circumstances are analogous to mutual mistake. Courts applying these concepts should refer to mistake or fraud doctrine, even though an electronic agent cannot actually be said to have been misled or mistaken.

Illustration. Officer dials the telephone information system using the company credit card. A computerized voice states: “If you would like us to dial your number, press ‘1’; there will be an additional charge of $1.00. If you would like to dial yourself, press ‘2.”’ Officer states into the phone that the company will not pay the $1.00 additional charge, but will pay .50. Having stated these conditions, Officer strikes “1.” The computer dials the number. User’s “counter offer” is ineffective, because Officer has reason to know that the program cannot react to the counter offer. The charge to dial the number includes the additional $1.00.

§ 59.1-502.7. Formation; releases of informational rights.

  1. A release is effective without consideration if it is:
    1. in a record to which the releasing party agrees, such as by manifesting assent, and which identifies the informational rights released; or
    2. enforceable under estoppel, implied license, or other law.
  2. A release continues for the duration of the informational rights released if the release does not specify its duration and does not require affirmative performance after the grant of the release by:
    1. the party granting the release; or
    2. the party receiving the release, except for relatively insignificant acts.

History. 2000, cc. 101, 996; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2004 amendments.

The 2004 amendment by c. 794 deleted subsection (c), which formerly read: “In cases not governed by subsection (b), the duration of a release is governed by § 59.1-503.8.”

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Informational rights”;

“License”;

“Party”;

“Record”;

“Release”.

Section 112 [§ 59.1-501.12]: “Manifesting assent.”

  1. Scope of Section. This section deals with the enforceability and duration of a release.  A release is a promise that the releasing party will not object to, or exercise any remedies to limit, the use of computer information or informational rights, but does not contain significant, affirmative obligations by the releasing party.
  2. Basic Rule. A release is enforceable without consideration if it is in a record to which the releasing party agrees, by manifesting assent or otherwise.  This includes all means of assent and all forms of creating a record, such as by filmed assent. The rule clarifies the enforceability of releases in a record, but it does not alter other law making releases enforceable, whether or not supported by consideration, such as the law of estoppel or waiver.
  3. Duration. The duration of a release is determined by its terms. If there is no stated duration, the common law regarding duration of contracts applies.  However, subsection (b) states a different rule for releases where there is no significant involvement by a party to support the other’s use of the information or rights.  In these cases, the release is for the duration of the released rights.  Of course, a release is effective only according to its own substantive terms; a release for use of an image at an Internet site does not release rights for other uses of that image.

Illustration: In Internet “chat room” and “list service” systems, participation often requires permission by the participant to allow use of comments or materials submitted. If the relationship granting that permission is supported by assent and consideration (e.g., one party grants the right to use the service in return for the release), the release is enforceable under ordinary contract law principles of offer and acceptance. This section makes clear that the release is enforceable without consideration.

§ 59.1-502.8. Adopting terms of records.

Except as otherwise provided in § 59.1-502.9, the following rules apply:

  1. A party adopts the terms of a record, including a standard form, as the terms of the contract if the party agrees to the record, such as by manifesting assent.
  2. The terms of a record may be adopted pursuant to paragraph (1) after beginning performance or use if the parties had reason to know that their agreement would be represented in whole or part by a later record to be agreed on and there would not be an opportunity to review the record or a copy of it before performance or use begins. If the parties fail to agree to the later terms and did not intend to form a contract unless they so agreed, § 59.1-502.2 (e) applies.
  3. If a party adopts the terms of a record, the terms become part of the contract without regard to the party’s knowledge or understanding of individual terms in the record, except for a term that is unenforceable because it fails to satisfy another requirement of this chapter.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Copy”;

“Party”;

“Record”;

“Standard form”;

“Term”.

Section 112 [§ 59.1-501.12]: “Manifest assent”;

Section 113 [§ 59.1-501.13:1]: “Opportunity to review.”

Section 117 [§ 59.1-501.17]: “Reason to know”.

  1. Scope of Section. This Act deals separately with when a contract is formed and what are its terms, although the same conduct often does both. This section states when a party adopts a record as the contract. Section 209 [§ 59.1-502.9] limits terms in mass-market licenses. Section 210 [§ 59.1-502.10] deals with when records do not create terms, but a contract exists by conduct. Trade use, course of dealing, and course of performance are also relevant as are the supplementary rules of this Act for topics on which the other sources of terms do not control.
  2. Adopting Terms. A party that assents to a record adopts the record as the terms of the contract whether or not the record is a standard form. There is no difference between a customized record or terms of a standard form. Standard forms are common and provide efficiencies for both parties; they are used by both licensees and licensors. Treating them as of lesser effect than other records would place commercial contract law in conflict with commercial practice.
  3. Later Terms: Layered Contracting. Subsection (b) reflects the reality of layered contracting. While some contracts are formed and their terms defined at a single point in time, many transactions involve a rolling or layered process. The commercial expectation is that terms will follow or be developed after performance begins. This Act rejects cases that narrowly treat contracting as a single event despite ordinary practice. It adopts a rule in cases that recognize that contracts are often formed over time. See, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); M.A. Mortenson Co., Inc. v. Timberline Software Corp., 970 P.2d 803 (Wash. 2000).
    1. Reason to Know. Contract terms proposed for later agreement to complete the initial contract are part of the initial contracting process if the parties had reason to know that later terms would be proposed. “Reason to know” means that, realistically considered, later presentation of terms should not be a surprise. It does not require specific notice or specific language, although such factors may be important because notice suffices. “Reason to know” can also be inferred from the circumstances, including ordinary business practices or marketing approaches of which a party is or should be aware and from which a reasonable person would infer that terms will follow. The time over which the record can be proposed must be reasonable as shaped by the expectations of the parties, the context and their agreement. Compare Section 209 [§ 59.1-502.9]. At some point, the deal is closed, but when this is true requires analysis focused on the context and circumstances. If the parties considered terms of the deal to be closed, subsequently proposed terms are proposed modifications.
    2. Specification of Terms. Subsection (b) deals with cases that differ from those under Section 305, which governs agreements that give one party a right to specify terms. In cases under Section 305, the party receiving terms is not asked to assent; the agreement gives the other party the right to specify terms. Since no assent is required, the terms must be proposed in good faith and in accord with reasonable commercial standards. Those conditions are not appropriate when the party receiving terms can simply refuse them.
  4. Later Terms: Roadmap. The following gives guidance on how to handle cases with later terms. Unless the parties’ agreement is that one party has the right to specify terms without the other party being required to assent to the terms (see, e.g., Sections 304 and 305 [§§ 59.1-503.4 and 59.1-503.5]), as a general rule the later terms do not become part of the contract unless the party receiving them agrees to the terms such as by manifesting assent after having an opportunity to review often including a right to return, as described in sections 102(a)(57), 112, 113, 208, and 209. This Act applies in the following way:
  5. Mass-Market Cases. Subsection (b) applies in the mass market. However, Section 209 [§ 59.1-502.9] places limits on when proposal of the terms must occur and precludes altering terms expressly agreed by the parties.
  6. Right to a Return. In some cases, if assent is sought after the person has paid or delivered or become obligated to pay or deliver, the manifestation of assent is not effective unless the person has a right to a return if it refuses the proposed terms. Section 112; 113 [§§ 59.1-501.12; 59.1-501.13:1]. This rule applies in mass market transactions and to other cases where the licensor’s performance is mere delivery of a copy, but does not apply in more complex commercial contexts where general principles of equity govern because of the complexity. Section 202(e) provides guidance where the parties did not intend to have a contract in the absence of agreeing to terms.
  7. Adoption of Terms. Assent to a record adopts all terms of the record; there is no requirement that the party read, understand or separately assent to each term. Of course, enforceability of terms is subject to doctrines set out in this Act regarding unconscionability, public policy, good faith, and the like. But this Act rejects Restatement (Second) of Contracts § 211(3). Absent unconscionability, fraud or similar conduct, parties are bound by the terms to which they assent after having had an opportunity to review.

A party is bound by the terms of a record only if it agrees to it, by manifesting assent or otherwise. Assent can be by authenticating the record or by other conduct indicating assent. However, a party cannot assent unless it had an opportunity to review the record before reacting. Section 113 [§ 59.1-501.13:1]. See Specht v. Netscape Communications Corp., — F.3d —, 2002 WL 31166784 n. 13 (Fed. Cir. 2002).

• If the parties did not have reason to know that terms would be proposed later for assent and a contract was formed before the terms were available for review and assent, the later terms are treated as proposed modifications that may be accepted or rejected under rules applicable to contract modifications including Section 303.

• If the parties agree that one party could specify later terms, but no further assent is required, Sections 304 and 305 apply.

• In a mass-market license, if the parties had reason to know that terms would be proposed later for assent and the later terms are agreed on, there is a contract including those terms; but if the later terms are rejected, there is no contract under Section 209(b) and the parties’ obligations are determined by this Act, including Sections 208, 209 and 202(e) as applicable.

• In all other cases:

• If the parties had reason to know that terms would be proposed later for assent and did not intend to have a contract unless the later terms were agreed to by manifesting assent or otherwise and the later terms are agreed on, there is a contract including those terms; but if the later terms are rejected, there is no contract and the parties’ obligations are determined by this Act, including Sections 208, 209 and 202(e) as applicable.

• If the parties had reason to know that terms would be proposed later for assent and intended to have a contract even if the later terms were rejected and the terms are agreed on they become part of the contract; but if the terms are rejected, the rejected terms are left open pursuant to this Act, including Section 306, unless covered by other agreement of the parties.

§ 59.1-502.9. Mass-market license.

  1. A party adopts the terms of a mass-market license for purposes of § 59.1-502.8 only if the party agrees to the license, such as by manifesting assent, before or during the party’s initial performance or use of or access to the information. A term is not part of the license if:
    1. the term is unconscionable or is unenforceable under § 59.1-501.5 (a) or (b);
    2. subject to § 59.1-503.1, the term conflicts with a term to which the parties to the license have expressly agreed;
    3. under § 59.1-501.13:1, the licensee does not have an opportunity to review the term before agreeing to it; or
    4. the term is not available for viewing before and after assent:
      1. in a printed license; or
      2. in electronic form that (i) can be printed or stored for archival and review purposes by the licensee or (ii) is made available by a licensor to a licensee, at no cost to the licensee, in a printed form on the request of a licensee who is unable to print or store the license for archival and review purposes.
  2. If a mass-market license or a copy of the license is not available in a manner permitting an opportunity to review by the licensee before the licensee becomes obligated to pay and the licensee does not agree, such as by manifesting assent, to the license after having an opportunity to review, the licensee is entitled to a return under § 59.1-501.12 or § 59.1-501.13:1 and, in addition, to:
    1. reimbursement of any reasonable expenses incurred in complying with the licensor’s instructions for returning or destroying the computer information or, in the absence of instructions, expenses incurred for return postage or similar reasonable expense in returning the computer information; and
    2. compensation for any reasonable and foreseeable costs of restoring the licensee’s information processing system to reverse changes in the system caused by the installation, if:
      1. the installation occurs because information must be installed to enable review of the license; and
      2. the installation alters the system or information in it but does not restore the system or information after removal of the installed information because the licensee rejected the license.
  3. In a mass-market transaction, if the licensor does not have an opportunity to review a record containing proposed terms from the licensee before the licensor delivers or becomes obligated to deliver the information, and if the licensor does not agree, such as by manifesting assent, to those terms after having that opportunity, the licensor is entitled to a return.

History. 2000, cc. 101, 996; 2001, c. 763; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 763, in subsection (a), deleted “or” at the end of subdivision (1), inserted “or” at the end of subdivision (2), and added subdivisions (3), (3) (A) and (3) (B); and added subsection (d).

The 2004 amendments.

The 2004 amendment by c. 794 inserted present subdivision (a) (3) and redesignated former subdivision (a) (3) as present subdivision (a) (4), made a related change, and deleted subsection (d), which formerly read: “In a mass-market transaction, a term that has the effect of forbidding or restricting the rights or abilities of licensees of computer information to engage in public disclosure of a description, criticism, comparison, or evaluation of the computer information or its license terms is unenforceable to the extent these rights or abilities are not prohibited by other law.”

Law Review.

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Information”;

“Information processing system”;

Informational Rights”;

“License”;

“Licensor”;

“Mass-market license”;

“Mass-market transaction”;

“Notice”;

“Party”;

“Return”;

“Term”.

Section 112 [§ 59.1-501.12]: “Manifest assent”.

“Section 113 [§ 59.1-501.13:1]: “Opportunity to review”;

  1. Scope of Section. Mass-market licenses are typically standard forms where the licensee either takes or leaves the license. Thus, significant protections are provided in this section. This section must be read in connection with Sections 208 [§ 59.1-502.8], 112 and 113. In addition, trade use, course of dealing, and course of performance are relevant, as are the supplementary terms of this Act on issues not resolved by express terms or sources of practical construction.  Sections 116(c), 302 [§§ 59.1-501.16(b), 59.1-503.2]. Many mass-market licenses are available for review and agreed to at the outset of a transaction; but some licenses are presented later. This section deals with both and relies also on the rules in Section 208. Many mass-market transactions involve three parties and two contracts. That circumstance is addressed here and in Section 613 [§ 59.1-506.13].
  2. General Rules for Enforceability. Several limiting concepts govern where assent to a record is relevant to establishing the terms of a mass-market license:
    1. Unconscionability and Fundamental Public Policy. Even if a party agrees to a mass market license, paragraph (a)(1) makes clear a court may invalidate unconscionable terms or terms against fundamental public policy under rules that apply to all contracts under this Act. Unconscionability doctrine invalidates terms that are bizarre or oppressive and hidden in boilerplate language. See Section 111 [§ 59.1-501.11]. For example, a term in a mass-market license for $50 software providing that any default causes a default in all other licenses between the parties may be unconscionable, if there was no reason for the licensee to anticipate that breach of the small license would breach an unrelated larger license between the parties. Similarly, a clause in a mass-market license that grants a license-back of a licensee’s trademarks or trade secrets without any discussion of the issue would ordinarily be unconscionable. This section rejects the additional test in Restatement (Second) of Contracts § 211(3).
    2. Conflict with Expressly Agreed Terms. Paragraph (a)(2) provides that standard terms in a mass-market license cannot alter terms expressly agreed to between the parties to the license. A term is expressly agreed if the parties discuss and come to agreement regarding the issue and the term becomes part of the bargain. For example, if a librarian acquires software for children from a licensor under an express agreement that the software may be used in its library network, a term in the license that limits use to a single user computer system conflicts with and is overridden by the agreement for a network license. Similarly, in a consumer contract where the vendor promises a “90 day right to a refund” and the parties agree to that, the mass-market license cannot alter that term between those parties. Of course, there must be an agreement and this rule is subject to traditional parol evidence concepts. This rule is consistent with Section 613 where the terms of a publisher’s license do not alter the agreement between the end user and the retailer unless expressly adopted by them.
    3. Assent and Agreement. Under this Act, a party adopts the terms of a mass market license only if it agrees to the record, by manifesting assent or otherwise. A party cannot do so unless it had an opportunity to review the record before it agrees. Section 112. Paragraph (a)(3) makes clear that, under Section 113, the record must be available for review and called to the person’s attention in a manner such that a reasonable person ought to have noticed it before assenting. See Section 113. The opportunity to review the terms must come before assent to them.
    4. Ability to Retain Terms. Paragraph (a)(4) provides additional licensee protection not present in other law. The person presenting terms of a mass-market license must make it possible for the licensee to retain a copy of the agreed license, or to obtain a copy if the contract was presented in a context in which it originally could not have been retained (e.g., presentation at a kiosk with no printing or copying capability). The ability to retain the license terms enables the licensee to have information about its obligations on an ongoing basis. Paragraph (a)(4) provides for a right that typically is not mandated in other general contract law (such as UCC Article 2). It outlines three options in which this capability to retain the agreed record can be achieved:
  3. Relevance of a License. The enforceability of a license is important to both the licensor and the licensee. License terms define the product by, for example, distinguishing between a right to use for a single user or with multiple users on a network, or between a right to consumer use or a right to commercial use. Often, the license benefits the licensee, giving it rights that would not be present in the absence of a license or rights that could not be exercised without permission of the owner of informational rights. See, e.g., Green Book International Corp. v. Inunity Corp., 2 F. Supp.2d 112](D. Mass. 1998). The license allows the licensee to avoid infringement.
  4. Terms Prior to Payment. If a mass-market license is presented before the price is paid, this Act follows general law that enforces a standard form contract if the party assents to it.  The fact that license terms are non-negotiable does not invalidate them under general contract law or this Act.  A conclusion that a contract is a contract of adhesion may, however, require courts to take a closer look at terms to prevent unconscionability.  See, e.g., Klos v. Polske Linie Lotnicze, 133 F.3d 164 (2d Cir. 1998); Fireman’s Fund Insurance v. M.V. DSR Atlantic, 131 F.3d 1336 (9th Cir. 1998); Chan v. Adventurer Cruises, Inc., 123 F.3d 1287 (9th Cir. 1997).  This Act’s concepts of manifest assent and opportunity to review also address concerns relevant to such a review.
  5. Terms after Initial Agreement. Mass market licenses may be presented after initial general agreement from the licensee. In some distribution channels this allows a more efficient mode of contracting between end users and remote parties; this is especially important where the remote party controls copyright or similar rights in the information. Enforceability of the license is important to both parties. Under federal law, a mere sale of a copy of a copyrighted work does not give the copy owner a number of rights that it may desire. The limitations in subsection (b) impose significant costs that create incentives for licensors to present terms at the outset when practicable for the distribution channel employed.

Adopting terms of a record under this section for a mass-market license is pursuant to Section 208, and is subject to the limits stated in that section. If the terms of the record are proposed after a party commences performance, they are effective only if the party had reason to know that terms would be proposed and agrees or manifests assent to the terms once proposed. For mass-market licenses, however, even if reason to know exists at the outset, under this section the terms must be made available no later than during the initial performance or use of the information and the person has a statutory right to a return if it refuses the license.

• presentation in a form the licensee can keep such as on paper or diskette or in the licensed computer program;

• presentation in retainable or printable electronic form such as an electronic presentation on a web site which the licensee can print, download, copy or email to a storage device of the licensee, or in the computer program itself; or

• provision of a copy on timely request from a licensee who is unable to print or store its own copy because the presentation does not allow that to occur.

This paragraph is satisfied if a copy can be kept, printed or stored etc. after the licensee consents to the license, or obtained on request, whether the licensee in fact keeps or prints it at all or at that time, or uses a device that could do so. This is consistent with commentary to the federal Electronic Signatures in Global and National Commerce Act. See 146 Cong. Rec. S5281-06, at S5285, 106th Cong., 2d Sess. (June 16, 2000) (statement of Sen. Abraham).

The terms of mass-market contracts can be established in many ways. An oral agreement may suffice as would an agreement to terms in a record. Product descriptions may define the bargain without reference to any record containing contractual terms. Parties may leave terms open and agree that the terms may be specified later by a party.

Most courts under current law enforce contract terms that are presented and assented to after initial agreement. See, e.g., Carnival Cruise Lines, Inc. v. Shute, 111 S. Ct. 1522 (1991); ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); Hill vs. Gateway 2000 Inc., 105 F.3d 1147 (7th Cir. 1997); Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569 (N.Y.A.D. 1998); M.A. Mortenson Co., Inc. v. Timberline Software Corp., 998 P.2d 305 (Wash. 1999); I.Lan Systems, Inc. v. Netscout Service Level Corp., 183 F. Supp.2d 328, 46 UCC Rep.Serv.2d 287 (U.S. Dis. Mass., 2002) (“Step-Saver once was the leading case on shrinkwrap agreements. Today that distinction goes to . . . ProCD . . . ‘Money now, terms later’ is a practical way to form contracts, especially with purchasers of software”).

Subsection (b) imposes some added limitations. It allows such terms to be enforceable only if there is agreement, or if there is a manifestation of assent after a chance to review terms and only pursuant to the rule that a party that rejects terms for information must be given a cost free right to say no. This does not mean that the licensee can reject the license and use or copy the information. The right to a return creates a situation equivalent to that which would have existed if the licensee had a chance to review the terms and rejected the license at the preliminary agreement. It does not apply if the licensee agrees to the license. However, a mass-market licensee who agrees to the license but receives a nonconforming product has a right to reject the copy and obtain a refund of the contract fee as a remedy for breach of the contract. See Section 704(b) [§ 59.1-507.4].

a. Timing of Assent. Agreement to the mass-market record must occur no later than during the initial use of the information. This limits the time during which layered contracting may occur in the mass market and reflects customary practices in software and other industries. Of course, any applicable federal law that establishes a right to rescind a contract and return a product is not altered by this Act. Section 105 [§ 59.1-501.5]. Also, assent to the record does not alter the licensee’s right to refuse a defective product that constitutes a breach of contract. Assent to contract terms is different from acceptance of a copy. “Acceptance” of the copy ordinarily requires a right to inspect it. See Section 608 [§ 59.1-506.8]. For mass-market transactions, this Act follows U.C.C. Article 2 on this issue.

b. Cost Free Return. Under subsection (b), if terms are not available for review until after an initial agreement, the party being asked to assent must have a right to reject the terms return the information product. Possible liability for the expense of reinstating a customer’s system after review, creates an incentive to make the license or a copy available for review before the initial obligation is created. This Act refers to a return right, rather than a right to a refund, because, under developing technologies, the right may apply to either the licensee or the licensor, whichever is asked to assent to the record. See Section 102(57) (defining the right of return).

The return right under this section includes, but expands on the return right described in Section 113. In this section, the return right is cost free in that it requires reimbursement for reasonable costs of making the return and, if installation of the information was required to review the license, the reasonable costs in returning the system to its initial condition. The fact that this section states an affirmative right in mass market licenses does not affect whether under an agreement or other law, a similar right exists in other contexts.

The expenses incurred in return relate only to the subject matter of the rejected license (the computer information) and do not include goods delivered in the same transaction. Rights regarding the goods are governed by Uniform Commercial Code Article 2 or 2A. The expenses must be reasonable and foreseeable. The costs of return do not include attorney fees or the cost of using an unreasonably expensive means of return or lost income or the like unless such expenses are required to comply with instructions of the licensor. The reimbursement right refers to ordinary expenses, such as the cost of postage.

Similarly, if expenses are incurred because the information must be installed to review the license, expenses of reversing changes caused by the installation that are chargeable to the licensor must be reasonable and foreseeable. The reference here is to actual, out-of-pocket expenses and not to compensation for lost time or lost opportunity or for consequential damages. The expenses must be foreseeable. A licensor may be reasonably charged with ordinary requirements of a licensee that are consistent with others in the same general position, but is not responsible for losses caused by the particular circumstances of the licensee of which it had no notice. A twenty-dollar mass market license should not expose the provider to significant loss unless the method of presenting the license can be said ordinarily to cause such loss. Similarly, it is ordinarily not reasonable to provide recovery of disproportionate expenses associated with eliminating minor and inconsequential changes in a system that do not affect its functionality. On the other hand, the provider is responsible for actual reasonable expenses that are foreseeable from the method used to obtain assent.

c. Notice of the Right to Return. Subsection (d) provides that notice must be given indicating the person from whom the refund and return can be obtained. The notice may be given in the license or otherwise at a time making it possible for the person refusing the license terms to obtain a return within any reasonable time stated for it or, if no time is stated, a reasonable time. See Section 102(57) (defining the right of return). The purpose is to allow the licensee to assert its rights within the period for a return if it chooses to refuse the license. The section does not require the notice to include address or telephone information because, in mass-market distribution, the identity of the eventual retailer or other person from which a copy was obtained cannot be known in advance. In such cases, the person can be described, for example, as ‘the store from which you obtained this copy.’ See also Section 613 (describing when a right of return is due from a dealer) and Section 102(57) [§ 59.1-506.13].

§ 59.1-502.10. Terms of contract formed by conduct.

  1. Except as otherwise provided in subsection (b) and subject to § 59.1-503.1, if a contract is formed by conduct of the parties, the terms of the contract are determined by consideration of the terms and conditions to which the parties expressly agreed, course of performance, course of dealing, usage of trade, the nature of the parties’ conduct, the records exchanged, the information or informational rights involved, and all other relevant circumstances. If a court cannot determine the terms of the contract from the foregoing factors, the supplementary principles of this chapter apply.
  2. This section does not apply if the parties authenticate a record of the contract or a party agrees, such as by manifesting assent, to the record containing the terms of the other party.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2-207 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Authenticate”;

“Contract”;

“Court”;

“Course of Dealing”;

“Course of Performance”;

“Information”;

Informational Rights”;

“Party”;

“Record”;

“Term”;

“Usage of Trade”.

Section 112 [§ 59.1-501.12]: “Manifest assent”.

  1. Scope of Section. This section deals with contracts formed by conduct, rather than by offer and acceptance or agreement to a record. Contracts formed by conduct arise in various settings. One involves a “battle of forms” in which, under Sections 204 and 205 [§§ 59.1-502.4 and 59.1-502.5], the exchanged records did not result in an effective offer and acceptance, but both parties engaged in conduct indicating that a contract was formed.  If agreed records or an oral offer-acceptance form a contract, this section does not apply simply because agreed records do not cover all relevant terms.  In such cases, terms of the agreement are determined under the general rules of this Act, including appropriate weight for usage of trade, course of performance, and course of dealing. See, e.g., Sections 116(b); 301; 302 [§§ 59.1-501.16(c), 59.1-503.1, 59.1-503.2].
  2. Interpret based on Context. This section requires a court to determine contractual terms by considering all commercial circumstances, including the nature of conduct, the informational rights involved, applicable trade usage or course of dealing, and any terms that were expressly agreed without condition or because of an assumption about what would be the agreed performance due from the other party which conditions or assumptions were not met.  No hierarchy is established except for that arising under Section 302 [§ 59.1-503.2]. Given the fluid nature of the context, usage of trade and course of dealing have special importance. If a court cannot determine the contract terms from the foregoing, then, the supplemental rules contained in this Act may serve as gap-fillers to supply the terms. Consideration of all factors requires a practical interpretation of the relationship. Restatement (Second) of Contracts § 202(1) (2) (1981); 2 Farnsworth, Contracts § 7.10 (1990).  Formalistic rules cannot account for the contextual nuances that exist in the rich environment of transactional practice.  This section rejects the so-called “knock-out” rule where terms in records  are thrown out and not considered, and are instead replaced by default rules of this Act; that rule is too rigid for information transactions where contract terms often define the product and the scope of the grant.
  3. Battle of Forms and Conduct. Some information transactions involve an exchange of inconsistent standard forms coupled with conduct of both parties indicating the existence of a contract. One of two results may occur. The first is that a contract is formed by one or both forms and conduct is irrelevant either because the forms do not materially disagree or because a conditional offer or acceptance of one party was agreed to or otherwise adopted by the other.  When this occurs, the contract is not within this section. The second possibility is that the records and conduct related to them do not establish a contract (e.g., they materially disagree). See Sections 204 and 205 [§§ 59.1-502.4 and 59.1-502.5]. Such cases are within this section if the conduct of the parties nevertheless creates an enforceable contract. Subsection (a) directs the court to review the entire circumstances regardless of which form was first received or last sent, but including factors such as the terms of the exchanged records and established trade usage, course of dealing, and course of performance.
  4. Scope of License. In information transactions, contract terms relating to the scope of the grant define the product being licensed and lie at the core of the agreement. See Comments to Section 102(a)(58) [§ 59.1-501.2(a)(58)]. The subject matter (e.g., a copy of software) has entirely different value depending on what rights are granted, but that often cannot be determined from the copy itself (the copy may be license of a single-user or for network use). That being true, it is especially important to give special deference to scope issues in a manner that protects valuable informational rights.

* * *

Under subsection (a), the information or informational rights involved are relevant factors. Where there is a significant disagreement about an important element of scope, a court should be careful not to make a determination that creates rights or imposes obligations beyond those actually agreed to by the parties, because that in effect would transfer away valuable property of one party based on a judicial determination made on unclear facts. That risk argues for rejecting any expansive interpretation of ambiguous conduct. Absent clear agreement to the contrary, if a contract is formed by conduct, the court should consider the following principles:

  1. The court should avoid creating a scope that requires the licensor to have or to acquire rights it did not own or have a right to license at the time of contracting, or that exceed the rights the licensor then had.  Thus, if when the contract was created by conduct, the licensor only had the right to grant a license for the Southwest United States, the court should avoid interpreting conduct as indicating a scope that includes rights for the East Coast or forcing the licensor into an infringement.
  2. The court should avoid expanding the licensee’s rights beyond the actual agreement of the parties.  A court needs to understand and effectuate the importance of this issue from the licensor’s standpoint, protecting important property rights which it holds. Thus, the mere fact that the licensee may have used the licensed rights in the East Coast should not lead a court to conclude that the bargain must therefore have included those rights.  Such an interpretation could encourage infringement as a means of expanding rights.
  3. The court should avoid making the licensee liable for infringement because of conduct exceeding the scope, if the conduct occurred at a time when the licensee reasonably and in good faith believed that it was acting within the agreed scope. Good faith conduct can be protected in appropriate cases by applying equitable principles without creating a grant that may not have been intended by the licensor.

§ 59.1-502.11. Repealed by Acts 2004, c. 794.

Cross references.

For current provisions concerning pretransaction disclosures in Internet-type transactions, see § 59.1-501.14:1.

§ 59.1-502.12. Efficacy and commercial reasonableness of attribution procedure.

The efficacy, including the commercial reasonableness, of an attribution procedure is determined by the court. In making this determination, the following rules apply:

  1. An attribution procedure established by law is effective for transactions within the coverage of the statute, administrative rule, or regulation.
  2. Except as otherwise provided in paragraph (1), commercial reasonableness and effectiveness is determined in light of the purposes of the procedure and the commercial circumstances at the time the parties agreed to or adopted the procedure.
  3. An attribution procedure may use any security device or method that is commercially reasonable under the circumstances.

History. 2000, cc. 101, 996; 2001, cc. 762, 763.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 762 substituted “administrative rule, or regulation” for “or rule” in subdivision (1).

The 2001 amendment by c. 763 substituted “rule or regulation” for “or rule” in subdivision (1).

The section is set out in the form above at the direction of the Virginia Code Commission.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 4A-201; 202 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Attribution procedure.”

  1. Scope of Section. This section provides standards for determining the efficacy of an attribution procedure or whether it is commercially reasonable.
  2. Decision of the Court. Issues of whether a particular procedure is commercially reasonable or otherwise about its efficacy in a particular context are decisions made by the court.  This Act does not require a commercially reasonable attribution procedure or adopt any one type of procedure as reasonable or otherwise efficacious.  Other law may do so, as may the agreement of the parties.
  3. Nature of an Attribution Procedure. Evolving technology and commercial practice make it impractical to predict future developments and unwise to preclude developments by a narrow statutory mandate describing what type of procedure is appropriate.  This Act relies on the parties to select or use an appropriate procedure.  If an attribution procedure is established by agreement or adopted by both parties, assent is the predicate for allowing the procedure to affect substantive rights subject to normal restrictions on enforcement of contract terms, such as the doctrine of unconscionability.  A procedure of which one party is not aware does not qualify as having been agreed to or adopted by the parties as an attribution procedure. However, parties dealing for the first time may adopt a procedure at that time, there is no requirement of agreement in advance. Similarly, a procedure may be established by one party in connection with a third person (such as in the issuance of a digital signature, or the creation of an attribution procedure to be used among a group of member companies) and adopted in a particular transaction such as where another party accepts and relies on the issued digital signature.
  4. Efficacy and Commercially Reasonableness. The general idea of efficacy or commercial reasonableness is that the procedure be a reasonably effective method in the commercial context reasonably suited to the task for which it is used.  This does not require the procedure to be state of the art, the most reasonable procedure, or an infallible procedure.  The decision must take into account the choices of the parties as well as the effectiveness and cost relative to the value of the transactions.  How one gauges efficacy or commercial reasonableness depends on a variety of factors, including the agreement, the choices of the parties, technology, the types of transactions affected by the procedure, sophistication of the parties, volume of similar transactions engaged in, availability of feasible alternatives, cost and difficulty of utilizing alternative procedures, and procedures in general use for similar types of transactions. The commercial reasonableness concept is similar to that in Uniform Commercial Code § 4A-202(c) (1998 Official Text). In most cases, the efficacy of a procedure is related to whether it is a commercially reasonable procedure. The quality of an attribution procedure may reasonably be tailored to the particular transaction and the degree of risk involved.  Additionally, if a procedure results from a negotiated agreement of the parties or decisions of informed commercial entities entering a relationship, it should receive deference.  This flows from the principle of contractually assumed risk and the principle that the parties’ agreement should ordinarily be enforced. The same principle may apply in non-negotiated situations.  If two parties generally aware of the risks of a particular procedure, agree to use the procedure for a particular transaction, they have in effect concluded that the procedure is sufficiently effective or commercially reasonable in their context to accept the risks.

In some cases, statutes or regulations define a particular attribution procedure as appropriate or as applicable to a given context. These laws, such as digital signature statutes, establish by law a procedure that qualifies as an attribution procedure in this Act and that, under paragraph (1) are per se effective or commercially reasonable within the scope of coverage of the statute or regulation.

§ 59.1-502.13. Determining attribution.

  1. An electronic authentication, display, message, record, or performance is attributed to a person if it was the act of the person or its electronic agent, or if the person is bound by it under agency or other law. The party relying on attribution of an electronic authentication, display, message, record, or performance to another person has the burden of establishing attribution.
  2. The act of a person may be shown in any manner, including a showing of the efficacy of an attribution procedure that was agreed to or adopted by the parties or established by law.
  3. The effect of an electronic act attributed to a person under subsection (a) is determined from the context at the time of its creation, execution, or adoption, including the parties’ agreement, if any, or otherwise as provided by law.
  4. If an attribution procedure exists to detect errors or changes in an electronic authentication, display, message, record, or performance, and was agreed to or adopted by the parties or established by law, and one party conformed to the procedure but the other party did not, and the nonconforming party would have detected the change or error had that party also conformed, the effect of noncompliance is determined by the agreement but, in the absence of agreement, the conforming party may avoid the effect of the error or change.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References: Section 102(a) [§ 59.1-501.2]: “agreement”;

“attribution procedure”;

“authentication”;

“electronic”;

“electronic agent”;

“party”;

“person”;

“record”.

  1. Scope of Section. This section deals with when an electronic authentication, message, record or performance is attributed to a particular person and with the consequences of failure to follow a procedure intended to detect errors. Attribution to a person means that the electronic event is treated in law as having come from that person.
  2. Nature of Attribution. Subsection (a) clarifies that the party seeking to attribute the source of an electronic authentication, message, record or performance to a particular party bears the burden of doing so. “Burden of establishing” means “the burden of persuading the trier of fact that the existence of a fact (e.g., attribution) is more probable than its non-existence.” In effect, a party (either the licensor or the licensee) that desires to attribute an order or a shipment or license to a particular party bears the burden and the risk of being able to do so.
  3. Nature of Proof. Subsection (b) states the principle that the efficacy and other characteristics of an attribution procedure used by the parties are part of proof of attribution. The role of an attribution procedure agreed to or used by the parties varies depending on the character of the procedure. Compliance with a commercially reasonable attribution procedure that has a level of effectiveness suitable to that context may be treated by the court as carrying the burden of establishing attribution referred to in subsection (a), subject to rebuttal by appropriate evidence, such as by a showing that the party in fact had no role in causing or permitting the electronic authentication, message, record or performance to occur. For example, if the parties agree to an attribution procedure, the party seeking to rely on attribution to the other has the burden of establishing the agreement, the fact that it was followed in good faith and other relevant attributes of the procedure. Having done that, under general law, the burden may pass to the other party to establish that neither he nor a person with authority to act were responsible for the message or performance. On the other hand, a procedure with very limited effectiveness not reasonably suited to the context might have no effect at all in the evidentiary mix. Of course, this all depends on existing law regarding the burden of establishing a fact; this Act does not change that law.
  4. Role of Agreement. This section is subject to contrary agreement. An agreement here may have the effect of creating an attribution procedure that later plays a role in proving to whom the message is attributed. The agreement, however, may also deal with the effect of the procedure itself, and thereby override the rules in this section. For example, an agreement between a law firm and West Publishing may provide that the law firm is responsible for the costs associated with any use for database access of the identification code issued to it. The identification code is an attribution procedure. Absent agreement on its effect, the effect of its use would be controlled under this section. In the hypothetical case, however, the agreement itself specifies the effect of use of the code and that agreement controls. No special language is necessary to achieve this result: the agreement is enforceable under the same standards as any other term of an agreement. Thus, it must not be unconscionable or violate a fundamental public policy. See Sections 105 and 111 [§ 59.1-501.5 and 59.1-501.11].
  5. Failure to Use. Subsection (d) deals in a limited way with the effect of a failure by one party to conform to an attribution procedure. If the sender complies, but the recipient does not, the sender is entitled to its rights or damages under any agreement between the parties regarding the attribution procedure and its effects; in the absence of an agreement, the complying party (sender) may choose not to be bound by an error that would have been detected through compliance by the other party (recipient).

Attribution might involve reliance on agency law principles. In addition, the reference in subsection (a) to “other law” makes clear that the concept covers circumstances in which a person is bound by the act of another even though the acting person might not qualify as an agent. For example, if a woman gives her on-line account password to her brother so that he may use the account, his acts will be attributed to her even though he is not necessarily her agent. If he steals the password, she is not bound by his actions unless other law requires her to bear the consequences of his actions (e.g., by contract or under some state electronic signature statutes her liability may be allocated to her, or a cause of action for negligence might exist in some circumstances).

§ 59.1-502.14. Electronic error; consumer defenses.

  1. In this section, “electronic error” means an error in an electronic message created by a consumer using an information processing system if a reasonable method to detect and correct or avoid the error was not provided.
  2. In an automated transaction, a consumer is not bound by an electronic message that the consumer did not intend and which was caused by an electronic error, if the consumer:
    1. promptly on learning of the error:
      1. notifies the other party of the error; and
      2. causes delivery to the other party or, pursuant to reasonable instructions received from the other party, delivers to another person or destroys all copies of the information; and
    2. has not used, or received any benefit or value from, the information or caused the information or benefit to be made available to a third party.
  3. If subsection (b) does not apply, the effect of an electronic error is determined by other law.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Automated transaction”;

“Consumer”;

“Consumer contract”;

“Copy”;

“Delivery”;

“Electronic”;

“Electronic message”;

“Good Faith”;

“Information”;

“Information processing system”;

“Informational Rights”;

“Notifies”;

“Party”;

“Person”;

“Receive”.

  1. Scope of Section. This section creates a statutory electronic error correction procedure for consumers that supplements common law concepts of mistake.  The section does not displace the common law of mistake or alter law concerning transactions that do not involve a consumer.  It does not apply to transactions excluded from this Act. The procedure created here establishes a rule that avoids the complexity and uncertainty of relying solely on common law principles about mistake in an automated world.  In common law in many states, a party making a unilateral mistake is responsible for its consequences. This section creates a consumer protection that avoids such decisions.
  2. Electronic Errors: Defined. An “electronic error” contemplates a situation in which a consumer’s conduct results in an error in an electronic message.  This section allows the consumer, by prompt action, to avoid the effect of the mistake. The defense does not apply if the electronic system with which the consumer is working reasonably provides a reasonable means to correct or avoid errors.  Thus, a consumer’s mistake in erroneously entering “11” as the number of copies desired may be an error, but does not come within this section if the automated ordering system with which the consumer interacts requires confirmation of the quantity or reasonably allows the consumer to correct any error before sending the order.  The rule thus provides an incentive to establish error-correction procedures in automated contracting systems and provides protection to the consumer where such procedures are not present.
  3. Avoiding the Effect of Error. If an electronic error occurs, a consumer can avoid responsibility for the unintended message if the consumer acts promptly. However, the message must not have been intended. Error avoidance is not a right to rescind a contract because of second thoughts.
  4. Transactions Not Within the Section. This section does not alter law in transactions that do not involve consumers or where consumers use electronic agents. The diversity of commercial transactions make a simple rule such as that stated here inappropriate because of the different patterns of risk and the greater ability of commercial parties to develop tailored solutions to the problem of errors.  A court addressing electronic errors in these other contexts should apply general common law.  The existence of the defense in this section for a consumer does not affect remedies under the general law of mistake, including in cases where the consumer does not qualify for the defense.
  5. Relation to other Law. This section does not alter other consumer protection laws.  In addition, it does not alter credit card or other rules regarding the responsibility of a consumer or a merchant to parties who provide payment or credit services relating to the transaction.  Financial services transactions are excluded from this Act.  Thus if an error by a consumer causes an order for ten copies, rather than one copy, as between the consumer and the licensor, this section applies. However, if the transaction were made with a credit card, the consumer’s responsibility to the card issuer under the credit card remains governed by law applicable to that transaction and by the card issuer’s disputed charge resolution procedures.

What is a reasonable procedure for correcting errors depends on the commercial context, including the extent to which the transaction entails immediate reactions. For example, in a transaction which occurs over a several day period, it may be reasonable to require a verification of a bid or order before it is placed, while in an on-line, real time auction, reconfirmation may not be possible. A reasonable procedure may entail no more than requiring two separate indications confirming that the bid should be entered or, where the formatting allows correction, requesting that the consumer check and correct the bid before the “Bid Now” button is pressed. As elsewhere, the idea of a reasonable procedure here does not require use of the most effective procedure, of special detection software or even the most reasonable, it requires that, all things taken into account, the procedure is commercially reasonable.

To avoid the effects of an electronic error, the consumer must act promptly on learning of the error or of the other party’s reliance. The consumer must notify the other party of the error and deliver back, at the consumer’s cost, any copies of information received in the same condition as received. Return of copies is not required if the other party reasonably instructs the consumer to destroy the copies. However, the consumer must act promptly in a manner that returns the other party to the position that would have been true if the error had not occurred. Compare European Union Distance Contract Directive (no rescission right for consumer if software is not returned unopened).

This defense builds on equity principles that permit a party to avoid the consequences of its error if the error causes no detrimental effect to another party and does not give a benefit to the person making the mistake. The defense does not apply if the consumer used the information or otherwise received a benefit from it or the error. Since there may be unavoidable detrimental effects on the party who received an erroneous message (e.g., costs of filling erroneous orders), courts must apply this rule with care. The basic assumption is that the defense works when there is no detrimental effect on the person who did not make the error, but that assumption is particularly suspect in cases where the nature of the information product makes for high costs to the provider or risk of fraud worked by the consumer.

Illustration 1: Consumer intends to order one game from Jones’ web site. Consumer types 11. Jones electronically delivers 11 games or causes their shipment with an overnight courier. The next morning, Consumer notices the mistake. He immediately sends an e-mail to Jones describing the problem, offering to immediately return the copies at Consumer’s expense; he does not use the games. Under this section, there is no obligation for 11 copies.

Illustration 2: Same facts as in Illustration 1, except that Consumer did intend to order 11 copies and merely changed his mind. The section does not apply.

Illustration 3: Same as in Illustration 1, but Jones’ system asks Consumer to confirm an order of 11 copies. Consumer confirms. There was no “electronic error.” The procedure reasonably allowed for correction of the error. The conditions for application of this section are not met.

§ 59.1-502.15. Electronic message; when effective; effect of acknowledgment.

  1. Receipt of an electronic message is effective when properly addressed and received.
  2. Receipt of an electronic acknowledgment of an electronic message establishes that the message was received but by itself does not establish that the content sent corresponds to the content received.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Electronic”;

“Electronic message”;

“Information”;

“Receive”.

  1. Scope of the Section. This section deals with the timing of effectiveness of electronic messages and with the impact of an acknowledgment.  It does not deal with questions of to whom the message is attributed or with whether the content of the message is effective.
  2. Time of Receipt Rule. Subsection (a) adopts a time of receipt rule; rejecting the mailbox rule for electronic messages and resolving uncertainty about what common law rule would otherwise govern. See Section 102 [§ 59.1-501.2] (definition of “receipt”). This time-of-receipt rule reflects both the relatively instantaneous nature of electronic messaging and places the risk on the sending party if receipt does not occur. As used in this Section, “effectiveness” of a notice parallels the usage in Uniform Commercial Code § 1-201 (27) (1998 Official Text). The receipt of the message is “effective” when received, but the receipt being effective does not create a presumption that the message contains no errors, that its content is adequate or that it was sent by any particular person. Whether the message formed a contract is determined by ordinary offer and acceptance rules and whether an existing contract has been modified is determined by ordinary rules on modification. Neither effect happens simply because receipt of a message is effective without more.
  3. Effect of Acknowledgment. Acknowledgment is not acceptance, although an acceptance can also be treated as an acknowledgment. Acknowledgment proves receipt but does not create any presumption about the identity of the person sending the acknowledgment. That can be established by an attribution procedure agreed to or adopted by the parties or established by law, but this section does not create any presumptions.   Questions about the accuracy or the general content of the received message also are not treated here.  Of course, by agreement the parties address all of these issues.

The message is “effective” when received, not when read or reviewed by the recipient, just as written notice is received even if not read or acknowledged. This applies traditional common law theories to electronic commerce. In electronic transactions, automated systems can send and react to messages without human intervention. A rule that demands human assent would add an inefficient and error prone element or inappropriately cede control to one party.

§ 59.1-502.16. Idea or information submission.

  1. The following rules apply to a submission of an idea or information for the creation, development, or enhancement of computer information which is not made pursuant to an existing agreement requiring the submission:
    1. A contract is not formed and is not implied from the mere receipt of an unsolicited submission.
    2. Engaging in a business, trade, or industry that by custom or practice regularly acquires ideas is not in itself an express or implied solicitation of the information.
    3. If the recipient seasonably notifies the person making the submission that the recipient maintains a procedure to receive and review submissions, a contract is formed only if:
      1. the submission is made and accepted pursuant to that procedure; or
      2. the recipient expressly agrees to terms concerning the submission.
  2. An agreement to disclose an idea creates a contract enforceable against the receiving party only if the idea as disclosed is confidential, concrete, and novel to the business, trade, or industry or the party receiving the disclosure otherwise expressly agreed.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Information”;

“Informational rights”;

“License”;

“Party”;

“Record”;

“Release”.

  1. Idea Submissions: General Premise. This section deals in a limited way with an important issue in information industries: submissions of ideas. It section leaves undisturbed doctrines dealing with equitable remedies, but clarifies contract law. Subsection (a) pertains to unsolicited submissions and to the effect of express submission procedures. Subsection (b) pertains to standards for enforcement of idea submission agreements, whether express or implied.
  2. Idea Submissions:  No Prior Agreement. Subsection (a) deals with submissions not pursuant to a prior agreement. Subsection (a)(1) states an obvious contract law principle. If the submission was not solicited, mere receipt of the submission does not create a contract. The receiving party may have an obligation to return copies in some cases, but unilateral action of one party cannot impose obligations in contract on the recipient. Of course, simply because an idea or information is solicited does not mean that there is an agreement or a contract with respect to that submission. The absence of a contract is clear where, for example, a party merely maintains a website inviting clients and licensees to contact it but not indicating an obligation to pay or otherwise compensate for ideas received.
  3. Idea Disclosure. Subsection (b) deals with the classic circumstance in which implied in fact contracts might arise. An agreement to disclose an idea carries with it, in the absence of contrary terms, the assumption that the idea has value or uniqueness. That value exists if the idea is concrete, confidential and novel. If, for example, there is an agreement for a party to submit an idea for enhancing the success of audiovisual works in return for a fee, the agreement is not an enforceable contract if the idea is “draw more attractive images.” This rule adopts majority view and cases such as Oasis Music Inc. v. 100 USA, Inc., 614 N.Y.S.2d 878 (N.Y. 1994); Smith v. Rerion Corp., 541 P.2d 663 (Nev. 1975); Burgess v. Coca-Cola Co., 55 U.S.P.Q.2d 1506 (Ga. App. 2000). The recipient cannot recover payments it already made. Rather, the default rule is that the provider of the non-novel submission cannot enforce any future obligations as to the submitted idea. The basic principle is that a non-novel idea is not adequate consideration for a contract and that a proponent of an idea implicitly represents that the idea has value. This is not met in a case of an idea that is not concrete, confidential and novel. Of course, however, if the receiving party expressly agreed that it would pay regardless of the nature of the idea, the default rule stated in subsection (b) is over-ridden by that express agreement.
  4. Trade Secret and Other Confidential Disclosures. The rule stated in subsection (b) applies to idea submissions. It does not apply to ordinary commercial cases involving confidential disclosures of trade secret or other information. The formation and enforcement of such contracts is under general contract formation law and, when applicable, trade secret law. The Restatement (Third) of Unfair Competition suggests that, for purposes of tort claims (e.g., misappropriation law), the doctrines that have developed in many states relating to idea submissions should be brought within trade secret law. This Act does not deal with that issue. It expressly preserves trade secret and similar law, leaving unaffected any controversy that this Restatement suggestion might engender. The rules here deal only with contract law and follow the widely accepted majority rule with respect to idea submissions.

As indicated in subsection (a)(2), this is true even if the industry in which the recipient functions ordinarily relies on ideas. Contracts only arise by agreement by the parties.

For purposes of this section, an idea is not solicited simply because the recipient maintains a general interactive customer contact and information site at which clients and licensees may supply information, complaints or suggestions about its products. An idea or information is solicited if the recipient has specifically requested information from another party on a particular topic with some undertaking to pay for such solicited submission.

Subsection (a)(3) acknowledges the common practice of establishing a method for receiving and reacting to submissions as a means of controlling risk and giving guidance. Under this subsection, these procedures have impact in contract law if the submitting party is notified that they exist. Undisclosed procedures are not relevant to a contract analysis. If the submitting party is notified of the procedure, decisions about acceptance or rejection of the submission are funneled through that procedure or, in the case of acceptance, an express decision to accept. This protects both parties. The submitter and the recipient receive the benefit of a more specific set of choices about taking on a contract or rejecting it.

This principle does not require that the idea rise to the level of novelty as that term is used in patent law. Cases on combination secrets and other situations in trade secret law where information has sufficient uniqueness or secrecy to qualify as a trade secret should inform decisions under this standard.

Nothing in this section precludes enforcement of an agreement for idea submission that does not hinge on the uniqueness of the proposed submission. In deciding whether such agreement exists, a court must consider the fundamental notion that a party does not implicitly contract away its rights, without a fee, to use information which is not novel, confidential and concrete merely because it contracted for “disclosure” of such material.

§§ 59.1-502.17 through 59.1-503. Reserved.

Article 3. Construction.

§ 59.1-503.1. Parol or extrinsic evidence.

Terms with respect to which confirmatory records of the parties agree or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to terms included therein may not be contradicted by evidence of any previous agreement or of a contemporaneous oral agreement but may be explained or supplemented by:

  1. course of performance, course of dealing, or usage of trade; and
  2. evidence of consistent additional terms, unless the court finds the record to have been intended as a complete and exclusive statement of the terms of the agreement.

History. 2000, cc. 101, 996.

Editor’s note.

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2A-202; 2-202 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Course of dealing”;

“Course of performance”;

“Court”;

“Party”;

“Record”;

“Term”;

“Usage of Trade.”

  1. Scope of Section. This section adopts the parol evidence rule from Uniform Commercial Code § 2-202 (1998 Official Text).
  2. Record as Final Expression. The basic principle is that an agreed record of the contract is the best and primary source determining the terms of the agreement of the parties.  This section excludes evidence of other alleged terms or agreements that contradict the terms of a record intended as a final expression of the agreement with respect to the terms covered in the record or with respect to terms on which confirmatory records agree. The record need not be intended as the only statement of the agreement on all terms, but to have this rule apply it must be intended as final on the terms covered.
  3. Practical Construction. Paragraph (1), however, makes admissible evidence of course of dealing, usage of trade, and course of performance to explain or supplement the terms of any record stating the agreement of the parties. This does not depend on a prior determination that the language of the record is ambiguous.  Instead, these sources of interpretation are allowed in order to reach an accurate understanding of the parties’ intent as to their agreement. Records of an agreement are to be read on the assumption that the course of prior dealings between the parties and the usage of trade were taken for granted when the record was drafted. Unless negated by the record, they are an element of the meaning of the words used. Similarly, the course of actual performance by the parties may be the best indication of what the parties intended the record to mean.
  4. Consistent Additional Terms. Under paragraph (2), consistent additional terms not in the record may be proved unless the court finds that the record was intended by both parties as a complete and exclusive statement of all the terms.  This rejects the view that any record that is final on some terms should be, without more, treated as final on all terms of the agreement. On the other hand, if alleged additional terms are such that given the circumstances of the transaction, if agreed upon, they would certainly have been included in the record of the agreement, evidence about the alleged terms must be kept from the trier of fact under this standard.
  5. Language. This section rejects the premise that the language used in a record necessarily has the meaning attributable to such language by rules of construction existing in the law rather than the meaning that arises out of the commercial context in which it was used.  See Section 302 [§ 59.1-503.2].

An alleged term or agreement is contradictory if its substance cannot reasonably coexist with the substance of the terms of the record. Thus, an alleged term that calls for completion of a software project on July 1 contradicts a term of a record calling for completion on June 10. The two terms cannot reasonably coexist as part of the same agreement. On the other hand, an alleged term that specifies the processing capacity of the software does not contradict the terms of a record that does not make reference to that issue. Of course, the fact that the term does not contradict the record means only that evidence of it can be admitted. It does not indicate whether the alleged term was actually agreed by the parties.

This rule does not preclude proof of subsequent modifications of the agreement. What is excluded is evidence of prior or contemporaneous agreements that are not in the record. Subsequent modification may be shown by appropriate evidence. Terms of the original record may restrict what subsequent modification may be proven or effective, such as by requiring that all modifications be in an authenticated record. Section 303 [§ 59.1-503.3].

In many cases, evidence of the parties’ intent about the exclusive nature of the record of their agreement will be provided in the record itself. Particularly in commercial agreements, it is common to include a merger clause stating that the record is intended by both parties as a complete and exclusive expression of the terms of the contract. Under the UNIDROIT Principles of International Commercial Law, merger clauses are conclusive on the issue of intent. As a practical matter, a merger clause in a negotiated commercial contract creates a strong, nearly conclusive presumption that both parties intended the record to be the exclusive statement of their agreement. The merger clause does not preclude a court from using course of dealing, usage of trade or course of performance to understand the meaning of contract terms, but does place a difficult burden on the party seeking to establish that additional terms exist. Even in a commercial case, however, the presumption can be shown to be inappropriate if the record itself refers to terms contained in or documented by material extraneous to the purportedly exclusive record. Of course, records that contain a merger clause but refer to other documents may still reflect an intent to be exclusive if the statement of what represents the aggregate exclusive statement of agreement includes all documents intended to be aggregated, including the referenced external documents.

§ 59.1-503.2. Practical construction.

  1. The express terms of an agreement and any course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. However, if that construction is unreasonable:
    1. express terms prevail over course of performance, course of dealing, and usage of trade;
    2. course of performance prevails over course of dealing and usage of trade; and
    3. course of dealing prevails over usage of trade.
  2. An applicable usage of trade in the place where any part of performance is to occur must be used in interpreting the agreement as to that part of the performance.
  3. Evidence of a relevant course of performance, course of dealing, or usage of trade offered by one party in a proceeding is not admissible unless and until the party offering the evidence has given the other party notice that the court finds sufficient to prevent unfair surprise.
  4. The existence and scope of a usage of trade must be proved as facts.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2A-207; Section 2-208; Section 1-205 (1998 Official Text). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Course of dealing”;

“Course of performance”;

“Knowledge”;

“Party”;

“Term”;

“Usage of trade”.

  1. Scope of the Section. This section is based on Uniform Commercial Code §§ 1-205 ; 2-208 (1998 Official Text), and provides that in interpreting an agreement a court should refer to relevant indicia of the context in which the parties formed and performed their agreement.
  2. Construction based on Performance. This section adopts the premise that the parties themselves know best what they meant by the words of their agreement and that their actions under that agreement are an important indication of that meaning.  Behavior, of course, is subordinate to express contract terms. However, course of performance as well as usage of trade and course of dealing provide factors useful in determining the meaning of the “agreement.”
  3. Nature of Course of Performance. A course of performance requires repeated performance by one party known to the other, an opportunity for the other to object, and a pattern of acceptance or acquiescence by that other party. Since it provides a basis for understanding the parties’ agreement, the events creating it must have mutual elements. Unilateral conduct unknown to the other party, such as use of information beyond the terms of a license, cannot establish a course of performance.  Similarly, a single act does not fall within this concept, although a single event may affect the parties’ rights in other respects.
  4. Relationship to Waiver. A pattern of conduct may provide insight into the meaning of the agreement or represent a waiver of a term.  The preference in this Act is in favor of a “waiver” (if the elements of waiver are present) whenever this construction is reasonable because this interpretation preserves the flexible character of commercial contracts and prevents surprise or other hardship.  This is true because a waiver can be retracted as to future performance.  See Sections 702 [§ 59.1-507.2]; 303 [§ 59.1-503.3] Comment 5. In contrast, treating a pattern of conduct as providing a binding interpretation of the agreement results in specifying a meaning that cannot be unilaterally retracted by a party.
  5. Order of Interpretation. Subsection (a) sets out the order of preference among express terms, course of performance, course of dealing, and usage of trade. Express terms of an agreement always govern.  Course of performance and course of dealing are the next preferred, respectively, because each relates to the behavior of the particular parties.  These all supersede the default rules of this Act.
  6. Place of Performance. Subsection (b) indicates that, as applied to a performance, any applicable usage of trade is determined  as  meaning what it may fairly be expected to mean to parties in a given locality and involved in the particular type of commercial transaction in that locality. However, the alleged usage of trade must meet the definition of that term, including in reference to its being understood by all parties to the contract as to that place. See Uniform Commercial Code § 1-205 , comment 4 (1998 Official Text).

§ 59.1-503.3. Modification and rescission.

  1. An agreement modifying a contract subject to this chapter needs no consideration to be binding.
  2. An authenticated record that precludes modification or rescission except by an authenticated record may not otherwise be modified or rescinded. In a standard form supplied by a merchant to a consumer, a term requiring an authenticated record for modification of the contract is not enforceable unless the consumer manifests assent to the term.
  3. A modification of a contract and the contract as modified must satisfy the requirements of §§ 59.1-502.1 (a) and 59.1-503.7 (f) if the contract as modified is within those provisions.
  4. An attempt at modification or rescission which does not satisfy subsection (b) or (c) may operate as a waiver if § 59.1-507.2 is satisfied.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2A-208; 2-209 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Authenticate”;

“Consumer”;

“Contract”;

“Merchant”;

“Record”;

“Standard form”;

“Term”.

  1. Scope of the Section. This section deals with modifications of contracts and agreed limits on the ability to modify.  It is subject to Section 304 [§ 59.1-503.4] on changes made pursuant to contract terms allowing changes. The section generally follows Uniform Commercial Code § 2-209 (1998 Official Text), but makes various changes and moves provisions on the relationship between attempted modification and waiver to Section 702 [§ 59.1-507.2]. On the relationship between this and terms presented for later agreement, see Section 208 [§ 59.1-502.8], Official Comment 4.
  2. Role of Contract Modifications. Subsection (a) makes modifications of contracts effective without regard to any lack of consideration. The modification must be in an agreement and there must be assent by both parties. As in Uniform Commercial Code § 2-209 (1998 Official Text), there is no requirement that a modification be proposed in good faith. A court should not be asked to accept or invalidate an agreed modification based on its view of the fairness of the commercial motivations of the party proposing the modification or whether the agreement is fair.  The fact that there must be agreement protects against overreaching and abuse, allowing courts to apply ordinary concepts related to fraud or duress when appropriate.
  3. Contract Terms Prohibiting Oral Modification. Under subsection (b), a contract term that bars modification or rescission of an agreement except in an authenticated record is enforceable. See Uniform Commercial Code § 2-209 (1998 Official Text). This type of contract term has great importance in commercial relationships especially in contracts involving ongoing performances. Contractually preventing modifications that are not in an authenticated record plays an important role in preventing false allegations of oral modifications, difficulties of establishing terms, and avoiding circumvention of express agreements by alleged modifications. For example, a term that provides “no modification without a signed writing” precludes modification of an agreement by a later mass-market license not signed by the licensee.  Morgan Laboratories, Inc. v. Micro Data Base Systems, Inc., 1997 WL 258886, 41 U.S.P.Q.2d 1850 (N.D. Cal. 1997). Such terms permit parties to make their own statute of frauds that controls their risk of oral or other unsigned modifications. The language of the contract term controls, but the presumption should be that electronic records and signatures are included within contractual terms that generally refer to signatures or writings.  However, if a term of a contract limits modifications to a “written signature on paper,” an electronic record or an electronic authentication is not sufficient.
  4. Statute of Frauds. Under subsection (c), the contract as allegedly modified and the modification itself must satisfy the statute of frauds and Section 307(f) [§ 59.1-503.7(f)] to be enforceable.  This prevents unfounded claims of oral modification that alter the contract in a way that derogates Section 201(a) [§ 59.1-502.1(a)] or Section 307(f) [§ 59.1-503.7(f)]. Thus, the alleged modification cannot, without an authenticated record, transform a $6,000 two-year license of computer information into a perpetual license, nor can it alter the subject matter of a license for a multi-media product to include an entirely different subject matter. On the other hand, a modification that changes the delivery date without altering the term or subject matter, need not be in an authenticated record if the original agreement was in such a record. In that case, the original record suffices under Sections 201 and 307 [§§ 59.1-502.1 and 59.1-503.7] as to the modified contract.
  5. Waiver. A party whose conduct is inconsistent with a contract term may place itself in a position from which it may no longer assert that term until it gives notice to the other party that it intends to do so. That principle of waiver is discussed in Section 702 [§ 59.1-507.2] and applies to contract terms requiring a signed record for modification. But waiver occurs only if the conduct induced the other party reasonably and in good faith to rely and that reliance precludes changing the position as to past conduct or as to future conduct unless steps are taken to cut off reasonable reliance on the waiver as to the future.  See Autotrol Corp. v. Continental Water Systems, 918 F.2d 689, 692 (7th Cir. 1990); Wisconsin Knife Works v. National Metal Crafters, 781 F.2d 1280 (7th Cir. 1986). Reasonableness of such behavior, of course, must be considered in light of the circumstances, including the fact of a “no waiver” clause. Courts should be slow to find waiver of anti-waiver provisions in general and “no-oral modification” clauses in particular.   See 1 White & Summers, Uniform Commercial Code 1-6 , pp. 41-42 (4th Ed. 1995).  With “no-oral modification” clauses, it is more likely that the conduct constitutes a waiver of the substantive term for a particular performance, rather than of the “no-oral-modification” clause itself which would open up the entire contract based on behavior affecting one part. That interpretation is consistent with Section 302 [§ 59.1-503.2], preferring a waiver analysis over a modification analysis in close cases.

Subsection (b) adopts the policy of Uniform Commercial Code § 2-209 (1998 Official Text) that in consumer transactions such terms are enforceable only if the consumer assents specifically to the term. U.C.C. Article 2 requires a consumer to sign the term. This Act substitutes the requirement of manifesting assent to better fit electronic commerce. The limitation in subsection (b) does not apply to a transaction that is not a consumer transaction.

Partial performance under the original agreement validates the original agreement, but if the modification alters subject matter, duration, scope, price or other significant terms, that partial performance does not validate the modified contract. If the contract as modified does not satisfy the statute of frauds, the original agreement that did satisfy Section 201 [§ 59.1-502.1] constitutes the contract.

The modifications must also satisfy any other applicable rules limiting the effectiveness of agreed terms. Thus, disclaimers of warranties must meet conform to the disclaimer rules and modifications of scope must comply with Section 307 [§ 59.1-503.7].

§ 59.1-503.4. Continuing contractual terms.

  1. Terms of an agreement involving successive performances apply to all performances, even if the terms are not displayed or otherwise brought to the attention of a party with respect to each successive performance, unless the terms are modified in accordance with this chapter or the contract.
  2. If a contract provides that terms may be changed as to future performances by compliance with a described procedure, a change proposed in good faith pursuant to that procedure becomes part of the contract if the procedure:
    1. reasonably notifies the other party of the change; and
    2. in a mass-market transaction, permits the other party to terminate the contract as to future performance if the change alters a material term and the party in good faith determines that the modification is unacceptable.
  3. The parties by agreement may determine the standards for reasonable notice unless the agreed standards are manifestly unreasonable in light of the commercial circumstances.
  4. The enforceability of changes made pursuant to a procedure that does not comply with subsection (b) is determined by the other provisions of this chapter or other law.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Good faith”;

“Mass-market transaction”;

“Notice”;

“Notify”;

“Party”;

“Term”;

“Termination”.

  1. Scope of the Section. This section deals with contracts involving ongoing performances by one or both parties. It clarifies enforceability of agreed methods that allow changes in terms, but does not alter law or agreements outside this Act which place restrictions on the ability to change terms.
  2. Continuing Terms. Subsection (a) states two important principles.
  3. Changes in Terms. Subsection (b) sets out procedures that, if established by agreement and followed in fact, make a contractual change of terms effective.  It creates incentives for contracts that provide more protection to the party that is not changing the terms than are required in common law.  If parties agree that changes can be made pursuant to a specified procedure and the provisions of this subsection are met, the changes made in good faith pursuant to that procedure are effective; this section excludes any argument in such cases that the contract containing such a procedure fails for lack of mutuality.  If subsection (b) is not met, however, neither the contract nor the changes are rendered unenforceable by this Act, but the parties do not benefit from the rule in this subsection.
    1. Relationship to Other Rules. To be effective under this section, the procedures described in subsection (b) must be pursuant to a contract term authorizing a procedure for changes.  The terms of an ongoing contract may, of course, be altered in other ways, such as by an agreed modification. Similarly, principles of waiver can affect what are the effective terms of the agreement.
    2. Contracts Generally. Under subsection (b)(1), a change becomes part of the contract if it meets the following conditions:
    3. Mass-Market Transactions. In mass-market transactions, subsection (b)(2) authorizes an agreed procedure only if standards of good faith and reasonable notification are met and the consumer or other mass-market licensee has a right in good faith to withdraw from the contract with respect to future performances. The termination right must be exercised in good faith and for a material change adverse to the licensee.  Price changes are material in all cases. Other changes may be material, such as a significant change in the agreed hours during which the on-line system is available. Of course, a reduction in price or other generally beneficial change does not require a right to terminate.
  4. Changes in Content. This section deals with changes in contract terms and does not cover changes in content available under an access contract. In an access contract, the access right is to materials as changed by the licensor over time unless the agreement otherwise expressly provides. A decision to add, modify, or delete a database or a part of a database does not modify the contract, but merely constitutes the performance of the licensor and is not within this subsection.

First, contract terms cover all performances under the contract whenever the agreement extends to subsequent performances. A warranty disclaimer in a contract for ongoing use of a website applies to all subsequent uses of the site pursuant to that contract. Of course, if each separate access involves a separate access contract, the terms of the first agreement do not cover the second, absent express agreement that it does so.

Second, contract terms can be changed pursuant to procedures established by the contract. The procedures might relate to actions of a third party (e.g., changes in applicable government regulation), to an external standard (e.g., a price index), or to changes implemented by a party pursuant to an agreed procedure. Performance under a contractual right to change terms is subject to the duty of good faith. The affirmative principle is that, in a commercial agreement, if parties agree to a procedure by which terms can be altered, they are bound by that agreement and changes made pursuant to that agreed procedure are binding unless the proposal violates standards of good faith, including commercial fair dealing.

The subsection addresses important practices in online and other contracts, such as outsourcing agreements, where there is a need to efficiently modify terms over time. It does not alter agreements or consent orders which limit or expand the ability to make changes in an ongoing contract. This subsection deals only with agreed terms that permit changes to be made. It does not create a unilateral right to change terms if the parties have not agreed to an applicable procedure.

Contract terms allowing procedures for changes are the converse of contractual provisions restricting modification other than in an authenticated record. They are analogous to cases in which an agreement leaves the particulars of performance to be specified by one party. They are enforceable under Section 305 [§ 59.1-503.5] and under U.C.C. Article 2. The need for enforceability of such changes is especially important in electronic commerce because this area of commerce is subject to evolving and unpredictable rules and circumstances that may require adjustment of performance, risk allocation, and other characteristics of a relationship. The requirement that the change be made in good faith requires that the change occur in a manner consistent with commercial standards of fair dealing; this prevents the party making the change from taking undue advantage.

• it is proposed in good faith, which includes meeting standards of commercial fair dealing;

• it is proposed pursuant to an agreed procedure;

• the procedure reasonably notifies the other party of the change.

However, since this Act preserves substantive consumer statutes (Section 105 [§ 59.1-501.5]), if a consumer statute specifies a method for notice of changes, this Act does not displace that rule.

Subsection (b)(1) requires that the procedure reasonably notify the other party of the change. What constitutes reasonable notification depends on the commercial circumstances and general commercial standards of practice with respect to that circumstance. Posting at an agreed location designated for that purpose would ordinarily suffice as commercially reasonable notification. While there is no requirement that individual changes be separately singled out for special affirmative notice, such may be appropriate under this standard for material changes such as a change in price. Often, reasonable notification requires action before the change is effective, but in some emergency situations, notice that coincides with the change or follows it is sufficient (e.g., blocking access to a virus infected site or a change in access codes to prevent third party intrusions). A procedure for posting changes in a designated, accessible location will ordinarily suffice. The overall context of the contract must be considered.

This section does not require that there be a right to withdraw from the contract in commercial, non-mass-market transactions. This is because, in cases such as outsourcing agreements or other ongoing commercial relationships, the blanket requirement of a withdrawal right cannot meet the varied and important commercial circumstances that might arise. For example, in some cases, the services provider makes extensive financial commitments in based on a multiyear contract term and requiring that a withdrawal right exist in those situations would seriously disrupt commercial expectations.

The right to withdraw must be without penalty, but the licensee must, of course, perform the contract prior to the date of withdrawal (e.g., pay all sums due). In many licenses that entail continuing performance, the contract may be subject to termination at will. Subsection (b) does not alter that rule or the rights of either party under it.

§ 59.1-503.5. Terms to be specified.

An agreement that is otherwise sufficiently definite to be a contract is not invalid because it leaves particulars of performance to be specified by one of the parties. If particulars of performance are to be specified by a party, the following rules apply:

  1. Specification must be made in good faith and within limits set by commercial reasonableness.
  2. If a specification materially affects the other party’s performance but is not seasonably made, the other party:
    1. is excused for any resulting delay in its performance; and
    2. may perform, suspend performance, or treat the failure to specify as a breach of contract.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code Section 2-311 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Good faith”;

“Seasonable”;

“Party”.

  1. Scope of Section. This section follows Uniform Commercial Code § 2-311 (1998 Official Text). It deals with contracts in which one party reserves or is granted the right to specify terms after the agreement. On the relationship between this and terms presented for later agreement, see Section 208, Official Comment 4.
  2. Enforceability. This section is an express recognition of one form of layered contracting in which terms are established after the initial agreement, rather than at the time of initial agreement.  If the initial agreement is sufficiently definite to form a contract, this section allows parties to leave particulars of performance to be filled in by a party without running the risk of having the contract invalidated for indefiniteness.  The party empowered to specify the missing details is required to exercise good faith and to act in accordance with commercial standards so that there is no surprise; the range of permissible specifications is limited by what is commercially reasonable.
  3. Conditions. Paragraph (2) applies when specification by one party is necessary to or materially affects the other party’s performance, but is not seasonably made.  The section excuses the other party’s resulting delay in performance.  The hampered party may perform in any reasonable manner, suspend its performance, or treat the other person’s failure as a breach of contract.  These rights are in addition to all other remedies available under the contract or this Act.  This includes the right to demand reasonable assurances of performance because the delay caused insecurity.  The request for assurances may also be premised on the obligation of good faith established in this section, which obligation may imply the need for a reasonable indication of the time and manner of performance for which the other party is to hold itself ready.

The agreement that permits one party to specify terms may be found in a course of dealing, usage of trade, implication from the circumstances or in explicit language used by the parties. Thus, acquisition of information through a telephone order where there is reason to know that terms to be provided by the other party will indicate details of the contractual arrangement may fall within this section. Supplied under this section, the details supplied are bounded by trade use and commercial expectations (as well as by the terms actually agreed by the parties). They do not, however, require that the other party agree to the terms since, by definition, the original agreement constitutes assent to the later terms under the limitations described here.

§ 59.1-503.6. Performance under open terms.

A performance obligation of a party that cannot be determined from the agreement or from other provisions of this chapter requires the party to perform in a manner and in a time that is reasonable in light of the commercial circumstances existing at the time of agreement.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Party”.

  1. Scope of Section. This section provides a general interpretation rule for issues not covered by the agreement or other sections of this Act.  It follows Article 2 of the Uniform Commercial Code (1998 Official Text).
  2. Commercial Context. Interpretation of contracts must be based on the commercial context.  If the agreement or this Act does not provide content for a term left open by the parties, a court must adopt a standard that is reasonable in light of the commercial circumstances. This rule applies only if there is no contract term.  Agreement may be found in express language or in usage of trade or course of dealing. This section does not allow a court to add or alter agreed terms. See Section 210 [§ 59.1-502.10], Comment No. 4.
  3. Lack of Contract. This section does not apply if the parties do not intend an agreement.  If a term is left open because there was no agreement on the term and the intent of the parties precludes a contract unless or until that agreement occurs, Section 202(e) [§ 59.1-502.2(e)] applies.

What is reasonable in context depends on the nature, purpose and circumstances of the action to be taken or avoided and on the entire commercial context of the agreement. If the reasonableness standard applies, a party is not required to fix, at peril of breach, a performance that is in fact reasonable in the unforeseeable judgment of a later trier of fact. Under general requirements of good faith, effective communication by one party to the other of a proposed time limit or other interpretation of a reasonable performance calls for a response so that a failure to reply in a timely manner creates an inference of acquiescence to the proposal. If the recipient of the proposal objects or if no proposal is made, a demand for assurance on the ground of insecurity may be made pending further negotiation. Only if a party insists on undue delay or unreasonable performance or rejects the other party’s commercially reasonable proposal does a question of breach arise.

§ 59.1-503.7. Interpretation and requirements for grant.

  1. A license grants:
    1. the contractual rights that are expressly described; and
    2. a contractual right to use any informational rights within the licensor’s control at the time of contracting which are necessary in the ordinary course to exercise the expressly described rights.
  2. If a license expressly limits use of the information or informational rights, use in any other manner is a breach of contract. In all other cases, a license contains an implied limitation that the licensee will not use the information or informational rights otherwise than as described in subsection (a). However, use inconsistent with this implied limitation is not a breach if it is permitted under applicable law in the absence of the implied limitation.
  3. A party is not entitled to any rights in new versions of, or improvements or modifications to, information made by the other party. A licensor’s agreement to provide new versions, improvements, or modifications requires that the licensor provide them as developed and made generally commercially available from time to time by the licensor.
  4. Neither party is entitled to receive copies of source code, schematics, master copy, design material, or other information used by the other party in creating, developing, or implementing the information.
  5. Terms concerning scope must be construed under ordinary principles of contract interpretation in light of the informational rights and the commercial context. In addition, the following rules apply:
    1. A grant of “all possible rights and for all media” or “all rights and for all media now known or later developed,” or a grant in similar terms, includes all rights then existing or later created by law and all uses, media, and methods of distribution or exhibition, whether then existing or developed in the future and whether or not anticipated at the time of the grant.
    2. A grant of an “exclusive license,” or a grant in similar terms, means that:
      1. for the duration of the license, the licensor will not exercise, and will not grant to any other person, rights in the same information or informational rights within the scope of the exclusive grant; and
      2. the licensor affirms that it has not previously granted those rights in a contract in effect when the licensee’s rights may be exercised.
  6. The rules in this section may be varied only by a record that is sufficient to indicate that a contract has been made and that is:
    1. authenticated by the party against whom enforcement is sought; or
    2. prepared and delivered by one party and adopted by the other under § 59.1-502.8 or § 59.1-502.9.

History. 2000, cc. 101, 996; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2004 amendments

The 2004 amendment by c. 794 deleted subsection (c), which formerly read: “An agreement that does not specify the number of permitted users permits a number of users which is reasonable in light of the informational rights involved and the commercial circumstances existing at the time of the agreement”; redesignated former subsections (d) through (g) as present subsections (c) through (f); substituted “that” for “which” in the introductory paragraph of subsection (f); and substituted “whom” for “which” in subdivision (f) (1).

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Authenticate”;

“Contract”;

“Copy”;

“Delivery”;

“Information”;

Informational rights”;

“License”;

“Licensee”;

“Licensor”;

“Party”;

“Person”;

“Receive”;

“Record”;

“Scope”;

“Term”.

  1. Scope of Section. This section deals with interpretation of a license, establishing the basic premise that a license should be interpreted in a commercially reasonable manner and providing several specific interpretation rules that reflect commercial practice.
  2. License Grant. Subsection (a) provides that as a matter of interpretation a license gives the contractual rights expressly granted and, in appropriate cases, limited implied rights to the extent necessary to use the expressly granted rights in the information. A license of software expressly allowing the licensee to create visual presentations for use in public speaking incorporates a right to publicly display images from the software in such presentations because that right is necessary to the expressly granted right.  On the other hand, under both copyright law and this section, a contract granting a right to publish a work as part of a particular compilation does not convey any implied right to reproduce that work in another medium or form.  See Tasini v. The New York Times Co., Inc., — U.S. — (2001). Also, the implied rights apply only to rights within the control of the licensor at the time of the contracting. For example, a license to use a photograph in a digital product implies a right to transform that photograph into digital form assuming that this right was within the licensor’s control at the time the contract was made.
  3. Exceeding the Grant. Subsection (b) resolves the interpretation of a license that gives the licensee a right “to do X” when the licensee does an act that exceeds or differs from “X.”  When the contract limit is express, as in stating a right “only to do X”, actions different from the expressly limited grant are a breach.  This refers to the grant as interpreted, including consideration of course of dealing and usage of trade.  When the license is less explicit, subsection (b) provides that there is an implied limitation that the licensee will not use the information other than as described in the contract and subsection (a). Uses outside these terms are a breach. This rejects case law that requires express limiting language for this result, such as requiring a license to state that the licensee may “only do X”.  If the word “only” or its equivalent does not appear, some patent cases hold that uses not covered by the grant infringe the patent, but may not breach the license. As a matter of contract law, a rule that hinges on the use or failure to use the word “only” provides a trap that is avoided in subsection (b) by adopting the ordinary understanding that an affirmative grant implicitly excludes uses that exceed or are not otherwise within the grant.
  4. Improvements and Design Material. Under subsections (c) and (d), unless the contract clearly indicates otherwise, neither party has a right to receive subsequent modifications or improvements made by the other, or a right of access to design and confidential material. Arrangements for such material as modifications, improvements, source code or designs entail separate relationships handled by express contract terms.  In the absence of express terms, the contract gives no rights to such material to either party.  This contract law principle does not, of course, supplant intellectual property rules on derivative works. Section 105(a) [§ 59.1-501.5(a)].
  5. Grant Clauses. Subsection (e) states that ordinary commercial contract principles apply to interpreting a license grant.  As a state law rule, of course, it is subject to contrary federal policy which, some courts hold, requires interpretation of a grant in favor of the licensor. See Comment No. 2 above.

This subsection does not create an implied license, but merely states a reasonable commercial interpretation of a contract. It can be over-ridden by the agreement. Also, the implied rights pertain only to information and material provided to the licensee. They do not require that the licensor transfer additional materials (such as source code) unless that transfer was agreed by the parties. The rights must be necessary and not merely convenient to enable the express grant. They do not include rights merely because the licensee desired them, merely because the rights pertain to uses made possible by possession of a copy, or merely common or even helpful rights, unless such rights are necessary to utilize the expressly granted rights. Express terms creating greater rights or lesser rights, of course, override this subsection.

Subsection (a) expresses a contract law interpretive rule. Some cases hold that federal policy requires interpretation of a license against the licensee and in a manner that withholds any use not expressly granted. SOS, Inc. v. Payday, Inc., 886 F.2d 1084 (9th Cir. 1989). The better view is that expressed in cases such as Bourne v. Walt Disney Co., 68 F.3d 621 (2d Cir. 1995), which treat interpretation as an ordinary commercial contract question. Of course, to the extent a mandatory federal policy precludes different state law, that policy overrides subsection (a). Section 105(a) [§ 59.1-501.5(a)].

The implied limitation, however, does not yield a breach if the use would have been permitted by law in the absence of the limitation. Thus, scholarly use of a quotation from licensed material not subject to trade secrecy restraints, if a fair use under federal law, would not conflict with the implied limitation. However, a licensee that does something that is not included in that grant and that is not protected such as by fair use breaches the contract. A license for use in Peoria implies the lack of a right to do so in Detroit, just as a contractual right to use information for 100 users implies a lack of a right to use it for 101 or more.

Subsections (e)(1) and (e)(2) provide guidance on important license terms. Subsection (e)(1) establishes a uniform rule on when a grant covers future technologies and rights. Use of statutory or similar language that creates a broad scope without qualification should be sufficient to cover any and all rights as well as present and future media (such as print, television, on-line and other modes of distribution). This is subject to other rules in this Act, including for example, the premise that the licensee does not receive any rights in enhancements made by the licensor unless the contract expressly so provides. The interpretation rule does not encourage or discourage use of such broad grants, but merely gives guidance on what language achieves what result when agreed by the parties.

Subsection (e)(2) clarifies that an exclusive license that does not otherwise deal with the issue, conveys exclusive rights that include restrictions on the licensor. The licensor may not license or itself use the information within the scope of the exclusive license, and affirms that it has not granted any other subsisting license covering the same scope and will not grant any future license covering the same scope that takes effect during the duration of the exclusive license. This Act does not change the definition of what is an “exclusive license” for copyright law recordation purposes, it merely deals with the interpretation given to a contract that provides that it is an exclusive license.

§ 59.1-503.8. Repealed by Acts 2004, c. 794.

§ 59.1-503.9. Agreement for performance to party’s satisfaction.

  1. Except as otherwise provided in subsection (b), an agreement that provides that the performance of one party is to be to the satisfaction or approval of the other party requires performance sufficient to satisfy a reasonable person in the position of the party that must be satisfied.
  2. Performance must be to the subjective satisfaction of the other party if:
    1. the agreement expressly so provides, such as by stating that approval is in the “sole discretion” of the party, or words of similar import; or
    2. the agreement is for informational content to be evaluated in reference to subjective characteristics such as aesthetics, appeal, suitability to taste, or subjective quality.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Restatement 228. Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Informational content”;

“Party”;

“Person”;

“Term”.

  1. Scope of Section. This section deals only with cases where the agreement provides that the acceptability of a required performance is to be judged based on the satisfaction of the party receiving the performance (e.g., where the parties agreed to a “to the satisfaction” clause). This often occurs in licenses where a work is to appeal to aesthetic sensibilities or taste.
  2. Basic Rule. Subsection (a) follows the Restatement (Second) of Contracts § 228. Contract terms that define acceptability in terms of “to the satisfaction” of a party are ordinarily interpreted as requiring an objective or reasonable person standard. Refusal is not allowed if the tender would be acceptable to a reasonable person. This rule is supplemented by the general obligation of good faith that applies to all contracts.
  3. Subjective Standard. As subsection (b) indicates, there are cases where a subjective standard of satisfaction is appropriate. The most obvious is when the contract so states. Subsection (b)(1) provides language that indicates a subjective satisfaction standard. Of course, the agreement may expressly reject a subjective standard and that agreement would control.

Subsection (b)(2) presumes a subjective standard if the contract involves informational content evaluated on aesthetics, appeal, or the like. See Locke v. Warner Brothers, Inc., 66 Cal. Rptr.2d 921 (Cal. App. 1997). (Under California law the applicable standard is that it is to be to the “honest satisfaction” of the party). As the subsection makes clear, this refers to cases where evaluation reflects subjective criteria and judgment. A reasonable person standard in such cases is nonsensical since the nature of the required evaluation presumes the exercise of personal judgment.

§ 59.1-503.10. Licenses to nonprofit libraries, archives or educational institutions.

  1. To the extent that the conduct is not otherwise unlawful or restricted under the Copyright Act, 17 U.S.C. § 101 et seq., or other law, in a standard form contract for the use of a tangible copy of informational content to a licensee that is a nonprofit library or archive or a nonprofit educational institution, the licensee may, without any purpose of direct or indirect commercial advantage:
    1. make the tangible copy available to library or archive users, including but not limited to reserving the copy for a course and lending that copy to users in accordance with ordinary practices of nonprofit libraries or archives;
    2. make a copy of the tangible copy for archival or preservation purposes;
    3. engage in inter-library lending of tangible copies of the copy; and
    4. make classroom and instructional use of the tangible copy.
  2. The provisions of subsection (a) may be varied by a term in a standard form contract only if:
    1. the term varying the provision is conspicuous;
    2. the nonprofit library, archive or educational institution specifically manifests assent to the term pursuant to subsection (c) of § 59.1-501.12; and
    3. where the term is not made available to the nonprofit library, archive or educational institution before it orders the tangible copy of the computer information:
      1. the nonprofit library, archive or educational institution knew or had reason to know that terms would follow when it ordered the copy; and
      2. the nonprofit library, archive or educational institution is given the right to return the copy in the event that it refuses the contract and the right to be reimbursed for any reasonable expenses incurred in complying with the licensor’s instructions for returning or destroying the computer information, or in the absence of such instructions, the reimbursement of expenses incurred for return postage or similar reasonable expense in returning the computer information.
  3. Nothing in this section shall be construed to:
    1. alter the burden of proof in an infringement, contract or other action;
    2. authorize making the informational content available on a computer network server or other system for simultaneous access and use by multiple users; or
    3. limit any defense that a term of a contract violates a fundamental public policy pursuant to § 59.1-501.5 including any such policy under the federal copyright law.
  4. For purposes of this section, the terms “nonprofit library, archive or educational institution” have the same meaning as used in sections 108, 109 and 110 of the Copyright Act, 17 U.S.C. §§ 108, 109, and 110.

History. 2001, c. 763.

§§ 59.1-503.11 through 59.1-504. Reserved.

Article 4. Warranties.

§ 59.1-504.1. Warranty and obligations concerning noninterference and noninfringement.

  1. A licensor of information that is a merchant regularly dealing in information of the kind warrants that the information will be delivered free of the rightful claim of any third person by way of infringement or misappropriation, but a licensee that furnishes detailed specifications to the licensor and the method required for meeting the specifications holds the licensor harmless against any such claim that arises out of compliance with either the required specification or the required method except for a claim that results from the failure of the licensor to adopt, or notify the licensee of, a noninfringing alternative of which the licensor had reason to know.
  2. A licensor warrants:
    1. for the duration of the license, that no person holds a rightful claim to, or interest in, the information which arose from an act or omission of the licensor, other than a claim by way of infringement or misappropriation, which will interfere with the licensee’s enjoyment of its interest; and
    2. as to rights granted exclusively to the licensee, that within the scope of the license:
      1. to the knowledge of the licensor, any licensed patent rights are valid and exclusive to the extent exclusivity and validity are recognized by the law under which the patent rights were created; and
      2. in all other cases, the licensed informational rights are valid and exclusive for the information as a whole to the extent exclusivity and validity are recognized by the law applicable to the licensed rights in a jurisdiction to which the license applies.
  3. The warranties in this section are subject to the following rules:
    1. If the licensed informational rights are subject to a right of privileged use, collective administration, or compulsory licensing, the warranty is not made with respect to those rights.
    2. The obligations under subsections (a) and (b) (2) apply solely to informational rights arising under the laws of the United States or a state, unless the contract expressly provides that the warranty obligations extend to rights under the laws of other countries. Language is sufficient for this purpose if it states, “The licensor warrants exclusivity, noninfringement, in specified countries, worldwide,” or words of similar import. In that case, the warranty extends to the specified country or, in the case of a reference to “worldwide” or the like, to all countries within the description, but only to the extent the rights are recognized under a treaty or international convention to which the country and the United States are signatories.
    3. The warranties under subsections (a) and (b) (2) are not made by a license that merely permits use, or covenants not to claim infringement because of the use, of rights under a licensed patent.
  4. Except as otherwise provided in subsection (e), a warranty under this section may be disclaimed or modified only by specific language or by circumstances that give the licensee reason to know that the licensor does not warrant that competing claims do not exist or that the licensor purports to grant only the rights it may have. An obligation to hold harmless under subsection (a) may be disclaimed or modified only by specific language or by circumstances giving the licensor reason to know that the licensee does not provide a hold-harmless obligation to the licensor. In an automated transaction, language is sufficient if it is conspicuous. Otherwise, language in a record is sufficient if it states:
    1. as to the licensor’s obligation, “There is no warranty against interference with your enjoyment of the information or against infringement,” or words of similar import; or
    2. as to the licensee’s obligation, “There is no obligation to hold you harmless from any actions taken in compliance with the specifications or methods furnished to me under this contract,” or words of similar import.
  5. Between merchants, a grant of a “quitclaim,” or a grant in similar terms, grants the information or informational rights without an implied warranty as to infringement or misappropriation or as to the rights actually possessed or transferred by the licensor.

History. 2000, cc. 101, 996; 2004, c. 794.

Editor’s note.

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

Effective date.

This section is effective July 1, 2001.

The 2004 amendments.

The 2004 amendment by c. 794 inserted the second sentence in subsection (d), divided the former third sentence of subsection (d) into present subdivision (d) (1) and added “as to the licensor’s obligation” to the beginning and “or” at the end; and added subdivision (d) (2).

Law Review.

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2A-211; 2-312 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Automated transaction”;

“Conspicuous”;

“Contract”;

“Information”;

“Informational rights”;

“Knowledge”;

“License”;

“Licensee”;

“Licensor”;

“Merchant”;

“Notify”;

“Person”;

“Record”;

“Scope”;

“Term”;

“Transfer.”

Section 117 [§ 59.1-501.17]: “Reason to know”.

  1. Scope of the Section. This section deals with implied warranties on non-infringement, exclusivity, and non-interference.  These warranties are not implied warranties and cannot be disclaimed except as stated in this section.
  2. Non-Infringement Warranty. Subsection (a) derives from Uniform Commercial Code § 2-312 (1998 Official Text). Language changes, such as use of the word “will” as compared to “shall”, are for purposes of style and no change in substance is intended.
    1. Party Making the Warranty. When the computer information is part of the normal business subject matter with which the licensor deals and is provided in the normal course of its business, it is the licensor’s obligation to see that no third party claim of infringement of an intellectual property right or of misappropriation will affect the delivered information. As in Article 2, however, a transfer by a person other than a dealer in information of the kind raises no implication of such a warranty.
    2. Delivered Free of Infringement. Subsection (a) requires delivery free of rightful claim of infringement or misappropriation.  The mere assertion of a claim does not breach this warranty; the claim must be valid.  As in Uniform Commercial Code Section 2-312 (1998 Official Text), the warranty refers to circumstances and claims existing as the information exists at delivery.  This does not cover future events, such as a subsequently issued patent, or extend to use of the information, such as infringement claims resulting from a licensee’s decision to use multi-functional software in a manner that is an infringing use, or to combine the licensed information with other information where the composite infringes a third party right. Chemtron, Inc. v. Aqua Products, Inc., 830 F. Supp. 314 (E.D. Va. 1993) and Motorola v. Varo, Inc., 656 F. Supp. 716 (N.D. Tex. 1986) frame the issue correctly.  For example, in a license of a spreadsheet program, the warranty is that the program itself does not infringe another person’s rights, not that uses of the program that may involve employing the program’s capability to create particular functions will not infringe the rights of another. See, e.g., Matthew Bender & Co., Inc.. v. West Pub. Co., 158 F.3d 693 (2d Cir. 1998) (no infringement even if program could be used to recreate copyrighted work).  Under Section 805 [§ 59.1-508.5], the limitations period for breach begins when breach was or should have been discovered, rather than on tender of delivery of the information.
    3. Patent License. Subsection (c)(3) makes the subsection (a) warranty inapplicable to patent licenses.  This refers to a party licensing a patent per se.  Most such patent licenses are not within this Act, but if the license is within this Act, subsection (c) adopts the prevailing rule in patent licensing: a patent license does not warrant that the licensee can use the licensed technology, but merely affirms that the licensor will not sue for use of its rights.  On the other hand, if a party licenses computer information, the subsection (a) warranty is breached if the information as delivered infringes a third party patent.  If a licensor gives a license to the patent itself, subsection (a) does not apply.
    4. Specifications and Hold Harmless. No warranty from the licensor is implied when the licensee orders computer information to be assembled, prepared, designed or manufactured on the licensee’s detailed specifications and methods; in such cases liability runs from the licensee to the licensor. There is an implicit representation by the licensee that the licensor will be safe in following the detailed specifications and method that the licensee requires. See Bonneau Co. v. AG Industries, Inc., 116 F.3d 155 (5th Cir. 1997) (rule under Article 2).
    5. Non-Infringement and Passive Transmission. The warranty in subsection (a) is only made by licensors of information.  It does not apply to persons who provide communications or transmission services even if such service falls within this Act.  Those service providers do not, for purpose of contract law, engage in activities that reasonably create the inference that they assure the absence of infringing information. That obligation could be expressly undertaken by the contract but is not created by this Act. This Act takes no position and has no effect on what constitutes copyright infringement in such situations. Whether a party is a licensor of information for contract law depends on its position with respect to affirmatively providing the information as part of its ordinary business.  This has no bearing on whether a passive transmission provider is liable for infringement to the owner of intellectual property rights.
  3. Interference Warranty. The warranty of quiet possession was abolished in Uniform Commercial Code Article 2 for sales of goods but reestablished in Uniform Commercial Code Article 2A for leases of goods. Paragraph (b)(1) follows Article 2A.  It creates a warranty that no act or omission of the licensor will result in a third party holding a claim (other than infringement) that interferes with enjoyment by the licensee of its contractual interest.  “Enjoyment” refers to authorized exercise of contract rights in use of the information.  The warranty is limited to interfering claims or interests that arise from the licensor’s acts or omissions. As in Article 2A, this limitation enables the licensor to assess risks. Infringement and misappropriation claims are excluded because they are dealt with in subsection (a).  The warranty reflects that the nature of a license  results in a need of the licensee for protection greater than that afforded to a buyer of goods. The warranty represents a tacit commitment by the licensor that it will not act during the duration of the contract in a manner that detracts from the contractual grant. Under Section 805 [§ 59.1-508.5], the limitations period for breach begins when delivery of the information is tendered, not when breach was or should have been discovered. This follows U.C.C. Article 2-312 (1998 Official Text, Comment 2) (breach of warranty of good title occurs when tender of delivery is made since the warranty is not one which extends to future performance).
  4. Exclusivity. Subsection (b)(2) deals with exclusive licenses. When a license purports to be exclusive, it engenders two implied assurances that are not relevant for non-exclusive licenses. The first concerns the validity of the intellectual property rights. An exclusive licensor warrants that the rights conveyed are not in the public domain.  If this condition is not met, the licensor cannot convey exclusive rights.  The second involves whether a portion of the rights covered by the license are vested in another person because co-authors or co inventors were involved, or a prior license exists. In an exclusive license, the licensor implicitly warrants that this is not true. The reasoning on both points is similar: if the implied circumstances are not present, the meaning of “exclusivity” is altered. A similar concern does not exist for non-exclusive licenses because such a condition does not alter the licensee’s ability to use the licensed rights as described.
  5. International Issues. Intellectual property rights extend only within the territory of the jurisdiction that creates them, although some deference internationally occurs through multi-lateral treaties. Subsection (c)(2) provides that implied exclusivity and infringement warranties extend only within this country and a country specifically mentioned in the warranty. This latter extension refers to statements made with express reference to the warranty, such as “Licensor warrants non-infringement worldwide.”  Other references in a license may not be intended to create a warranty. A grant of a license for worldwide use may be no more than a permission to use the information worldwide without lawsuit by the licensor, rather than a warranty that worldwide use will not infringe others rights.  In the case of a “worldwide warranty,” the obligation extends only to countries that have intellectual property rights treaties with the United States. In the absence of such relationships, rights created under United States law cannot create rights in the other country and, thus, it is assumed that the parties did not intend it to extend there.
  6. Disclaimer. Subsection (d) derives from U.C.C. § 2-312 (1998 Official Text) and goes further to provide illustrative language for disclaimer of the licensee’s hold harmless obligation.  The infringement and other warranties in this section are not implied warranties and cannot be disclaimed except as provided in this Section.  Under subsection (d), this requires specific language or circumstances indicating that the warranties are not given; illustrative language is provided for clarity. Subsection (d) limits the conditions under which the warranty can be disclaimed or modified; it does not limit or preclude disclaimer or modification of a hold harmless obligation that might arise under subsection (a).

The circumstances for this rule do not arise merely because the licensee assists and advises in developing the computer information and even suggests alternative approaches to development. In such cases, the licensor remains in control. More generally, the licensee is entitled to rely on the technical expertise and judgments of the licensor. That is reversed only when the agreement makes clear that the licensee has undertaken to specify what must be done and how it must be done in detail sufficient to eliminate the licensor’s choices. When this occurs, there is a tacit assurance from the licensee that there will be no infringement claim resulting from relying on that mandate. For this rule to apply, then, the specifications and method must be specific or detailed, rather than general, and compliance must be required by contract. The “hold harmless” obligation does not exist if infringement is caused by or arises out of optional choices of the licensor that may result in infringement.

A licensor presented with required specifications and methods has an obligation to adopt, or notify the licensee of, non-infringing alternatives of which it has reason to know. The “hold harmless” obligation is eliminated if the licensor had reason to know of a non-infringing alternative and failed either to choose it or notify the licensee of it, such as when an experienced designer of banking systems knows that alteration of a specification would allow use of an alternative that will avoid infringement of a financial systems patent. Only a non-infringing alternative of which the licensor has reason to know is required; the section does not impose a duty of investigation. Reason to know for this purpose must exist at the time that the contract is performed. Since we are dealing with contractually required performance, however, it is enough that the licensee be notified of the non-infringing alternative — the licensor cannot unilaterally rewrite or ignore the contractual requirements.

A special rule governs patents. When the exclusivity warranty applies at all, it is restricted to the licensor’s knowledge. The warranty is inapplicable to patent licenses excluded under subsection (c)(3).

Exclusivity and validity are warranted only to the extent recognized in law applicable to the rights in question. Thus, the licensor of a trade secret warrants that it has not granted rights to another person, but does not warrant that no other person independently has the information. A trade secret gives no rights against independent discovery. If no right of publicity is recognized in a particular jurisdiction, then the licensor does not warrant exclusivity there with respect to such rights. Subsection (c)(1) reinforces this theme. If under applicable law, the rights are subject to compulsory licensing, public access or use, the warranty is limited by the terms of those rights. For example, a licensor of rights in information which must be licensed to any and all parties for a specified fee, does not warrant exclusivity. If an exclusive right is limited in law by a privilege granted to public use, such as “fair use,” the licensor does not warrant against such use.

Subsection (e) recognizes an alternative form of disclaimer in commercial cases. Reference to a grant of a “quitclaim” in this context is relatively common is some areas of business and indicates that the licensor is not undertaking any assurance about the nature or scope of the rights it holds or conveys.

§ 59.1-504.2. Express warranty.

  1. Subject to subsection (c), an express warranty by a licensor is created as follows:
    1. An affirmation of fact or promise made by the licensor to its licensee, including by advertising, which relates to the information and becomes part of the basis of the bargain creates an express warranty that the information to be furnished under the agreement will conform to the affirmation or promise.
    2. Any description of the information which is made part of the basis of the bargain creates an express warranty that the information will conform to the description.
    3. Any sample, model, or demonstration of a final product which is made part of the basis of the bargain creates an express warranty that the performance of the information will reasonably conform to the performance of the sample, model, or demonstration, taking into account differences that would appear to a reasonable person in the position of the licensee between the sample, model, or demonstration and the information as it will be used.
  2. It is not necessary to the creation of an express warranty that the licensor use formal words, such as “warranty” or “guaranty”, or state a specific intention to make a warranty. However, an express warranty is not created by:
    1. an affirmation or prediction merely of the value of the information or informational rights;
    2. a display or description of a portion of the information to illustrate the aesthetics, appeal, suitability to taste, subjective quality, or the like of informational content; or
    3. a statement purporting to be merely opinion or commendation of the information or informational rights.
  3. An express warranty or similar express contractual obligation, if any, exists with respect to published informational content covered by this chapter to the same extent that it would exist if the published informational content had been published in a form that placed it outside this chapter. However, if the warranty or similar express contractual obligation is breached, the remedies of the aggrieved party are those under this chapter and the agreement.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2A-210; 2-313 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Information”;

“Informational content”;

“Licensee”;

“Licensor”;

“Party”;

“Person”;

“Published informational content”.

  1. Scope and Basis of Section. This section follows Article 2 of the Uniform Commercial Code (1998 Official Text), except with respect to published informational content, where it preserves current common law. “Express” warranties rest on “dickered” aspects of the individual bargain and go to the essence of that bargain. “Implied” warranties, on the other hand, rest on inferences from a common factual situation or set of conditions so that no particular language is necessary to create them.  They exist unless disclaimed.
  2. Basis of the Bargain. Subsection (a) generally adopts the “basis of the bargain” test from U.C.C. §§ 2-313; 2A-210 (1998 Official Text).  This allows courts and parties to draw on extensive case law distinguishing express warranties from puffing and from other unenforceable statements, representations or promises.  The concept of the “basis of the bargain” standard is that express affirmations or promises are express warranties if they are within the matrix of elements that constitute the bargain of the parties, but that they are not express warranties if they are not part of the basis for the contract.  This does not require that a licensee prove actual reliance on a specific statement in deciding to enter into the contract, but does require proof that the statement played a role in the bargain. The issue is whether statements of the licensor to the licensee have in the circumstances and in objective judgment become part of the basic deal. However, an express warranty concerns a bargain; this does not convert all statements a licensor makes about information into an express warranty.
  3. Advertising as an Express Warranty. Paragraph (a)(1) expands current Article 2.  It clarifies that advertising by the licensor may create an express warranty if it otherwise meets the standards for an express warranty under this section.  A warranty exists only if the advertising statement becomes part of the bargain and a bargain between the person making the statement and the person acquiring the product actually occurs. Under this Act, and particularly Section 613 [§ 59.1-506.13], a contract may exist between the end user and a dealer who makes the statement, or, or as well as, separately between the end user and a publisher who makes the statement; neither is responsible for the other’s statement, however. The affirmation of fact in advertising must be known by the licensee, and must influence and in fact become part of the basis of the bargain between the licensee and warrantor and under which the licensee acquired the computer information.  If this does not occur, there is no express warranty.  Also, statements made in advertising that are puffing or mere expressions of opinion do not create an express warranty.  In appropriate cases, there may be liability for false advertising, but that does not arise under contract law.  This section does not create a false advertising claim under the guise of contract law.
  4. Descriptions. Paragraph (a)(2) is a specific application of when a description becomes an express warranty.  The description need not be by words. Technical specifications, blueprints and the like can afford more exact descriptions than mere language and, if made part of the basis of the bargain, become express warranties.  Of course, all descriptions by merchants must be read in light of applicable trade usage and in light of concepts about merchantability that may resolve any doubts about the meaning of the description.  The description requires a commercially reasonable interpretation.
  5. Samples and Models. Samples, models and demonstrations are treated no differently than statements. However, in mercantile experience, the mere exhibition of a “sample”, a “model” or a “demonstration” does not of itself show whether it is intended to “suggest” or to “be” the character of the subject-matter of the contract.  That distinction is recognized in reported cases and in this Act.
  6. Puffing and Expressions of Opinion. Subsection (b) makes it clear that puffing or mere statements of opinion do not form an express warranty.  The law distinguishes between an actionable representation and puffing is well-developed.  The distinction requires a determination based on the circumstances of the particular transaction.  The policy that requires this distinction to be made is that in common experience some statements and predictions cannot fairly be viewed as entering into the bargain.  To hold each party to every statement made would contradict common experience and stifle discourse about products and proposals. Of course, whether or not a statement is an express warranty does not affect whether the statement established a cause of action under the law of fraud or misrepresentation.
  7. Relation to Disclaimers. Express warranty rules focus on determining what the licensor agreed to provide. Descriptions of an information product, if made part of the bargain, are express warranties.  If an express warranty is made, the obligations created ordinarily cannot be easily deleted.  A general contract term disclaiming “all warranties, express or implied” is not given literal effect as to express warranties under Section 406(a) [§ 59.1-504.6(a)].  This does not mean that parties cannot make their own bargain, including a bargain that does not include a purported express warranty. But to do so requires that the particular description or promise not become part of the bargain. In determining what was the actual agreement, consideration should be given to the fact that the probability is small that a real price is intended to be exchanged for a pseudo-obligation. For example, a license of a “word-processing program” that contains a general disclaimer of all warranties is nevertheless a contract for a product that satisfies the basic description of a “word-processing program.”
  8. Published Informational Content. Subsection (c) preserves current law for published informational content. This section does not change express warranty rules for such content and does not preclude the imposition of any obligation under other law or the creation of an express contractual obligation.  Despite it being law for over fifty years, no reported case law on published informational content uses the Article 2 “basis of the bargain” standard. Joel R. Wolfson, Express Warranties and Published Informational Content under Article 2B: Does the Shoe Fit?, 16 John Marshal Journal of Computer & Info. Law 384 (1997).  Published informational content entails significant First Amendment interests and general public policies that favor encouraging public dissemination of information. Courts that deal with liability pertaining to published informational content must balance contract themes with these policies.
  9. Third Parties. This section does not deal with the enforceability under tort law of representations made by remote parties and relied on by an ultimate user of information. Cases in tort pertaining to information do not parallel cases dealing with the manufacture and sale of goods.  See, e.g., Winter v. G.P. Putnam’s Sons, 938 F.2d 1033 (9th Cir. 1991).  Information providers are liable to third parties in tort in only a few, atypical cases.  This Act does not affect such third party liability.
  10. Electronic Agents. This section does not deal with “representations” made by electronic agents in an automated negotiation.  It deals with representations by a licensor. Human beings, with rich contextual understandings, can often distinguish between “falsity” and “white lies” or “puffing.”  Electronic agents are rarely capable of recognizing the difference. See Stuart Russell & Peter Norvig, Artificial Intelligence: A Modern Approach (1995).

As in Article 2 of the Uniform Commercial Code (1998 Official Text), no specific intent to make a warranty is necessary if the indicated representations, promises or affirmations are part of the basis of the bargain. In practice, affirmations of fact describing the information and made by the licensor about it during the bargaining are ordinarily part of the bargain unless they are mere puffing, predictions, or otherwise not an enforceable commitment. No specific reliance on the specific statement need be shown in order to weave it into the fabric of the agreement. Of course, when statements are made by an agent, the effect of the representations to bind the principal are governed by ordinary standards about the scope and effect of agency.

If language is used after the closing of the deal (as when the licensee on taking delivery asks for and receives an additional assurance), the assurance may become a modification of the contract. An agreed modification requires no consideration to be binding. Section 303 [§ 59.1-503.3]. Alternatively, under the layered contracting recognized in Section 208 and 209 [§§ 59.1-502.8 and 59.1-502.9], in appropriate cases the assurance may be a further elaboration of terms of the contract if the parties, at the outset, had reason to know this would occur.

The effect of representations created by demonstrations and models must be gauged by what inferences would be communicated to a reasonable person in light of the nature of the demonstration, model, or sample. Showing a sample of a keg of raw beans consisting of a cup-full of beans communicates one inference (most beans will be similar), while demonstration of a complex database program running ten files creates an entirely different inference if the intended use of the system is to process ten million files (the inference is not that actual use will be identical to use of the sample). This difference also applies to beta models of software, which are used on a test or a demonstration basis and may contain elements that are not carried forward into the ultimate product. Ordinarily the parties understand that what is being demonstrated on a small scale or tested on a beta model is not necessarily representative of actual performance or of the eventual product. As with any other purported express warranty, any model or demonstration must be interpreted in a reasonable fashion that reflects the circumstances of the test or demonstration. See NMP Corp. v. Parametric Technology Corp., 958 F. Supp. 1536 (S.D. Okla. 1997). The 2002 amendments deleted a redundancy created by the word “reasonably” without there being any substantive change.

Paragraph (b)(2) identifies a common setting where the issue about how to treat a statement arises. It refers to statements or demonstrations pertaining to aesthetics and the appeal (including market appeal) of informational content as a form of puffing or opinion that does not create an express warranty. Aesthetics, as used here, refers to questions of the artistic character, tastefulness or beauty of informational content, not to statements pertaining to how a person uses the informational content or its essential nature. For example, a statement that a clip art program contains useable images of “working people” may create an express warranty that the subject matter of the program includes working people and that the images are usable. Neither the statement, nor a selected display of part of the program creates an express warranty that they are tasteful or artistically pleasing.

The cases treat obligations for published informational content as questions of express contractual obligation, rather than warranty. A promise to provide an electronic encyclopedia obligates the party to deliver that type of work, but that is simply a matter of defining the basic contractual promise. When focusing on the quality of informational content, most courts conclude that the level of risk vis a vis published informational content and the potentially stifling effect that contract liability might have on the dissemination of speech encourage limiting or excluding liability. See Daniel v. Dow Jones & Co., Inc., 520 N.Y.S.2d 334 (N.Y. City Ct. 1987). This section rejects the seemingly simple, but ultimately inappropriate step of merely adopting the basis of the bargain concept from sales of goods to this much different context. However, if a contract obligation is breached with respect to published informational content in a transaction covered under this Act, remedies of this Act apply and replace remedies under the common law. This includes all provisions of Part 8 of this Act [§ 59.1-508.1 et seq.].

§ 59.1-504.3. Implied warranty; merchantability of computer program.

  1. Unless the warranty is disclaimed or modified, a licensor that is a merchant with respect to computer programs of the kind warrants:
    1. to the end user that the computer program is fit for the ordinary purposes for which such computer programs are used;
    2. to the distributor that:
      1. the program is adequately packaged and labeled as the agreement requires; and
      2. in the case of multiple copies, the copies are within the variations permitted by the agreement, of even kind, quality, and quantity within each unit and among all units involved; and
    3. that the program conforms to any promises or affirmations of fact made on the container or label.
  2. Unless disclaimed or modified, other implied warranties with respect to computer programs may arise from course of dealing or usage of trade.
  3. No warranty is created under this section with respect to informational content, but an implied warranty may arise under § 59.1-504.4.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2-314; 2A-212 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Computer program”;

“Contract”;

“Copies”;

“Delivery”;

“Informational content”;

“Licensor”;

“Merchant”.

  1. Scope of the Section. This section adapts the implied warranty of merchantability from Article 2 of the Uniform Commercial Code (1998 Official Text) to computer programs. This expands the scope of that warranty since, under prior law, in many transactions Article 2 does not apply and there are no other implied warranties. The warranties in subsection (a) arise only if the licensor is in a contractual relationship with the indicated party or if Section 409 [§ 59.1-504.9] so provides. See Section 613 [§ 59.1-506.13], Comment 3(b). Disclaimer or modification of the implied warranty is dealt with in Section 406 [§ 59.1-504.6]. Obligations regarding informational content are in Section 404 [§ 59.1-504.4].
  2. Background and Policy. The implied warranty of merchantability comes from one of three different legal traditions associated with computer information transactions. The first , the source of this warranty, is the Article 2 world of the sale of goods and focuses on the quality of the result (product) delivered, establishing an implied assurance that this product will conform to ordinary standards for products of that type.  The second , from common law dealing with licenses, services and information contracts, focuses on the process or performance effort, rather than the result, establishing standards such as that the work will be performed in a workmanlike manner.  The third , from common law, pertains to services and information contracts in some States, rejecting any implied obligation in a contract other than one involving a special relationship of reliance.
  3. Merchantability. Merchantability sets out an implied obligation based on expectations about ordinary meanings and ordinary transactions in commerce. The warranty runs between the immediate parties in contractual privity. Under this Act, and particularly Section 613, a contract may exist between the end user and the dealer, or as well as separately between the end user and the publisher. The extent to which persons other than ones in a direct contract relationship with each other receive the benefit of the implied warranty under contract law is discussed in Section 409 [§ 59.1-504.9].
    1. Fit for Ordinary Purposes. In transactions with end users, under subsection (a)(1), the program must be fit for the ordinary purpose for which programs of that description are used. To be fit for ordinary purposes does not require that the program be the best or most fit for that use or that it be fit for all possible uses. To an extent greater than for goods, computer programs are often adapted and employed in unlimited or inventive ways or ways that go well beyond the uses for which they were distributed.  The focus of the implied warranty is on the ordinary purposes for which such programs are used. Use of ordinary, mass-market programs in highly sensitive or commercial applications does not change the warranty into one of fitness for purposes of that use.
    2. Distribution. If the transfer is to a person acquiring the program for re-distribution, the program must be honestly capable of re-distribution. Subsection (a)(2) sets out two criteria under which this can be gauged — adequate packaging and even quality among multiple units.  Consistent with the general concept these standards are judged in light of ordinary commercial expectations.
    3. Labels. Under subsection (a)(3), merchantability includes conformance to descriptions of fact contained on labels or containers, if any.  As under U.C.C. Article 2, this follows from the general obligation of good faith which requires that a licensee should not be placed in the position of using, or sublicensing  when allowed, information that is mislabeled. With respect to descriptions, the statements must be statement so of fact, not mere puffing.  The implied warranty arises from facts that often also constitute an express warranty, in which case the rules for express warranties also apply. The meaning of any descriptive statement must be interpreted in light of the commercial context.
  4. Disclaimer. In Article 2 of the Uniform Commercial Code (1998 Official Text), the implied warranty of merchantability may be disclaimed pursuant to the fundamental policy that the agreement of the parties controls.  That principle is implemented in Section 406 [§ 59.1-504.6].  The right to disclaim is central to the right of a party to determine what it agrees to sell or license and how the parties allocated commercial risks.  The law in some states prohibits disclaimer of implied warranties in consumer cases. This Act does not alter that law. Similarly, although one can disclaim all implied warranties under this Act and under Article 2, disclaimers are ordinarily not effective with respect to express warranties of description or otherwise.
  5. Informational Content, Aesthetics. Merchantability does not apply to information intended to be communicated to a human being (“informational content”), including the aesthetics of a product.  This follows case law under the Uniform Commercial Code. Aesthetics refers to questions of the artistic character, tastefulness, beauty or pleasing nature of informational content.  These are matters of personal taste. On the other hand, merchantability can be relevant to whether the computer program is what it purports it to be.  For example if a  claim about images created by a computer program is that they are not attractive or well-executed, merchantability does not apply.  If the complaint is that the program does not function properly and that thus the images are distorted, an issue of merchantability exists. A statement that a clip art program contains images of “horses” gives assurance that the subject matter of the program is horses, but does not purport to state that the images are tasteful or artistically pleasing or whether they are brown, white or green.
  6. Cause of Action for Breach. As in other law, in a cause of action for breach of warranty it is necessary to show not only the existence of the warranty, but that the warranty was breached and that the breach was the proximate cause of the loss sustained. In such an action, e.g., in complex computer systems involving different hardware and software, that loss must be caused by defects in the computer program for which breach is claimed.  Proof that losses were not so caused or were caused by events after the program was installed and unconnected to it, operate as a defense here as in other law.

This and the following two sections reflect the combined influence of these traditions, making distinctions between computer programs, on the one hand, and information, informational content or services, on the other. The implied merchantability warranty and the warranty in Section 404 [§ 59.1-504.4] pertaining to the accuracy of data may both apply to the same transaction. The one (merchantability) applies to the computer program, while the other (accuracy) applies to the informational content and data.

The substantive meaning of the implied warranty turns on the ordinary meaning for the kind of computer program as recognized in the applicable business, trade or industry. As in the Uniform Commercial Code, the implied warranty is made only by all merchant-licensors.

Merchantability does not require a perfect program, but only that the subject matter be generally within the average standards applicable in commerce for programs having the particular type of use. The presence of some defects may be consistent with merchantability standards. Uniform Commercial Code § 2-314 (1998 Official Text) explains the concept in terms of “fair average,” i.e., goods that center around the middle of a belt of quality — some may be better and some may be worse, but they cannot all be better and need not all be worse. That approach applies here. While perfection is an aspiration, it is not a requirement of an implied warranty for goods, computer programs or any other property. Indeed, a perfect program may not be possible at all.

In the late 1990’s, a popular operating system program for small computers used by both consumers and commercial licensees contained over ten million lines of code or instructions. In a computer, these instructions interact with each other and with code and operations of other programs. This contrasted with a commercial jet airliner that contained approximately six million parts, many of which involved no interactive function. Of course, the market price of the airliner and the program are materially different. Typical consumer goods contain fewer than one hundred parts and a typical book has fewer than one hundred fifty thousand words. Most computer programs not only have many lines of code, but must utilize and interact with code in third-party programs, further multiplying the possible interactions. It is often literally impossible or commercially unreasonable to guarantee that software of any complexity contains no errors that might cause unexpected behavior or intermittent malfunctions, so-called “bugs.” The presence of minor errors is fully within common expectation. The question for merchantability is not whether errors exist but whether, the program still comes within the middle belt of quality in the applicable trade or industry, i.e., whether it is reasonably fit for the ordinary purposes for which such programs are used in accordance with average levels of quality and reasonable standards of program capability. A great deal of theoretical and practical work is currently focused on techniques to reduce the time and cost needed to determine program “correctness.” Professional standards also exist for software quality evaluation. Commercially reasonable use of existing testing techniques can be one benchmark of whether a computer program is merchantable in law. As industry standards evolve, what constitutes a merchantable program will evolve along with those standards.

§ 59.1-504.4. Implied warranty; informational content.

  1. Unless the warranty is disclaimed or modified, a merchant that, in a special relationship of reliance with a licensee, collects, compiles, processes, provides, or transmits informational content warrants to that licensee that there is no inaccuracy in the informational content caused by the merchant’s failure to perform with reasonable care.
  2. A warranty does not arise under subsection (a) with respect to:
    1. subjective characteristics of the informational content, such as the aesthetics, appeal, and suitability to taste;
    2. published informational content; or
    3. a person that acts as a conduit or provides no more than editorial services in collecting, compiling, distributing, processing, providing, or transmitting informational content that under the circumstances can be identified as that of a third person.
  3. The warranty under this section is not subject to the preclusion in § 59.1-501.15 (b) (1) on disclaiming obligations of diligence, reasonableness, or care.

History. 2000, cc. 101, 996; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2004 amendments.

The 2004 amendment by c. 794 added present subdivision (b) (1); redesignated former subdivisions (b) (1) and (b) (2) as present subdivisions (b) (2) and (b) (3); and substituted “§ 59.1-501.15 (b) (1)” for “§ 59.1-501.13 (a) (1)” in subsection (c).

OFFICIAL COMMENT

Uniform Law Source: Restatement (Second) of Torts 552.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Informational content”;

“Licensee”;

“Merchant”;

“Party”;

“Published informational content”.

  1. Scope and Effect. This section creates a new implied warranty. The warranty focuses on data conveyed in a relationship of reliance.  It recognizes an implied assurance in such contracts that no data inaccuracies are caused by a failure of reasonable care.
  2. Accuracy. This warranty is based on the expectation of a person receiving data in a special relationship of reliance that the data are not made inaccurate because of the provider’s lack of reasonable care in performing the contract. The warranty is limited to inaccuracies caused by a failure to use reasonable care.  One who hires an expert cannot expect infallibility unless the express terms clearly so require.  Reasonable efforts, not perfect results, provide the appropriate standard in the absence of express terms to the contrary. The discussion by a New York court in an analogous setting reflects the policy adopted here.  Milau Associates v. North Avenue Development Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1247 (N.Y. 1977).
    1. Ordinary Standards as Described. Informational content is accurate if, within applicable understandings of permitted errors, it correctly portrays the objective facts to which it relates. Whether or not data are inaccurate is based on expectations gauged by ordinary standards of the relevant trade under the circumstances.  In most large commercial databases, ordinary expectations are that some data will be incorrect.  Variations or error rates within the range of commercial expectations of the business, trade or industry do not breach the warranty. If greater accuracy is expected, that must be made express in the agreement.  For example, if the normal expected error rate is then percent for a particular type of database, an error rate of five percent is not an inaccuracy within this section and does not breach the implied warranty.
    2. Accuracy and Aesthetics. This warranty is not a warranty about aesthetics, subjective quality, or marketability. These are subjective issues. Assurances on these issues require express agreement.
  3. Reliance Relationship. The computer information must be provided by a merchant in a “special relationship of reliance” between the licensor and the licensee. In the absence of such relationship, the mere fact that one person contracts to provides information to another creates no implied obligation beyond good faith.
  4. Conduits and Editing. The implied warranty relates only to information provided by the licensor. Subsection (b) clarifies that there is no warranty with respect to third party content where the provider identifies the information as coming from a third party. The implied warranty also does not apply to parties engaged in editing informational content of another person.  See Doubleday & Co. v. Curtis, 763 F.2d 495 (2d Cir.), cert. dismissed, 474 U.S. 912 (1985).
  5. Disclaimer. This section creates a new warranty. The obligation may be disclaimed. Section 406 [§ 59.1-504.6]. See Rosenstein v. Standard and Poor’s Corp., 636 N.E.2d 665 (Ill. App. 1993). Subsection (c) makes clear that disclaimer of the warranty is not subject to the general rule that duties of reasonable care cannot be disclaimed.  See Section 115(a)(1) [§ 59.1-501.15(a)(1)]. That general rule is inapplicable here: what is disclaimed is a warranty related to the accuracy of the content, not the exercise of reasonable care. No duty of reasonable care is created under this section.

What constitutes reasonable care depends on the commercial circumstances and the contracted for duties. For example, in a contract to transmit computer information, there is no duty to screen or vouch for accuracy, but merely to avoid a lack of reasonable care in the transmission that causes inaccuracies. A data provider in a context where major loss of human life is possible has a higher degree of care than a provider in other settings.

The presence of an inaccuracy is also affected by what the data purport to be under the agreement. This section follows cases such as Lockwood v. Standard & Poor’s Corp., 175 Ill.2d 529, 689 N.E.2d 1140, 228 Ill. Dec. 719 (Ill. App. 1997). A contract to estimate the number of users of a product in Houston does not imply an obligation to provide an accurate count, but merely requires an estimate. That estimate, if honestly made, does not breach this warranty.

a. Reliance Relationships in General. The requirement of a special relationship of reliance is fundamental to balancing protecting client expectations while not imposing excessive liability risk on informational content providers in a way that might chill information-providing activities. This stems in part from cases applying Restatement (Second) of Torts § 552. The special element of reliance comes from the relationship itself, a relationship characterized by the provider’s knowledge that the particular licensee plans to rely on the data in its own business and expects that the provider will tailor the information to its needs. The obligation arises only with respect to persons who possess unique or specialized expertise and who are in a special position of confidence and trust with the licensee such that reliance on the inaccurate information is justified and the party has a duty to act with care. See Murphy v. Kuhn, 90 N.Y.2d 266, 682 N.E.2d 972 (N.Y. 1997).

The relationship also requires that the provider make the information available as part of its own business of providing such information. The licensor must be in the business of providing that type of information. This adopts the rationale of cases holding that information provided as part of a differently focused commercial relationship, such as the sale or lease of goods, does not create protected expectations about accuracy except as might be created under express warranty law. A.T. Kearney v. IBM, 73 F.3d 238 (9th Cir. 1997) describes many of the relevant issues. See also Picker International, Inc. v. Mayo Foundation, 6 F. Supp.2d 685 (N.D. Ohio 1998).

A fundamental aspect of a special reliance relationship is that the information provider is specifically aware of, and personally tailors information to the needs of the licensee. A special relationship does not arise for information made generally available to a group in standardized form even if those who subscribe to the information service believe it is relevant to their commercial needs. The information must be personally tailored for the recipient. A special reliance relationship does not require a fiduciary relationship, but does require indicia of special reliance.

b. Published Informational Content. Published informational content is the subject matter of general commerce in ideas, political, economic, entertainment or the like, whose distribution engages fundamental public policy interests in supporting and not chilling this distribution by creating liability risks. This Act treats published informational content that is computer information analogously to print newspapers or books which are not exposed to contractual liability risks based on mere inaccuracy; treating the computer informational content differently would reject the wisdom of prior law. Creating greater liability risk in contract would place an undue burden on the free flow of information. This policy underlies the result in Cubby, Inc. v. CompuServ, Inc., 3 CCH Computer Cases 46,547 (S.D.N.Y. 1991) and Daniel v. Dow Jones & Co., Inc., 520 N.Y.S.2d 334 (N.Y. City Ct. 1987). See also Great Central Insurance Co. v. Insurance Services Office, Inc., 74 F.3d 778 (7th Cir. 1997) (no implied warranty of accuracy).

The implied warranty in this section thus does not apply to published informational content. By definition, such content is information transferred other than in a reliance relationship. Published informational content is informational content made available to the public as a whole or to a range of subscribers on a standardized, not a personally tailored, basis. This includes a variety of commercially important general distribution or subscription services providing informational content such as an Internet web site that lists information about local restaurants, their prices and their quality, as well as services that provide data about current stock or monetary exchange prices to subscribers.

A person collecting, summarizing or transmitting third party data as a conduit does not create the same expectations about performance as does a direct information provider. Whatever expectations arise focus on the third party. The third party may not be contractually obligated to the licensee. The conduit’s obligation and the licensee’s reasonable expectations with respect to it do not entail an obligation regarding the accuracy of the third party data. Concerning the policy issues in dealing with conduits, see Zeran v. America On-Line, Inc., 129 F.3d 327 (4th Cir. 1997). On the related issue of tort liability for publishers who are not authors, see Winter v. G.P. Putnam’s Sons, 938 F.2d 1033 (9th Cir. 1991) (describes policy interests that also support subsection (b)).

§ 59.1-504.5. Implied warranty; licensee’s purpose; system integration.

  1. Unless the warranty is disclaimed or modified, if a licensor at the time of contracting has reason to know any particular purpose for which the computer information is required and that the licensee is relying on the licensor’s skill or judgment to select, develop, or furnish suitable information, the following rules apply:
    1. Except as otherwise provided in paragraph (2), there is an implied warranty that the information is fit for that purpose.
    2. If from all the circumstances it appears that the licensor was to be paid for the amount of its time or effort regardless of the fitness of the resulting information, the warranty under paragraph (1) is that the information will not fail to achieve the licensee’s particular purpose as a result of the licensor’s lack of reasonable effort.
  2. There is no warranty under subsection (a) with regard to:
    1. the aesthetics, appeal, suitability to taste, or subjective quality of informational content; or
    2. published informational content, but there may be a warranty with regard to the licensor’s selection among published informational content from different providers if the selection is made by an individual acting as or on behalf of the licensor.
  3. If an agreement requires a licensor to provide or select a system consisting of computer programs and goods, and the licensor has reason to know that the licensee is relying on the skill or judgment of the licensor to select the components of the system, there is an implied warranty that the components provided or selected will function together as a system.
  4. The warranty under this section is not subject to the preclusion in § 59.1-501.15 (b) (1) on disclaiming diligence, reasonableness, or care.

History. 2000, cc. 101, 996; 2004, c. 794.

Effective date.

This section is effective July 1, 2001.

The 2004 amendments.

The 2004 amendment by c. 794 substituted “§ 59.1-501.15 (b) (1)” for “§ 59.1-501.13 (a) (1)” in subsection (d).

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2-315; 2A-213 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Computer program”;

“Information”;

“Informational content”;

“Licensee”;

“Licensor”;

“Published informational content”.

Section 117 [§ 59.1-501.17]: “Reason to know”.

  1. Scope of the Section. Subsections (a) and (b) deal with cases where the expertise of the licensor is relied on by the licensee to achieve its purposes. Subsection (c) imposes a new implied warranty.
  2. General Approach. Subsection (a) applies when a licensor has reason to know of the licensee’s particular purpose in the transaction and that the licensee is relying on the licensor’s expertise in selecting or developing information suitable for that purpose. The subsection resolves a conflict in case law.  Some cases, relying on Article 2, apply a standard which creates an implied warranty that the product will be suitable to the purpose.  Others, treating a contract as one for services, hold that no enhanced obligation exists unless there are express terms creating it.  This section uses the first standard in some cases but subsection (a)(2) applies a reasonable effort standard for cases where the relationship appears to concern services-like obligations. Under prior law, the decision was based on whether a court viewed the transaction as a sale (result) or services (effort) contract.
  3. Warranty of Fitness. Subsection (a)(1) applies to cases analogous to transfers involving products and adopts Uniform Commercial Code § 2-315 (1998 Official Text). Whether or not this warranty arises is a question of fact determined by the circumstances at the time of contracting.  A “particular purpose” differs from the ordinary purpose for which the information is used in that it envisages a specific use by the licensee peculiar to the nature of its business, while the ordinary purposes for which the computer information  is used are contemplated under the concept of merchantability.  Normally, this fitness warranty arises only if the licensor is a merchant with appropriate skill or judgment.
  4. Services Warranty. Subsection (a)(2) applies if the transaction more closely resembles services contracts; it applies the type of obligation most appropriate to such cases.  A skilled service provider does not guaranty a result suitable to the other party unless it expressly agrees to do so. Milau Associates v. North Avenue Development Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1242 (N.Y. 1977).  Subsection (a)(2) provides a standard to determine when a contract calls for services and effort, rather than result.  The test centers on whether the circumstances indicate that the service provider would be paid for time or effort, regardless of the fitness of the result.  Such payment terms typify a services contract. Other factors may also indicate that the parties intended a services obligation as delineated in subsection (a)(2). What constitutes reasonable effort depends on the project and other circumstances of the relationship. Micro Manager, Inc. v. Gregory, 147 Wisc.2d 500, 434 N.W.2d 97 (Wisc. App. 1988).  Subsection (d) makes it clear that this warranty may be disclaimed.  See Comments to Section 404 [§ 59.1-504.4].
  5. Aesthetics and Published Information. The warranty does not apply to aesthetics and the like. Subsection (b) repeats a theme of the Act, which is that implied warranties do not apply to the aesthetics of informational content. Aesthetics refers to the artistic character, tastefulness, beauty or pleasing nature of informational content. These are matters of personal taste, rather than elements susceptible to implied warranty.
  6. System Integration. Subsection (c) creates a new implied warranty regarding system performance in cases of systems integration contracts. The warranty is that the selected components will function as a system. This does not mean that the system, other than as stated in subsection (a), will meet the licensee’s purposes, that it is an optimal system, or that it will not infringe third party rights. The warranty is merely that the system will functionally operate as a system. Thus, if the agreement requires the licensor to select a computer, printer and five software applications, the warranty is that the five applications will run on the computer selected and that the printer will work with the computer and the software. Whether these components were the best choice or will meet the actual needs of the licensee is not within these subsection (c) warranty.
  7. Disclaimer. This section creates a new warranty. The obligation may be disclaimed. Subsection (d) makes clear that disclaimer of the warranty is not subject to the general rule that duties of reasonable care cannot be disclaimed. See Section 115(b)(1). That general rule is inapplicable here: what is disclaimed is a warranty related to the accuracy of the content, not the exercise of reasonable care. No duty of reasonable care is created under this section.

The warranty does not exist if there is no reliance in fact or if the particular purposes are not made known to the licensor. For this warranty to arise, the needs of the licensee must have been particularized and the licensor made aware of them, and the licensor must implicitly undertake to fulfill them.

No exclusion is made for cases where the information product is identified by a trade name. The designation of an item by a trade name, or indeed in any other definite manner, is only one of the facts to be considered on the question of whether the licensee actually relied on the licensor, but it is not of itself decisive of the issue. If the licensee insists on a particular brand, it is not relying on the licensor’s skill or judgment — and no warranty arises. But the mere fact that the information has a trade name is not sufficient to indicate nonreliance.

The warranty obligates the licensor to meet known licensee needs if the circumstances indicate that the licensee is relying on the provider’s expertise. There are many development contract and other settings where no reliance exists, including where the licensee provides contract performance standards, rather than relying on the licensor or where both are knowledgeable. The express terms of the agreement may then require that the product meet the specifications, but no reliance exists on whether meeting the specifications meets the licensee’s purposes.

§ 59.1-504.6. Disclaimer or modification of warranty.

  1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to disclaim or modify an express warranty must be construed wherever reasonable as consistent with each other. Subject to § 59.1-503.1 with regard to parol or extrinsic evidence, the disclaimer or modification is inoperative to the extent that such construction is unreasonable.
  2. Except as otherwise provided in subsections (c), (d), and (e), to disclaim or modify an implied warranty or any part of it, but not the warranty in § 59.1-504.1, the following rules apply:
    1. Except as otherwise provided in this subsection:
      1. To disclaim or modify the implied warranty arising under § 59.1-504.3, language must mention “merchantability” or “quality” or use words of similar import and, if in a record, must be conspicuous.
      2. To disclaim or modify the implied warranty arising under § 59.1-504.4, language in a record must mention “accuracy” or use words of similar import.
    2. Language to disclaim or modify the implied warranty arising under § 59.1-504.5 must be in a record and be conspicuous. It is sufficient to state, “There is no warranty that this information, our efforts, or the system will fulfill any of your particular purposes or needs,” or words of similar import.
    3. Language in a record is sufficient to disclaim all implied warranties if it individually disclaims each implied warranty or, except for the warranty in § 59.1-504.1, if it is conspicuous and states, “Except for express warranties stated in this contract, if any, this information, computer program is provided with all faults, and the entire risk as to satisfactory quality, performance, accuracy, and effort is with the user,” or words of similar import.
    4. A disclaimer or modification sufficient under Title 8.2 or 8.2A to disclaim or modify an implied warranty of merchantability is sufficient to disclaim or modify the warranties under §§ 59.1-504.3 and 59.1-504.4. A disclaimer or modification sufficient under Title 8.2 or 8.2A to disclaim or modify an implied warranty of fitness for a particular purpose is sufficient to disclaim or modify the warranties under § 59.1-504.5.
  3. Unless the circumstances indicate otherwise, all implied warranties, but not the warranty under § 59.1-504.1, are disclaimed by expressions like “as is” or “with all faults” or other language that in common understanding calls the licensee’s attention to the disclaimer of warranties and makes plain that there are no implied warranties.
  4. If a licensee before entering into a contract has examined the information or the sample or model as fully as he desired or has refused to examine the information, there is no implied warranty with regard to defects that an examination ought in the circumstances to have revealed to the licensee.
  5. An implied warranty may also be disclaimed or modified by course of performance, course of dealing, or usage of trade.
  6. If a contract requires ongoing performance or a series of performances by the licensor, language of disclaimer or modification which complies with this section is effective with respect to all performances under the contract.
  7. Remedies for breach of warranty may be limited in accordance with this chapter with respect to liquidation or limitation of damages and contractual modification of remedy.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2A-214 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Computer program”;

“Conspicuous”;

“Contract”;

“Course of Dealing”;

“Course of Performance”;

“Information”;

“Licensee”;

“Licensor”;

“Mass-market license”;

“Record”;

“Usage of Trade.”

  1. General Structure and Policy. This section deals with disclaimer or limitation of warranties, except Section 401 [§ 59.1-504.1] statutory warranties that may only be disclaimed under Section 401 [§ 59.1-504.1].  This section generally corresponds to Article 2 and Article 2A of the Uniform Commercial Code (1998 Official Text).  Those statutes refer to “negating” or “limiting” warranties. This Act reflects modern terminology, referring to “disclaiming” or “modifying” warranties. No substantive change is intended. This Act does not alter consumer protection statutes that may preclude disclaimer of implied warranties in consumer cases, or federal law that may in some cases prevent disclaimer of implied warranties for consumer products.  The section follows  the Uniform Commercial Code and common law holding that implied warranties are default rules that parties may disclaim or limit by agreement.
  2. Express Warranties. General language of disclaimer cannot exclude express warranties.  While courts should construe contract terms of disclaimer and language of express warranty as consistent whenever reasonable, in cases of inconsistency, express warranty language controls.  An express warranty cannot be disclaimed, but a representation that might otherwise be an express warranty can be excluded from the bargain by the agreement. Language of the agreement, including a disclaimer, may indicate that a purported warranty did not in fact become part of the bargain and is not, therefore, an express warranty.  This may occur when the language of the agreement contradicts the alleged express warranty or where the agreement expressly precludes reliance on representations outside the authenticated record.
  3. Disclaimers and Fraud. This Act does not alter the law of fraud. If the licensor makes an intentional misrepresentation of an existing material fact on which the licensee reasonably relied, it may be liable for fraud even if a disclaimer eliminates contractual liability.  A failure to disclose known material problems in a product may constitute fraud if the elements of fraud are met and an obligation to disclose exists under law.  See e.g., Strand v. Librascope, Inc., 197 F. Supp. 743 (E.D. Mich. 1961). While general language of disclaimer does not generally foreclose liability for intentional fraud in most states, disclaimers specific to particular facts or categories of risk or other risk-shifting language may foreclose a fraud claim by eliminating reasonable reliance on a misrepresentation.
  4. Disclaimer of Implied Warranties. Subsection (b) states rules for disclaimer of implied warranties. These are subject to subsections (c), (d) and (e).  The purpose of disclaimer rules is to provide a means by which the parties can clearly achieve their intended result in either disclaiming or retaining a warranty, and yet a procedure to assure that the party against which the disclaimer operates has fair notice of its terms.
    1. When a Record is Required. This Act follows Uniform Commercial Code § 2-316 (1998 Official Text). Disclaimer of implied warranties of merchantability (Section 403 [§ 59.1-504.3]) or by analogy accuracy (Section 404 [§ 59.1-504.4]) need not be in a record. Disclaimer of the “fitness” warranty must be in a record.
    2. Merchantability and Accuracy. Except as indicated in paragraphs (b)(3) and (b)(4), under subsection (b)(1), to disclaim the warranty of merchantability or accuracy, a disclaimer is sufficient if it mentions “merchantability”, “accuracy”, or uses words of similar import and, if a record is used for disclaimer, the language is conspicuous.  These rules follow Uniform Commercial Code § 2-316 (1998 Official Text). Alternative words must reasonably achieve the purpose of clearly indicating that the warranty is not given. The rules here are subject to the general disclaimer language in subsection (b)(3) and to the other rules of subsection (c), (d) and (e).
    3. Fitness Warranty; Systems Integration Warranty. Except as indicated in paragraphs (b)(3) and (b)(4), subsection (b)(2) provides language adequate to disclaim the warranties under Section 405 [§ 59.1-504.5].  The specific language is not mandatory but must be in a record and conspicuous.  This applies the rule in Article 2 for the “fitness” warranty to both this Act’s “fitness” warranty and the new systems integration warranty.
    4. Disclaimer of All Warranties. In some cases all implied warranties are disclaimed.  Subsection (b)(3) sets out language that is sufficient for this purpose. This general disclaimer language must be in a record and be conspicuous so as to assure fair notice of its terms.
    5. Article 2 and 2A Disclaimers. Subsection (b)(4) provides for cross-statute validity of disclaimer language. Language adequate to disclaim a warranty under one statute is adequate to disclaim the equivalent warranty under this Act, including new warranties created under this Act.  The purpose is to avoid a trap for the unwary when, in common understanding, the parties have reason to know that all implied warranties were disclaimed.
  5. Disclaimers of Implied Warranties By Circumstances. Subsections (c), (d) and (e) deal with situations in which the circumstances are sufficient to call the licensee’s attention to the fact that an implied warranty is not made or is excluded. These rules apply to implied warranties and do not exclude express warranties.

While express warranties may survive general disclaimers, as in Article 2, the licensor is protected against unfounded claims of oral express warranties by the provisions of this Act on parol or extrinsic evidence and by the other terms of its contract. It is protected against unauthorized representations by agency law. Remedies for breach of warranty are dealt with in other sections of this Act and may be modified in accordance with this Act.

a. “As is” Disclaimers. Terms such as “as is” and “with all faults” in ordinary commercial usage are understood to mean that the transferee takes the entire risk as to the quality of the information involved. Typically, such expressions are not accompanied by extensive express warranties. As in Uniform Commercial Code Article 2, recognition of the effectiveness of these terms here is a specific application of rule in subsection (e) which provides for exclusion or modification of implied warranties by usage of trade. The terms also accommodate electronic commerce that may require summary terms because of limited space in records or displays. The language need not be in a record.

b. Inspection. Subsection (d) follows Uniform Commercial Code Article 2 (1998 Official Text). Implied warranties may be excluded or modified where the licensee examines the information or a sample or model of it before entering into the contract. The examination or opportunity to do so must occur before the contract is made. “Examination” is not synonymous with inspection before acceptance of information tendered pursuant to a contract. It goes to the nature of the responsibility assumed by the licensor in the contract. If the buyer discovers a defect and goes ahead to make the contract, or if it unreasonably fails to examine the information before making the contract, there is no basis to imply a warranty on a subject which examination did reveal or should have revealed.

For a transaction to be within subsection (d), it is not sufficient that the information merely be available for inspection. There must be a demand or offer by the licensor that the licensee examine it. This puts the licensee on notice that it is assuming the risk of defects examination ought to reveal. On the other hand, if the offer of examination is accompanied by words giving assurance about their merchantability or about specific attributes and the licensee indicates clearly that it is relying on those words rather than on an examination, the words may create an express warranty.

The licensee’s skill and the normal method of examining information in the circumstances determine what defects are excluded. A failure to notice obvious defects cannot excuse the licensee. However, an examination made in circumstances which do not permit extensive testing would not exclude defects that could be ascertained only by extensive testing. Nor are latent defects excluded by a simple examination. A merchant licensee examining a product in its own field assumes the risk for all defects which a merchant in that field ought to observe, while a non-merchant licensee assumes the risk only for such defects as an ordinary person might be expected to observe.

c. Course of Dealing, etc. Subsection (e) follows Uniform Commercial Code § 2-316(3)(c) (1998 Official Text). It permits disclaimer of implied warranties by course of performance, course of dealing or usage of trade independent of any language of disclaimer. It is consistent with the concept of practical construction of contracts established under Article 2 and followed in this Act.

d. Detailed Specifications. As in Article 2, if a licensee gives detailed specifications for computer information, implied warranties may be excluded. The warranty of fitness will not normally apply because there is no reliance on the licensor. The warranty of merchantability must be considered in connection with Section 408 [§ 59.1-504.8] which, as in Article 2, provides that express warranties displace inconsistent implied warranties. If the licensee gives detailed specification, neither the implied warranty of fitness nor the implied warranty of merchantability normally will apply.

§ 59.1-504.7. Modification of computer program.

A licensee that modifies a computer program, other than by using a capability of the program intended for that purpose in the ordinary course, does not invalidate any warranty regarding performance of an unmodified copy but does invalidate any warranties, express or implied, regarding performance of the modified copy. A modification occurs if a licensee alters code in, deletes code from, or adds code to the computer program.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Computer program”;

“Copy”;

“Licensee”.

  1. Scope and policy of Section. This section deals with the effect of modifications by the licensee to computer programs if the modifications are not made using an aspect of the program intended for that purpose. The section provides that such modifications eliminate performance warranties with respect to the modified copy. This rule applies only to a modified copy. Responsibility for defects in an unmodified copy is not altered. The warranties affected by a modification do not include title and non-infringement warranties. The policy flows from the complexity of computer programs; even small changes may cause unanticipated and uncertain results. It often is not possible to prove to what extent a change in one aspect of a program altered its performance as to other aspects.
  2. Application. The section covers cases where the licensee makes changes that are not in the program options. If a user employs a menu of options to tailor a computer program, this section does not apply. However, if the user modifies code in a way not intended by program options, modification eliminates performance warranties as to the altered copy. This section does not apply to modifications that occur where the parties jointly develop a program, with each authorized to change code created by the other.

§ 59.1-504.8. Cumulation and conflict of warranties.

Warranties, whether express or implied, must be construed as consistent with each other and as cumulative, but if that construction is unreasonable, the intention of the parties determines which warranty is dominant. In ascertaining that intention, the following rules apply:

  1. Exact or technical specifications displace an inconsistent sample or model or general language of description.
  2. A sample displaces inconsistent general language of description.
  3. Express warranties displace inconsistent implied warranties other than an implied warranty under § 59.1-504.5 (a).

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code § 2-317 (1998 Official Text).

Definitional Cross References. Section 1-102 [§ 59.1-501.2]: “Party”.

  1. Scope of Section. This section deals with the relationship among various warranties. It follows Article 2 of the Uniform Commercial Code (1998 Official Text).
  2. Cumulative Warranties. No warranty is created except by some conduct by the licensor. Therefore, the presumption is that all warranties are cumulative unless this construction is impossible or unreasonable, or the terms of the agreement otherwise indicate.
  3. Inconsistent Warranties. Paragraphs (1), (2) and (3) give interpretive rules for determining the intent of the parties as to which of several inconsistent potential warranties prevail. These rules do not displace concepts of estoppel, but apply where the licensor in good faith engaged in conduct or made representations that might establish warranties which are inconsistent. If the licensor led the licensee to believe that all the inconsistent warranties can be performed, the licensor may be estopped from setting up any inconsistency as a defense.

The rules in paragraphs (1), (2) and (3) ascertain the intent of the parties by reference to what probably claimed their attention in the first instance. Thus, express warranties displace inconsistent implied warranties and exact or technical specifications displace any inconsistent sample. In both cases, the more specific or explicit terms define the agreement. This rule may be changed by evidence showing that conditions at the time of contracting make that construction inconsistent with the agreement or unreasonable in light of it.

§ 59.1-504.9. Third-party beneficiaries of warranty.

  1. Except for published informational content, a warranty to a licensee extends to persons for whose benefit the licensor intends to supply the information or informational rights and which rightfully use the information in a transaction or application of a kind in which the licensor intends the information to be used.
  2. A warranty to a consumer extends to each individual consumer in the licensee’s immediate family or household if the individual’s use would have been reasonably expected by the licensor.
  3. A contractual term that excludes or limits the persons to which a warranty extends is effective except as to individuals described in subsection (b).
  4. A disclaimer or modification of a warranty or remedy which is effective against the licensee is also effective against third persons to which a warranty extends under this section.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Restatement (Second) of Torts § 552.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Consumer”;

“Consumer contract”;

“Contract”;

“Information”;

“Licensee”;

“Licensor”;

“Party”;

“Person”;

“Published informational content”;

“Term”.

  1. Scope of the Section. This section adopts third-party beneficiary concepts based on the contract law theory of “intended beneficiary” and the theory of Restatement (Second) of Torts § 552 as interpreted in Bily v. Arthur Young & Co., 3 Cal.4th 370, 11 Cal. Rptr. 2d 51, 834 P2d 745 (1992) and A.T. Kearney v. IBM, 73 F.3d 238 (9th Cir. 1997). It expands both as to the licensee’s household.  The section does not create a warranty, but deals with the question of, given a contractual obligation to one party, when does that obligation extend to others.
  2. Liability to Third Parties. Liability is restricted to intended third parties and those in a special relationship with the information provider. Intent requires more than that the person be within a general category of those who may use the information (e.g., all readers). There must be a closer and more clearly known connection to a particular party. The liability covers use in transactions that the licensor intended to influence. It does not include liability for published informational content.
  3. Product Liability Law. This section does not deal with product liability or other tort issues. It neither expands nor restricts tort concepts, leaving that issue to other law. Few courts impose third party tort liability in transactions involving information. The Restatement (Third) on Products Liability notes that informational content is not a product for that law. The only reported cases that impose product liability on information involve air flight charts. Most courts specifically decline to treat informational content as a product, including the Ninth Circuit, which decided two of the air flight chart cases, but later commented that public policy accepts the idea that information once placed in public moves freely and that the originator does not owe obligations to remote parties who obtain it. Winter v. G. P. Putnam’s Sons, 938 F.2d 1033 (9th Cir. 1991); Berkert v. Petrol Plus of Naugatuck, 216 Conn. 65, 579 A.2d 26 (Conn. 1990).
  4. Household and Family Use. Subsection (b) expands the intended beneficiary concept to include individuals in the family of a consumer licensee. This covers both personal injury and economic losses and applies to consumer use by the indicated persons. The use by the family member must be authorized under the license and the licensee must be an individual (a human being), not a corporation. The section assumes that the licensor had some reason to anticipate that the information would be used in the licensee’s household. If a household member uses a commercial system licensed to a professional, this section does not extend warranties to that household member because the predicate transaction was not a warranty to a consumer. On the other hand, a licensor of mass-market word processing software might reasonably expect acquisition of it by a consumer for use at home.
  5. Limitation by Contract. The rules in this section establish beneficiary status, not product liability. Under subsections (c) and (d), a disclaimer or a statement excluding intent to affect third parties excludes liability under this section. This follows current law. See Rosenstein v. Standard and Poor’s Corp., 636 N.E.2d 665 (Ill. App. 1993). Restrictions on the ability to limit damages for personal injury is treated in Section 803 [§ 59.1-508.3].

Illustration: Licensor (author) contracts with Publisher for publication of an electronic text on chemical interactions. Publisher obtains an express warranty that Licensor exercised reasonable care in researching. Publisher distributes the text to the general public. Some data are incorrect. Neither Publisher (which makes no warranty for published informational content), nor Licensor makes a warranty to a general buyer of the book.

To impose liability under contract law, the information provider must have known of and clearly intended to have an effect on the third party. This requires a conscious assumption of risk or responsibility for particular third parties. Even then, courts should not aggressively find the requisite intent. Information has a unique role in our culture. It is also uniquely difficult to show or disprove a causal connection between a release of informational content and harmful effects to third parties. This section reflects that placing excessive liability exposure on information providers without their express undertaking may chill the dissemination of information.

As in transactions in goods, there may be a tension between the idea of merchantability in this Act and its role in product liability law. The primary source of tension arises from disagreement about whether the concept of defect in tort and the concept of merchantability in contract are coextensive where personal injuries are involved (i.e. if a product is merchantable under warranty law can it still be defective under tort law, and if a product is not defective under tort law can it be unmerchantable under warranty law?). The answer to both questions should be no. Any tension between merchantability in warranty and defect in tort when personal injuries are involved should be resolved as follows: (1) when recovery is sought for injury to person or property, whether goods are merchantable is determined by applicable state products liability law; and (2) when a claim for injury to person or property is based on an implied warranty of fitness or an express warranty, this Act determines whether an implied warranty of fitness or an express warranty was made and breached, as well as what damages are recoverable.

§ 59.1-504.10. No implied warranties for free software.

  1. In this section, “free software” means a computer program with respect to which the licensor does not intend to make a profit from the distribution of the copy of the program and does not act generally for commercial gain derived from controlling use of the program or making, modifying, or redistributing copies of the program.
  2. The warranties under §§ 59.1-504.1 and 59.1-504.3 do not apply to free software.

History. 2004, c. 794.

OFFICIAL COMMENT

Uniform Law Source: None.

Definitional Cross References: Section 102 [§ 59.1-501.2]: “Computer program”;

“Copy”;

“Licensor”.

  1. Scope and Effect of Section. This section provides that there are no implied warranties of non-infringement or of merchantability in transactions where a licensor does not intend to profit from the distribution of the copy or engage generally in seeking commercial gain by controlling the reproduction, use, modification or redistribution of copies. The effect of coming within this section is that no disclaimer or limitation is needed for those warranties because they will not be implied by this Act in such transactions.
  2. Non-commercial Transactions. Under this section, transactions in computer programs do not give rise to implied warranties if they are non-commercial in nature. Thus, transactions among “shareware” providers and users, or among contributors to the development of so-called ‘open source‘ software do not involve the implied warranties when the transactions are not for commercial gain. Many such transactions may not involve a contractual relationship and would, on that basis, fall outside of the scope of this Act. See Section 105(d) [§ 59.1- 501.5]. Some involve licensors who do not meet the requirements necessary for certain of the implied warranties, such as warranties only provided by licensors who merchants or merchants who deal in information.
  3. Commercial Context as Disclaimer. Even if a transaction does not come within this section, implied warranties may be excluded by course of dealing, trade use, or the like. Section 406(e) [§ 59.1-504.6]. For example, a conveyance of program code between academic entities as a voluntary part of the development of free software may occur in a setting where none of the parties anticipate implied warranties and, as a result of a trade use to that effect, may have no such warranties regardless of whether this section applied or whether an effective disclaimer was made.
  4. Mixed Objectives. The touchstone lies in whether the transferor intends to profit from distribution of the copy (e.g., obtain a price for the transfer that exceeds the cost of the copy), or to obtain commercial advantages from controlling use, reproduction, modification or redistribution. In many cases, the circumstances are clear; a pure, voluntary, noncommercial transfer entails no implied warranties under this section. Other cases may be less clear. The issue does not depend on labels used in the transaction. Thus, a transfer of a copy of a program as part of a computer system is not within this section simply because the price paid by the end user does not include a fee designated for the copy. The restrictions on use of the copy and the general commercial nature of the transaction in such case means that this section does not apply. Similarly, a charge of $200 for a transaction involving a copy of a program does not come within this section simply because the licensor designated the charge as being for support, rather than for delivery of the copy. On the other hand, if a provider of software makes the program freely available with no restrictions or cost from a website, but also offers support and other services that the licensee may obtain or refuse, and the licensee obtains the software from that website without being required to purchase a tangible copy or a computer into which the online version can be loaded, this section would exclude implied warranties for the program. However, if the economic reality of the transaction is that the program is distributed for commercial gain because it has no real viability absent procurement of the service contract, then this section would not apply.

This section excludes implied warranties in cases where they would not otherwise be excluded on the foregoing bases. The exclusion depends upon the absence of intent for commercial gain from transfer or the copy or from controlling its use. In such transactions, the expectations of the parties do not parallel that of commercial transactions. The imposition of an implied warranty would put an undue burden on such transactions and the methods of software development and distribution they involve.

The exclusion covers a wide range of transactions as long as they occur without commercial profit objectives associated with distribution of the copy or controlling its use. Truly free software distribution involves no implied warranty, whether or not source code is made available. For example, the section excludes implied warranties for a computer program posted on the Internet to be freely downloaded with no restrictions on use, reproduction, or distribution of additional copies. On the other hand, a program provided free for a limited period of time with no right to make or distribute copies is not within the exclusion of this section if, after the limited period, the licensor expects to obtain a paid license from the licensee to enable its further use of the program.

§§ 59.1-504.11 through 59.1-505. Reserved.

Article 5. Transfer of Interests and Rights.

§ 59.1-505.1. Ownership of informational rights.

  1. If an agreement provides for conveyance of ownership of informational rights in a computer program, ownership passes at the time and place specified by the agreement but does not pass until the program is in existence and identified to the contract. If the agreement does not specify a different time, ownership passes when the program and the informational rights are in existence and identified to the contract.
  2. Transfer of a copy does not transfer ownership of informational rights.

History. 2000, cc. 101, 996.

Editor’s note.

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Copy”;

“Information”;

“Informational rights”;

“Transfer.”

  1. Scope of the Section. This section deals with contractual transfers of ownership of intellectual property rights. It is subject to federal law, such as the requirement of a written conveyance under copyright law. Section 105 [§ 59.1-501.5]. If copyright law on work for hire applies, it controls to the extent of any inconsistency.
  2. Copy vs. Rights Ownership. Ownership (title) to a copy is distinguished from ownership of intellectual property rights. This distinction is fundamental in intellectual property law and made explicit in the Copyright Act and other law. It is acknowledged in subsection (b). While obtaining ownership of a copy may give the copy owner some rights with respect to that copy, it does not convey ownership of the underlying intellectual property rights in a work of authorship, a patented invention or other intellectual property. The copy is merely a conduit for use, but not ownership, of rights.
  3. Rights Ownership. Subsection (a) deals with when ownership of informational rights transfers as a matter of state law. The section is confined to cases where there is an intent to transfer ownership of informational rights as compared to a license to use such rights or an intent to merely transfer title to a copy.

The agreement controls. The terms of agreement may be found in express terms or usage of trade, course of dealing, or the circumstances of the particular transaction. In the absence of agreed terms, transfer of ownership of informational rights does not hinge on delivery of a copy. It occurs when the information and the rights come into existence and are identified to the contract. The subsection thus reverses In re Amica, 135 Bankr. 534 (Bankr. N.D. Ill. 1992) to the extent that case suggests that ownership cannot pass until delivery of the completed work.

Identification to the contract requires both completion to a sufficient level to separate the information from other information of the transferor and an indication by the transferor that the particular information is that which will be transferred under the contract. In re Bedford Computer, 62 Bankr. 555 (D.N.H. 1986) provides guidance on the relevant issues. The term “identification to the contract” is used in Article 2 of the Uniform Commercial Code (1998 Official Text) and should be interpreted in light of that use. Early drafts or working copies are ordinarily not “identified” to a contract that provides only for a transfer of ownership of rights in a completed program because the interim drafts and working copies are not intended for the licensee in fulfillment of the contract. However, if the agreement is that the licensee will own all work in progress and working drafts, then those are the contractual subject matter. They are identified to the contract when created if creating the work in progress is connected to the contract.

In many cases, an agreement provides that ownership does not vest in the transferee until it performs all of its obligations. In such cases, a material failure to perform an obligation such as to pay or provide other consideration due, precludes transfer of ownership until the obligations are met. If payment or other consideration is deferred under the agreement until after ownership clearly vests, a court may reasonably conclude that receipt of that consideration was not a condition precedent to the transfer of title.

§ 59.1-505.2. Title to copy.

  1. In a license:
    1. title to a copy is determined by the license;
    2. a licensee’s right under the license to possession or control of a copy is governed by the license and does not depend solely on title to the copy; and
    3. if a licensor reserves title to a copy, the licensor retains title to that copy and any copies made of it, unless the license grants the licensee a right to make and sell copies to others, in which case the reservation of title applies only to copies delivered to the licensee by the licensor.
  2. If an agreement provides for transfer of title to a copy, title passes:
    1. at the time and place specified in the agreement; or
    2. if the agreement does not specify a time and place:
      1. with respect to delivery of a copy on a tangible medium, at the time and place the licensor completed its obligations with respect to tender of the copy; or
      2. with respect to electronic delivery of a copy, if a first sale occurs under federal copyright law, at the time and place at which the licensor completed its obligations with respect to tender of the copy.
  3. If the party to which title passes under the contract refuses delivery of the copy or rejects the terms of the agreement, title revests in the licensor.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Section 2-401; Section 2A-302 (1998 Official Text). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Copy”;

“Delivery”;

“Electronic”;

“Information”;

“Informational rights”;

“License”;

“Licensee”;

“Licensor”;

“Party”;

“Sale”;

“Transfer”.

  1. Scope of the Section. This section deals with transfers of title to or ownership of a copy.
  2. Ownership of a Copy. Subsection (a) applies only to licenses. The basic rule is that the agreement controls. If the agreement does not provide for a transfer title to a copy, title to the copy remains in the transferor. In this Act, however, title to the copy has only limited significance. Thus, subsection (a)(2) notes that the ability of a licensee to possess or control a copy does not depend “solely” on title to it — obviously, the agreement of the parties is the most relevant source.
    1. Copy Ownership. In a license, title to the copy depends on the terms of the license. As in Uniform Commercial Code Article 2A (1998 Official Text), this Act does not presume a transfer of title occurs on delivery. If the license is silent, determination of whether there was an intent to transfer title to the copy to the licensee may require consideration of the context of the transaction. In general, title does not vest in the licensee if the license imposes restrictions on use of the information on that copy that are inconsistent with ownership of the copy. DSC Communications Corp. v. Pulse Communications, Inc., 170 F.3d 1354 (Fed. Cir. 1999) , cert. den. 528 U.S. 923 (1999).
    2. Right to Possession. Paragraph (a)(2) clarifies that the license governs rights to possession or control of a copy and that those rights do not depend solely on who has title to the copy. This corresponds to ordinary commercial expectations.
    3. Effect of Reservation of Title. Under paragraph (a)(3), reservation of title to a copy implies a reservation of title in all copies of it made by the licensee. That rule is altered if the transaction contemplates that the licensee will make copies for sale. Thus, a license of a manuscript to a publisher contemplating production of the manuscript for sale to others, reserves title only to the delivered copy and not the digital copies produced by the publisher. This rule does not apply where the licensee will transfer copies to others subject to a license mandated by the licensor. In that case, the distribution contemplated is in the form of a license and not a sale. In any case, of course, the agreement controls; express terms displace the rule in paragraph (a)(3).
  3. When Title to a Copy Passes. Subsection (b) deals only with contracts where the parties agree to transfer title to a copy. The subsection states presumptions relating to when title passes, but the general rule is that the terms of the contract control. In the absence of agreed terms, this section distinguishes between physical and electronic transfers. The rule for physical transfers of a tangible copy parallels Uniform Commercial Code Article 2 (1998 Official Text). Title transfers when the licensor completes its obligations regarding tender of delivery, which obligations are spelled out in Section 606 [§ 59.1-506.6]. The rule for electronic transfers is the same, but explicitly defers to federal copyright law. Some argue that even if there is an intent to transfer title to a copy, an electronic transfer of a copy of a copyrighted work is not a first sale because it does not involve transfer of a copy from the licensor to the licensee. Under subsection (b), state law expressly coordinates with resolution of that issue in federal law.

§ 59.1-505.3. Transfer of contractual interest.

The following rules apply to a transfer of a contractual interest:

  1. A party’s contractual interest may be transferred unless the transfer:
    1. is prohibited by other law; or
    2. except as otherwise provided in paragraph (3), would materially change the duty of the other party, materially increase the burden or risk imposed on the other party, or materially impair the other party’s property or its likelihood or expectation of obtaining return performance.
  2. Except as otherwise provided in paragraph (3) and § 59.1-505.8 (a) (1) (B), a term prohibiting transfer of a party’s contractual interest is enforceable, and a transfer made in violation of that term is a breach of contract and is ineffective to create contractual rights in the transferee against the nontransferring party, except to the extent that:
    1. the contract is a license for incorporation or use of the licensed information or informational rights with information or informational rights from other sources in a combined work for public distribution or public performance and the transfer is of the completed, combined work;
    2. the transfer is of a right to payment arising out of the transferor’s due performance of less than its entire obligation and the transfer would be enforceable under paragraph (1) in the absence of the term prohibiting transfer; or
    3. the term is in a mass-market license, the transfer is made along with a computer, and the transfer is a gift or a donation (i) to a public elementary or secondary school, (ii) to a public library, (iii) to an organization exempt from taxation under § 501 (c) (3) of the Internal Revenue Code, or (iv) from a consumer to another consumer.
    4. [Repealed.]
  3. A right to damages for breach of the whole contract or a right to payment arising out of the transferor’s due performance of its entire obligation may be transferred notwithstanding an agreement otherwise.
  4. A term that prohibits transfer of a contractual interest under a mass-market license by the licensee must be conspicuous.

History. 2000, cc. 101, 996; 2001, cc. 762, 763; 2002, c. 403.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 762 substituted “§ 59.1-505.8” for “§ 59.1-508” in subdivision (2), deleted “or” at the end of subdivision (2) (A), added “or” at the end of subdivision (2) (B), and added subdivision (2) (C).

The 2001 amendment by c. 763, substituted “§ 59.1-505.8” for “§ 59.1-508” in subdivision (2), deleted “or” at the end of subdivision (2) (A), added “or” at the end of subdivision (2) (B), and added present subdivision (2) (D).

The 2002 amendments.

The 2002 amendment by c. 403 repealed subdivision (2) (D), which read: “The transfer is in connection with a merger or the acquisition or sale of a subsidiary or affiliate involving the licensee and another person and is made (i) to preserve the integrity of information and information processing systems used by the licensee, or (ii) to ensure compatibility of information and information processing systems among the parties involved in the merger, acquisition, or sale.”

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2-210; Section 2A-303 (1998 Official Text). Restatement (Second) of Contracts § 317.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

Contract”;

“Copy”;

“Information”;

“Informational rights”;

“License”;

“Licensee”;

“Licensor”;

“Term”;

“Transfer”.

  1. Scope of the Section. This section deals with transfers of contractual interests.  It concerns transferability when the agreement is silent and the effect of a term prohibiting or limiting transfer. With respect to some transfers, Article 9 of the Uniform Commercial Code applies and, to the extent it contains provisions that conflict with this section, Article 9 governs.  See Section 103(c) [§ 59.1-501.3(c)].
  2. Transfer of Contract. The term “transfer” when used with respect to a contractual interest refers to what in many contexts is described as an “assignment of a contract.”  Section 102 [§ 59.1-501.2].  The term as used in this Act does not refer to a “transfer of a copyright” or similar intellectual property interest.  A transfer of the contract differs from performing the contract through a delegate in that, when a delegate is used, there is no change to or addition of parties to the contract.
  3. Transferability in the Absence of Contract Restrictions. Subsection (a) adopts the principle that, in the absence of contrary contract terms, contractual interests are presumed transferable unless the transfer adversely affects the interests of the other party. This parallels common law and Article 2 of the Uniform Commercial Code (1998 Official Text).  This promotes an optimal open market in contractual rights, enhancing their value to the contracting parties.
    1. Federal Policy and Other Law. Paragraph (1) recognizes two limitations on the rule that, when an agreement does not otherwise indicate, transfer of contractual interests may be made without consent of the other party.  The first is when other law prevents transfer.  In licensing, the other source of law may very well come from a federal intellectual property policy that precludes transfer of a non-exclusive copyright or patent license without the consent of the licensor. In re Catapult Entertainment, Inc., 165 F.3d 747 (9th Cir. 1999); Everex Systems, Inc. v. Cadtrak Corp., 89 F.3d 673 (9th Cir. 1996); Harris v. Emus Records Corp., 734 F.2d 1329 (9th Cir. 1984); Unarco Indus., Inc. v. Kelley Co., Inc., 465 F.2d 1303 (7th Cir. 1972);  In re Patient Education Media, Inc., 210 Bankr. 237 (Bankr. S.D.N.Y. 1997); In re Alltech Plastics, Inc., 71 Bankr. 686 (Bankr. W. D. Tenn. 1987).  The Copyright Act also precludes the rental of a copy of a computer program by the owner of a copy without the permission of the licensor. 17 U.S.C. § 107. See Central Point Software v. Global Software & Access, 880 F. Supp. 957, 965 (E.D.N.Y. 1995).
    2. Material Harm to Other Party. The second limit when the contract is silent is that the contract cannot be transferred without consent, if transfer would impair the other party’s position or its expectation of performance. In addition, in some cases, a transfer may be cause for insecurity and a demand for assurance of future performance. Section 504 [§ 59.1-505.4].
  4. Contractual Restrictions. Under paragraph (2) terms prohibiting transfer of a contractual interest are enforceable. This rule follows general common law and the approach of the Restatement.  As the Restatement (Second) of Contracts § 322 notes, policies that disfavor restraints on the alienation of property have little significance with respect to contractual interests.   For contractual interests, the dominant policy recognized in the Restatement is the ability of the parties to determine the nature and scope of their contract. When they do so expressly, that choice will be recognized.  In reference to licenses, this rule also reflects the importance of the retained interest of the licensor.  The rule in paragraph (2) parallels the rule for transfers made without licensor consent in copyright and patent law. Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208 (E.D.N.Y. 1994);  Major League Baseball Promotion v. Colour-Tex, 729 F. Supp. 1035 (D. N.J. 1990); Microsoft Corp. v. Grey Computer, 910 F. Supp. 1077 (D. Md. 1995).
  5. Transfer Ineffective. A prohibited transfer is ineffective, rather than merely a breach. “Ineffective” means that the transfer creates no contractual rights or privileges in respect to the relationship of the transferee and the party to the original license who did not participate in the transfer.  Between the transferor and its transferee, the transfer does create contractual rights and obligations. While an ineffective transfer creates no rights against the licensor, that does not mean that the transfer automatically creates a cause of action for infringement by the licensor against the transferee. Whether an infringement action exists is determined by other law.  Copyright law might permit a claim of infringement against the transferor and against the transferee if their conduct infringes exclusive rights under copyright. If information is not protected under copyright, trademark, patent  or other informational rights law, the fact that the transfer is ineffective does not necessarily expose the transferee to liability under this section or otherwise. Thus, in trade secret law, a good faith transferee without notice may have a right to use information it receives with respect to claims under this body of law.  That rule is not changed by the contract rule stated here.  The rule making a prohibited transfer ineffective merely indicates that the transferee does not receive contractual rights against or from the party who did not participate in the transfer.
  6. Payment Streams. Paragraph (2)(B) allows transfer of payment streams despite a contrary contractual provision unless the transfer of the payment stream would make a material change of the other party’s position and therefore be precluded under subsection (1).  In cases where Article 9 of the Uniform Commercial Code applies, this Act does not affect the Article 9 rule that, in itself, a contract term or statutory rule cannot preclude such transfer of a payment stream. Uniform Commercial Code § 9-406(d)(c) (1999 Official Text). Article 9 governs in the case of conflict with this Act.  Section 103(c) [§ 59.1-501.3(c)].
  7. Donations and the Like. Paragraph (2)(C) creates an exception to enforceability of no-transfer clauses that does not exist in any other law. The exception enables gifts to certain non-profit entities and non-commercial transfers between consumers. Federal policy precludes non-consensual transfers in many situations. The exception here pushes against that policy, but restricts the invalidation of the no transfer clause to cases that are within Section 117 of the Copyright Act, a section that allows transfers of a copy by its owner under certain restrictions stated in that section.
  8. Mass Market Licenses. Subsection (c) provides that a term prohibiting transfer of a mass-market license must be conspicuous. This refers to terms that prohibit transfer. It does not refer to terms that control the scope of use under the license or to whom warranties or other obligations extend.

When applicable, these federal rules preempt contrary state law, including paragraph (1). The federal policy on transfers flows in part from the fact that a nonexclusive license is a personal contractual privilege that does not create a property interest. It is also embedded in policies of encouraging innovation and reserving to the rights owner control over to whom and when a license is granted. See, e.g., Everex Systems, Inc. v. Cadtrak Corp., 89 F.3d 673 (9th Cir. 1996). This Act does not change that policy.

These rules correspond to Article 2 of the Uniform Commercial Code (1998 Official Text) and to the Restatement (Second) of Contracts § 317. Impairment may occur if the transfer is made by a party owing executory or ongoing performance and the transfer shifts that performance to a third party or otherwise undermines its occurrence. Material harm should be interpreted in light of the commercial context and the original expectations of the contracting parties. The issue is not only whether there will be actual harm, but whether there is a material impairment of an expectation of return performance. A continuing sense of security that the promised performance will be forthcoming when due is an important feature of a bargain — parties do not bargain merely for a promise or for the right to win a lawsuit. The federal policies noted above are relevant. Also, as noted in Article 2A, “[The] lessor is entitled to protect its residual interest in the goods by prohibiting anyone other that the lessee from possessing or using them.” Section 2A-303, Comment 3. Licensors similarly have residual interests in licensed computer information.

Computer information transactions involve different background policy and underlying property considerations than Article 2 contracts for sales of goods and this may lead to different decisions about whether a transfer has a material adverse effect. Many non-exclusive licenses may be non-transferable without the licensor’s consent. In some commercial licenses, the subject matter includes confidential information that is protected by enforceable contractual use restrictions. In such cases, the party disclosing the confidential information contracts in large part on the basis of the reliability of the particular other party. The presence of confidential information may foreclose non-consensual transfers because the transfer jeopardizes the other party’s enforceable interests in confidentiality and would place the confidential material in the hands of a person to which the licensor never agreed. The fact that the interest can be protected by a lawsuit for damages due to wrongful disclosure does not alter the reality that the transfer itself adversely affects the contractual interest. In some cases, a similar conclusion might be reached in the absence of confidential information. For example, a licensor might agree to license one company, but refuse to license a competitor that otherwise may not have access to the information. In such cases, allowing the licensee to transfer the license without consent adversely affects the licensor’s interests as expressed and protected in the original license and given the intangible nature of the property and the ease of its reproduction, in effect places a licensee in direct competition with the licensor as a source of the information. Of course, in some cases, refusals to license may violate other law, but that possibility is outside the scope of this Act. Similarly, a transfer that places information in the hands of a competitor or a person who will engage in greater commercial or other use may be precluded if a license for such greater use would ordinarily have required additional terms or consideration.

Mass market licenses may present a different context. Transfer of the license will frequently not materially increase the burden or risk imposed on the other party. Even though a mass-market licensee may or may not be an owner of a copy, a transfer complying with Section 117 of the Copyright Act, which allows an owner of a copy to transfer that copy so long as it transfers or destroys all copies in its possession, will often be permissible in the absence of contractual restrictions. Thus, if a consumer licensee transfers his license for word processing software to another consumer and keeps no copy, there may be no impairment under this section. In other cases, however, a transfer may impair the licensor’s interests. For example, if a mass market license for income tax reporting software includes a promise by the licensor to indemnify the licensee against IRS penalties incurred because of any defects in the software calculations, repeated transfers of the license multiple times during a tax preparation season may increase the licensor’s burden or risk. A transfer of a license along with a single copy by a licensee that retains other copies subject to the same license may also have an adverse impact (in addition to being a copyright infringement).

As between the transferee and the party that did not participate in the transfer, if the rule were otherwise (e.g., the prohibited transfer is effective, but a breach of contract), there would be a potentially significant period of time in which the transferee might be protected by the license before the license could be canceled in litigation. During that time, there could be serious adverse impact on the non-transferring party, despite its contractual effort to limit transferability of the license.

Illustration. Assume a license for $5,000 that allows Small Licensee (SL) (a five employee company) to make “as many copies as needed for use in licensee’s business”; the license is expressly not transferable. SL transfers the license to AT&T, a company with 300,000 employees. If the transfer is merely a breach, AT&T may be permitted to make as many copies as it needs for 300,000 employees until licensor learns of the breach and cancels the license against SL. The rule making the transfer ineffective preserves the original bargain. As between SL and AT&T, AT&T would be entitled to refund of the consideration paid for the transfer.

§ 59.1-505.4. Effect of transfer of contractual interest.

  1. A transfer of “the contract” or of “all my rights under the contract,” or a transfer in similar general terms, is a transfer of all contractual interests under the contract. Whether the transfer is effective is determined by §§ 59.1-505.3 and 59.1-505.8 (a) (1) (B).
  2. The following rules apply to a transfer of a party’s contractual interests:
    1. The transferee is subject to all contractual use terms.
    2. Unless the language or circumstances otherwise indicate, as in a transfer as security, the transfer delegates the duties of the transferor and transfers its rights.
    3. Acceptance of the transfer is a promise by the transferee to perform the delegated duties. The promise is enforceable by the transferor and any other party to the original contract.
    4. The transfer does not relieve the transferor of any duty to perform, or of liability for breach of contract, unless the other party to the original contract agrees that the transfer has that effect.
  3. A party to the original contract, other than the transferor, may treat a transfer that conveys a right or duty of performance without its consent as creating reasonable grounds for insecurity and, without prejudice to the party’s rights against the transferor, may demand assurances from the transferee under § 59.1-507.8.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2-210; 2A-303 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Contractual use term”;

“Party”;

“Rights”;

“Term”;

“Transfer”.

  1. Scope of Section. This section follows Articles 2 and 2A of the Uniform Commercial Code (1998 Official Text). It describes the effect of a transfer of contract rights. It is not a comprehensive statement of the law on assignment and delegation. Issues not addressed here are left to other law.
  2. Subject to Contract Terms. An effective transfer of a contract constitutes a transfer of contract rights and, unless the agreement or the circumstances otherwise indicate, a delegation of contractual duties. The transferee, by accepting the transfer, promises to perform the contract. It is bound by the terms of the original contract, including contractual use terms. The transferee’s obligation can be enforced by the other party to the original contract. In effect, as between the transferee and the other party to the original contract, the transfer places the transferee into the position held by its transferor.
  3. Transfers in General and for Security. Subsection (b)(2) recognizes a general rule of construction distinguishing between a commercial assignment of a contract, which puts the transferee into the position of the transferor as to rights and duties, and other transfers that might be for a different purpose such as a transfer to create a security interest under Article 9 of the Uniform Commercial Code. When the latter occurs, the transfer constitutes neither an outright transfer of rights of the transferor nor a delegation of the transferor’s duties to the secured party.
  4. Assurances. Subsection (c) recognizes that the non-transferring party has a stake in the reliability, identity or other aspects of the person to whom the contract is transferred. In part, that stake is protected under Section 503 [§ 59.1-505.3]. Subsection (c) also gives the non-transferring party a right to demand adequate assurances of future performance and to proceed under Section 708 [§ 59.1-507.8] to protect its interest in performance of the contract. See Comments to Section 503 [§ 59.1-505.3].

However, as between the transferor and the other party to the original contract, paragraph (b)(4) follows current law, providing that the transfer does not alter the transferor’s obligations to the original contracting party in the absence of an express consent by that party to a novation. Mere transfer does not create a novation or eliminate the otherwise enforceable contractual rights created between the original parties.

§ 59.1-505.5. Performance by delegate; subcontract.

  1. A party may perform its contractual duties or exercise its contractual rights through a delegate or a subcontract unless:
    1. the contract prohibits delegation or subcontracting; or
    2. the other party has a substantial interest in having the original promisor perform or control the performance.
  2. Delegating or subcontracting performance does not relieve the delegating party of a duty to perform or of liability for breach.
  3. An attempted delegation that violates a term prohibiting delegation is not effective.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Section 2-210; Section 2A-303 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Party”;

“Term.”

  1. Performance Through a Delegate. Performance through a delegate or subcontracting of performance occurs when a party to the original contract uses a third party to make an affirmative performance under a contract. While the performance may be by the delegate, the original party remains bound by the contract and responsible for any breach.
  2. Effect of Contract. The ability to delegate is subject to terms of the agreement to the contrary. Those terms may be direct or indirect. For example, a contract might expressly preclude delegation or it might restrict use of licensed information to a named person or entity and thus indirectly preclude delegation of the rights or duties to any other person. A contract whose terms are confidential might have the same effect because to disclose contract terms to the delegate (in order to ensure appropriate performance of the contract) might breach the duty of confidentiality.
  3. Delegation in the Absence of a Contract Restriction. In the absence of a contractual limitation, delegation can occur unless the other party has a substantial interest in having the original party perform or control the performance. Obviously, a party has a substantial interest in having the original party perform if the delegation triggers the restrictions in 503, but it may also have such an interest in other cases. Thus, for example, a contract for software to be developed by an internationally known individual software developer might ordinarily not permit that individual to delegate the development entirely to a third party of lesser stature.

§ 59.1-505.6. Transfer by licensee.

  1. If all or any part of a licensee’s interest in a license is transferred, voluntarily or involuntarily, the transferee does not acquire an interest in information, copies, or the contractual or informational rights of the licensee unless the transfer is effective under § 59.1-505.3 or § 59.1-505.8 (a) (1) (B). If the transfer is effective, the transferee takes subject to the terms of the license.
  2. Except as otherwise provided under trade secret law, a transferee acquires no more than the contractual interest or other rights that the transferor was authorized to transfer.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2A-305 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Copy”;

“Information”;

“Informational rights”;

“License”;

“Licensee”;

“Party”;

“Term”;

“Transfer.”

  1. Scope of the Section. This section deals with the effect of a transfer of a licensee’s contractual interest. If there is a conflict between this section and Article 9 of the Uniform Commercial Code, Article 9 governs. See Section 103(c) [§ 59.1-501.3(c)].
  2. Transferee Interests. Subsection (a) provides that a transferee of the licensee acquires only the rights that the license and this Act allow. This rule applies to purchasers of contractual interests, including persons who acquire an interest for the purposes of financing, and to transferees that acquire the transfer by involuntary means, such as enforcement of a judgment. This rule reflects the simple fact that what is transferred is the contract and that the transfer cannot change that contract. This principle holds true even if the transfer includes physical manifestations of the computer information that is subject to the license. The recipient of an effective transfer takes subject to the terms of the license.
  3. Transfers and Underlying Property Rights. Subsection (b) provides that as a general rule, a licensee’s transferee acquires only those contractual or other rights that the licensee was authorized to transfer. There is no principle of bona fide purchaser of a mere contract right.

Similarly, neither copyright nor patent recognize concepts of protecting a buyer in the ordinary course (or other good faith purchaser) by giving that person greater rights than were authorized to be transferred even if the transfer includes delivery of a copy associated with the contract. Transfers that exceed or are otherwise unlicensed by a patent or copyright owner create no rights of use in the transferee. Indeed, such transfers may in themselves be an infringing act. A transferee that takes outside the chain of authorized distribution does not benefit from ideas of good faith purchase and its use is likely to constitute infringement. See Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208 (ED NY 1994); Major League Baseball Promotion v. Colour-Tex, 729 F. Supp. 1035 (D. N.J. 1990); Microsoft Corp. v. Grey Computer, 910 F. Supp. 1077 (D. Md. 1995); Marshall v. New Kids on the Block, 780 F. Supp. 1005 (S.D.N.Y. 1991).

Subsection (b) recognizes the major exception to this principle, which allows a bona fide purchaser in reference to trade secret claims to the extent that body of law confers such rights. Trade secret law enforces confidentiality. If a party takes without notice of such confidentiality restrictions, it may not be bound by them; it is in effect a good faith purchaser, free of any obligations under that law. This section does not define when or to what extent this is true, but defers to applicable rules under that body of law.

§ 59.1-505.7. Financing if financier does not become licensee.

If a financier does not become a licensee in connection with its financial accommodation contract, the following rules apply:

  1. The financier does not receive the benefits or burdens of the license.
  2. The licensee’s rights and obligations with respect to the information and informational rights are governed by:
    1. the license;
    2. any rights of the licensor under other law; and
    3. to the extent not inconsistent with subparagraphs (A) and (B), any financial accommodation contract between the financier and the licensee, which may add additional conditions to the licensee’s right to use the licensed information or informational rights.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Financial accommodation contract”;

“Financier”;

“Information”;

“Informational rights”;

“License”;

“Licensee”;

“Licensor”.

  1. Scope of the Section. This Act recognizes two different positions in which a financier may become involved in financing related to a license. The first involves a financing relationship where the financier does not become party to the license. The second is where the financier does become a party to the license and transfers the contractual rights to the party ultimately intended to use the computer information. This latter arrangement resembles a “finance lease” as dealt with in Article 2A of the Uniform Commercial Code, but concerns licensed computer information, rather than leased goods. This section deals with circumstances in which a financier in a transaction with a licensee does not become a licensee of the license as part of the transaction.
  2. Financier. A “financier” is a person who makes a financial accommodation to a licensee under a financial accommodation contract. Because a contract that creates or provides for a security interest governed by Article 9 of the Uniform Commercial Code cannot be a financial accommodation contract under the definition of that term, a financier does not include a secured party under Article 9. Nor does the term include a licensor. A secured party’s position is governed by Article 9 of the Uniform Commercial Code.
  3. Rights of Financier. If the financier does not become a party to the license, it obtains neither the benefits nor the burdens of the license. Under paragraph (2)(c), the financial accommodation contract between the financier and the licensee may add additional conditions to the licensee’s right to use the licensed information or rights, but these terms are solely between the licensee and the financier. This enables this form of financing by enforcing conditions to support it. In effect, to the extent conditions are established in the financial accommodation contract, the licensee contracts away its own contractual right to act under the license, but does not alter or convey any part of, or interest in, the license itself.
  4. Relationship to Licensor. Paragraph (2) makes clear that, notwithstanding any private arrangement between the licensee and a financier, the contractual and other rights of the licensor are dominant with respect to the licensed information. Thus, the financier’s contract cannot expand any of the licensee’s rights under the license. The financier’s contract cannot alter any of the rights of the licensor.

§ 59.1-505.8. Finance licenses.

  1. If a financier becomes a licensee in connection with its financial accommodation contract and then transfers its contractual interest under the license, or sublicenses the licensed computer information or informational rights, to a licensee receiving the financial accommodation, the following rules apply:
    1. The transfer or sublicense to the accommodated licensee is not effective unless:
      1. the transfer or sublicense is effective under § 59.1-505.3; or
      2. the following conditions are fulfilled:
        1. before the licensor delivered the information or granted the license to the financier, the licensor received notice in a record from the financier giving the name and location of the accommodated licensee and clearly indicating that the license was being obtained in order to transfer the contractual interest or sublicense the licensed information or informational rights to the accommodated licensee;
        2. the financier became a licensee solely to make the financial accommodation; and
        3. the accommodated licensee adopts the terms of the license, which terms may be supplemented by the financial accommodation contract, to the extent the terms of the financial accommodation contract are not inconsistent with the license and any rights of the licensor under other law.
    2. A financier that makes a transfer that is effective under paragraph (1) (B) may make only the single transfer or sublicense contemplated by the notice unless the licensor consents to a later transfer.
  2. If a financier makes an effective transfer of its contractual interest in a license, or an effective sublicense of the licensed information or informational rights, to an accommodated licensee, the following rules apply:
    1. The accommodated licensee’s rights and obligations are governed by:
      1. the license;
      2. any rights of the licensor under other law; and
      3. to the extent not inconsistent with subparagraphs (A) and (B), the financial accommodation contract, which may impose additional conditions to the licensee’s right to use the licensed information or informational rights.
    2. The financier does not make warranties to the accommodated licensee other than the warranty under § 59.1-504.1 (b) (1) and any express warranties in the financial accommodation contract.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Financier”;

“Information”;

“Informational rights”;

“Licensee”;

“Licensor”;

“Record.”

  1. Scope of the Section. This section deals with “finance licenses.” A “finance license” is analogous to the finance lease in Article 2A of the Uniform Commercial Code, but involves different subject matter and different practical expectations. The transaction involves a license to the financier and an immediate transfer to the financially accommodated licensee. Subsection (a) describes when the retransfer of the license is effective. Subsection (b) deals with some of the resulting substantive conditions among the parties.
  2. Transfer for Financial Purposes. The basic transaction occurs when a license is made to a financier who then transfers the license to the accommodated licensee. Paragraph (a)(1) sets out two sets of conditions for when this transfer is effective. The first is when a transfer of contractual interests is allowed by Section 503. This occurs when there is no impairment of the licensor’s interests and the license does not preclude transfer. The second, provided for in paragraph (a)(1)(B) creates a new method of transfer limited to this context and providing for enhanced opportunities to engage in license-based financing. This paragraph establishes a notification procedure requiring clear notice to the licensor, but otherwise enabling an efficient system of allowing the financier’s transfer to its client. The notice must be in a record and received by the licensor before the information is delivered or the license granted. It must clearly indicate the intended purpose and name the eventual licensee. Under these conditions, if the accommodated licensee adopts the terms of the license, the transfer or sublicense to it is effective even if there is no formal consent by the licensor.
  3. Licensee’s Rights. Given an effective transfer, paragraph (b)(1) makes clear that the licensee’s position with respect to the licensed information is governed primarily by the terms of the license and is subject to the licensor’s informational rights. The license is the dominant contractual relationship. The financier and the licensee, however, may agree on additional conditions between themselves. These are enforceable against the licensee even though the primary rights and limitations regarding the information will come from the license and will be the licensor’s rights.
  4. Warranties. Under paragraph (b)(2), as in Article 2A of the Uniform Commercial Code, a financier does not make implied warranties to the accommodated licensee, except for the warranty of non-interference. As to substantive performance issues pertaining to the licensed information, the financier is outside the structure pertinent to the polices that support merchantability and other warranties.

Under paragraph (a)(2), the de facto consent created through this notification procedure covers only the single, designated transfer of contractual rights in the license. Of course, if the contract between the financier and its licensee creates a right to payment to the financier under the license, the financial accommodation contract, or otherwise, a transfer of that payment right is not affected by this rule. In many cases, the transfer of the payment right will be governed by Article 9 of the Uniform Commercial Code. The focus is on transfers by the financier of other rights under the license, such as the right to use or disclose the licensed information.

§ 59.1-505.9. Financing arrangements; obligations irrevocable.

Unless the accommodated licensee is a consumer, a term in a financial accommodation contract providing that the accommodated licensee’s obligations to the financier are irrevocable and independent is enforceable. The obligations become irrevocable and independent upon the licensee’s acceptance of the license or the financier’s giving of value, whichever occurs first.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Consumer”;

“Financier”;

“Financial accommodation contract”;

“License”;

“Licensee”;

“Term.”

  1. Scope of the Section. This section applies irrespective of whether the financier becomes a licensee. It adopts a principle recognized in common law and in Article 2A of the Uniform Commercial Code that allows the creation by contract of irrevocable rights that are independent of otherwise available defenses. As in Article 2A, this principle does not extend to consumer contracts, leaving the issue in such cases to other law.
  2. Hell or High Water. This section extends the benefits of the classic “hell or high water” clause to a finance license that is not a consumer license. However, the “hell or high water right” must be a term of the contract. This section makes promises in a financial accommodation contract irrevocable and independent due to the function of the financier in a three party relationship: the licensee is looking to the licensor to perform essential covenants and warranties. On the licensee’s acceptance of the license, the licensee’s promises to the financier under the financial accommodation contract become irrevocable and independent. While the accommodated licensee must perform with respect to the financier even if the licensor’s performance is not in accordance with the license. The licensee may have and pursue a cause of action against the licensor.

§ 59.1-505.10. Financing arrangements; remedies or enforcement.

  1. Except as otherwise provided in subsection (b), on material breach of a financial accommodation contract by the accommodated licensee, the following rules apply:
    1. The financier may cancel the financial accommodation contract.
    2. Subject to paragraphs (3) and (4), the financier may pursue its remedies against the accommodated licensee under the financial accommodation contract.
    3. If the financier became a licensee and made a transfer or sublicense that was effective under § 59.1-505.8, it may exercise the remedies of a licensor for breach, including the rights of an aggrieved party under § 59.1-508.15, subject to the limitations of § 59.1-508.16.
    4. If the financier did not become a licensee or did not make a transfer that was effective under § 59.1-505.8, it may enforce a contractual right contained in the financial accommodation contract to preclude the licensee’s further use of the information. However, the following rules apply:
      1. The financier has no right to take possession of copies, use the information or informational rights, or transfer any contractual interest in the license.
      2. If the accommodated licensee agreed to transfer possession of copies to the financier in the event of material breach of the financial accommodation contract, the financier may enforce that contractual right only if permitted to do so under subsection (b) (1) and § 59.1-505.3.
  2. The following additional limitations apply to a financier’s remedies under subsection (a):
    1. A financier described in subsection (a) (3) which is entitled under the financial accommodation contract to take possession or prevent use of information, copies, or related materials may do so only if the licensor consents or if doing so would not result in a material adverse change of the duty of the licensor, materially increase the burden or risk imposed on the licensor, disclose or threaten to disclose trade secrets or confidential material of the licensor, or materially impair the licensor’s likelihood or expectation of obtaining return performance.
    2. The financier may not otherwise exercise control over, have access to, or sell, transfer, or otherwise use the information or copies without the consent of the licensor unless the financier or transferee is subject to the terms of the license and:
      1. the licensee owns the licensed copy, the license does not preclude transfer of the licensee’s contractual rights, and the transfer complies with federal copyright law for the owner of a copy to make the transfer; or
      2. the license is transferable by its express terms and the financier fulfills any conditions to, or complies with any restrictions on, transfer.
    3. The financier’s remedies under the financial accommodation contract are subject to the licensor’s rights and the terms of the license.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agrieved party”;

“Cancel”;

“Copy”;

“Financial accommodation contract”;

“Financier”;

Information”;

“Informational rights”;

“License”;

“Licensee”;

“Licensor”.

“Term”;

“Transfer.”

Section 701 [§ 59.1-507.1]: “Material Breach.”

  1. Scope of the Section. The primary relationship between the financier and the licensee is based on their financial accommodation contract. This contact may grant enforcement rights to the financier on breach of that contract. Subsection (a) sets out aspects of the financier’s rights on breach. A premise of this section is that, notwithstanding the rights created under the financial accommodation contract, exercise of those rights is subject to the predominant rights of the licensor under the license.
  2. Rights in the Event of Breach. Subsection (a)(1) and (a)(2) recognize the enforceability of the financial accommodation contract. Those rights may be subject to the overriding rights of the original licensor, however, as indicated in paragraphs (a)(3) and (a)(4). Under subsection (a)(4), the remedies in the financial accommodation contract are the only remedies that a financier may exercise if the financier did not become a licensee. This includes the right to enforce contractual rights preventing further use of the information. However, such a right does not give this type of financier a right to possession, control or use of the information itself. That right remains controlled by the license and the licensor.
  3. Finance Licenses (subsection (a)(3)). Where the transaction involves a finance license in which the financier acquires a license for purposes of transferring it to the licensee, on breach of the financial accommodation contract the financier has the remedies under this Act, subject to restrictions of this Act. These remedies are the remedies provided by this Act for breach, not remedies that may be in the license. The financier may also exercise remedies in the financial accommodation contract or allowed by other law as applicable.
  4. Other Financiers (subsection (a)(4)). Subsection (a)(4) deals with cases where the financier did not become a licensee. It recognizes that, as between the financier and licensee, on breach of the financial accommodation contract the financier has a right to enforce a term in that contract preventing further use of the information. However, that does not give this type of financier a right to possess, control, or use the information, or to transfer the license. Transfer is not appropriate because the financier did not become a licensee and thus has nothing to transfer. However, a provision of the financial accommodation contract allowing the financier to take possession of or to use information may or may not be a transfer of a contractual right that would invoke Section 503 [§ 59.1-505.3]. Subsection (a)(4) requires compliance with both Section 503 [§ 59.1-505.3] and subsection (b).
  5. Relationship of License and Accommodation Contract. Subsection (b) sets out additional restrictions on the subsection (a) remedies. The protections are like those in Section 503 but do not necessarily involve, as does Section 503, a transfer of contractual rights. The basic premise is that actions of the financier and the licensee should not impair the rights of the licensor without appropriate consent. Thus, notwithstanding any contrary rights under the financial accommodation contract, the financier cannot take possession of or use the information if doing so would adversely affect the licensor. Similarly, except as expressed in paragraph (b)(2), the financier cannot transfer the license or the information. In cases where the license is royalty-bearing, the principle that the licensor’s expectation and return performance cannot be seriously impaired by exercise of remedies under the financial contract may preclude any remedy by the financier preventing use by the licensee without the licensor’s consent to that step.

§ 59.1-505.11. Financing arrangements; effect on licensor’s rights.

  1. The creation of a financier’s interest does not place any obligations on or alter the rights of a licensor.
  2. A financier’s interest does not attach to any intellectual property rights of the licensor unless the licensor expressly consents to such attachment in a license or another record.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Financier”;

“License”;

“Licensor”;

“Record.”

  1. Effect on Licensor. While this Act expands the ability of parties to establish financier interests related to a license, subsection (a) makes clear that creating a financier’s interest places no obligations on the licensor, nor does it alter the licensor’s rights. For example, the licensor can, despite the existence of the financier’s relationship with the licensee, exercise rights to cancel or otherwise enforce the license. The licensor’s position is not affected by the financier’s involvement unless the licensor has otherwise expressly agreed to alter it. A financier’s relationship to a licensee, as is true with a secured creditor’s relationship, is dependent and conditional on the terms of the license. A decision by a licensor to cancel the license can be exercised entirely with reference to the financier’s contractual position. Once the license is canceled, of course, it no longer provides a basis for the financier’s recovery of its loans, but that is inherent in the nature of the relationship itself.
  2. Intellectual Property Rights. Subsection (b) makes clear that any relationship established between the licensee and a financier does not affect the intellectual property rights of the licensor unless there is an express consent by the licensor to that effect in a record. Such consent may be in a license or in another record.

§§ 59.1-505.12 through 59.1-506. Reserved.

Article 6. Performance.

§ 59.1-506.1. Performance of contract in general.

  1. A party shall perform in a manner that conforms to the contract.
  2. If an uncured material breach of contract by one party precedes the aggrieved party’s performance, the aggrieved party need not perform except with respect to contractual use terms, but the contractual use terms do not apply to information or copies properly received or obtained from another source. In addition, the following rules apply:
    1. The aggrieved party may refuse a performance that is a material breach as to that performance or a performance that may be refused under § 59.1-507.4 (b).
    2. The aggrieved party may cancel the contract only if the breach is a material breach of the whole contract or the agreement so provides.
  3. Except as otherwise provided in subsection (b), tender of performance by a party entitles the party to acceptance of that performance. In addition, the following rules apply:
    1. A tender of performance occurs when the party, with manifest present ability and willingness to perform, offers to complete the performance.
    2. If a performance by the other party is due at the time of the tendered performance, tender of the other party’s performance is a condition to the tendering party’s obligation to complete the tendered performance.
    3. A party shall pay or render the consideration required by the agreement for a performance it accepts. A party that accepts a performance has the burden of establishing a breach of contract with respect to the accepted performance.
  4. Except as otherwise provided in §§ 59.1-506.3 and 59.1-506.4, in the case of a performance with respect to a copy, this section is subject to §§ 59.1-506.6 through 59.1-506.10 and 59.1-507.4 through 59.1-507.7.

History. 2000, cc. 101, 996.

Editor’s note.

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Restatement (Second) of Contracts § 237. Revised. Uniform Commercial Code: Section 2-507 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Cancel”;

“Contract”;

“Contractual use term”;

“Copy”;

“Party.”

  1. Scope of the Section. This section brings together general principles of contract performance. Where performance involves a tender of a copy, under subsection (d), this section is supplanted by specific sections on tender, acceptance, and refusal of copies. This section and Parts 6 and 7 generally, use the term “refusal” in circumstances where Article 2 of the Uniform Commercial Code would use the term “rejection.” The concepts are similar, although the differences between information and goods precludes rote application of Article 2 rules.
  2. Duty to Conform. A party must conform to its contract. A failure to conform gives the aggrieved party a right to a remedy, subject to concepts of waiver. Under this Act, what remedies are available depends on the agreement and, in absence of agreement, on whether the breach was material. Under the Restatement view, and as adopted here, a party’s duty to perform is contingent on the absence of an uncured prior material breach by the other party. Restatement (Second) of Contracts § 237. This contingent relationship described in subsection (b) does not refer to restrictions in contractual use terms. A breach by one party does not allow the other to ignore those restrictions even if the aggrieved party has a duty to mitigate loss. A breach by the licensor, for example, does not give the licensee rights to act in derogation of use restrictions or to ignore the intellectual property rights that may buttress them.
  3. Material Breach. Subsection (b) follows the Restatement (Second) of Contracts and common law. It adopts the standard of material breach for determining the nature of the remedies available for breach by the other party. The concept of material breach is applied throughout contract law and has been relied on by courts for generations. It holds that a minor defect in performance does not warrant rejection or cancellation of a contract: the remedy lies in recovery of damages. The policy is to avoid forfeiture for small errors. Often, truly perfect performance cannot even be expected. If the parties desire to create a more stringent standard, they must do so in their agreement. The material breach standard applies to performances of both the licensor and licensee. A licensor that receives imperfect performance cannot cancel the contract for a minor problem, nor can the licensee.
  4. Conforming Tender: Mass Market. Under subsection (b)(1), the material breach standard does not apply to delivery of a copy in a mass-market transaction. See Section 704(b) [§ 59.1-507.4(b)]. Instead, this Act adopts the rule in Article 2 and Article 2A of the Uniform Commercial Code, which allow rejection of a copy that does not conform to the contract in one situation: a delivery not part of an installment contract. This “conforming tender” rule (sometimes described as the “perfect tender” rule) for cases involving delivery of a copy in mass-market transactions As in Article 2, what is a conforming tender is restricted by considerations regarding merchantability, a right to cure, and usage of trade and course of dealing. It is further limited by principles of waiver. As one leading treatise comments: “[we have found no case that] actually grants rejection on what could fairly be called an insubstantial non-conformity . . . ” White, James and Summers, Robert, Uniform Commercial Code (Fourth Edition) at 440-441 (West Publishing Co., 1995).
  5. Duty to Accept and Tender. Subsection (c) brings together general rules from the Restatement and Uniform Commercial Code Article 2 (1998 Official Text) regarding the sequence of performance where mutual performances are to be exchanged. The primary principle is that tender of performance entitles the tendering party to acceptance of that performance. If the tendered performance is a material breach, the party receiving it is not required to perform. As subsection (d) indicates, where the performance is delivery of a copy, these general rules are subject to the more specific rules on tender and acceptance of copies in sections 606 through 610 [§§ 59.1-506.6 through 59.1-506.10], and 704 through 707 [§§ 59.1-507.4 through 59.1-507.7].
  6. Refusing a Performance and Cancellation. An important distinction exists between the right to refuse a particular performance and the right to cancel the entire contract. A party may refuse a performance if it is a material breach as to that performance. Whether that breach also allows the party to cancel the entire contract depends on whether the breach is material to the entire contractual relationship. In contracts where the entire performance is delivery of a single copy, a right to refuse the copy corresponds to the right to cancel the contract. In more complex situations, a single breach may not be material to the whole agreement.

The reference to contractual use terms is a reference to the restrictions in such terms. If a licensor breaches, the licensee is the aggrieved party and need not perform, e.g., the licensee need not make a payment. However, if the contractual use terms include a restrictions such as “business use only,” that restriction continues to apply because breach does not change the nature of the contract. If a licensee breaches, the licensor is the aggrieved party and need not perform, e.g., the licensor need not provide access to a licensee under an access contract. However, if the access was to data of the licensee that the licensor agreed to hold in confidence, the licensor remains bound by that contractual use term restriction. Again, breach does not change the nature of the contract.

§ 59.1-506.2. Licensor’s obligations to enable use.

  1. In this section, “enable use” means to grant a contractual right or permission with respect to information or informational rights and to complete the acts, if any, required under the agreement to make the information available to the licensee.
  2. A licensor shall enable use by the licensee pursuant to the contract. The following rules apply to enabling use:
    1. If nothing other than the grant of a contractual right or permission is required to enable use, the licensor enables use when the contract becomes enforceable.
    2. If the agreement requires delivery of a copy, enabling use occurs when the copy is tendered to the licensee.
    3. If the agreement requires delivery of a copy and steps authorizing the licensee’s use, enabling use occurs when the last of those acts occurs.
    4. In an access contract, enabling use requires tendering all access material necessary to enable the agreed access.
    5. If the agreement requires a transfer of ownership of informational rights and a filing or recording is allowed by law to establish priority of the transferred ownership, on request by the licensee, the licensor shall execute and tender a record appropriate for that purpose.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Access contract”;

“Access material”;

“Agreement”;

“Contract”;

“Deliver”;

“Information”;

“Informational Rights”;

“Licensee”;

“Licensor”;

“Record”;

“Transfer.”

  1. Scope of the Section. This section states and defines the licensor’s general obligation to enable use of the information or access that it provides to the licensee. The licensor’s obligation in most cases consists of two elements: making the information available (if necessary) and giving authority or permission to use the information. Of course, this is subject to contrary agreement.
  2. No Acts Required. A licensor may or may not be required to deliver anything. In many cases, it suffices to authorize use of information that the licensee obtained from other sources or to authorize access to information. Paragraph (b)(1) recognizes that fact and the role of mere authorization of use or access in such cases (e.g., when a party is already in possession of a photograph that it desires to use in a digital multi-media work, but must obtain permission to do so from the photographer holding the copyright).
  3. Tender of Copy. Paragraph (b)(2) deals with cases where enabling use requires providing a copy of the information. The rule it states parallels existing law concerning goods. The obligation is to tender delivery of the copy to the licensee.
  4. Access Material. Subsection (b)(3) requires the licensor to supply necessary authorization codes or other access materials to obtain the agreed access. It is limited to items unique to that access such as a password; the fact that access may assume use of generic items such as a computer or a particular kind or version of software browser does not make those items “access materials” or require the licensor to supply them in order to enable use.
  5. Recording Information. If the agreement involves a transfer of ownership of informational rights and a filing or other recording is needed to complete that transfer so as to have priority over other transfers, subsection (b)(4) indicates that the licensor must cooperate in completing that recording.

§ 59.1-506.3. Submissions of information to satisfaction of party.

If an agreement requires that submitted information be to the satisfaction of the recipient, the following rules apply:

  1. Sections 59.1-506.6 through 59.1-506.10 and 59.1-507.4 through 59.1-507.7 do not apply to the submission.
  2. If the information is not satisfactory to the recipient and the parties engage in efforts to correct the deficiencies in a manner and over a time consistent with the ordinary standards of the business, trade, or industry, neither the efforts nor the passage of time required for the efforts is an acceptance or a refusal of the submission.
  3. Except as otherwise provided in paragraph (4), neither refusal nor acceptance occurs unless the recipient expressly refuses or accepts the submitted information, but the recipient may not use the submitted information before acceptance.
  4. Silence and a failure to act in reference to a submission beyond a commercially reasonable time to respond entitle the submitting party to demand, in a record delivered to the recipient, a decision on the submission. If the recipient fails to respond within a reasonable time after receipt of the demand, the submission is deemed to have been refused.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Information”;

“Party”;

“Record.”

Section 117 [§ 59.1-501.17]: “Reasonable time.”

  1. Scope of the Section. This section deals with situations where rules on the sale of goods, involving tender, acceptance and rejection of the goods, are not appropriate because the agreement calls for submissions of informational content to the satisfaction of the receiving party. The section deals only with contract law and does not address rights under other law or equity principles.
  2. Tender-acceptance Rules Not Applicable. Under paragraph (1), rules regarding tender, acceptance and rejection of copies do not apply if the transaction involves information submitted under terms providing for approval to the satisfaction of the licensee. These rules are modeled on rules for the sale of goods. There, the focus is on making immediate decisions about the particular item. In computer information transactions of the type described here, a submission triggers a process that centers around the commercial expectation that the recipient has the right to reject if the submission does not satisfy its expectations, but that immediate acceptance or rejection will often not occur. A process of revision and tailoring more commonly occurs. The rule here corresponds the law to ordinary commercial expectations.
  3. Express Choices. Acceptance or refusal of the submission is not to be implied from delay and silence alone. Consistent with ordinary practices, paragraph (3) makes clear that only explicit refusal or acceptance suffices since the agreement is conditioned on the satisfaction of the receiving party. However, until acceptance, the recipient cannot “use” the submitted information. This refers to commercial exploitation and does not prevent use for the purpose of reviewing, correcting, or otherwise adjusting the information to meet the recipient’s satisfaction if permitted by the agreement.
  4. Demand for Decision. Paragraph (4) recognizes that in some cases an extraordinary delay in responding creates rights in the submitting party to obtain a firm answer. What constitutes sufficient delay for this purpose must be judged in reference to ordinary commercial standards associated with the applicable context.

§ 59.1-506.4. Immediately completed performance.

If a performance involves delivery of information or services which, because of their nature, may provide a licensee, immediately on performance or delivery, with substantially all the benefit of the performance or with other significant benefit that cannot be returned, the following rules apply:

  1. Sections 59.1-506.7 through 59.1-506.10 and 59.1-507.4 through 59.1-507.7 do not apply.
  2. The rights of the parties are determined under § 59.1-506.1 and the ordinary standards of the business, trade, or industry.
  3. Before tender of the performance, a party entitled to receive the tender may inspect the media, labels, or packaging but may not view the information or otherwise receive the performance before completing any performance of its own that is then due.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Delivery”;

“Information”;

“Licensee”;

“Party.”

  1. Scope of the Section. This section deals with subject matter that is, in effect, fully received when made available to, or viewed or read by the transferee. For this subject matter, concepts of inspection, rejection and return from the sales of goods law cannot apply.
  2. General Rules Govern. For transactions involving informational content that, once seen or experienced, have communicated a significant value of the agreed performance, this section leaves the parties to the general rules of Section 601 [§ 59.1-506.1] which incorporate common law, along with ordinary standards of the relevant business, trade or industry. Sections of this Act dealing with tender and handling of copies is excluded because those rules are modeled after rules relating to transfer of goods and do not accommodate the commercial expectations found in these transactions.
  3. Inspection. In transactions governed by this section, merely viewing or receiving the information transfers significant value to the licensee which cannot be returned. Given that fact, subsection (3) clarifies that inspection rights are limited to media and packaging. A person that joins a fee-based celebrity chat room cannot participate (e.g., receive the performance) before deciding whether to accept or not accept it. The participation itself transfers the value and that value cannot be returned. A person licensing the formula for Coca Cola cannot view the information and potentially memorize the formula before being bound to the contract and its performance under the contract. Of course, in these and all other cases, if the performance when received does not conform to the contract, the aggrieved party is entitled to remedies for breach.

§ 59.1-506.5. Electronic regulation of performance.

  1. In this section, “automatic restraint” means a program, code, device, or similar electronic or physical limitation the intended purpose of which is to prevent use of information contrary to the contract or applicable law.
  2. A party entitled to enforce a limitation on use of information may include an automatic restraint in the information or a copy of it and use that restraint if:
    1. a term of the agreement authorizes use of the restraint;
    2. the restraint prevents a use that is inconsistent with the agreement;
    3. the restraint prevents use after expiration of the stated duration of the contract or a stated number of uses; or
    4. the restraint prevents use after the contract terminates, other than on expiration of a stated duration or number of uses, and the licensor gives reasonable notice to the licensee before further use is prevented.
  3. This section does not authorize an automatic restraint that affirmatively prevents or makes impracticable a licensee’s access to its own information or information of a third party, other than the licensor, if that information is in the possession of the licensee or a third party.
  4. A party that includes or uses an automatic restraint consistent with subsection (b) or (c) is not liable for any loss caused by the use of the restraint.
  5. This section does not preclude electronic replacement or disabling of an earlier copy of information by the licensor in connection with delivery of a new copy or version under an agreement to replace or disable the earlier copy by electronic means with an upgrade or other new information.
  6. This section does not authorize use of an automatic restraint to enforce remedies because of breach of contract or for cancellation for breach. If a right to cancel for breach of contract and a right to exercise restraint under subdivision (b) (4) exist simultaneously, affirmative acts constituting electronic self-help must be taken pursuant to § 59.1-508.16, including its prohibition on mass-market transactions, instead of this section. Affirmative acts under this subsection do not include (i) use of a program, code, device, or similar electronic or physical limitation that operates automatically without regard to breach or (ii) a refusal to prevent the operation of a restraint authorized by this section or to reverse its effect.

History. 2000, cc. 101, 996; 2001, c. 763.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 763 substituted “prevent use of information contrary to the contract or applicable law” for “restrict use of information” in subsection (a); deleted “and accessed without use of the licensor’s information or informational rights” at the end of subsection (c); and in subsection (f), substituted “because of breach of contract or for” for “in the event of breach of contract or of” in the first sentence, and added the last two sentences.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Copy”;

“Delivery”;

“Electronic”;

“Information”;

“Informational rights”;

“License”;

“Licensee”;

“Licensor”;

“Notice”;

“Party”;

“Term”;

“Termination”.

  1. Scope of the Section. This section deals with electronic or physical limitations on use of information that enforce contract terms by preventing breach, by preventing uses that are inconsistent with the contract, or by implementing a contracted-for termination of rights to use the information. The section does not deal with devices used to enforce rights in the event of cancellation for breach or with enforcement concerning information outside the subject matter of this Act. The restraints here derive from contract terms and limit use consistent with the contract.
  2. Nature of a Restraint. The idea of a “restraint” is analogous to the concept in the Copyright Act of a technological measure restricting access to a copyrighted work, but is related to contract terms, rather than copyright protection. 17 U.S.C. § 1201 (1999). It does not refer to situations in which the formatting, language or other characteristics of the computer information itself by their nature limit how access to or use of information can occur, nor does it create an affirmative obligation to prepare or transform information in a manner so that it will be accessible by other systems — incompatibilities are not a restraint as used in this section. Rather, “restraint” refers to a technological or physical measure whose intended purpose is to create a limitation to conform use of the information to the contract, such as a device that restricts access at the end of the duration of a license. An analog in a physical world would be the timing device that limits a laundromat dryer to 30 minutes use if only a 30 minute duration was purchased.
  3. Bases for Use. The basic principle is that a contract can be enforced and that it may be appropriate to do so through automated means. Subsection (b) states alternative bases that permit use of automated restraints. The alternatives are coequal; satisfying any one supports use of the restraint under this section. The list is not exclusive and does not limit federal or other law (including other contract law) allowing use of limiting devices (restraints). The enforceable terms of the agreement must support the restraint. A restraint inconsistent with the contract is a breach of contract.
    1. Contract Authorization. Subsection (b)(1) applies if the agreement authorizes the party to use the restraint. The authorization must be in addition to the contract term that the restraint enforces. Thus to be within subsection (b)(1) in a contract for 30 minutes of use, an agreement must also contain a term authorizing use of a restraint to enforce that limitation of duration of use.
    2. Passive Restraints That Prevent Breach. Subsection (b)(2) provides that a restraint can be used without notice or specific contract authorization if it merely prevents use inconsistent with contract terms or the intellectual property rights of the party using the restraint. All the restraint may do is prevent use; if it does more than that, it is not authorized by this subsection, but must find support in other law. For example, if a license restricts the licensee to only one back-up copy, this subsection authorizes a restraint to enforce that limitation so long as the restraint does not destroy the licensed information. However, an agreement that limits use to a particular location may allow destruction of the copy set up at an unauthorized location if the licensee still retains the copy at the appropriate location. Of course, this presumes that the agreement limits the location at which the information could be used. Determining what is the agreement depends on the relevant considerations applicable under this Act. Restraints enforce contracts, but do not impose a penalty for attempted breach. Thus, if an enforceable contract term limits use of a copy of digital information to a single concurrent user, a restraint precluding multiple concurrent users is authorized. A restraint that deletes the authorized digital copy if the licensee attempts to allow multiple concurrent users is not authorized by this subsection.
    3. Enforcing Informational Rights. Subsection (b)(2) also allows use of passive devices that preclude infringing informational rights. Merely preventing the infringing act does not require a contract term or notice. Thus, a contract that grants a right to make a back-up copy and to use a digital image, is silent on the right of the licensee to transmit additional copies electronically, although such may be precluded by intellectual property law absent fair use. A device that precludes communication of the file electronically, but does not alter or erase the image in the event of an attempt to do so, is authorized under (b)(2).
    4. Enforcing Termination. The restraints authorized in subsections (b)(3) and (b)(4) enforce termination, which ends the contract for reasons other than breach. Subsection (b)(3) allows restraints that end use upon expiration of a stated term or number of uses. At termination, the restraint may do more than merely prevent use because, at the end of the contract period, the party no longer has any rights in the information under the license. Thus, a machine allowing a single video game play can automatically discontinue use or delete the game when that game is completed. A license for a time-limited use of downloaded software fragments allows erasure of those elements when the limited time for use expires. Consistent with general contract law rules on termination, no prior notice is required for such termination. In contrast, subsection (b)(4) requires prior notice if the restraint implements termination other than on the happening of an agreed event.
  4. Licensee’s Information. Under subsection (c), nothing in this section authorizes active devices that affirmatively limit the licensee’s ability to access or use its own information through its own means (means other than by continued use of the licensed subject matter itself). Thus if a licensee storing data on its own Internet server contracted to use spreadsheet application X for 30 minutes with that data, a restraint in the spreadsheet may terminate its use after 30 minutes but may not block access to the data. If the licensee obtains a license to use spreadsheet application Y, it may access its data with the new spreadsheet but may not continue to use spreadsheet X to do so (absent a license for additional use). Use of a restraint that prevents the licensee from accessing its information through means other than the licensed subject matter is a breach of contract and may be a basis for liability under other law if applicable.
  5. Proper Use. Subsection (d) confirms that if use of a restraint is consistent with enforceable terms of the license and permitted under this section, there is no liability in contract from its use. If the restraint misfunctions and causes damage to, or deletion of, property of the licensee that is outside this section, there may be liability for such loss in contract or under other law. This section does not alter law in such cases. Similarly, if use of the restraint violates another promise, such as a warranty that no restraints were in the software, that breach of contract and any resulting damages are not affected by this subsection.
  6. Cancellation. Subsection (f) makes it clear that nothing in this section authorizes or otherwise deals with devices used to enforce rights or remedies in the event of any breach or in the event of cancellation. Cancellation means ending a contract because of breach. Section 102(a) [§ 59.1-501.2(a)]. Electronic remedies for breach are prohibited under this Act by Section 816 [§ 59.1-508.16].

Illustration. A one-year license requires payments on the first of each month. Licensee makes one payment five days late. Licensor electronically turns off the software since late payment was a breach. That act is not authorized under this section since it depends on breach of contract. If, however, after the license reaches the end of the contracted year a restraint turns off and deletes the software, such does not depend upon breach and is valid under this section.

§ 59.1-506.6. Copy; delivery; tender of delivery.

  1. Delivery of a copy must be at the location designated by agreement. In the absence of a designation, the following rules apply:
    1. The place for delivery of a copy on a tangible medium is the tendering party’s place of business or, if it has none, its residence. However, if the parties know at the time of contracting that the copy is located in some other place, that place is the place for delivery.
    2. The place for electronic delivery of a copy is an information processing system designated or used by the licensor.
    3. Documents of title may be delivered through customary banking channels.
  2. Tender of delivery of a copy requires the tendering party to put and hold a conforming copy at the other party’s disposition and give the other party any notice reasonably necessary to enable it to obtain access to, control, or possession of the copy. Tender must be at a reasonable hour and, if applicable, requires tender of access material and other documents required by the agreement. The party receiving tender shall furnish facilities reasonably suited to receive tender. In addition, the following rules apply:
    1. If the contract requires delivery of a copy held by a third person without being moved, the tendering party shall tender access material or documents required by the agreement.
    2. If the tendering party is required or authorized to send a copy to the other party and the contract does not require the tendering party to deliver the copy at a particular destination, the following rules apply:
      1. In tendering delivery of a copy on a tangible medium, the tendering party shall put the copy in the possession of a carrier and make a contract for its transportation that is reasonable in light of the nature of the information and other circumstances, with expenses of transportation to be borne by the receiving party.
      2. In tendering electronic delivery of a copy, the tendering party shall initiate or cause to have initiated a transmission that is reasonable in light of the nature of the information and other circumstances, with expenses of transmission to be borne by the receiving party.
    3. If the tendering party is required to deliver a copy at a particular destination, the tendering party shall make a copy available at that destination and bear the expenses of transportation or transmission.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Uniform Commercial Code: Sections 2-503; 504 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Access Materials”;

“Copy”;

“Delivery”;

“Document of title”;

“Electronic”;

“Information”;

“Licensor”;

“Notice”;

”Party”;

“Person”;

“Receive”;

“Send”.

  1. Scope of the Section. This section deals with how tender of delivery of a copy is made. It corresponds to Article 2 of the Uniform Commercial Code (1998 Official Text) with changes that reflect information as the subject matter. As with the other section in Part 6, [§ 59.1-506.1 et seq.], Subpart B of this Act, this section deals only with delivery of a copy, not with the license to use the information. The effect of a defective tender is discussed in Part 7 [§ 59.1-507.1 et seq.], Subpart B of this Act.
  2. Shipment vs. Destination Contracts. Subsection (a) maintains the distinction between shipment and destination contracts as that rule exists under Article 2 of the Uniform Commercial Code (1998 Official Text) and also the underlying doctrine about when a contract is a shipment or a destination contract. The norm is a shipment contract; destination contracts are the exception which require an explicit agreement, such as by use of destination contract terms. For illustrative cases, see California State Electronics Assoc. v. Zeos International Ltd., 49 Cal. Rptr. 2d 127 (Cal. App. 2 Dist. 1996) and Windows, Inc. v. Jordan Panel Systems Corp., 38 UCC Rep. Serv. 2d 267 (2d Cir. 1999).
  3. Tender of a Copy. Subsection (b) provides default rules regarding what constitutes tender of delivery of a copy. These rules generally correspond to Uniform Commercial Code Article 2 (1998 Official Text) and to the Restatement (Second) of Contracts. A tender requires that the copy be put and held available at the appropriate place and that the other party be notified of the tender. A physical or electronic tender not made through a carrier must be at a place to which the party receiving tender has access for purposes of obtaining the copy.
  4. Electronic Tender. Subsection (b)(2)(B) recognizes that electronic tenders of a copy may or may not involve transmission by the tendering party itself. That party may instead contract with the equivalent of an electronic carrier who is better suited to make transmissions, such as secure transmissions. In that event, putting the copy into the hands of, or otherwise making it available to, the electronic transmitter has the same effect as putting a physical copy into the hands of a traditional carrier or the like.

The strong presumption is that the licensor is not required to deliver to a particular destination unless the agreement explicitly so provides. Thus, the obligation in the absence of a contrary agreement, is to make the copies available at the licensor’s site (in Incoterms 2000, the Group “E” terms (EXW-Ex Works)) or, if shipment is agreed, to tender them per the licensee’s instructions for carriage or to a transmission facility making appropriate arrangements for their transport or transmission, with fees payable by the licensee.

Merely designating a place to which shipment will be made does not create a “destination” contract or alter the presumption that a “shipment contract” is intended. U.C.C. examples of shipment contract terms include “F.O.B. point of shipment” (U.C.C. § 2-504), “C.I.F.”, “C.I.F. destination” and “C.&F.” (U.C.C. § 2-320). Under the international Incoterms 2000, shipment (departure) contracts include the Group “F” terms and the Group “C” terms such as “FCA” (Free Carrier), CIF (Cost, Insurance and Freight), but not the Group “D” terms such as “DAF” (Delivered At Frontier). The Group “D” terms are destination contracts, also known as “arrival” contracts. Customs of ports and regions, as well as trade usage, can also influence the meaning of trade terms.

§ 59.1-506.7. Copy; performance related to delivery; payment.

  1. If performance requires delivery of a copy, the following rules apply:
    1. The party required to deliver need not complete a tendered delivery until the receiving party tenders any performance then due.
    2. Tender of delivery is a condition of the other party’s duty to accept the copy and entitles the tendering party to acceptance of the copy.
  2. If payment is due on delivery of a copy, the following rules apply:
    1. Tender of delivery is a condition of the receiving party’s duty to pay and entitles the tendering party to payment according to the contract.
    2. All copies required by the contract must be tendered in a single delivery, and payment is due only on tender.
  3. If the circumstances give either party the right to make or demand delivery in lots, the contract fee, if it can be apportioned, may be demanded for each lot.
  4. If payment is due and demanded on delivery of a copy or on delivery of a document of title, the right of the party receiving tender to retain or dispose of the copy or document, as against the tendering party, is conditioned on making the payment due.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Uniform Commercial Code: Sections 2-307; 2-511 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract fee”;

“Copy”;

“Delivery”;

“Document of title”;

“Party”.

  1. Scope of the Section. This section brings together a variety of rules from Article 2 of the Uniform Commercial Code (1998 Official Text) and from the Restatement (Second) of Contracts as applicable. It deals only with transfers involving delivery of a copy.
  2. Basic Rule. The basic approach follows Article 2. A tender of delivery of a copy is a condition to the duty to accept the copy and to the obligation to pay for that copy. This is subject to contrary agreement, including the effect of applicable usage of trade. In many transactions, the commercial context and the agreement alters this expectation. For example, an agreement that involves payment of royalties alters the rule — royalties cannot accrue until use of the licensed information. In such contracts, payment is due as agreed.

§ 59.1-506.8. Copy; right to inspect; payment before inspection.

  1. Except as otherwise provided in §§ 59.1-506.3 and 59.1-506.4, if performance requires delivery of a copy, the following rules apply:
    1. Except as otherwise provided in this section, the party receiving the copy has a right before payment or acceptance to inspect the copy at a reasonable place and time and in a reasonable manner to determine conformance to the contract.
    2. The party making the inspection shall bear the expenses of inspection.
    3. A place or method of inspection or an acceptance standard fixed by the parties is presumed to be exclusive. However, the fixing of a place, method, or standard does not postpone identification to the contract or shift the place for delivery, passage of title, or risk of loss. If compliance with the place or method becomes impossible, inspection must be made as provided in this section unless the place or method fixed by the parties was an indispensable condition the failure of which voids the contract.
    4. A party’s right to inspect is subject to existing obligations of confidentiality.
  2. If a right to inspect exists under subsection (a) but the agreement is inconsistent with an opportunity to inspect before payment, the party does not have a right to inspect before payment.
  3. If a contract requires payment before inspection of a copy, nonconformity in the tender does not excuse the party receiving the tender from making payment unless:
    1. the nonconformity appears without inspection and would justify refusal under § 59.1-507.4; or
    2. despite tender of the required documents, the circumstances would justify an injunction against honor of a letter of credit under Title 8.5A.
  4. Payment made under circumstances described in subsection (b) or (c) is not an acceptance of the copy and does not impair a party’s right to inspect or preclude any of the party’s remedies.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. CISG art. 58(3); Uniform Commercial Code: Sections 2-512; 513 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Copy”;

“Delivery”;

“Letter of credit”;

“Party”.

  1. Scope of the Section. This section deals with the right to inspect a copy and its relationship to acceptance of the copy and the duty to pay. It follows Article 2 of the Uniform Commercial Code (1998 Official Text) with changes that reflect computer information as the subject matter.
  2. Relationship to Acceptance. An opportunity to inspect a copy is ordinarily a condition to acceptance of it. Acceptance in this sense refers to acceptance of the copy and not to accepting the terms of an agreement or adopting contract terms. Where payment occurs before an opportunity to inspect the copy, subsection (d) makes clear that payment is not acceptance of the copy. Thus, for example, the licensee may nevertheless refuse the copy because of a defect once an opportunity to inspect is had. This is the same rule as in Article 2.
  3. Type of Inspection. The type of inspection permitted depends on the commercial context, including the agreement of the parties. This follows Article 2 and cases decided under Article 2 are applicable in interpreting this section. If the parties agree to an extended or extensive procedure of pre-acceptance testing, that agreement supplants the general standard of this section. In the absence of agreement, the standard is that inspection must be in a reasonable time and manner.
  4. Confidentiality Obligations. Under subsection (a)(4), if a party is under an obligation of confidentiality, its inspection of a copy is subject to that obligation. The requirement that the obligation be existing requires that it be in the contract giving rise to the inspection or another agreement, including agreements formed by course of dealing, usage of trade and the like. However, the inspecting party is not required to infer or presume an obligation of confidentiality.
  5. Defects Not Discovered. As in Article 2, a failure to inspect or a failure to discover all defects during an inspection does not necessarily alter the party’s remedies for the undiscovered defect. If a latent defect exists which was not known to the accepting party, acceptance of the copy does not alter that party’s right to a remedy for the defect when eventually discovered. Section 610 [§ 59.1-506.10]. The right to inspect should be contrasted to the rule stated in Section 402 which deals with the effect of an examination of the copy on the existence of an express warranty. Both rules conform to Article 2 (1998 Official Text). “Examination” as a means of establishing or precluding contract terms or warranties infers a more extended opportunity to analyze the copy than does the right to inspect before acceptance of a copy under this section.

§ 59.1-506.9. Copy; when acceptance occurs.

  1. Acceptance of a copy occurs when the party to which the copy is tendered:
    1. signifies, or acts with respect to the copy in a manner that signifies, that the tender was conforming or that the party will take or retain the copy despite the nonconformity;
    2. does not make an effective refusal;
    3. commingles the copy or the information in a manner that makes compliance with the party’s duties after refusal impossible;
    4. obtains a substantial benefit from the copy and cannot return that benefit; or
    5. acts in a manner inconsistent with the licensor’s ownership, but the act is an acceptance only if the licensor elects to treat it as an acceptance and ratifies the act to the extent it was within contractual use terms.
  2. Except in cases governed by subsection (a) (3) or (4), if there is a right to inspect under § 59.1-506.8 or the agreement, acceptance of a copy occurs only after the party has had a reasonable opportunity to inspect the copy.
  3. If an agreement requires delivery in stages involving separate portions that taken together comprise the whole of the information, acceptance of any stage is conditional until acceptance of the whole.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Uniform Commercial Code: Sections 2-606; 2A-515 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Contractual use term”;

“Copy”;

“Delivery”;

“Information”;

“Licensor”;

“Party”.

  1. Scope of the Section. This section deals with what constitutes acceptance of a copy. The effect of acceptance of a copy is stated in Section 610 [§ 59.1-506.10]. This section derives from Uniform Commercial Code Article 2 and Article 2A (1998 Official Text). It does not deal with “offer” and “acceptance” as they pertain to formation of a contract or adoption of terms.
  2. Nature of Acceptance. Acceptance of a copy is the opposite of refusal of a copy. Under Section 610(a) [§ 59.1-506.10(a)], acceptance precludes refusal and, if made with knowledge of any nonconformity, may not be revoked because of it unless acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance puts the burden on the party accepting the copy to prove any breach with respect to that copy. See Section 601 [§ 59.1-506.1]. However, while acceptance of a copy precludes refusal of it, acceptance does not in itself impair any other remedy for nonconformity, including revocation of acceptance.
  3. What Constitutes Acceptance. Subsection (a) provides guidance on what constitutes acceptance of a copy. Paragraphs (a)(1) and (a)(2) conform to Uniform Commercial Code Article 2-606 and to Article 2A (1998 Official Text). Acts as well as communications may signify acceptance. Similarly, a failure to reject constitutes acceptance, even if there has been no communication to that effect to the other party. These rules must be read in connection with subsection (b) which indicates that the referenced acts or communications are not acceptance unless they occur after a reasonable opportunity to inspect, if it had a right to inspect the information or copy under the agreement or this Act.
    1. Commingling. Paragraphs (a)(3) and (a)(4) focus on two circumstances significant in computer information that differ from cases involving goods. Paragraph (a)(3), reflects that it is inequitable or impossible to reject data or information after having commingled it. The commingling party retains its remedies for breach, but commingling renders inappropriate the remedy of refusing the copy. To refuse a copy or revoke an acceptance of it, the refusing party must return or keep it available for return to the other party: commingling precludes this. Commingling includes blending the information into a common mass in which it is indistinguishable. It also refers to software integrated into a complex system in a way that renders removal and return impossible and to information integrated into a database from which it cannot be separated.
    2. Non-returnable Benefits. Subsection (a)(4) treats as acceptance the receipt, use or exploitation of a value of the information provided by the licensor. In many instances merely being exposed to data or other material transfers significant value. See Comments to Section 604 [§ 59.1-506.4]. Often, use of the information does the same. Refusal is not a useful paradigm as a remedy. The recipient can sue for damages for breach and, depending on the nature and extent of breach, either obtain reimbursement of the price or avoid paying a price that would otherwise be due.
    3. Ownership. Paragraph (a)(5) follows the rule in Uniform Commercial Code Article 2 (1998 Official Text). In Article 2, the rule is that, even if the buyer did not explicitly accept the goods, acts inconsistent with the seller’s ownership constitute acceptance if ratified by the seller. This gives the seller an option to either treat the acts as acceptance, or as a rejection followed by acts of conversion or the like.
  4. Delivery in Stages. Subsection (c) deals with an agreement in which the intended final product is delivered and accepted in segments or modules. This is not an installment contract where the modules are and will remain separate, but a delivery in stages of a single information product. In such cases, acceptance of each module is a separate event, but this subsection provides that each acceptance is implicitly conditional on eventual acceptance of the whole. While this rule can be varied by agreement, it represents the most likely expectation of the parties in such ongoing development contexts.

In information transactions, the options are less clear, since a licensee can avoid express acceptance of the information, but act in a manner that would be outside the contract terms, even had it accepted the tender. Paragraph (a)(5) gives the licensor a right to elect where the inconsistent acts are within contractual use terms. It recognizes that, if the licensor decides to treat the acts as acceptance, it need not also ratify acts of a licensee that would, in any event, be outside the contract terms and constitute infringement. For example, if a licensor provides a conforming copy of educational software for use in a single school district and the district, while not signifying acceptance of the copy, distributes the software throughout the country, the licensor can either: 1) treat the silence as refusal of the tender and sue for breach of contract and infringement, or 2) treat the actions as acceptance and sue for the price, ratifying uses within the contractual authority, but also sue for infringement as to uses or distribution outside the contract terms.

§ 59.1-506.10. Copy; effect of acceptance; burden of establishing; notice of claims.

  1. A party accepting a copy shall pay or render the consideration required by the agreement for the copy it accepts. Acceptance of a copy precludes refusal and, if made with knowledge of a nonconformity in a tender, may not be revoked because of the nonconformity unless acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance by itself does not impair any other remedy for nonconformity.
  2. A party accepting a copy has the burden of establishing a breach of contract with respect to the copy.
  3. If a copy has been accepted, the accepting party shall:
    1. except with respect to claims of a type described in § 59.1-508.5 (d) (1), within a reasonable time after it discovers or should have discovered a breach of contract, notify the other party of the breach or be barred from any remedy for the breach; and
    2. if the claim is for breach of a warranty regarding noninfringement and the accepting party is sued by a third party because of the breach, notify the warrantor within a reasonable time after receiving notice of the litigation or be precluded from any remedy for the liability established by the litigation.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Uniform Commercial Code: Sections 2-606; 2-607(2); 2A-515 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Cancel”;

“Contract”;

“Copy”;

“Deliver”;

“Knowledge”;

“Notice”;

“Notify”;

“Party”;

“Seasonably”;

“Receive”.

Section 117 [§ 59.1-501.17]: “Reasonable time”.

Section 701 [§ 59.1-507.1]: “Breach”.

  1. Scope of the Section. This section deals only with treatment of copies and focuses on the effect of acceptance of a copy. It derives from Article 2 and Article 2A of the Uniform Commercial Code (1998 Official Text) with changes reflecting the nature of computer information.
  2. General Effect of Acceptance. Acceptance of a copy is the reverse of refusing the copy. Acceptance obligates the accepting party to pay and render any other agreed performance with respect to that copy. Generally, however, as indicated in subsection (a), unless acceptance occurs with knowledge of a defect under circumstances causing a waiver, acceptance of a copy does not waive the accepting party’s remedies. If there is a material, undiscovered defect in the copy or the information, the licensee may have a right to revoke acceptance. Whether or not that is true, the licensee retains the right to sue for damages. The rule conforms to Article 2.
  3. Burden of establishing. A party that has accepted a copy has the burden of establishing the breach. “Burden of establishing” has the meaning set forth in Uniform Commercial Code Article 1 (1998 Official Text), which is that the party must persuade the trier of fact that the existence of the fact (e.g., breach) is more probable than its non-existence.
  4. Notice of Breach. Subsection (c)(1) follows U.C.C. Article 2 (1998 Official Text) and provides that the party accepting the copy must notify the other party of the defect within a reasonable time or be barred from any remedy. This is a rule of fairness, reflecting that the accepting party is in control of the copy and controls any issues with respect to it. It is also a rule of closure. At some point, the other party is entitled to conclude that the transaction has reached a successful end. In the case of latent defects, the notice must be given within a reasonable time after the defect was or should have been discovered. What is a reasonable time is discussed in Section 117 [§ 59.1-501.17].

§ 59.1-506.11. Access contracts.

  1. If an access contract provides for access over a period of time, the following rules apply:
    1. The licensee’s rights of access are to the information as modified and made commercially available by the licensor from time to time during that period.
    2. A change in the content of the information is a breach of contract only if the change conflicts with an express term of the agreement.
    3. Unless it is subject to a contractual use term, information obtained by the licensee is free of any use restriction other than a restriction resulting from the informational rights of another person or other law.
    4. Access must be available:
      1. at times and in a manner conforming to the express terms of the agreement; and
      2. to the extent not expressly stated in the agreement, at times and in a manner reasonable for the particular type of contract in light of the ordinary standards of the business, trade, or industry.
  2. In an access contract that gives the licensee a right of access at times substantially of its own choosing during agreed periods, an occasional failure to have access available during those times is not a breach of contract if it is:
    1. consistent with ordinary standards of the business, trade, or industry for the particular type of contract; or
    2. caused by:
      1. scheduled downtime;
      2. reasonable needs for maintenance;
      3. reasonable periods of failure of equipment, computer programs, or communications; or
      4. events reasonably beyond the licensor’s control, and the licensor exercises such commercially reasonable efforts as the circumstances require.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Access contract”;

“Agreement”;

“Contract”;

“Contractual use term”;

“Information”;

“Informational Rights”;

“License”;

“Licensee”;

“Licensor”;

“Person”;

“Software”;

“Term”.

  1. Scope of the Section. This section establishes default rules for access contracts.
  2. Nature of an Access Contract. There are many types of access contracts. In one there is no on-going relationship. This kind of access contract is like visiting a store: the customer is bound by the contractual rules in effect on the date of the visit. There is no continuing relationship — if the customer visits the store again or obtains access again, the new visit is not part of the prior contract.
  3. Basic Obligations. The basic obligation in a continuous access contract is to keep the system available in a manner consistent with contract terms and industry practices.
    1. Content Changes. Absent agreement to the contrary, an access contract does not bind the licensor to holding available particular computer information. Access is granted to the information or other resources provided as they exist at the time of the particular access. Databases may be added, modified or deleted consistent with this core obligation. Paragraph (a)(1) recognizes that. However, if the agreement was to make available specific information as indicated in an express term of the agreement, removing that information may breach the contract under paragraph (a)(2). A change that so totally alters the content of the access information that the licensee receives something entirely different from what the parties bargained for may be a breach if is not done in good faith. On the other hand, subsection (a)(2) confirms that good faith changes of content are a breach only if they conflict with an express term of the agreement giving assurance that no such changes would occur.
    2. General Standards of Availability. As indicated in subsection (a)(4), availability is subject to contract terms, but in the absence of such, the appropriate reference is to general standards of the industry involving the particular type of transaction. A contract involving access to an information service would have different accessibility expectations than would a contract to provide remote access to systems for processing air traffic control data. See Reuters Ltd. v. UPI, Inc., 903 F.2d 904 (2d Cir. 1990); Kaplan v. Cablevision of Pa., Inc., 448 Pa. Super. 306, 671 A.2d 716 (Pa. Super. 1996).
    3. Use of Received Information. The access contract may or may not restrict use of the information obtained. If there are no restrictions in the agreement, subsection (a)(3) indicates that the information is received on an unrestricted basis, subject to intellectual property rights and any separate agreement concerning that information. For example, if an access contract enables access to news articles, but does not limit their use by the licensee, no limit exists other than under copyright or other applicable law (e.g., publicity rights).
  4. Downtime. Subsection (b) indicates that, unless the agreement provides otherwise, occasional unavailability is expected as part of contracts of this type. Of course, this can be altered by agreement. Subsection (b) provides several common situations in which unavailability can be expected; subsection (b)(2)(A) focuses on scheduled unavailability such as a period during which online activity may be suspended during a scheduled reconciliation of online account activity.

In a second, a continuous access contract, the licensee has a contractual right to access at times of its own choosing within periods of agreed availability or at times established in the contract. This relationship occurs in on-line services that operate on a subscription or membership basis. The typical agreement is not only that the transferee receives the access or information, but that the resource be accessible on a continuing basis. A continuous access contract is unlike installment contracts under Article 2 of the Uniform Commercial Code, which are segmented into multiple tender-acceptance sequences. In continuing access contracts, a licensor merely keeps the system available for the licensee to access when it chooses within the agreed times for access. This is a modern application of licensed use of resources.

If the access contract or a separate agreement place limitations on use of information obtained, those license terms would be governed under this Act. They are interpreted and enforced pursuant to other provisions of this Act and the terms of the agreement. Once information is received by the licensee, the relationship is simply a license, if any, at that point. For example, if licensee uses the access provided by its access contract with ABC to acquire a copy of a spreadsheet program, when the program is received by the licensee, the rights and remedies of the parties with respect to use of the program are governed by the agreement with respect to that program and, in the absence of agreed terms, by the rules of this Act. As to the software, the relationship ceased to be an access contract when the software was received by the licensee. The terms of the license may be found in the agreement establishing the access contract or in a separate agreement concerning the licensed information.

Restrictions are not necessarily based on a license. In some cases, a copyright notice restricts use of the information obtained through on-line access. Storm Impact, Inc. v. Software of the Month Club, 13 F. Supp.2d 782 (N.D. Ill. 1998).

§ 59.1-506.12. Correction and support contracts.

  1. If a person agrees to provide services regarding the correction of performance problems in computer information, other than an agreement to cure its own existing breach of contract, the following rules apply:
    1. If the services are provided by a licensor of the information as part of a limited remedy, the licensor undertakes that its performance will provide the licensee with information that conforms to the agreement to which the limited remedy applies.
    2. In all other cases, the person:
      1. shall perform at a time and place and in a manner consistent with the express terms of the agreement and, to the extent not stated in the express terms, at a time and place and in a manner that is reasonable in light of ordinary standards of the business, trade, or industry; and
      2. does not undertake that its services will correct performance problems unless the agreement expressly so provides.
  2. Unless required to do so by an express or implied warranty, a licensor is not required to provide instruction or other support for the licensee’s use of information or access. A person that agrees to provide support shall make the support available in a manner and with a quality consistent with express terms of the support agreement and, to the extent not stated in the express terms, at a time and place and in a manner that is reasonable in light of ordinary standards of the business, trade, or industry.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Restatement (Second) of Torts § 299A. Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Information”;

“Licensee”;

“Licensor”;

“Person”;

“Term”.

  1. Scope of the Section. This section concerns agreements to correct performance problems (subsection (a)) or to provide support for the use of computer information (subsection (b)).
  2. Nature of Obligation to Correct Problems. There are three types of agreements that involve correction of performance problems. One arises where, as part of an effort to cure an existing breach, the vendor agrees to make specific corrections. That agreement and the general concept of cure are not covered in this section. The second is where, as part of the original agreement, the licensor provides a limited remedy of replacement or repair of defects. That agreement is covered under subsection (a)(1), which provides that the contractual obligation is to conform the product to the original contract. The third setting is where, as a separate undertaking, the licensor agrees to provide ongoing maintenance services correcting problems which may or may not have been a breach of the original contract. This type of services agreement is covered in subsection (a)(2). These are contracts where a vendor agrees to be available to attempt to correct problems in software for a fee. The contract is analogous to a maintenance or repair contract for goods. An agreement to provide updates or new versions, on the other hand, is like an installment contract to deliver new versions as developed and made available. New versions may cure problems in earlier versions, but an update agreement deals with new products, while a maintenance contract entails correcting problems in an older product. The standards by which the distinction is made focus on the factual context, the terms of the agreement, and general industry standards.
  3. Services Obligation. Subsection (a)(2) deals with agreements for repair and maintenance of computer information. Most such agreements are services contracts. In the absence of contrary agreement, the rule on the contract obligation is stated in subsection (a)(2). It parallels the obligation that any services provider undertakes: a duty to act consistently with the standards of the business to complete the task. A services provider does not guaranty that its services will yield a perfect result, but rather that its performance will be characterized by a particular quality and effort to correct the problems. This section measures that by reference to standards of the relevant trade or industry. Of course, if a particular problem covered by such an agreement is a breach of the original license agreement, this standard does not change that result.
  4. Services in Lieu of Warranty. In some cases, an agreement to correct performance problems is part of a limited remedy or warranty and the promissor agrees to a particular outcome, such as a limited express warranty that includes a duty to repair the defective product. The agreements are under subsection (a)(1). In these cases, the obligation is to repair the product such that it conforms to the contract. What performance conforms to the general contract to which the remedy relates, of course, hinges on the terms of that agreement as interpreted in light of usage of trade, course of performance and the like. If the performance fails to yield a conforming product, the remedy for that failure depends on other terms of the agreement, such as any right to provide a refund as an alternative to repair or replacement options and the rules in this Act.
  5. Support Agreements. A support agreement is an agreement to provides advice or consulting services relating to the information. Subsection (b) provides a default rule regarding support agreements. The first sentence of subsection (b) is subject to the existence of any warranty that might, in a particular transaction, establish an obligation to provide instruction materials or other support as part of the basic agreement. As a services contract, the appropriate standard is an obligation consistent with reasonable standards of the industry.

§ 59.1-506.13. Contracts involving publishers, dealers, and end users.

  1. In this section:
    1. “Dealer” means a merchant licensee that receives information directly or indirectly from a licensor for sale or license to end users.
    2. “End user” means a licensee that acquires a copy of the information from a dealer by delivery on a tangible medium for the licensee’s own use and not for sale, license, transmission to third persons, or public display or performance for a fee.
    3. “Publisher” means a licensor, other than a dealer, that offers a license to an end user with respect to information distributed by a dealer to the end user.
  2. In a contract between a dealer and an end user, if the end user’s right to use the information or informational rights is subject to a license by the publisher and there was no opportunity to review the license before the end user became obligated to pay the dealer, the following rules apply:
    1. The contract between the end user and the dealer is conditioned on the end user’s agreement to the publisher’s license.
    2. If the end user does not agree, such as by manifesting assent, to the terms of the publisher’s license, the end user has a right to a return from the dealer. A right under this paragraph is a return for purposes of §§ 59.1-501.12, 59.1-502.8, and 59.1-502.9.
    3. The dealer is not bound by the terms, and does not receive the benefits, of an agreement between the publisher and the end user unless the dealer and end user adopt those terms as part of the agreement.
  3. If an agreement provides for distribution of copies on a tangible medium or in packaging provided by the publisher or an authorized third party, a dealer may distribute those copies and documentation only:
    1. in the form as received; and
    2. subject to the terms of any license that the publisher provides to the dealer to be furnished to end users.
  4. A dealer that enters into an agreement with an end user is a licensor with respect to the end user under this chapter.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Copy”;

“Delivery”;

“Information”;

“Informational rights”;

“License”;

“Licensee”;

“Licensor”;

“Merchant”;

“Party”;

“Person”;

“Receive”;

“Return”;

“Term”.

  1. Scope of the Section. This section deals with three-party retail relationships involving a publisher, dealer, and end user. It only applies to retail distribution of tangible copies.
  2. Parties. Subsection (a) contains three definitions that apply solely within this section. A “dealer” is a retailer or other distributor that receives information for redistribution, e.g., a retail store that stocks its shelves with copies of computer information products. The term does not include a mere intermediary, such as a service provider, that creates an environment (electronic or otherwise) in which publisher and the end user deal directly to establish a license or other transaction directly. The “end user” is the consumer or other person who acquires for use as opposed to re-distribution. A “publisher” is a licensor other than the dealer, e.g., the copyright owner who licensed the dealer to distribute the information. For example, if a licensor of a word processing program distributes physical copies to Store for license to consumers, the licensor would be the “publisher,” the Store would be the “dealer,” and the consumer would be the “end user.”
  3. Dealer and End User. Subsection (b) addresses the dealer’s relationship with the end user. While the end user acquires the copy from the dealer, whether the dealer has authority to grant a right to use the work under copyright or other law is determined by its contract with the publisher. In many retail distribution systems, that contract allows distribution only under specified conditions, which may include a requirement that the end user’s rights are subject to a publisher’s license with the end user. Unlike in sales of goods law, under copyright law, the end user’s rights do not flow simply from delivery of the copy to it, but depend on the dealer’s compliance with the distribution license and on the end user’s license from the publisher. Microsoft Corp. v. Harmony Computers & Electronics, Inc., 846 F. Supp. 208 (ED NY 1994). The rights to make and distribute copies are exclusive rights of the copyright owner (the publisher), they do not pass to the transferee simply by delivery of a copy. Subsection (b) does not concern a case where the publisher sold or authorized sale of copies not subject to a license.
    1. Contracts Separable. Paragraph (b)(3) makes clear that the dealer is not bound by, nor does it benefit from, a contract between the publisher and end user unless the dealer and end user adopt those terms as part of their agreement. This follows case law on manufacturer warranties in other contexts, although that rule is overridden in some states and this Act does not alter those rules. See Cal. Civ. Code § 1791 (“as is” disclaimer). Warranties or other obligations of a dealer to the end user are not affected if the publisher’s license is accepted by the end user.
    2. Dealer as Licensor. The dealer is a “licensor” with respect to the end user. It has contractual obligations under this Act from its agreement with the end user; this does not mean that the dealer has the rights of the publisher that it can pass on to the end user. That the dealer has the obligations of a licensor as to the end user corresponds to ordinary retail expectations. As a result, the end user licensee may have recourse against two different parties, the dealer and, if the end user agrees to the license, the publisher.
    3. Conditional Rights. Under subsection (b)(1) and (b)(2), the dealer’s agreement with the end user hinges on the end user’s ultimate rights to use the information supplied. This depends on the license between the publisher and the end user. If the end user declines the publisher’s license, can obtain a refund from the dealer. This is a right, rather than merely an option.
  4. Dealer and Publisher. Often the publisher’s agreement with the dealer is a license that retains ownership of copies in the publisher and permits distribution only subject to an end user license. The legislative history of the Copyright Act indicates that, whether or not there was a sale of the copy, contractual restrictions on use are appropriate under contract law. “[The] outright sale of an authorized copy of a book frees it from any copyright control over . . . its future disposition . . . . This does not mean that conditions . . . imposed by contract between the buyer and seller would be unenforceable between the parties as a breach of contract, but it does mean that they could not be enforced by an action for infringement of copyright.” H.R. Rep. No. 1476, 94th Cong., 2d Sess. 79 (1976). See DSC Communications v. Pulse Communications, 170 F.3d 1354 (Fed. Cir. 1999), cert. den. 528 U.S. 923 (1999).

The agreement may create different relationships. One might treat the publisher’s license as part of the dealer’s contract which the end user and dealer understood from the outset would be provided to complete the terms of the relationship. This is an application of the right, recognized in commercial law, of parties to make a contract leaving it to one party to supply particulars of performance after the initial agreement, with the specifications in this case coming in the publisher’s license. Where the arrangement is that assent to these later particulars is required and the end user rejects the terms, it in effect is also rejecting the contract with the dealer and is entitled to return the copy and receive a refund. Agreement here, as in other respects, does not depend solely on express terms, but can be found or inferred from the circumstances surrounding the contracting, applicable usage of the trade, in course of dealing and the like.

§ 59.1-506.14. Risk of loss of copy.

  1. Except as otherwise provided in this section, the risk of loss as to a copy that is to be delivered to a licensee, including a copy delivered by electronic means, passes to the licensee upon its receipt of the copy.
  2. If an agreement requires or authorizes a licensor to send a copy on a tangible medium by carrier, the following rules apply:
    1. If the agreement does not require the licensor to deliver the copy at a particular destination, the risk of loss passes to the licensee when the copy is duly delivered to the carrier, even if the shipment is under reservation.
    2. If the agreement requires the licensor to deliver the copy at a particular destination and the copy is duly tendered there in the possession of the carrier, the risk of loss passes to the licensee when the copy is tendered at that destination.
    3. If a tender of delivery of a copy or a shipping document fails to conform to the contract, the risk of loss remains with the licensor until cure or acceptance.
  3. If a copy is held by a third party to be delivered or reproduced without being moved or a copy is to be delivered by making access available to a third party resource containing a copy, the risk of loss passes to the licensee upon:
    1. the licensee’s receipt of a negotiable document of title or other access materials covering the copy;
    2. acknowledgment by the third party to the licensee of the licensee’s right to possession of or access to the copy; or
    3. the licensee’s receipt of a record directing the third party, pursuant to an agreement between the licensor and the third party, to make delivery or authorizing the third party to allow access.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Uniform Commercial Code: Section 2-509 (1998 Official Text). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Copy”;

“Delivery”;

“Licensee”;

“Licensor”;

“Party”;

“Record”;

“Receive”;

“Send”;

Uniform Commercial Code: “Document of title”: Section 1-201 .

  1. Scope of the Section. This section applies to risk of loss of copies; it does not apply to access contracts and does not deal with other risks of loss, such as loss of the information itself or of informational rights. The section does not alter rules of this Act about passage of title or tender of delivery.
  2. Basic Approach. Which party bears the risk of loss is determined by the agreement and, in the absence of agreement, by standards that focus on the transaction rather than on title to copies or tender of delivery. This rule is subject to variation by agreement. Agreement may be found in express terms, course of dealing, usage of trade or inferred from the circumstances of the contracting. Absent contrary agreement, risk of loss generally lies with the person in possession or control of the copy. It passes from one party to the other on receipt of the copy or control of it, unless another rule governs under this section or the agreement.
  3. Electronic Transfer. If a copy is transferred electronically, risk of loss passes to the recipient when the copy is received. The recipient should have no risk regarding the loss of a copy that has not yet been received where electronic transmissions are, in effect, virtually instantaneous. The risk of loss during transmission is on the sender. The transferor who sends the copy electronically also retains a copy that could be used for retransmission. This rule does not concern when tender of delivery occurs.
  4. Delivery of Physical Copies. Subsection (b) deals with transactions involving transfer of a tangible copy to be shipped. The rules are from U.C.C. Article 2 (1998 Official Text). They distinguish between a shipment contract (Section 606(b)(2)) [§ 59.1-506.6(b)(2)] and a destination contract (Section 606(b)(3)). Most shipments of tangible copies are shipment contracts. “Duly delivered” in a shipment contract requires that the sender tender the copy to the carrier pursuant to an appropriate contract with the carrier.
  5. Delivery without Moving the Copy. Subsection (c) deals with transfers accomplished without moving a copy. Risk of loss transfers when the transferee receives the ability to control the copy or when it receives access materials to access the copy. These rules correspond to U.C.C. Article 2 (1998 Official Text) but are updated for where the transaction entails electronic access from which a copy can be obtained.

§ 59.1-506.15. Excuse by failure of presupposed conditions.

  1. Unless a party has assumed a different obligation, delay in performance by a party, or nonperformance in whole or part by a party, other than of an obligation to make payments or to conform to contractual use terms, is not a breach of contract if the delay or nonperformance is of a performance that has been made impracticable by:
    1. the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made; or
    2. compliance in good faith with any foreign or domestic statute, governmental rule, regulation, or order, whether or not it later proves to be invalid.
  2. A party claiming excuse under subsection (a) shall seasonably notify the other party that there will be delay or nonperformance.
  3. If an excuse affects only a part of a party’s capacity to perform an obligation for delivery of copies, the party claiming excuse shall allocate performance among its customers in any manner that is fair and reasonable and notify the other party of the estimated quota to be made available. In making the allocation, the party claiming excuse may include the requirements of regular customers not then under contract and its own requirements.
  4. A party that receives notice pursuant to subsection (b) of a material or indefinite delay in delivery of copies or of an allocation under subsection (c), by notice in a record, may:
    1. terminate and thereby discharge any executory portion of the contract; or
    2. modify the contract by agreeing to take the available allocation in substitution.
  5. If, after receipt of notice under subsection (b), a party does not modify the contract within a reasonable time not exceeding thirty days, the contract lapses with respect to any performance affected.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Uniform Commercial Code: Sections 2A-405, 2A-406; 2-615, 2-616 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Copy”;

“Contract”;

“Contractual use terms”;

“Delivery”;

“Good faith”;

“Notice”;

“Notify”;

“Party”;

“Receive”;

“Record”;

“Seasonable”;

“Terminate”.

Section 117 [§ 59.1-501.17]: “Reasonable time”.

  1. Scope of the Section. This section adopts the impossibility doctrine in Uniform Commercial Code Article 2 (1998 Official Text). However, the doctrine is made applicable to both parties.
  2. Nature of Excuse. Subsection (a) conforms to Uniform Commercial Code § 2-615 (1998 Official Text) and adopts the policies reflected in that section, but applied to both parties. A party is excused from timely performance of a contractual obligation if that performance becomes commercially impracticable due to unforeseen events not within the contemplation of the parties at the time of contracting. The standard of excuse does not apply to an obligation to pay or to follow restrictions in contractual use terms. See Section 601 [§ 59.1-506.1], Comment 2 and 3. The requirement to perform payment obligations does not displace general law on the effect of governmental regulations as an excuse for a payment obligation. The section does not address that issue, leaving its resolution to common law.
  3. Notice. Subsection (b) requires seasonable notice to the other party who will be affected by the performance deficiency caused by the excuse.
  4. Allocation Rules. Subsections (c) and (d) are based on Article 2 and limited to contractual obligations to deliver copies. Under subsection (c), the licensor is required to make an allocation of the copies available for delivery among its customers and its own requirements. A licensor that has a partial excuse under this section must fulfill its contract to the extent that the overriding contingency permits. If the events affect its ability to supply its customers generally, this section allows the licensor to take into account the needs of all customers and of itself when fulfilling its obligation to one customer as far as possible. This may include customers not then under contract. However, good faith requires that, in cases of doubt, current contract customers should generally be favored. Except for such considerations, the standard here is intended to leave open reasonable business leeway to the licensor.
  5. Rights of Other Party. The interests of a party faced with a material or indefinite delay are protected in subsection (d). The party may either accept the proposed allocation or treat the contract as terminated as to executory obligations. The latter option does not allow treating the case as involving a breach, but merely permits termination. If the party fails timely to accept the proposed modification, under subsection (e), the contract lapses as to the relevant performance.

Increased cost does not excuse performance unless the increase is due to an unforeseen contingency that alters the essential nature of the performance obligation and that cannot reasonably be viewed as within the contingencies that were foreseeable in the original agreement. A rise or a fall in the market or market prices is not in itself a justification. Market and cost fluctuations are the type of business risk which commercial contracts cover. Similarly, if the agreement calls for development of new technology, no excuse arises if the agreed development itself proves to be technologically impossible or excessively costly. That risk is inherent in a development agreement and is assumed to be allocated in the basic contract. However, if both parties proceeded on the assumption that a third-party technology would be completed, but this does not occur and renders the project impossible, the agreement may have been based on an assumed fact or occurrence that did not ensue and an excuse may be appropriate.

Excuse doctrine does not apply if, under the agreement, the party seeking to claim an excuse agreed to assume the risk. Such agreement can be found not only in express terms of the contract, but in the circumstances of the contracting, trade usage, course of dealing and the like. The exemptions of this section do not apply when the contingency in question is sufficiently foreshadowed at the time of contracting to be included among the business risks which are fairly to be regarded as part of the contract terms, either consciously or as a matter of reasonable commercial interpretation from the circumstances.

§ 59.1-506.16. Termination; survival of obligations.

  1. Except as otherwise provided in subsection (b), on termination all obligations that are still executory on both sides are discharged.
  2. The following survive termination:
    1. a right based on previous breach or performance of the contract;
    2. an obligation of confidentiality, nondisclosure, or noncompetition to the extent enforceable under other law;
    3. a contractual use term applicable to any licensed copy or information received from the other party, or copies made of it, which are not returned or returnable to the other party;
    4. an obligation to deliver, or dispose of information, materials, documentation, copies, records, or the like to the other party, an obligation to destroy copies, or a right to obtain information from an escrow agent;
    5. a choice of law or forum;
    6. an obligation to arbitrate or otherwise resolve disputes by alternative dispute resolution procedures;
    7. a term limiting the time for commencing an action or for giving notice;
    8. an indemnity term or a right related to a claim of a type described in § 59.1-508.5 (d) (1);
    9. a limitation of remedy or modification or disclaimer of warranty;
    10. an obligation to provide an accounting and make any payment due under the accounting; and
    11. any term that the agreement provides will survive.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Uniform Commercial Code: Sections 2A-505(2); 2-106(3) (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Contractual use term”;

“Copy”;

“Information”;

“License”;

“Party”;

“Receive”;

“Record”;

“Remedy”;

“Term”;

“Termination”.

  1. Scope of the Section. Termination means ending a contract other than for breach. This section describes the effect of termination and lists some obligations that survive termination unless otherwise agreed. The list is not exclusive.
  2. Effect of Termination. Termination discharges executory obligations. It does not terminate vested rights or remedies that have not previously been waived.
  3. Executory Obligations. An executory obligation is one that is not fully performed on both sides. If the prior performance of one party earned a reciprocal performance (e.g., payment or delivery), termination does not affect that earned reciprocal performance. If the obligations of one or both parties are partly, but not fully completed, the obligation is executory for purposes of this section if the unperformed part is such that a failure to perform it would be a material breach excusing the other party’s obligation to perform. Minor remaining acts typically would not leave an obligation executory, but material remaining performance does.
  4. Survival Rules. Subsection (b) lists terms and rights that survive termination. The list presumes that the surviving obligation was created in the agreement and identifies terms that parties ordinarily would designate as surviving. The intent of this list is to provide background rules, reducing the need for specification in the contract. Of course, the parties may delete or add terms by agreement, which agreement can be found in express terms or in the circumstances surrounding the contracting, in trade usage, in course of dealing and the like. Upon termination, various other rights may be vested and not executory: these also survive by application of the standard in subsection (a).

§ 59.1-506.17. Notice of termination.

  1. Except as otherwise provided in subsection (b), a party may not terminate a contract except on the happening of an agreed event, such as the expiration of the stated duration, unless the party gives reasonable notice of termination to the other party.
  2. An access contract may be terminated without giving notice. However, except on the happening of an agreed event, termination requires giving reasonable notice to the licensee if the access contract pertains to information owned and provided by the licensee to the licensor.
  3. A term dispensing with a notice required under this section is invalid if its operation would be unconscionable. However, a term specifying standards for giving notice is enforceable if the standards are not manifestly unreasonable.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source. Uniform Commercial Code: Section 2-309(c) (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Access contract”;

“Contract”;

“Information”;

“Licensee”;

“Licensor”;

“Give notice”;

“Party”;

“Term”;

“Termination”.

  1. Scope of the Section. This section deals with when notice of termination is required; it does not deal with when a contract may be terminated. The rules do not apply to cancellation for breach.
  2. Termination on the Happening of an Event. No notice is required for termination based on an agreed event (e.g., the end of the stated license term). This follows Article 2 of the Uniform Commercial Code (1998 Official Text) and common law. The parties are charged with awareness of agreed terms; in cases covered by this rule, they agreed that the contract would expire on the happening of an objectively ascertainable event. No notice is needed when this event occurs.
  3. Notice in Other Cases. Except as stated in subsection (b), termination based on discretion of one party, such as an “at will termination”, requires that reasonable notice be given. What notice is reasonable varies with the circumstances. For example, where the reason for termination involves suspected unlawful conduct or a desire to prevent harmful acts, notice at or promptly after termination will ordinarily suffice; in such cases, notification may consist of the inability to further access the computer information. In less exigent or harmful circumstances, giving prior notice ordinarily may be required. The notice requirement when there are no exigent circumstances and there is no material breach gives the other party an opportunity to make other arrangements and to avoid use of the information after termination that may result in breach of contract or infringement of intellectual property rights.
  4. Access Contracts. Under subsection (c), termination of an access contract does not require notice even if based on exercise of discretion by the terminating party. Of course, the termination must be allowed by the contract. An access contract gives contractual rights to access a resource owned or controlled by the licensor. When the contract terminates, the access privilege terminates. This rule is consistent with common law for a license of this type. This section provides a limited exception to the common law rule, when the access contract involves information that is provided to the licensor and owned by the licensee, such as when a licensee has provided its employee list for storage on a computer of the licensor that is accessed under license to the licensee. In that case, notice is required. What is meant here is ownership of the information. Thus if a customer provides information to effect a transaction, or if the customer has previously provided information to the licensor for other transactions, the customer transactional information is not owned by the customer to whom it refers and the exception does not apply.
  5. Contract Modification. Subsection (c) corresponds to U.C.C. Article 2 (1998 Official Text). Under subsection (c), a notice requirement may be waived or the terms, timing and other aspects of notice may be specified by agreement. The subsection places two restrictions on this principle.

The party terminating the contract must give notice, but a requirement that notice be received would create uncertainty that is undesirable where the terminating party is merely exercising a contractual right.

First, an agreed waiver of notice is enforceable only if enforcement of the term is not unconscionable. This rule permits contractual waivers of notice, but allows a court to police exercise of the right thus created if that exercise is unconscionable. The focus is not on the term in this context, but on its operation. This rule does not apply where the agreement sets standards for notice of termination. For an application of this concept, see Intergraph Corp. v. Intel Corp., 195 F.3d 1346 (Fed. Cir. 1999); Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 408 N.E.2d 1370, 1375 (Mass. 1980).

Second, standards set by agreement for notice of termination are enforceable unless they are manifestly unreasonable. This rule permits flexibility in an agreement, but allows a court to reject clearly abusive terms. It does not allow invalidation simply because application of the standard causes an undesirable result when viewed in retrospect.

§ 59.1-506.18. Termination; enforcement.

  1. On termination of a license, a party in possession or control of information, copies, or other materials that are the property of the other party, or are subject to a contractual obligation to be delivered to that party on termination, shall use commercially reasonable efforts to deliver or hold them for disposal on instructions of that party. If any materials are jointly owned, the party in possession or control shall make them available to the joint owners.
  2. Termination of a license ends all rights under the license for the licensee to use or access the licensed information, informational rights, or copies. Continued use of the licensed copies or exercise of terminated rights is a breach of contract unless authorized by a term that survives termination.
  3. Each party may enforce its rights under subsections (a) and (b) by acting pursuant to § 59.1-506.5 or by judicial process, including obtaining an order that the party or an officer of the court take the following actions with respect to any licensed information, documentation, copies, or other materials to be delivered:
    1. deliver or take possession of them;
    2. without removal, render unusable or eliminate the capability to exercise contractual rights in or use of them;
    3. destroy or prevent access to them; and
    4. require that the party or any other person in possession or control of them make them available to the other party at a place designated by that party which is reasonably convenient to both parties.
  4. In an appropriate case, a court of competent jurisdiction may grant injunctive relief to enforce the parties’ rights under this section.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Copy”;

“Contract”;

“Court”;

“Electronic”;

“Information”;

“Informational Rights”;

“License”;

“Licensee”;

“Party”;

“Person”;

“Term”;

“Termination”.

  1. Scope of the Section. This section deals with obligations arising on termination of a license. The section does not deal with cancellation for breach or with transactions other than a license. For cancellation, see sections 802, 815 and 816 [§§ 59.1-508.2, 59.1-508.15 and 59.1-508.16].
  2. Obligation to Return. Subsection (a) states the unexceptional principle that, on termination of a license, a party (licensor or licensee) is entitled to return of any materials that it owns or that the contract requires to be delivered at the end of the relationship. This is a contract right. The obligation is to use commercially reasonable effort. In some cases, circumstances may delay return. A reasonable effort, however, does not encompass intentional or knowing retention of copies. Similarly, subsection (b) makes clear that use of the information after the contract terminates is a breach of contract, the remedy for which survives the termination.
  3. Terminating Rights of Use.  Termination of the license ends all rights of use pursuant to the license except those rights that by agreement survive or are irrevocable. This rule corresponds to prior law and reflects the conditional nature of the rights established under a license. Continued use not authorized by the license breaches the contract. If intellectual property rights are involved, such use may also be an infringement. Since termination does not entail actions in response to a breach of contract, no provision is made for limited use to mitigate damages. Compare Section 802 [§ 59.1-508.2].
  4. Enforcement. Subsection (c) provides for judicial enforcement of termination rights if the parties do not timely comply with their obligations when the contract.

Uses referred to here relate to use of the licensed copy or information. If a licensee obtains a new license, or obtains the same information from other persons, the right to use that information does not depend on the original license and is not covered by this section.

§§ 59.1-506.19 through 59.1-507. Reserved.

Article 7. Breach of Contract.

§ 59.1-507.1. Breach of contract; material breach.

  1. Whether a party is in breach of contract is determined by the agreement or, in the absence of agreement, this chapter. A breach occurs if a party without legal excuse fails to perform an obligation in a timely manner, repudiates a contract, or exceeds a contractual use term, or otherwise is not in compliance with an obligation placed on it by this chapter or the agreement. A breach, whether or not material, entitles the aggrieved party to its remedies. Whether a breach of a contractual use term is an infringement or a misappropriation is determined by applicable informational property rights law.
  2. A breach of contract is material if:
    1. the contract so provides;
    2. the breach is a substantial failure to perform a term that is an essential element of the agreement; or
    3. the circumstances, including the language of the agreement, the reasonable expectations of the parties, the standards and practices of the business, trade, or industry, and the character of the breach, indicate that:
      1. the breach caused or is likely to cause substantial harm to the aggrieved party; or
      2. the breach substantially deprived or is likely substantially to deprive the aggrieved party of a significant benefit it reasonably expected under the contract.
  3. The cumulative effect of nonmaterial breaches may be material.

History. 2000, cc. 101, 996.

Editor’s note.

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

Effective date.

This section is effective July 1, 2001.

Research References.

Virginia Forms (Matthew Bender). No. 13-524. Events of Default.

OFFICIAL COMMENT

Uniform Law Source: Restatement (Second) Contracts § 241 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Contract”;

“Contractual use term”;

“Party”;

“Term.”

  1. Scope of Section. This section defines what is a breach of contract and standards to distinguish between material and non-material breach.
  2. Material Breach and non-material Breach. This Act follows common law: a party’s contractual remedies are determined by whether a breach is material or immaterial. Both types of breach entitle the aggrieved party to remedies, but a material breach gives a right to cancel the contract.
  3. What is a Breach? What is a breach of contract is determined by the agreement or, in the absence of agreement, this Act. A party must conform to the contract. A breach occurs if a party acts in a manner that violates the agreement or fails to act in a manner required by the contract. This includes but is not limited to a failure timely to perform, a breach of warranty, a repudiation, non-delivery, wrongful disclosure, uses in violation of the contract, exceeding restrictions in contractual use terms, and other breaches.
  4. What is a material breach? Parties are entitled to the performance for which they bargain. Any breach of contractual obligations entitles the other party to damages as appropriate. Beyond that, this Act adopts the rule in common law and international law distinguishing between material and immaterial breaches. Some breaches are so immaterial that they do not justify cancellation of the contract. In such cases, it is better to preserve a contract despite minor problems than to allow one party to cancel and thereby risk an unwarranted forfeiture or unfair opportunism. Materiality depends on the agreement; the agreement can either define a type of breach as material or it can simply state that the remedy of cancellation exists. Failing contract delineation, what is a material breach depends on the circumstances. A failure fully to conform to promises about the capability of software to handle 10,000 files may not be material if the licensee’s use will not exceed 4,000 files and the software is able to handle 9,000 files. Materiality is judged from the aggrieved party’s perspective in light of the nature of the bargain and the benefits expected from performance of the contract.
  5. Contract Terms. An agreement may determine what is a material breach by express terms that either give a right to cancel for a particular breach or provide that a particular type of breach is material. Of course, a court must interpret that agreement in light of general principles. Thus, a term providing that any failure to conform to any contract term permits cancellation should be interpreted in light of commercial context that includes usage of trade, course of performance, or course of dealing, unless clearly refuted by the circumstances. Section 116(c) [§ 59.1-501.16(b)]. That context may indicate that minor breach of some terms are nonetheless not adequate for cancellation.
  6. What Remedies Apply? If a party’s performance breaches the contract, the aggrieved party is entitled to its remedies. The remedies depend on the nature of the breach and any remedy limitations. All remedies are generally available for material or non-material breach, except the remedy of cancellation. The aggrieved party can cancel the contract only if the breach was material as to the entire contract. For either type of breach, there is an intermediate remedy in that a party whose expectations of future performance are impaired may suspend performance and demand adequate assurance of future performance from the other. Section 708 [§ 59.1-507.8].
  7. Relation to Intellectual Property Rights. Subsection (a) makes it clear that this Act does not alter intellectual property rules about whether a breach also constitutes an infringement or misappropriation. Sun Microsystems, Inc. v. Microsoft Corp., 188 F3d 1115 (9th Cir., 1999) (distinguishing scope and breach of a covenant). In an appropriate case, where there is no double recovery, a party may have remedies under both contract and intellectual property laws. Kepner-Tregoe Inc. v. Vroom, 186 F.3d 283 (2nd Cir., 1999).

A statute cannot define materiality with precision, but can give appropriate reference points. Subsection (b) provides three: contract terms defining materiality, a substantial failure to perform an essential term, and a breach causing substantial harm to the aggrieved party or a denial of a reasonably expected significant benefit. This last consideration, of course, refers to substantiality in context of the agreement itself. Thus, in a contract for a ten dollar software license, a breach causing ten dollars of harm would be material even though, in a thirty million dollar license, a ten dollar loss should be immaterial.

The list in subsection (b) is not exclusive. When the contract is silent this section should be interpreted in light of common law and the Restatement. See Rano v. Sipa Press, 987 F.2d 580 (9th Cir. 1993); Otto Preminger Films, Ltd. v. Quintex Entertainment, Ltd., 950 F.2d 1492 (9th Cir. 1991). Common law concepts preclude forfeiture for minor breaches; thus in the absence of agreement about a term, materiality hinges on substantial denial to the aggrieved party of the advantages (consideration) it sought from the transaction. The Restatement (Second) of Contracts § 241 (1981) lists five factors: 1) the extent to which the injured party will be deprived of the benefit he or she reasonably expected; 2) the extent to which the injured party can be adequately compensated for the benefit of which the party will be deprived; 3) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; 4) the likelihood that the party failing to perform or to offer to perform will cure the failure, taking into account all the circumstances, including any reasonable assurances; and 5) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

The agreement might indicate that conforming to a specific requirement is a precondition to the performance of the other party. That condition should be enforced. The express condition defines part of the remedy: breach allows the aggrieved party not to perform simply because the express condition for its performance is not met.

Illustration: In a software development contract, the contract expressly conditions acceptance of the product on its meeting ten conditions. One condition is that it must operate at “no less than 150,000 rev. per second.” The software does not meet that condition. Failure to meet the condition justifies refusal of the product.

§ 59.1-507.2. Waiver of remedy for breach of contract.

  1. A claim or right arising out of a breach of contract may be discharged in whole or part without consideration by a waiver in a record to which the party making the waiver agrees after breach, such as by manifesting assent, or which the party making the waiver authenticates and delivers to the other party.
  2. A party that accepts a performance with knowledge that the performance constitutes a breach of contract and, within a reasonable time after acceptance, does not notify the other party of the breach waives all remedies for the breach, unless acceptance was made on the reasonable assumption that the breach would be cured and it has not been seasonably cured. However, a party that seasonably notifies the other party of a reservation of rights does not waive the rights reserved.
  3. A party that refuses a performance and fails to identify a particular defect that is ascertainable by reasonable inspection waives the right to rely on that defect to justify refusal only if:
    1. the other party could have cured the defect if it were identified seasonably; or
    2. between merchants, the other party after refusal made a request in a record for a full and final statement of all defects on which the refusing party relied.
  4. Waiver of a remedy for breach of contract in one performance does not waive any remedy for the same or a similar breach in future performances unless the party making the waiver expressly so states.
  5. A waiver may not be retracted as to the performance to which the waiver applies.
  6. Except for a waiver in accordance with subsection (a) or a waiver supported by consideration, a waiver affecting an executory portion of a contract may be retracted by seasonable notice received by the other party that strict performance will be required in the future, unless the retraction would be unjust in view of a material change of position in reliance on the waiver by that party.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2-209; 2-607 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Authenticate”;

“Contract”;

“Knowledge”;

“Merchant”;

“Notice”;

“Notify” (“give notice”);

“Party”;

“Receive”;

“Record”;

“Term”;

“Seasonable.”

Section 112 [§ 59.1-501.12]: “Manifest assent.”

Section 117 [§ 59.1-501.17]: “Reasonable time.”

  1. Scope of the Section. This section deals with waivers. A “waiver” is a voluntary relinquishment of a known right. The section brings together rules from common law and from Article 2 of the Uniform Commercial Code (1998 Official Text).
  2. Waivers in a Record. Waivers made in a record to which a party agrees, including by a manifestation of assent, are enforceable without consideration. This follows modern law. See Uniform Commercial Code § 2A-207; Restatement (Second) of Contracts § 277. The rule in subsection (a) does not preclude other forms of waiver, but merely confirms that waivers within it are effective.
  3. Waiver by Accepting a Performance. Subsection (c) deals with waivers resulting from accepting a performance without objecting to known deficiencies in it. Waiver stems from conduct and knowledge of the defect coupled with silence beyond a reasonable time. This type of waiver does not apply if the party merely knows a performance is not consistent with the contract. The defective performance must have been tendered to and accepted by that party. Failure to object to uses that violate a license but pertain to performance not delivered to the other party is not a waiver. In some cases, of course, it may result in an estoppel.
  4. Failure to Particularize. Refusal of a performance does not place the refusing party at risk if it does not state reasons for its refusal. There is no requirement that the party particularize the reasons for the refusal. Under subsection (d), however, a waiver results from a failure to particularize if the other party could have cured the problem had it been seasonably given the basis for refusal, or, between merchants, if the breaching party asks for a specification in a record of the reasons for refusal and a basis for refusal is not listed among the reasons. This adopts Uniform Commercial Code § 2-605 (1998 Official Text) and should be interpreted to correspond to that section. The rule is grounded in fairness: the aggrieved party is obligated to provide notice to the other party of defects reasonably known to the aggrieved party, but the aggrieved party does not waive defects that were later-discovered.
  5. Scope of Waiver. Under subsection (e), absent express agreement or circumstances clearly indicating to the contrary, a waiver applies only to the specific breach waived and does not alter remedies for future breaches. This principle does not alter estoppel concepts; a waiver may create justifiable reliance as to future conduct in an appropriate case.
  6. Retracting a Waiver. A waiver cannot be retracted with respect to past events whose consequences were waived. This principle is important in continuing relationships. It allows aggrieved parties to waive particular defects in performance without forfeiting rights as to future performances.

A party presented with deficient performance is not required to elect between accepting or entirely refusing it. Subsection (c) permits the party to preserve its rights by (1) giving notice of objection to the deficiency within a reasonable time, or accepting the performance and giving prior notice that it does so while reserving its rights. The first option comes from Article 2 of the Uniform Commercial Code (1998 Official Text). The second is from Article 1 of the Uniform Commercial Code (1998 Official Text). Of course, the party in appropriate cases may simply refuse the performance.

A waiver as to future events supported by consideration cannot be unilaterally retracted. Such waivers constitute a bilateral agreement. On the treatment of waivers supported by consideration, see Restatement (Second) of Contracts § 84, comment f. All other waivers as to executory portions of a contract may be retracted as to future events unless retraction would be unjust in view of a material change in position in reliance on the waiver. See Section 303 [§ 59.1-503.3], Comment 5.

§ 59.1-507.3. Cure of breach of contract.

  1. A party in breach of contract may cure the breach at its own expense if:
    1. the time for performance has not expired and the party in breach seasonably notifies the aggrieved party of its intent to cure and, within the time for performance, makes a conforming performance;
    2. the party in breach had reasonable grounds to believe the performance would be acceptable with or without monetary allowance, seasonably notifies the aggrieved party of its intent to cure, and provides a conforming performance within a further reasonable time after performance was due; or
    3. in a case not governed by paragraph (1) or (2), the party in breach seasonably notifies the aggrieved party of its intent to cure and promptly provides a conforming performance before cancellation by the aggrieved party.
  2. In a license other than in a mass-market transaction, if the agreement required a single delivery of a copy and the party receiving tender of delivery was required to accept a nonconforming copy because the nonconformity was not a material breach of contract, the party in breach shall promptly and in good faith make an effort to cure if:
    1. the party in breach receives seasonable notice of the specific nonconformity and a demand for cure of it; and
    2. the cost of the effort to cure does not disproportionately exceed the direct damages caused by the nonconformity to the aggrieved party.
  3. A party may not cancel a contract or refuse a performance because of a breach of contract that has been seasonably cured under subsection (a). However, notice of intent to cure does not preclude refusal or cancellation for the uncured breach.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2-508; 2A-513 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Cancellation”;

“Contract”;

“Copy”;

“Direct damages”;

“Good faith”;

“License”;

“Mass-market license”;

“Notifies”;

“Party”;

“Receive”;

“Seasonable”;

Section 117 [§ 59.1-501.17]: “Reasonable time.”

Section 602 [§ 59.1-506.2]: “Enable use.”

Section 701 [§ 59.1-507.1]: “Material breach.”

  1. Scope of the Section. This section establishes an opportunity to cure a breach and retain a contractual relationship. For licensees, cure often involves acts to correct missing or delayed payments or failure to timely give required accounting or other reports. For licensors, cure often focuses on timeliness of performance and adequacy of a delivered product. This section sets limits on the opportunity to cure that balance the goal of preserving contract relationships and the goal of giving the injured party the full benefit of its bargain. Subsection (b) creates a new, limited duty to cure in cases where the injured party was required to accept a copy because the breach was not material as to that copy.
  2. General Idea of Cure. The idea that a breaching party may preserve the contract if it acts promptly to eliminate the effect of breach is embedded in modern law. See Restatement (Second) of Contracts § 237. However, there is significant disagreement about the scope of allowed cure, reflecting different balances drawn between the policy of allowing a party to preserve a contractual relationship and policies that protect the valid expectations of the aggrieved party. Compare UNIDROIT International Principles of Commercial Contract Law art. 7.1.4; Convention on the International Sale of Goods art. 48.
  3. Right to Cure. This section generally allows cure if it is prompt and avoids harm to the aggrieved party. Cure is not an excuse for faulty performance, but rather an opportunity to avoid loss and retain the benefits of the contract for both parties. Cure does not eliminate a right to damages, but prevents cancellation based on the cured breach.
  4. Permissive Cure. If the time for performance expired before cure, cure is permissive only. There are two circumstances in which cure is permitted.
    1. Expectation that performance would be acceptable. A party in breach has an opportunity to cure if it had “reasonable grounds to believe” that the original tender would be acceptable. Thus, payment of eighty percent of the amount due would create an opportunity to cure only if, from prior performance, the tendering party had reason to believe that tender would be acceptable. That reason can arise from prior course of dealing, course of performance or usage of trade, as well as the particular circumstances surrounding the contract. The party is charged with knowledge of factors in a particular transaction which in common commercial understanding require strict compliance with contractual obligations, but can also rely on course of dealing and usage of trade regarding variation of performance unless these have been clearly refuted by the circumstances, including the terms of the agreement. If the other party gives notice either implicitly through a clear course of dealing, or through terms requiring strict performance, those indications control this section. Requirements in a standard form that are not consistent with trade usage or the prior course of dealing and are not called to the other party’s attention may be inadequate to make unreasonable any expectations consistent with trade usage or course of dealing.
    2. Cure subject to other person’s actions. Outside of the settings described in paragraphs (a)(1) and (a)(2), the opportunity to cure is limited by the aggrieved party’s right to insist on performance and, under paragraph (a)(3), cure must occur before the aggrieved party cancels the contract. This puts control in the aggrieved party. As indicated in subsection (c), the aggrieved party is not required to withhold cancellation simply because of a notice of intent to cure from the other party.
  5. What is a Cure. Cure requires the completion of acts that put the aggrieved party in essentially the position that would have ensued on conforming performance. Cure requires a party to perform the contract obligation and to compensate fully for loss. Monetary compensation may be required, but money is a cure only if provided in addition to full performance, such as tender of a conforming copy or tender of a late payment with any required late payment charges. Cure does not occur merely because one party announces its intention to cure, even if that intention is held in good faith. Cure only occurs when or if the proposed compensatory and conforming actions are completed.
  6. Effect of Cure. Cure of a breach does not mean that the aggrieved party must accept without remedy less than conforming conduct. The effect of cure is that a contract cannot be canceled based on the cured breach. The aggrieved party retains its remedies under the agreement or this Act.
  7. Duty to Cure. Subsection (b) applies to cases outside the mass market where a licensee must accept a copy because there is no material breach even though breach occurred. It creates an obligation to attempt to cure. The defect must, of course, constitute a breach of contract. Failure to undertake a required effort to cure is a breach of contract, but failure to correct the problem having attempted to do so is not a breach. The obligation to attempt a cure is limited by proportionality. No obligation exists if it would entail costs disproportionate to the direct damages caused by the nonconformity. Thus, if a party delivers a one thousand name list for $500 that omits five non-material names in a context where that omission is a breach and where the omission reduces the value of the list by a small amount, the party has no obligation to cure if obtaining those additional names would be disproportionate to the direct damages. In such case, the proper remedy is the difference in value (if any) of the copy rendered and the performance promised.

There is a right to cure before the time for performance expires. Paragraph (a)(1). A party whose early performance was a breach can make a good tender within the contract time. What is the time for performance is determined by the agreement at the time of performance, including any enforceable modifications.

Cure requires seasonable notice of an intent to cure. The closer that the time of the breach is to the contractual time for performance, the greater is the necessity for promptness in notice and completing the cure. What is seasonable notice depends on the context, including the importance of the expected performance and the timing and difficulty of obtaining substitutes. The notice is not the cure. Cure occurs when conforming performance is tendered.

In mass market cases governed by Section 704(b) [§ 59.1-507.4], refusal of the single copy that forms the basis of the transaction may be cancellation because the entire transaction focused on rights in that copy. No special notice or words of cancellation are required. Even if refusal is not, in the circumstances, equivalent to cancellation, a defect in a copy provided under Section 704(b) [§ 59.1-507.4] gives a right to cancel. If the provider, when notified of refusal, gives notice that it intends to cure, under subsection (a)(3) the licensee can either agree to allow that or can refuse to do so and at that point cancel by refusing any offered cure.

Some contract breaches cannot be cured. This is true, for example, if a party breaches a contract by publicly disclosing licensed trade secret information. In such cases, the damage done cannot be reversed and cure is inapplicable. A similar condition may arise where the agreement demands performance on a specific date or hour, but the party materially fails to meet the deadline. Cure is an opportunity to avoid ending a contract relationship by bringing the performance into line with the other party’s rightful expectations. It does not allow a breaching party to avoid the consequence of breaches that have significant irreversible effects.

§ 59.1-507.4. Copy; refusal of defective tender.

  1. Subject to subsection (b) and § 59.1-507.5, tender of a copy that is a material breach of contract permits the party to which tender is made to:
    1. refuse the tender;
    2. accept the tender; or
    3. accept any commercially reasonable units and refuse the rest.
  2. In a mass-market transaction that calls for only a single tender of a copy, a licensee may refuse the tender if the tender does not conform to the contract.
  3. Refusal of a tender is ineffective unless:
    1. it is made before acceptance;
    2. it is made within a reasonable time after tender or completion of any permitted effort to cure; and
    3. the refusing party seasonably notifies the tendering party of the refusal.
  4. Except in a case governed by subsection (b), a party that rightfully refuses tender of a copy may cancel the contract only if the tender was a material breach of the whole contract or the agreement so provides.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2-601; 2-602, 2A-509 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Cancel”;

“Contract”;

“Copy”;

“Delivery”;

“Licensee”;

“Mass-market transaction”;

“Notifies”;

“Party”.

Section 117 [§ 59.1-501.17]: “Reasonable time.”

  1. Scope of Section. This section deals with refusal of copies. It does not refer to other types of performance. The right to refuse is subject to Sections 705, 706, and 610 [§§ 59.1-507.5, 59.1-507.6, and 59.1-506.10].
  2. Refusal of the Tender. A party may accept or refuse a tender of a copy. Except as stated in subsection (b), this section adopts common law that refusing a performance is appropriate only if the performance entails a material breach as to that performance (the copy). Acceptance of a copy does not generally waive the party’s rights to a remedy for breach. What is acceptance of a copy is dealt with in Section 609 [§ 59.1-506.9].
  3. Conforming Tender Rule. Subsection (b) adopts the “conforming tender” rule for mass-market transactions where the only performance is tender of a single delivery. In more complex transactions, in this Act as in Article 2, conforming tender is not the appropriate standard for cancellation; the rules of subsection (a) and Section 601 [§ 59.1-506.1] apply.
  4. Effective Refusal. Under subsection (c), refusal of a tender is ineffective if the refusing party does not timely notify the other party of its refusal. This precludes arguments that silent refusal can be effective or coupled with use of the information. The rule corresponds to waiver rules in common law and this Act. The refusal is effective if it occurs within a reasonable time after any permitted, but ineffective effort to cure. Refusal is not permitted after breach has in fact been cured.
  5. Refusal and Cancellation. Many transactions involve commitments that go beyond delivery of a particular copy. Subsection (d) confirms that an aggrieved party that refuses tender of a copy may cancel the contract only if the breach is a material breach of the entire contract or the agreement so provides. Cancellation of the entire contract requires breach that is material as to the entire agreement, or a contract term that allows cancellation.

Refusal is the reverse of “acceptance” of a copy. A decision to refuse a tender of a copy ordinarily requires refusal of all of the tendered copies. However, a licensee may accept some tendered commercial units (copies) and reject the rest, if the commercial units are separable in light of the contracted performance. For example, if the licensor tenders thirty copies and ten are defective, the commercial unit is the copy and the licensee can accept the thirty and refuse the remainder. On the other hand, tender of a copy of a single program with ten modules that are defective and thirty not, does not involve multiple commercial units; the tender must be refused in whole or not at all. This section does not permit a party to disassemble an integrated or composite product. The part accepted (or refused) must be a commercial unit as intended by the party tendering it; the issue is not whether some of the product could have been provided separately, but whether, as provided pursuant to the agreement, it was a separable commercial unit. As with all performance, partial acceptance must be in good faith and conform to standards of commercial fair dealing.

While sometimes described as a “perfect tender” rule, the “conforming tender” rule does not require tender of a “perfect” product, but merely one that conforms to the contract. What conforms to the contract depends on the agreement, including express terms as interpreted in light of usage of trade, course of dealing and concepts of merchantability. The relationship between refusal under subsection (b) and the ability to cure a defect is discussed in Section 703 [§ 59.1-507.3], Comment 4(b).

§ 59.1-507.5. Copy; contract with previous vested grant of rights.

If an agreement grants a right in or permission to use informational rights which precedes or is otherwise independent of the delivery of a copy, the following rules apply:

  1. A party may refuse a tender of a copy which is a material breach as to that copy, but refusal of that tender does not cancel the contract.
  2. In a case governed by paragraph (1), the tendering party may cure the breach by seasonably providing a conforming copy before the breach becomes material as to the whole contract.
  3. A breach that is material with respect to a copy allows cancellation of the contract only if the breach cannot be seasonably cured and is a material breach of the whole contract.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Cancel”;

“Contract”;

“Copy”;

“Delivery”;

“Informational Rights”;

“Party”;

“Seasonably”.

  1. Scope of the Section. The section distinguishes (1) agreements where a grant to use informational rights vests independently of any copy, and (2) agreements where the purpose is to obtain informational or other rights associated with a copy. It applies to the first context.
  2. Effect of Breach. In transactions of this type, refusal of a defective copy does not necessarily permit cancellation of the contract. The contractual grant of rights (already vested) is an independent, performed part of the agreement; any particular copy used to implement that grant is a mere conduit. If the defective tender of a copy does not materially breach the entire contract, the tendering party has a right to cure. That right is cut off only if tender and a failed or delayed cure constitute a material breach of the whole agreement. Similarly, the aggrieved party has a right to retain its rights but refuse the copy: refusal of a copy does not alter the vested rights.
  3. Nature of the Transaction. The section applies only if the contract vests the right to use informational rights without the transferee’s receipt of a copy. Whether this is the nature of a particular contract depends on the agreement. If there is a vested rights transaction, the parties view a copy as a mere conduit to complete an already vested grant. In such cases, a defect in one copy is not necessarily material to the entire contract; a licensee can refuse the copy and retain the contractual rights. In contrast, if the contract is only for rights associated with a copy, a licensee that refuses the copy is left solely with an action for damages; refusal in essence cancels the contract.

Illustration 1. IBM grants licensee (LE) the right to distribute twenty thousand copies of its software in the United States during one year. Several weeks later, IBM delivers a master disk of the software to LE. The master disk contains a manufacturing flaw. The contract is within this section. LE can refuse the copy if the defect was material as to the copy, but cannot cancel the entire contract unless the defect and the delay was material to the entire contract. IBM can cure by timely tendering a conforming copy. LE can recover damages, if any.

Illustration 2. LE orders a 100 person site license from Red Hat for its operating system software. Red Hat ships a copy of the software, but the copy is warped and defective and arrives several weeks late. This contract is not within this section since there was no vested right to use informational rights independent of the copy to be delivered.

Illustration 3. Prince D’s estate grants LE an exclusive license to show still photographs of Prince D on an Internet website for one week during the first anniversary of Prince D’s death, also giving LE the right to advertise the exhibit. A copy of the photographs is to be delivered one week before the first showing. The copy is delivered several days late and is technically defective. It cannot be used. LE refuses the copy. The contract is within this section because the grant of rights is independent of the copy.

§ 59.1-507.6. Copy; duties upon rightful refusal.

  1. Except as otherwise provided in this section, after rightful refusal or revocation of acceptance of a copy, the following rules apply:
    1. If the refusing party rightfully cancels the contract, § 59.1-508.2 applies and all contractual use terms continue.
    2. If the contract is not canceled, the parties remain bound by all contractual obligations.
  2. On rightful refusal or revocation of acceptance of a copy, the following rules apply to the extent consistent with § 59.1-508.2:
    1. Any use, sale, display, performance, or transfer of the copy or information it contains, or any failure to comply with a contractual use term, is a breach of contract. The licensee shall pay the licensor the reasonable value of any use. However, use for a limited time within contractual use terms is not a breach, and is not an acceptance under § 59.1-506.9 (a) (5), if it:
      1. occurs after the tendering party is seasonably notified of refusal;
      2. is not for distribution and is solely part of measures reasonable under the circumstances to avoid or reduce loss; and
      3. is not contrary to instructions concerning disposition of the copy received from the party in breach.
    2. A party that refuses a copy shall:
      1. deliver the copy and all copies made of it, all access materials, and documentation pertaining to the refused information to the tendering party or hold them with reasonable care for a reasonable time for disposal at that party’s instructions; and
      2. follow reasonable instructions of the tendering party for returning or delivering copies, access material, and documentation, but instructions are not reasonable if the tendering party does not arrange for payment of or reimbursement for reasonable expenses of complying with the instructions.
    3. If the tendering party does not give instructions within a reasonable time after being notified of refusal, the refusing party, in a reasonable manner to reduce or avoid loss, may store the copies, access material, and documentation for the tendering party’s account or ship them to the tendering party and is entitled to reimbursement for reasonable costs of storage and shipment.
    4. Both parties remain bound by all contractual use terms that would have been enforceable had the performance not been refused.
    5. In complying with this section, the refusing party shall act in good faith. Conduct in good faith under this section is not acceptance or conversion and may not be a ground for an action for damages under the contract.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code Sections 2-602(2), 2-603, 2-604.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Access material”;

“Aggrieved party”;

“Agreement”;

“Cancel”;

“Contract”;

“Contractual use term”;

“Copy”;

“Delivery”;

“Good faith”;

“Information”;

“License”;

“Notify”;

“Party”;

“Seasonably”;

Section 117 [§ 59.1-501.17]: “Reasonable time”.

  1. Scope of the Section. This section deals with the rights and obligations of a party that rightfully refuses tender of a copy and is in possession or control of it or copies made from it. The section coordinates with Section 802 [§ 59.1-508.2] on cancellation of the contract.
  2. Cancellation and Refusal. Refusal of a copy may or may not result in canceling the contract. Upon cancellation, Section 802 [§ 59.1-508.2] controls to the extent of any inconsistency with this section. If the contract is not canceled, this section applies and the parties remain bound by all contractual obligations, except as altered by the breach and the remedies for breach.
  3. No Right to Use. In general, a refusing party has no right to use the refused copies or any copies made from them. Uses inconsistent with this section or the contract are a breach and may, in appropriate cases, be treated as acceptance of the tendered copies. Despite this, limited use for mitigating loss due to the other party’s breach may be permitted. The use must be solely to mitigate and does not extend to uses more appropriately viewed as acceptance of the copy; use also cannot entail disclosure of confidential information, violation of a restriction in a contractual use term, or sale, licensing, or other transfer of the copies. This section asks courts to reach the balance reached regarding goods in Can-Key Industries v. Industrial Leasing Corp., 593 P.2d 1125 (Or. 1979) and Harrington v. Holiday Rambler Corp., 575 P.2d 578 (Mont. 1978), but with an understanding of the nature of any intellectual property rights that may be involved.
  4. Handling Copies. The refusing party has no right to sell or otherwise dispose of information, documentation or copies under any circumstance. The information may be confidential or subject to overriding proprietary rights held by the other party. There is no commercial necessity to sell that copy to a third party to avoid commercial loss because the copy is not the relevant value in the transaction; the transaction focuses on the information.
  5. Restrictions in Contractual Use Terms. Both parties remain bound by restrictions in contractual use terms, including confidentiality obligations. See Section 812 [§ 59.1-508.12], Comment 4. It is not uncommon that each party have some such information of the other; a mutual, continuing restriction is appropriate to the extent allowed by applicable trade secret or other law. The restrictions relate only to the information acquired under and subject to the license. This does not restrict the party’s ability to obtain the same information from alternative lawful sources independent of the contract restrictions.
  6. Relationship to Section 802 [§ 59.1-508.2]. On rightful refusal or revocation of acceptance of a copy, the Section 706 [§ 59.1-507.6] rules apply unless the contract has been rightfully canceled. In that event, the Section 706 rules apply to the extent not inconsistent with Section 802 [§ 59.1-508.2].

Cancellation requires that both parties promptly disengage from the contract, returning any material previously received and refraining from any use that would have been allowed under the license. Cancellation ends the license. On the other hand, refusal without cancellation presumes that the contract continues, although the refused copy and related material will be returned to the tendering party, or any defect cured. Of course, the continued effectiveness of the contract is subject to the aggrieved party’s remedies for breach under this Act and the agreement.

The limited ability to use for purposes of mitigation is also subject to the requirement that the use not be contrary to instructions received from the other party regarding disposition of the information. Instructions that have the effect of preventing use for purposes of mitigation are, in effect, a waiver of the right to insist that mitigation in this form occur. The instructions must, of course, be given in good faith and generally are subject to a standard of commercial reasonableness.

§ 59.1-507.7. Copy; revocation of acceptance.

  1. A party that accepts a nonconforming tender of a copy may revoke acceptance only if the nonconformity is a material breach of contract and the party accepted it:
    1. on the reasonable assumption that the nonconformity would be cured, and the nonconformity was not seasonably cured;
    2. during a continuing effort by the party in breach at adjustment and cure, and the breach was not seasonably cured; or
    3. without discovery of the nonconformity, if acceptance was reasonably induced either by the other party’s assurances or by the difficulty of discovery before acceptance.
  2. Revocation of acceptance is not effective until the revoking party notifies the other party of the revocation.
  3. Revocation of acceptance of a copy is precluded if:
    1. it does not occur within a reasonable time after the party attempting to revoke discovers or should have discovered the grounds for it;
    2. it occurs after a substantial change in condition not caused by defects in the information, such as after the party commingles the information in a manner that makes its return impossible; or
    3. the party attempting to revoke received a substantial benefit or value from the information, and the benefit or value cannot be returned.
  4. A party that rightfully revokes has the same duties and is under the same restrictions as if the party had refused tender of the copy.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code Sections 2A-516; 2-608.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Copy”;

“Information”;

“Informational Rights”;

“Licensee”;

“Notifies”;

“Party”;

“Receive”;

“Seasonable”;

Section 117 [§ 59.1-501.1]: “Reasonable time”.

  1. Scope of Section. This section corresponds to Uniform Commercial Code §§ 2A-516; 2-608 (1998 Official Text). It deals only with revocation of acceptance of a copy. Revocation returns the parties to the same position as if the copy had been refused. It is equivalent to rescission. The revoking party is no longer liable for the price of the copy and, in appropriate circumstances, can obtain a refund. A “return” described in Section 102 [§ 59.1-501.2] is not relevant in this section because it refers to rights on rejecting a contract, not refusing a copy tendered pursuant to a contract.
  2. Conditions for Revocation. Revocation is appropriate only for material defects that would have justified refusal had the defect then been known. This is true even in mass market licenses. Acceptance of a copy ordinarily establishes closure of the transaction with respect to the copy. That expectation cannot be altered based on minor defects. For this purpose, the general standards of material breach apply. This rule follows Article 2 and Article 2A (1998 Official Text). Under subsection (b), effective revocation requires notification of the other party.
    1. Expectation of Cure. Revocation may be permitted if acceptance was on the assumption of cure. See paragraphs (a)(1) and (a)(2). Parties may engage in a mutual effort to resolve problems within the contract, rather than by ending it.
    2. Adjustment and Effort to Cure. Paragraph (a)(2) deals with a common issue. In cases of joint continuing efforts to adjust the computer information to fit the contract or otherwise be acceptable to the licensee, both parties know that problems exist. This paragraph encourages and supports such joint efforts. The licensee willing to jointly participate in the effort may revoke acceptance if the effort fails within a reasonable time and if other conditions barring revocation do not arise.
    3. Latent Defects. Paragraph (a)(3) follows Article 2 of the Uniform Commercial Code (1998 Official Text) and permits revocation if the defect was not discovered before acceptance because of the difficulty of discovery or inducement by the other party that had the effect of delaying discovery.

Revocation is inappropriate if based on a defect in the copy or information of which the accepting party was aware when it accepted the copy. This follows Article 2. Acceptance with knowledge of a defect does not eliminate other remedies unless it creates a waiver, but does bar revocation based on the defect unless conditions mentioned in subsection (a) are present. These deal with two different circumstances:

§ 59.1-507.8. Adequate assurance of performance.

  1. A contract imposes an obligation on each party not to impair the other’s expectation of receiving due performance. If reasonable grounds for insecurity arise with respect to the performance of either party, the aggrieved party may:
    1. demand in a record adequate assurance of due performance; and
    2. until that assurance is received, if commercially reasonable, suspend any performance, other than with respect to contractual use terms, for which the agreed return performance has not been received.
  2. Between merchants, the reasonableness of grounds for insecurity and the adequacy of any assurance offered is determined according to commercial standards.
  3. Acceptance of any improper delivery or payment does not impair an aggrieved party’s right to demand adequate assurance of future performance.
  4. After receipt of a justified demand under subsection (a), failure, within a reasonable time not exceeding thirty days, to provide assurance of due performance which is adequate under the circumstances of the particular case is a repudiation of the contract under § 59.1-507.9.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2-609 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Contract”;

“Contractual use term”;

“Delivery”;

“Merchant”;

“Party”;

“Record”;

“Received.”

Section 117 [§ 59.1-501.17]: “Reasonable time.”

This section corresponds to Article 2 of the Uniform Commercial Code (1998 Official Text) and should be interpreted in that light but with recognition of the different nature of computer information transactions. Subsection (2) refers to contractual use restrictions. If the licensee is the aggrieved party, it may seek adequate assurances of performance and suspend its own performance. However, any restrictions in contractual use terms continue to apply. Insecurity does not change the contract.

§ 59.1-507.9. Anticipatory repudiation.

  1. If a party to a contract repudiates a performance not yet due and the loss of performance will substantially impair the value of the contract to the other party, the aggrieved party may:
    1. await performance by the repudiating party for a commercially reasonable time or resort to any remedy for breach of contract, even if it has urged the repudiating party to retract the repudiation or has notified the repudiating party that it would await its performance; and
    2. in either case, suspend its own performance or proceed in accordance with § 59.1-508.12 or § 59.1-508.13, as applicable.
  2. Repudiation includes language that one party will not or cannot make a performance still due under the contract or voluntary, affirmative conduct that reasonably appears to the other party to make a future performance impossible.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2-610.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Contract”;

“Notify”;

“Party”;

Section 117 [§ 59.1-501.17]: “Reasonable time”.

  1. Repudiation. Subsection (a) corresponds to Article 2 of the Uniform Commercial Code (1998 Official Text).
  2. Definition. Subsection (b) follows the definition in the Restatement (Second) of Contracts.

§ 59.1-507.10. Retraction of anticipatory repudiation.

  1. A repudiating party may retract its repudiation until its next performance is due unless the aggrieved party, after the repudiation, has canceled the contract, materially changed its position, or otherwise indicated that it considers the repudiation final.
  2. A retraction may be by any method that clearly indicates to the aggrieved party that the repudiating party intends to perform the contract. However, a retraction must contain any assurance justifiably demanded under § 59.1-507.8.
  3. Retraction restores a repudiating party’s rights under the contract with due excuse and allowance to the aggrieved party for any delay caused by the repudiation.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2-611.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Cancel”;

“Contract”;

“Party”.

This section corresponds to Article 2 of the Uniform Commercial Code (1998 Official Text).

§§ 59.1-507.11 through 59.1-508. Reserved.

Article 8. Remedies.

§ 59.1-508.1. Remedies in general.

  1. The remedies provided in this chapter are cumulative, but a party may not recover more than once for the same loss.
  2. Except as otherwise provided in §§ 59.1-508.3 and 59.1-508.4, if a party is in breach of contract, whether or not the breach is material, the aggrieved party has the remedies provided in the agreement or this chapter, but the aggrieved party shall continue to comply with any contractual use terms with respect to information or copies received from the other party, but the contractual use terms do not apply to information or copies properly received or obtained from another source.
  3. Rescission or a claim for rescission of the contract, or refusal of the information, does not preclude and is not inconsistent with a claim for damages or other remedy.

History. 2000, cc. 101, 996.

Editor’s note.

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code Section 2A-523.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Contract”;

“Contractual use term”;

“Information”;

“Party”.

  1. General Scope. This section states general rules on contract remedies. Unless otherwise expressly indicated, the effect of the rule can be varied by agreement.
  2. Cumulative Remedies. Contract remedies seek to put an aggrieved party in the position that would have resulted if performance had occurred as agreed. The remedies in this Act are cumulative to the extent consistent with that general goal. This Act rejects any concept of election of remedies. However, the parties by agreement may alter a remedy or make it unavailable. The agreement governs unless expressly invalidated by this Act.
  3. Aggrieved Party Choice. In litigation, an aggrieved party chooses the remedy, subject to substantive limitations under this Act or the agreement.  The court does not control the choice.
  4. Remedies Retained. This Act is supplemented by general law, including equitable remedies. Section 114 [§ 59.1-501.14:1]. Similarly, a remedy for contract breach does not displace a right under intellectual property law. Damage awards are limited by the principle that prohibits double recovery for the same wrong, but often the two forms of recovery refer to different damages and are not a double recovery.
  5. Contractual Use Terms. Breach does not eliminate restrictions in contractual use terms — both parties remain bound by them — but breach may end rights under the use terms. For example, a licensee licensed to distribute computer information cannot continue to do so if the licensor cancels the license because of the licensee’s breach, but restrictions, such as limitations on disclosure, continue to apply. Those restrictions relate to information acquired under and subject to the license and do not restrict the party’s ability to obtain the same information from alternative lawful sources independent of the contract restrictions.

§ 59.1-508.2. Cancellation.

  1. An aggrieved party may cancel a contract if there is a material breach that has not been cured or waived or the agreement allows cancellation for the breach.
  2. Cancellation is not effective until the canceling party gives notice of cancellation to the party in breach, unless a delay required to notify the party would cause or threaten material harm or loss to the aggrieved party. The notification may be in any form reasonable under the circumstances. However, in an access contract, a party may cancel rights of access without notice.
  3. On cancellation, the following rules apply:
    1. If a party is in possession or control of licensed information, documentation, materials, or copies of licensed information, the following rules apply:
      1. A party that has rightfully refused a copy shall comply with § 59.1-507.6 (b) as to the refused copy.
      2. A party in breach of contract which would be subject to an obligation to deliver under § 59.1-506.18, shall deliver all information, documentation, materials, and copies to the other party or hold them with reasonable care for a reasonable time for disposal at that party’s instructions. The party in breach of contract shall follow any reasonable instructions received from the other party.
      3. Except as otherwise provided in subparagraphs (A) and (B), the party shall comply with § 59.1-506.18.
    2. All obligations that are executory on both sides at the time of cancellation are discharged, but the following survive:
      1. any right based on previous breach or performance; and
      2. the rights, duties, and remedies described in § 59.1-506.16 (b).
    3. Cancellation of a license by the licensor ends any contractual right of the licensee to use the information, informational rights, copies, or other materials.
    4. Cancellation of a license by the licensee ends any contractual right to use the information, informational rights, copies, or other materials, but the licensee may use the information for a limited time after the license has been canceled if the use:
      1. is within contractual use terms;
      2. is not for distribution and is solely part of measures reasonable under the circumstances to avoid or reduce loss; and
      3. is not contrary to instructions received from the party in breach concerning disposition of them.
    5. The licensee shall pay the licensor the reasonable value of any use after cancellation permitted under paragraph (4).
    6. The obligations under this subsection apply to all information, informational rights, documentation, materials, and copies received by the party and any copies made therefrom.
  4. A term providing that a contract may not be canceled precludes cancellation but does not limit other remedies.
  5. Unless a contrary intention clearly appears, an expression such as “cancellation,” “rescission,” or the like may not be construed as a renunciation or discharge of a claim in damages for an antecedent breach.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2A-505; 2-106(3)(4), 2-720.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Cancellation”;

“Copy”;

“Contract”;

“Information”;

“Informational Rights”;

“License”;

“Notify”;

“Party”;

“Term”.

Section 117 [§ 59.1-501.17]: “Reasonable time”;

Section 701 [§ 59.1-507.1]: “Material breach”.

  1. Scope of the Section. This section describes when cancellation is permitted and its effect.
  2. Cancellation. “Cancellation” is a remedy under which one party ends the contract for breach. Section 102 [§ 59.1-501.2]. Cancellation discharges executory obligations, but does not alter rights earned by prior performance or established by breach.
  3. When Permitted. Cancellation is permitted if the agreement so provides or if there is a material breach of contract. What is a material breach depends on the agreement or the nature or effect of the breach. Section 701 [§ 59.1-507.1].  A material breach does not require that the aggrieved party cancel.  That party may continue to perform, demand reciprocal performance, and collect damages.  If it does not cancel and the breaching party cures the breach, cure precludes cancellation based on that breach.
  4. Notification. Subsection (b) requires notification to make the cancellation effective. Section 102(a)(49) [§ 59.1-501.2(a)(49)]. This contrasts to existing Article 2. Notification must be interpreted in light of the circumstances and does not require proof that the notice is received. Section 102 [§ 59.1-501.2].  The party harmed by the breach is not required at its risk to choose a fail-safe notification procedure. Notification is not required to cancel an access contract.
  5. Effect on Use Rights. Many licenses permit the licensee to use, access or take other designated actions without being sued for infringement by the licensor. When a license is canceled, that defense dissolves. A licensee who continues to act in a manner inconsistent with intellectual property rights of the licensor may face an infringement claim. Whether or when this occurs is determined by applicable information property and contract law. Sun Microsystems v. Microsoft Corp, 188 F.3d 1115 (9th Cir. 1999).
  6. Obligations Regarding Copies. Cancellation ends the contractual permission to use information and, in a license, contractual permission to retain copies of licensed information. Subsection (c) sets out some of the consequences of that result. However, subsection (c)(4) allows limited use by the licensee in a case where the licensee cancels because of the licensor’s breach. This right is solely for purposes of allowing mitigation. See comments to Section 706 [§ 59.1-507.6]. It does not create an implied license, but merely a limited contractual remedy premised on the principle that there is a duty to act reasonably to avoid loss in the event of breach. Use outside of that principle is wrongful.
  7. Effect on Obligations. All obligations executory on both sides at the time of cancellation are discharged, but any right based on previous breach or performance and the rights, duties, and remedies described in Section 616(b) [§ 59.1-506.16(b)] survive unless otherwise agreed. To survive, of course, the right itself must exist at the time of cancellation. Rights previously waived or excused because of breach do not survive. Section 601(b) [§ 59.1-506.1(b)].
  8. “No cancellation” clause. Especially where information is licensed for inclusion in a product and significant investments are needed to create or distribute the product, contractual terms often provide that the licensor cannot cancel for breach. The clause does not alter other remedies. Section 803 [§ 59.1-508.3], comment 4b. However, it ensures that if the licensee continues to distribute the product, it does not infringe. When parties agree to this type of remedy limitation, that term should be enforced. In a consumer or other contract where the performance is delivery of an acceptable copy, a contract term that prohibits cancellation does not alter the consumer’s or other transferee’s rights, since they still retain all rights to sue for damages and to refuse the tendered product.

If a party has a right to cancel, the equities favor the injured party, not the party in breach. Thus, no formalities of notice are required. It is sufficient that the aggrieved party by its actions or words communicate that the contract has ended. Thus, in a contract calling for a single delivery of a copy, the decision to refuse the copy, return it, and demand a refund is sufficient notification. Commencing a judicial proceeding gives notice. The aggrieved party is not required to use formal terminology or procedures or to give a notice prior to taking an act that itself gives notice.

§ 59.1-508.3. Contractual modification of remedy.

  1. Except as otherwise provided in this section and in § 59.1-508.4:
    1. an agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter or a party’s other remedies under this chapter, such as by precluding a party’s right to cancel for breach of contract, limiting remedies to returning or delivering copies and repayment of the contract fee, or limiting remedies to repair or replacement of the nonconforming copies; and
    2. resort to a contractual remedy is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.
  2. Subject to subsection (c), if performance of an exclusive or limited remedy causes the remedy to fail of its essential purpose, the aggrieved party may pursue other remedies under this chapter.
  3. Failure or unconscionability of an agreed exclusive or limited remedy makes a term disclaiming or limiting consequential or incidental damages unenforceable unless the agreement expressly makes the disclaimer or limitation independent of the agreed remedy.
  4. Consequential damages and incidental damages may be excluded or limited by agreement unless the exclusion or limitation is unconscionable. Exclusion or limitation of consequential damages for personal injury in a consumer contract for a computer program that is subject to this chapter and is contained in consumer goods is prima facie unconscionable, but exclusion or limitation of damages for a commercial loss is not unconscionable.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2-719.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Cancel”;

“Computer program”;

“Consequential damages”;

“Consumer”;

“Consumer contract”;

“Contract”;

“Incidental damages”;

“Party”;

“Term”.

  1. Scope of the Section. This section deals with agreed limitations on remedies for breach.  It does not deal with the right to a return defined in Section 102 [§ 59.1-501.2] and used in Sections 113, 209 and 613 [§§ 59.1-501.13:1, 59.1-502.9 and 59.1-506.13]. That is not a remedy for breach, but a procedure on declining contract terms. “Return” as used in this section does not refer to that right, but to a remedy for breach and is not a “return” as in Section 102(a) [§ 59.1-501.2(a)].
  2. Agreement Controls. Parties may by agreement fit their remedies to their particular deal. This is fundamental to contract practice and defines the cost of a transaction. A party that agrees to accept all liability for breach will charge more than a party that contractually limits liability. Similarly, a party may not be willing to acquire a product unless it obtains particular remedies and recourse. How parties order these choices depends on the agreement, but no principle of commercial contract law suggests that parties’ ability to control these issues should be precluded.
  3. Exclusive Remedies. An agreed remedy may modify or replace otherwise available remedies, or it may give an additional right. To be an exclusive remedy that displaces other remedies, the agreement must expressly so provide. This follows Article 2 of the Uniform Commercial Code (1998 Official Text).
  4. Listed Illustrations. Subsection (a) lists several remedies common in commercial practice. The illustrations are not an exclusive list. They include:
    1. Replacement, Repair and Refund. Agreed limited remedies that refer to replacement, repair, or refund are common. The three different terms, however, indicate different remedies: replacement refers to supplying another copy of the same product, repair obligates the party to eliminate defects that cause nonconformance with the contract, and refund usually obligates it to return the price already paid for the defective performance. The purpose of a “replacement” or a “repair” obligation is to limit remedies, but also to provide the licensee with an information product that fulfills contract obligations. The purpose of a “refund” remedy is to reimburse the amount paid for the defective performance and to limit damages.
    2. No Cancellation. Subsection (a) refers to an agreed term that bars cancellation for breach, but allows exercise of other remedies. This is important for cases of a licensee that commits resources to develop and distributes a product based in whole or part on information rights licensed to it, or in other cases where continued use of the computer information is critical to the licensee. The ability to bar cancellation by agreement is important in this commercial environment where the licensee may devote great resources to development of a further product based on the originally licensed information or may predicate a business model upon it. Section 802 [§ 59.1-508.2], comment. The remedy limitation does not affect consumers since other remedies remain in force (refusal, recoupment, damages) that fully protect the consumer. This is also true for commercial end users. Waiver of a right to cancel does not bar enforcement of the license or other rights under it (such as the right to damages for breach or for specific performance).
  5. Failure of Exclusive Remedy. Subsections (b) and (c) follow Article 2 of the Uniform Commercial Code (1998 Official Text) but clarify an issue litigated under Article 2.
  6. Minimum Adequate Remedy. An agreed remedy provision does not fail because the court believes that the remedy does not afford a “minimum adequate remedy.” Doctrines of unconscionability, fundamental public policy and for determining whether mutuality of obligation exists for a binding contract set a floor on what agreed terms are binding with respect to remedies.
  7. Consequential Damage Limits. Disclaimer or limitation of consequential damages is generally enforceable. See U.C.C. Article 2-715, comment 3 (1998 Official Text). In consumer transactions involving defective computer programs embedded in consumer goods that cause personal injury, however, this section follows Article 2 of the Uniform Commercial Code (1998, Approved Draft) and makes disclaimer of personal injury damages prima facie unconscionable. Under Section 103(b), some computer programs embedded in goods are not governed by this Act but by Article 2, which has the same rule. This section does not create liability that would not exist under other law. Most cases reject personal injury claims against information providers even under tort law. This reflects that, for information products, courts balance public interests in encouraging distribution of information against interests in creating new sources of recovery. This Act does not alter the analysis that courts using general theories of tort law should make under that body of law.

In many transactions, refund refers to the price paid for a single copy. Other transactions entail ongoing royalties or other fees, including fees for services additional to furnishing the product (such as support or maintenance). Nothing in this section restricts the ability of parties to agree to a refund of a fixed maximum amount or portion of the expected contract fee or to exclude or include moneys paid for other services. Refund usually contemplates the payments for the product, not payment to cover all value received.

a. Failure of Remedy. Under subsection (b), if performance of an exclusive remedy causes it to fail of its intended purpose, it no longer limits the remedies of the aggrieved party. This is the rule in Article 2. Courts must ask what was the purpose of the agreed remedy. A different purpose exists for remedies limited to replacement or repair, and remedies that include a remedy consisting of a refund right. In the absence of a refund remedy, the purpose is to provide a functioning product. In cases where the remedy includes a right to a refund, the purpose is to return money that was paid for the defective performance. Performance by giving a refund fulfills the purpose of a refund remedy if a party that did not receive a conforming performance receives the agreed refund. This contrasts to an agreement in which the remedy requires replacement or repair, but not a refund. In that case, the agreed remedy contemplates a functioning product. Non-performance of the remedy leaves the licensee without what it bargained for under the contract, a functioning product.

b. Related to Consequential Damage Limits. Subsection (c) deals with the effect that failure of a limited remedy has on agreed limits on consequential damages. The issue is whether one agreed term (exclusion of consequential damages) depends on, or is independent of, another agreed term (limited remedy). This section provides that the two terms are dependent on each other unless the agreement expressly indicates otherwise. This rule rejects cases under Article 2 of the Uniform Commercial Code which hold that the two types of terms are presumed independent. A consequential damage limit fails if performance of the limited remedy fails unless the agreement makes the consequential damages limit expressly independent of the other limited remedy. If the agreement expressly states that the terms are independent, there is no reason in principle to preclude enforcement of that agreement.

Except as otherwise agreed, a consequential damage limitation covers all obligations and remedies under the contract. Remedy clauses are part of the overall transaction. A consequential damages limitation applies to all loss except as otherwise expressly stated in the contract.

However, the essence of any contract is that parties accept the legal consequences of their deal and that there be at least a fair quantum of remedy in the event of breach. Contracts that do not do so may fail for lack of consideration or mutuality. This does not mean that a court can rewrite the agreement or the agreed remedies. If a remedy is provided and is made exclusive, the fact that it does not fully compensate the aggrieved party is not a reason to allow that party to avoid the consequences of its agreement. Remedy terms are agreed allocations of risks. For example, a contract that limits recovery for software defects used in a satellite system to the price of the software (e.g., $100,000) is not unenforceable because the defect caused loss of a $1 million satellite. A decision to set a limit affects pricing and risk and cannot be set aside because the loss eventually fell on one party. On the other hand, a contract that states “licensee will have no responsibility for any harm to licensor caused by licensee’s intentional breach of any aspect of the agreement” may lack mutuality to establish a contract.

§ 59.1-508.4. Liquidation of damages.

  1. Damages for breach of contract by either party may be liquidated by agreement in an amount that is reasonable in light of:
    1. the loss anticipated at the time of contracting;
    2. the actual loss; or
    3. the actual or anticipated difficulties of proving loss in the event of breach.
  2. If a term liquidating damages is unenforceable under this subsection, the aggrieved party may pursue the remedies provided in this chapter, except as limited by other terms of the contract.
  3. If a party justifiably withholds delivery of copies because of the other party’s breach of contract, the party in breach is entitled to restitution for any amount by which the sum of the payments it made for the copies exceeds the amount of the liquidated damages payable to the aggrieved party in accordance with subsection (a). The right to restitution is subject to offset to the extent that the aggrieved party establishes:
    1. a right to recover damages other than under subsection (a); and
    2. the amount or value of any benefits received by the party in breach, directly or indirectly, by reason of the contract.
  4. A term that does not liquidate damages, but that limits damages available to the aggrieved party, must be evaluated under § 59.1-508.3.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code Section 2-718 (1998 Official Text). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Contract”;

“Copy”;

“Delivery”;

“Party”;

“Receive”;

“Term”;

  1. Scope of the Section. This section deals with liquidated damages clauses. The basic rule is that agreed terms are enforceable unless unreasonable.
  2. General Standard. A liquidated damages contract term sets both a minimum and maximum recovery. A liquidated damages term is, in concept, no different than any other contract term. The presumption is that courts enforce agreed terms. Subsection (a) provides that liquidated damages terms are enforceable if the amount is reasonable in light of 1) before-the-fact estimates of likely damages, or 2) after-the-fact actual damages, or 3) the difficulty of proof. Basically, the term is enforceable unless there is no reasonable basis on which to sustain it. A liquidated damage clause chosen based on the parties’ assessment of risk and cost should be enforced. Courts should not revisit the deal after the fact and disallow it because the choice later appeared to disadvantage one party. If the parties actually negotiated the clause, that clause is per se reasonable. Actual negotiation, however, is not essential to enforceability.
  3. Remedies On Unenforceability. If a liquidated damage term is not enforceable, the aggrieved party may pursue the remedies it has under this Act in the absence of the term. Those remedies may be limited by other agreed terms. For example, if the contract excludes consequential damages, the aggrieved party remains bound by that exclusion even if the liquidated damages term is unenforceable.
  4. Other Terms. A term that is not a liquidated damage clause but a limitation on damages, is governed by Section 803 [§ 59.1-508.3], not this section. Thus, a term that provides: “In no event shall either party be liable for damages exceeding $1 million dollars,” is a limitation on damages governed under Section 803 because it limits recovery but does not guaranty a recovery of any particular amount unless the facts support damages in that amount.

§ 59.1-508.5. Limitation of actions.

  1. Except as otherwise provided in subsection (b), an action for breach of contract must be commenced within the later of four years after the right of action accrues or one year after the breach was or should have been discovered, but not later than five years after the right of action accrues.
  2. If the original agreement of the parties alters the period of limitations, the following rules apply:
    1. The parties may reduce the period of limitation to not less than one year after the right of action accrues but may not extend it.
    2. In a consumer contract, the period of limitation may not be reduced.
  3. Except as otherwise provided in subsection (d), a right of action accrues when the act or omission constituting a breach of contract occurs, even if the aggrieved party did not know of the breach. A right of action for breach of warranty accrues when tender of delivery of a copy pursuant to § 59.1-506.6, or access to the information, occurs. However, if the warranty expressly extends to future performance of the information or a copy, the right of action accrues when the performance fails to conform to the warranty, but not later than the date the warranty expires.
  4. In the following cases, a right of action accrues on the later of the date the act or omission constituting the breach of contract occurred or the date on which it was or should have been discovered by the aggrieved party, but not earlier than the date for delivery of a copy if the claim relates to information in the copy:
    1. a breach of warranty against third-party claims for:
      1. infringement or misappropriation; or
      2. libel, slander, or the like;
    2. a breach of contract involving a party’s disclosure or misuse of confidential information; or
    3. a failure to provide an indemnity or to perform another obligation to protect or defend against a third-party claim.
  5. If an action commenced within the period of limitation is so concluded as to leave available a remedy by another action for the same breach of contract, the other action may be commenced after expiration of the period of limitation if the action is commenced within six months after conclusion of the first action, unless the action was concluded as a result of voluntary discontinuance or dismissal for failure or neglect to prosecute.
  6. This section does not alter the law on tolling of the statute of limitations and does not apply to a right of action that accrued before the effective date of this chapter.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2A-506; 2-725 (1998 Official Text). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Consumer”;

“Contract”;

“Copy”;

“Deliver”;

“Information”;

“Party”;

“Termination”.

  1. Scope and Purpose. This section reconciles conflicting statute of limitations for computer information transactions.
  2. Limitations Period. Subsection (a) bars a cause of action brought more than four years after the breach occurs, but adopts a discovery rule that may extend the time for bringing a cause of action up to five years from the time of breach. The period to bring the lawsuit is between four and five years, depending upon when breach occurred or should have been discovered.
  3. Effect of Agreement. Subsection (b) limits the enforceability of agreements that modify the limitations period. The statute of limitations reflects public policy about how long of a period may be permitted before law concludes that no action may be brought. Subsection (b) precludes agreements that permit a period of limitations longer than that stated in the Act. This does not prevent “tolling agreements” entered into during disputes. It only precludes extensions in the original agreement.
  4. Accrual of Cause of Action: Time of Performance. The four year term refers to four years from when the right of action accrues. This section applies two rules for when the cause of action accrues. The primary rule is subsection (c). The cause of action accrues when the breach occurs or should have been discovered. For an alleged breach of warranty, this generally occurs on delivery of the information or service, even if the defect does not become apparent until much later. Warranties are breached or not on delivery of the warranted subject matter.
  5. Traditional Discovery Rule. Subsection (d) describes cases in which the time of occurrence rule is replaced entirely by a traditional time of discovery rule. Each concerns circumstances in which it would be inappropriate to define breach as occurring when performance is delivered because the breach is never manifested until later and because the assurances involved in the contract obligation go to events beyond the time of delivery.

Subsection (b) also precludes reducing the limitations period to less that one year. This does not affect contracts that limit a warranty to a stated period of less than one year (e.g., ninety days). Such agreements define the warranty itself. They state the period during which discovery of a defect or the occurrence of its effect must occur (e.g., product has no defects manifested during the first ninety days). Unless the agreement so states, this does not limit the time in which a lawsuit may be brought. However, such agreed terms control when the cause of action accrues and whether there is a breach since they provide that a defect that is not manifest during this time is not a breach.

In some cases, however, a warranty expressly “extends to future conduct.” For example, if a warranty is that there are no defects that affect performance during the first ninety days after delivery, subsection (c) gives the terms of this language their effect. Breach of the warranty occurs if a defect appears within the stated warranty term. Subsection (c) rejects cases holding that such a warranty changes the limitations rule to a pure “discovery” rule, i.e., the cause of action does not accrue until the defect is or should have been discovered. If the warranty is for a limited time (e.g., one year), the breach cannot occur later than the expiration of that stated time.

§ 59.1-508.6. Remedies for fraud.

Remedies for material misrepresentation or fraud include all remedies available under this chapter for nonfraudulent breach of contract.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2-721 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Information”.

Follows Article 2 of the Uniform Commercial Code (1998 Official Text).

§ 59.1-508.7. Measurement of damages in general.

  1. Except as otherwise provided in the contract, an aggrieved party may not recover compensation for that part of a loss which could have been avoided by taking measures reasonable under the circumstances to avoid or reduce loss. The burden of establishing a failure of the aggrieved party to take measures reasonable under the circumstances is on the party in breach of contract.
  2. A party may not recover:
    1. consequential damages for losses resulting from the content of published informational content unless the agreement expressly so provides; or
    2. damages that are speculative.
  3. The remedy for breach of contract for disclosure or misuse of information that is a trade secret or in which the aggrieved party has a right of confidentiality includes as consequential damages compensation for the benefit obtained as a result of the breach.
  4. For purposes of this chapter, market value is determined as of the date of breach of contract and the place for performance.
  5. Damages or expenses that relate to events after the date of entry of judgment must be reduced to their present value as of that date. In this subsection, “present value” means the amount, as of a date certain, of one or more sums payable in the future or the value of one or more performances due in the future, discounted to the date certain. The discount is determined by the interest rate specified by the parties in their agreement unless that rate was manifestly unreasonable when the agreement was entered into. Otherwise, the discount is determined by a commercially reasonable rate that takes into account the circumstances of each case when the agreement was entered into.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Consequential damages”;

“Contract”;

“Direct damages”;

“Information”;

“Informational content”;

“Party”;

“Present value”;

“Published informational content”;

  1. Scope of the Section. This section brings together general rules on computation of damages.  Specific rules for licensor damages (Section 808 [§ 59.1-508.8]) and licensee damages (Section 809 [§ 59.1-508.9]) are subject to the general principles stated here.
  2. Mitigation. Subsection (a) requires mitigation of damages and places the burden of establishing a failure to mitigate on the party asserting the protection of the rule. “Burden of establishing” means that the party with the burden must persuade the trier of fact that the existence of the fact is more probable than its non-existence. Uniform Commercial Code § 1-201(8) (1998 Official Draft).
  3. Published Informational Content. Subsection (b) excludes consequential damages for issues about the content of “published informational content.” Whether characterized as a First Amendment analysis or treated as a question of social policy, our culture has a substantial interest in promoting the dissemination of information. This Act supports and encourages distribution of informational content to the public.
  4. Speculative Damages. This Act does not require proof with absolute certainty or mathematical precision. Consistent with the principle of Article 1 of the Uniform Commercial Code (1998 Official Text) that there be a liberal administration of the remedies of that Code, the remedies in this Act must be administered in a reasonable manner. However, this does not permit recovery of losses that are speculative or highly uncertain and therefore unproven. See Restatement (Second) of Contracts 352 (“Damages are not recoverable for loss beyond the amount that the evidence permits to be established with reasonable certainty.”). No change in law on this issue is intended; courts should continue to apply ordinary standards of fairness and evaluation of proof. For an illustration in an information transaction, see Freund v. Washington Square Press, Inc., 34 N.Y.2d 379, 357 N.Y.S.2d 857, 314 N.E.2d 419 (1974).
  5. Confidential Information. Subsection (c) confirms that one way of measuring loss in the case of confidentiality breaches is in terms of the value obtained by the breaching party. In essence, where a confidential relationship exists, the party to whom the confidentiality obligation is owed has an expectation of the information not being misused and that expectation is entitled to protection. Compensation for such loss is important. However, if the breach of confidence gives benefits to a third party that do not inure directly or indirectly to the party to the contract, recovery against the third party is under other law. The rule stated here, of course, is also subject to the prohibition on double recovery. Section 801 [§ 59.1-508.1].
  6. Market Value. If market value is part of a damages computation, subsection (d) requires that market value be determined at the time and place for performance. Where performance is delivery of a copy, the place is as indicated in the agreement or this Act. In other cases, such as an Internet transaction that provides access to an information system, the nature of the subject matter makes geographic touchstones difficult to determine or inappropriate. In such cases, courts may refer to rules on choice of law in Section 109(b) [§ 59.1-501.9(b)] this Act, which provide a stable reference point relevant to and protective of both parties.
  7. Present Value. Subsection (e) provides that damages as to future events are awarded based on present value as of the date of judgment. The definition of “present value” corresponds to Uniform Commercial Code §§ 2A-103; 1-201 (37)(z) (1998 Official Text), but modifies the rules to cover present valuation of performances other than payments. This term provides for discounting the value of future payments or losses as measured at a particular point in time. This requires, as to damages awarded for eventualities that are in the future, that courts do so based on a present value standard. As to losses and expenses that have already occurred, the present value measurement does not apply. No change in law on pre-judgment interest is intended.

The idea that an injured party must mitigate its contract damages permeates contract law. Contract remedies are not punitive but compensatory. The injured party cannot act in a way that enhances loss and expect to have that loss compensated in damages recoverable from the other party. This does not create an obligation of an aggrieved party to cover. The damages formulae in Sections 808 and 809 [§§ 59.1-508.8 and 59.1-508.9] contain various means of adjusting damages by statutory measures that in effect are a surrogate for mitigation (e.g., the statutory formulae based on market value of the performance). If the formula is used to compute damages, whether there was a actual mitigation is not relevant.

The reference in subsection (a) to otherwise provided in the agreement includes contractual liquidation of damages. An enforceable liquidated damages term creates an agreed measure of damages. A court may not reduce or alter that contractual measure based on its determination about whether actual damages were adequately mitigated or not.

As indicated in the definition of published informational content, the context is one in which the content provider does not deal directly with the data recipient in a special reliance setting. Information of this type is typically low cost and high volume. Dissemination of such information would be seriously impeded by high liability risk. With few exceptions, modern law recognizes the liability limitations even under tort law. The Restatement of Torts, for example, limits exposure for negligent error in data to intended recipients and to “pecuniary loss” which corresponds to direct damages.

The subsection does not exclude all consequential damage claims relating to published informational content. For example, if a party agrees to provide content for distribution over the Internet, but fails to deliver in a timely fashion, the resulting damages claim does not pertain to the content itself, but to the failed performance. Whether consequential loss is recoverable is determined under the general standards of this Act, the agreement of the parties, and common law.

Illustration 1: D distributes stock market information through newspapers and on-line for $5 per hour or $1 per copy. C reviews the online information and trades 1 million shares of Acme at a price that causes a $10 million loss because the data were incorrect. If C were in a relationship of reliance with D, consequential loss is recoverable. But this is published informational content, and C cannot recover alleged consequential loss.

Illustration 2: Internet-Games.com allows players to play a grisly 3-D game. One player who pays $5 is shocked by the violence and spends a sleepless week. That player should have no recovery at all, but if the player can show a breach, the player could not recover consequential loss since this is published informational content.

Each illustration assumes that the contract for the published informational content did not expressly provide for consequential damages.

In determining market value, due weight must be given to any substitute transaction actually entered into by a party, taking into account the extent to which the transaction involved terms, performance, information, and informational rights similar in terms, quality, and character to the agreed performance. See Comments to Section 808(a) [§ 59.1-508.8(a)].

§ 59.1-508.8. Licensor’s damages.

  1. In this section, “substitute transaction” means a transaction by the licensor which would not have been possible except for the licensee’s breach and which transaction is for the same information or informational rights with the same contractual use terms as the transaction to which the licensee’s breach applies.
  2. Except as otherwise provided in § 59.1-508.7, a breach of contract by a licensee entitles the licensor to recover the following compensation for losses resulting in the ordinary course from the breach, less expenses avoided as a result of the breach, to the extent not otherwise accounted for under this subsection:
    1. damages measured in any combination of the following ways but not to exceed the contract fee and the market value of other consideration required under the contract for the performance that was the subject of the breach:
      1. the amount of accrued and unpaid contract fees and the market value of other consideration earned but not received for:
        1. any performance accepted by the licensee; and
        2. any performance to which § 59.1-506.4 applies;
      2. for performances not governed by subparagraph (A), if the licensee repudiated or wrongfully refused the performance or the licensor rightfully canceled and the breach makes possible a substitute transaction, the amount of loss as determined by contract fees and the market value of other consideration required under the contract for the performance less:
        1. the contract fees and market value of other consideration received from an actual and commercially reasonable substitute transaction entered into by the licensor in good faith and without unreasonable delay; or
        2. the market value of a commercially reasonable hypothetical substitute transaction;
      3. for performances not governed by subparagraph (A), if the breach does not make possible a substitute transaction, lost profit, including reasonable overhead, that the licensor would have realized on acceptance and full payment for performance that was not delivered to the licensee because of the licensee’s breach; or
      4. damages calculated in any reasonable manner; and
    2. consequential and incidental damages.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Sections 2A-528; 2-708 (1998 Official Text). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Cancel”;

“Consequential damages”;

“Contract”;

“Contract fee”;

“Contractual use term”;

“Direct damages”;

“Good faith”;

“Incidental damages”;

“Information”;

“Informational rights”;

“Licensee”;

“Licensor”;

“Present value”;

“Receive”.

  1. Scope of the Section. This section states how to measure damages for a licensor if the licensee breaches the contract. Under Section 807, damage awards related to events in the future are based on the present value at the time of the award.
  2. General Approach. A licensor may choose any measure of damages described in subsection (b), subject to the limitation on double recovery. The basic approach assumes that the aggrieved party chooses the method of computation, subject to judicial review of whether the choice creates double recovery. No order of preference is required. Subsection (b)(1) measures “direct damages” by the difference in value between performance promised and received. When appropriate, direct damages also include reimbursement for value already given and for which payment has not yet occurred. The damages are capped by the contract fee for the performance and the market value of other consideration to be received. This does not include the loss of expected benefits from use of the expected performance in other contexts. If recoverable, those are consequential, not direct damages.
  3. Intangible Subject Matter: Substitute Transactions. Licensor remedies differ from remedies for sellers in Article 2 of the Uniform Commercial Code. Article 2 focuses on an assumption that the seller’s loss lies in the sale of the particular item. For computer information transactions, the particular copy is not ordinarily relevant. The basic issue is whether breach enables a substitute transaction that could not have otherwise occurred and which is properly considered in determining direct damages.
  4. Computation Approaches. The damage formulae describe direct damages capped by the contract fee and the market value of consideration to be received by the licensor.
    1. Accrued Fees and Consideration. Under paragraph (b)(1)(A) the aggrieved licensor is entitled to recover any accrued and unpaid fees and the value of other consideration owed for information or services actually delivered. These are direct damages. Recoveries beyond that, when appropriate, are consequential damages.
    2. Measuring other Direct Damages. This section outlines several approaches to direct damages in addition to unpaid fees and consideration.
      1. Recovery Measured by Contract Fee: Substitute Transaction Enabled. Under paragraph (b)(1)(B), damages are measured by unaccrued contract fees and other consideration less the value of any actual or hypothetical “substitute transaction” made possible by the breach. Section 807 [§ 59.1-508.7] requires computation at present value for losses associated with events occurring after judgment. Speculative damages are not recoverable. Restatement (Second) of Contracts § 352. See Section 807 [§ 59.1-508.7].
      2. Recovery Measured by Lost Profits. Under paragraph (b)(1)(C), damage recovery is measured by lost profits caused by a failure to accept performance or by repudiation of the contract. Unlike in Article 2 of the Uniform Commercial Code (1998 Official Text), this Act does not require proof that alternative measures of damages are inadequate to compensate the licensor. The injured party chooses the method of computation. As with contract fees, lost profits must be proven with reasonable certainty and may not be speculative. Restatement (Second) of Contracts § 352. Similarly, recovery is subject to the general duty to mitigate. See Section 807 and Krafsur v. UOP, (In re El Paso Refinery), 196 BR 58 (Bankr. WD Tex. 1996).
      3. Measurement in any Reasonable Manner. Subsection (b)(1)(D) authorizes computation of direct damages in any manner that is reasonable, and thus recognizes that the diversity of contexts present in this field make the specific formulae useful, but potentially inapplicable in some cases.
    3. Consequential and Incidental Damages. The licensor is also entitled, in an appropriate case, to recover consequential and incidental damages. The section distinguishes between contract fees and royalties on the one hand (as direct damages) and consequential damages on the other. Section 102, comment 11. The damage recovery is also subject to the general provisions of Section 801 and 807 [§§ 59.1-508.1 and 59.1-508.7].
  5. Illustrative Situations.
  6. Remedies under Other Law. The licensor may have remedies under other law, including intellectual property law. Breach introduces the possibility of an infringement claim if, for example, (a) the breach results in cancellation of the license and the licensee’s continuing conduct is inconsistent with the licensor’s informational rights, or (b) the breach consists of acting outside the scope of the license and in violation of the informational right. Remedies under informational rights laws do not displace contract remedies provisions since they deal with different issues. The two remedies may raise dual recovery issues in some cases. The general rule is that all remedies are cumulative, except that double recovery is not permitted.

Damages under this section are subject to the general principles of this Act. Section 807 [§ 59.1-508.7] disallows recovery of consequential damages in some cases, including where claims are speculative or are for the content of published informational content. Under Section 807 [§ 59.1-508.7], also, recovery may be limited by the requirement that the aggrieved party act in a reasonable manner to mitigate loss.

The idea of a “substitute transaction” is a central concept. A transaction is not a substitute transaction simply because in it the transferor used a diskette that might have been used to deliver the same information to the original licensee. The focus is on the information, not the tangible media, and on contractual use terms. To be a substitute transaction, the transaction must involve the same information under the same use terms.

To be a “substitute transaction” the transaction must have been made possible by the breach. This rule requires that a substitute transaction must be possible. If there is no market and no alternative licensee for the same information product under the same terms, no substitute is possible. That will often occur when the contract is to develop software for a particular application of the licensee. Also, the rule requires that, if a transaction is possible, the licensor’s ability to engage in it must be due to the breach and not simply because another transaction would have been possible in any event. For example, in the case of a breach of a non-exclusive access contract by the licensee, there would ordinarily not be a substitute transaction because the licensor has almost unlimited capability to make access available to others. While another access contract may subsequently occur, that contract was not made possible by breach — the new license would have occurred with or without the breach. More generally, in most non-exclusive licenses, breach does not enable a new transaction. On the other hand, cancellation for breach of an exclusive license to distribute a work in a geographic area may enable the licensor to make a substitute license in that area that could not otherwise have been made because of the exclusive nature of the breached license.

Recovery for unaccrued (future) fees and consideration is reduced by due allowance for proceeds of a “substitute transaction.” This is measured either by an actual substitute transaction or by the market value of a commercially reasonable hypothetical transaction. The substitute transaction must have been made possible by the breach. If breach makes possible a substitute transaction, but no transaction actually occurs, recovery sought under this paragraph is reduced by the market value (if any) of the hypothetical substitute transaction made possible by the breach. As with actual substitute transactions, market value must assume a market for the same use restrictions for the same information over the same contract terms.

Illustration 1: LR licenses a master disk of its software to LE allowing LE to make and distribute 10,000 copies. This is a nonexclusive license. The fee is $1 million. The cost of the disk is $5. LE wrongfully refuses the disk and repudiates the contract. Under (a)(1)(A), LR would recover $1 million less the $5, as also reduced by due allowance for (1) any substitute transaction made possible by this breach and (2) by any other failure to mitigate. However, (a)(1)(B) would ordinarily not apply since a second 10,000 copy license is not a substitute transaction if the license was not made possible by the breach. Recovery under subsection (a)(1)(C) is computed by assessing lost profit including reasonably attributable overhead.

Illustration 2: Same as Illustration 1, but the license was a worldwide exclusive license. On breach, LR makes an identical license with second LE for a fee of $900,000. This transaction was made possible because the first exclusive license was canceled. LR recovery under subsection (a)(1)(B) is $100,000 less any net cost savings not accounted for in the second transaction. If there was no actual second license, but the market value for such a license was $800,000, the recovery is $200,000 less any net cost savings not accounted for in the hypothetical market value.

Illustration 3: LR grants an exclusive U.S. license to LE to distribute copies of LR’s copyrighted digital encyclopedia. This is a ten-year license at $50,000 per year. In Year 2, LE breaches and LR cancels. Recovery is the present value of the remaining contract fees with due allowance for any actual or hypothetical substitute transaction made possible by the breach.

§ 59.1-508.9. Licensee’s damages.

  1. Subject to subsection (b) and except as otherwise provided in § 59.1-508.7, a breach of contract by a licensor entitles the licensee to recover the following compensation for losses resulting in the ordinary course from the breach or, if appropriate, as to the whole contract, less expenses avoided as a result of the breach to the extent not otherwise accounted for under this section:
    1. damages measured in any combination of the following ways, but not to exceed the market value of the performance that was the subject of the breach plus restitution of any amounts paid for performance not received and not accounted for within the indicated recovery:
      1. with respect to performance that has been accepted and the acceptance not rightfully revoked, the value of the performance required less the value of the performance accepted as of the time and place of acceptance;
      2. with respect to performance that has not been rendered or that was rightfully refused or acceptance of which was rightfully revoked:
        1. the amount of any payments made and the value of other consideration given to the licensor with respect to that performance and not previously returned to the licensee;
        2. the market value of the performance less the contract fee for that performance; or
        3. the cost of a commercially reasonable substitute transaction less the contract fee under the breached contract, if the substitute transaction was entered into by the licensee in good faith and without unreasonable delay for substantially similar information with the same contractual use terms; or
      3. damages calculated in any reasonable manner; and
    2. incidental and consequential damages.
  2. The amount of damages must be reduced by any unpaid contract fees for performance by the licensor which has been accepted by the licensee and as to which the acceptance has not been rightfully revoked.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code Sections 2A-518; 2A-519(1)(2). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Consequential damages”;

“Contract”;

“Contract fee”;

“Contractual use term”;

“Direct damages”;

“Good Faith”;

“Incidental damages”;

“Information”;

“Informational rights”;

“Licensee”;

“Licensor”;

“Present value”;

“Receive”;

“Term”.

  1. Scope and General Structure of the Section. This section states how to measure damages for a licensee if the licensor breaches the contract. The basic approach is that the aggrieved party chooses the method of computation, subject to judicial review of whether the choice creates double recovery. Damages awarded for future events are based on present value at the time of the award. Section 807 [§ 59.1-508.7].
  2. Direct and Consequential Damages. Subsection (a)(1) measures direct damages. Direct damages are capped by the market or contract value of the performance plus restitution of fees paid for which performance was not received. Market value refers to what would be the fee in a similar transaction for the performance. Section 807 [§ 59.1-508.7] provides when and where “market value” is determined.
  3. Computation. Subsection (a) provides for recovery under the formulae stated in that section less expenses saved as a result of the breach to the extent those are not otherwise reflected in the formula. All damages under this section are subject to general principles of this Act, including Section 807 [§ 59.1-508.7] and concepts of mitigation, and Section 116 [§ 59.1-501.16], including supplemental principles of equity such as concepts of mitigation and the prevention of economic waste.
    1. Lost Value in Accepted Performance. Paragraph (a)(1)(A) provides for recovery for a performance accepted when the acceptance is not revoked even though the performance was defective; this covers any breach of contract, including a breach of warranty. Direct damages are measured by the difference in the contract price and the actual value received. If software with a value of $10,000 was to be delivered, but because of a defect, the value was $9,000, this yields a recovery of $1,000 if the licensee accepts and keeps the software. Value is generally measured by the contract fee. Recovery for any loss that exceeds that amount is consequential damages. This allows recovery based on the cost of repairs incurred to bring the product to the represented or warranted quality, if those costs are commercially reasonable and incurred in good faith.
    2. Performance not Received or Not Accepted. Paragraph (a)(1)(B) deals with damages for a performance that has not been accepted by the licensee or as to which the acceptance has been revoked.
      1. Recovery of Fees. The licensee is entitled to recover any fee paid for which performance was not received. Performance has not been received if the licensor fails to make a required delivery or repudiates, if the licensee rightfully refuses or justifiably revokes acceptance, or if the performance was executory at the time the licensee justifiably canceled. This paragraph allows restitution of amounts paid for such undelivered performance.
      2. Market and Cover. Paragraphs (a)(1)(B)(ii) and (B)(iii) parallel Uniform Commercial Code Article 2 (1998 Official Text) in computing direct damages by comparing contract price to either the market value of the performance not received or the cost of cover to replace that performance with a reasonable substitute, but also reflect the differences on this issue between sales of goods and transactions in computer information. Recovery is reduced by the amount of any expenses saved as a result of the breach. Section 807 [§ 59.1-508.7] requires that market value be determined as of the time and place for the performance.
    3. Measured in any Reasonable Manner. Subsection (a)(1)(C) authorizes computation of direct damages in any manner that is reasonable. This provides a response to the many situations that cannot be predicted in advance. The measurement, while open-ended in computation technique, is limited to the type of damages discussed here and by the cap on recovery of direct damages expressed in subsection (a)(1).
  4. Consequential and Incidental Damages. The licensee may recover incidental and consequential damages except as limited by the agreement or this Act, including Section 807 [§ 59.1-508.7]. If proven with reasonable certainty, consequential damages can include lost profits.
  5. Illustrative Cases.

“Direct damages” are the difference in market value between the performance promised and performance received, not counting lost expected benefits from anticipated use of the expected performance. This rejects cases such as Chatlos Systems, Inc. v. National Cash Register Corp., 670 F.2d 1304 (3d Cir. 1982), cert. dism., National Cash Register Corp. v. Chatlos Systems, Inc., 457 U.S. 1112 (1982), which, under a rule referring simply to “value”, incorporate in direct damages an assessment of how valuable use of the performance would have been to the aggrieved party. If recoverable, those are consequential, not direct damages.

Paragraph (B)(iii) allows cover as a way to fix damages and avoid further loss. In this Act, recovery can be computed based on a commercially reasonable cover with the same contractual use terms as the original contract. In administering damage claims based on cover, however, courts must recognize differences between this remedy in goods transactions and in information commerce. If the information not delivered can be obtained from numerous other sources, the similarity between goods and information is strong. On the other hand, in many contexts, the information may not be available from any other source. In such cases, obtaining a replacement involves obtaining different information. The different information is cover only if the similarities are so close and without differences in cost that their use as a measure of damages is clearly appropriate. This allows cover using commercially reasonable substitutes, but does not allow different information or information obtained under different contractual use terms. Use terms define the product and its price. They are sufficiently material that differences in such terms means that a different product is involved. If this occurs, recovery is under “market value” standards. For example, while a licensee can cover for a breach in delivery of a word processing program by obtaining a different program as a commercially reasonable substitute, that version cannot be obtained under a perpetual license if the original program was under a one year license.

Illustration 1: LE contracts for a 1,000 person site license for database software from LR. The contract fee is a $500,000 initial payment and $10,000 for each month of use. The duration is two years. LE makes the first payment, but LR fails to deliver. LE cancels and obtains a substitute system under a three year contract for $500,000 and $11,000 per month. It is entitled to refund of the $500,000 payment plus recovery of the difference between the contract price ($240,000 computed to present value) and the market price for the software. The court must determine to what extent the second transaction defines market value given differences in terms of the license, the nature of the software, and other relevant variables. The replacement is not a cover because of the differences in contract terms.

Illustration 2: Same facts as in Illustration 1, but after breach LE obtains a license for LR software from another authorized distributor for a $600,000 initial fee under other terms identical to the LR contract. Since the new contract is for the same information under the same terms, LE has recovery of its initial payment, the $100,000 price difference, and any recoverable incidental or consequential damages.

Illustration 3: Assume that, rather than being completely defective, the database system lacks one element that was promised. While LE could refuse the software, it elects to accept the license. It sues for damages. The issue is establishing the difference in value between the system as contracted and the one delivered, in light of the contract price. Assume the difference is $150,000. LE recovers that amount as direct damages, along with any recoverable incidental or consequential damages.

§ 59.1-508.10. Recoupment.

  1. Except as otherwise provided in subsection (b), an aggrieved party, upon notifying the party in breach of contract of its intention to do so, may deduct all or any part of the damages resulting from the breach from any payments still due under the same contract.
  2. If a breach of contract is not material with reference to the particular performance, an aggrieved party may exercise its rights under subsection (a) only if the agreement does not require further affirmative performance by the other party and the amount of damages deducted can be readily liquidated under the agreement.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code Section 2-717 (1998 Official Text). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Aggrieved party”;

“Agreement”;

“Contract”;

“Material breach”;

“Notify”;

“Party”.

  1. Scope of the Section. This section codifies the right of recoupment. Recoupment, as contrasted to set-off, allows self-help by recovering money owed through withholding payments due under the same contract. This section does not deal with set-off. The section derives from Section 2-717 of the Uniform Commercial Code (1998 Official Text), but expands it.
  2. Basic Standard. Recoupment permits one party to deduct damages resulting from the other party’s breach from payments owed to that party. The breach must be of the same contract under which the payment in question is being withheld. Exercise of the right requires notice to the other party. In the absence of notice, withholding payments is a breach. Withholding payments may provide cause for insecurity and a right to demand assurances under Section 708 [§ 59.1-507.8].
  3. Non-material Breaches. Subsection (b) limits recoupment in cases of nonmaterial breach. This limit applies only if the breach was non-material as to both the particular performance and the entire contract. A failure to deliver a shipment is outside the limit since it is material as to that performance. On the other hand, if only a minor problem exists, the balance of interests shifts. In such contracts, allowing self-help reduction of payments creates a risk of overreaching by the party withholding payment without a clear justification for doing so.

§ 59.1-508.11. Specific performance.

  1. Specific performance may be ordered:
    1. if the agreement provides for that remedy, other than an obligation for the payment of money;
    2. if the contract was not for personal services and the agreed performance is unique; or
    3. in other proper circumstances.
  2. An order for specific performance may contain any conditions considered just and must provide adequate safeguards consistent with the contract to protect the confidentiality of information, information, and informational rights of both parties.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2A-521; 2-716. Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Agreement”;

“Contract”;

“Court”;

“Information”;

“Informational Rights”;

“Party”;

“Term”.

  1. Scope of this Section. This section adopts and clarifies the remedy of specific performance under the Uniform Commercial Code Article 2.  It allows parties to contract for this remedy.
  2. Contracted For Remedy. Subsection (a) allows parties to contract for a remedy of specific performance if a court can administer the remedy and the performance is not an obligation to pay.  A court may refuse to enforce the contract if enforcing it would violate fundamental policy of the state.
  3. Judicial Remedy. Subsection (a)(2) adopts Uniform Commercial Code Article 2 (1998 Official Text)  and not Restatement (Second) of Contracts § 357, Introductory note.
    1. Personal Services. Specific performance cannot be ordered for a “personal services contract.” An individual cannot be forced to perform against the individual’s will. Determining what is a personal services contract requires a court to look at the nature of the agreement and what was to be provided pursuant to it. A contract for a named individual of superior skill or artistry to perform a particular task is a personal services contract. Breach gives a right to damages, but not a right to specific performance enforceable by contempt powers against the individual. If a corporation agrees to provide services, on the other hand, the contractual obligation may not constitute personal services because any person in the corporation can perform. Of course, even if the contract does not involve personal services, this section does not require or necessarily permit an award of specific performance unless the other conditions are met.
    2. Unique Subject Matter. Specific performance can only be ordered if the performance is “unique” or “in other proper circumstances.” The test of uniqueness requires that a court examine the commercial situation. The test requires a commercially realistic interpretation of the performance. Despite the often unique character of information, respect for a licensor’s property rights and confidentiality interests will often preclude specific performance of an obligation to create or a right to use the informational property unless the need is compelling. See Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985). Specific performance may be appropriate to prevent misuse or wrongful disclosure of confidential material because breach cannot be adequately responded to by an award of damages. Such cases are one illustration of the “other proper circumstances” referred to in this section.
  4. Conditioning the Order. The terms of an order of specific performance are within the discretion of the court. While subsection (b) recognizes this, it provides an important protection for confidential information where performance might jeopardize interests in confidential information of a party. Confidentiality and informational rights must be adequately protected in any specific performance award.

§ 59.1-508.12. Completing performance.

  1. On breach of contract by a licensee, the licensor may:
    1. identify to the contract any conforming copy not already identified if, at the time the licensor learned of the breach, the copy was in its possession;
    2. in the exercise of reasonable commercial judgment for purposes of avoiding loss and effective realization on effort or investment, complete the information and identify it to the contract, cease work on it, relicense or dispose of it, or proceed in any other commercially reasonable manner; and
    3. pursue any remedy for breach that has not been waived.
  2. On breach by a licensee, both parties remain bound by all contractual use terms, but the contractual use terms do not apply to information or copies properly received or obtained from another source.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Uniform Law Source: Uniform Commercial Code: Section 2A-524(2); 2-704(2) (1998 Official Text). Revised.

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Contract”;

“Contractual use term”;

“Copy”;

“Information”;

“Licensee”;

“Licensor”;

“Party”.

  1. Scope of the Section. This section parallels Uniform Commercial Code Section 2-704 (1998 Official Text). It gives the licensor options for proceeding after breach by the licensee, which options are constrained by the general duty to mitigate damages.
  2. Right to Identify Copies to the Contract. The right to identify conforming copies to the contract is applicable where the licensor intends to rely on the measure of damages involving comparison of the contract fee with the fee received in a substitute transaction for the same information. It will be less common in computer information transactions than in sales of goods because breaches regarding information licenses often do not result in this type of damages computation.
  3. Right to Complete Unfinished Information. The licensor can complete the information or exercise its other options under subsection (a)(2) in the exercise of reasonable commercial judgment in light of the facts as they appear at the time. If commercially reasonableness is contested, the burden is on the licensee to show the commercially unreasonable nature of the licensor’s action just as it would be under Section 807 [§ 59.1-508.7], if the licensor elected not to complete and the allegation was that the licensor failed to mitigate loss.
  4. Contractual Use Terms. Breach does not invalidate restrictions in contractual use terms, but may void rights under those use terms. For example, a licensee’s right to distribute copies is eliminated on breach if the licensor cancels the license, but restrictions on use, such as a limit on disclosure, continue to apply to both parties. Unless otherwise agreed, those restrictions, however, relate only to the information subject to the license. They do not restrict a party’s ability to obtain the same information from alternative lawful sources.

§ 59.1-508.13. Continuing use.

On breach of contract by a licensor, the following rules apply:

  1. A licensee that has not canceled the contract may continue to use the information and informational rights under the contract. If the licensee continues to use the information or informational rights, the licensee is bound by all terms of the contract, including contractual use terms, obligations not to compete, and obligations to pay contract fees.
  2. The licensee may pursue any remedy for breach which has not been waived.
  3. The licensor’s rights remain in effect but are subject to the licensee’s remedy for breach, including any right of recoupment or setoff.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Cancel”;

“Contract”;

“Contract fee”;

“Contractual use term”;

“Information”;

“Informational Rights”;

“Licensee”;

“Licensor”;

“Term.”

This section allows the licensee to elect between canceling the license or retaining the contractual rights and obligations, while pursuing other remedies. The licensee can continue to use the information pursuant to license terms and sue for breach if it elects to accept the performance and not cancel the contract. If it does so, it remains bound by all contract terms, except of course for its remedy for breach. On the other hand, cancellation ends all rights under the license. Section 802 [§ 59.1-508.2].

§ 59.1-508.14. Discontinuing access.

On material breach of an access contract or if the agreement so provides, a party may discontinue all contractual rights of access of the party in breach and direct any person that is assisting the performance of the contract to discontinue its performance.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

OFFICIAL COMMENT

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Access contract”;

“Agreement”;

“Party”;

“Person”.

Section 701 [§ 59.1-507.1]: “Material breach.”

  1. Scope of Section. This section deals with the right in an access contract to stop performance by denying further access to the other party.  The section only applies to access contracts.
  2. Right to Deny Access. An access provider may discontinue access without judicial authorization or prior notice in the event of material breach or if the contract so provides. The right to discontinue corresponds to common law which treats such contracts as subject to cancellation at will by the party who controls the facility even in absence of any breach, unless the contract otherwise provides. Ticketron Ltd. Partnership v. Flip Side, Inc.., No. 92-C-0911, 1993 WL 214164 (ND Ill. June 17, 1993).
  3. Not Retaking Transfers. This section does not give the licensor a right to retake transfers already made without judicial action, but merely to stop future performance. Rights with respect to information already in possession or control of the licensee at the time of discontinuance are dealt with elsewhere.

§ 59.1-508.15. Right to possession and to prevent use.

  1. On cancellation of a license, the licensor has the right:
    1. to possession of all copies of the licensed information in the possession or control of the licensee and any other materials pertaining to that information which by contract are to be returned or delivered by the licensee to the licensor; and
    2. to prevent the continued exercise of contractual and informational rights in the licensed information under the license.
  2. Except as otherwise provided in § 59.1-508.14, a licensor may exercise his rights under subsection (a) without judicial process only if this can be done:
    1. without a breach of the peace;
    2. without a foreseeable risk of personal injury or significant physical damage to information or property other than the licensed information; and
    3. in accordance with § 59.1-508.16.
  3. In a judicial proceeding, the court may enjoin a licensee in breach of contract from continued use of the information and informational rights and may order the licensor or a judicial officer to take the steps described in § 59.1-506.18.
  4. A party has a right to an expedited judicial hearing on a request for prejudgment relief to enforce or protect its rights under this section.
  5. The right to possession under this section is not available to the extent that the information, before breach of the license and in the ordinary course of performance under the license, was so altered or commingled that the information is no longer identifiable or separable.
  6. A licensee that provides information to a licensor subject to contractual use terms has the rights and is subject to the limitations of a licensor under this section with respect to the information he provides.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

Law Review.

For 2000 survey of Virginia technology law, see 34 U. Rich. L. Rev. 1051. (2000).

OFFICIAL COMMENT

Uniform Law Source: Uniform Commerical Code: Sections 2A-525, 2A-526; 9-503 (1998 Official Text).

Definitional Cross References. Section 102 [§ 59.1-501.2]: “Cancellation”;

“Contract”;

“Contractual use term”;

“Course of Performance”;

“Court”;

“Information”;

“Informational Rights”;

“License”;

“Licensee”;

“Licensor”;

“Party”.

  1. Scope of the Section. This section applies only to licenses canceled for breach. The aggrieved party has a right to recover licensed information and prevent further use by the breaching party. The remedies are analogous to Article 2A of the Uniform Commercial Code (1998 Official Text). They are limited by the restrictions in Section 816 [§ 59.1-508.16].
  2. Rights Recognized. In a license, the licensor retains overriding rights in the information. Cancellation of the license gives it an immediate right to prevent further use and retake the property conditionally made available to the licensee. The aggrieved party can obtain (1) possession of all copies of its information, and (2) when appropriate, an injunction against further use. On cancellation, the injured party has a right to preclude any further benefits to the breaching party. Merely returning copies may not achieve that result. The rights here, of course, apply only to information or copies provided under the license or made from licensed material. Information properly obtained from another source does not come within the provisions of this section.
  3. Self-help. Subsection (b) allows a right of self-help to repossess the tangible copy without breach of peace and in that regard corresponds to Article 2A and Article 9 of the Uniform Commercial Code (1998 Official Text). In contrast, Section 816 prohibits electronic self-help under this Act. Repossession of a tangible copy is permitted unless there is a cancellation for breach so long as the repossession does not “breach the peace”. Article 9 decisions are relevant on what is a breach of the peace. Subsection (b) makes clear that, having taken possession of the copy properly, the aggrieved licensor can erase it, but cannot destroy information that must be returned to the licensee.
  4. Expedited Hearing. Subsection (d) gives each party a right to an expedited hearing to enforce or protect rights. This enables early judicial review, reducing the risks associated with non-judicial repossession and the risks associated with information misuse. The section does not specify the timing required. This is left to state procedural law.
  5. Identifiability. Under subsection (e) there must be some identifiable thing with reference to which possessory rights can apply. A right to possession does not exist if the information has been so commingled as to be unidentifiable. This includes cases where data are thoroughly intermingled with data of the other party and that intermingling occurs in ordinary performance under the license. In such cases, repossession is impossible due to the expected performance under the contract.

This limit does not apply to the right to prevent use; it only means that a right to separable repossession of the information will not exist. For example, if trade secrets were provided to the licensee under contractual use terms, the ability to prevent further use hinges on whether a particular activity can be identified as use of the information. If an image, trademark, name or similar material is inseparable from property of the party in breach such as when it is incorporated into a product, that fact does not preclude the aggrieved party from preventing further use of the information. Thus, a license that allows use of an image in a video game does not prevent the licensor from barring use of the image in that game after breach even if the image is inseparable from the game. Of course, any prior authorized distribution of copies is not altered or impaired by subsequent cancellation.

§ 59.1-508.16. Limitations on electronic self-help.

  1. In this section,
    1. “electronic self-help” means the use of electronic means to exercise a licensor’s rights under § 59.1-508.15 (b); and
    2. “wrongful use of electronic self-help” means use of electronic self-help other than in compliance with this section.
  2. On cancellation of a license, electronic self-help is not permitted, except as provided in this section. Notwithstanding any provision to the contrary, electronic self-help is prohibited in mass-market transactions.
  3. If the parties agree to permit electronic self-help, a licensee shall separately manifest assent to a term authorizing use of electronic self-help. In accordance with subsection (c) of § 59.1-501.12, a general assent to a license containing a term authorizing use of electronic self-help is not sufficient to manifest assent to the use of electronic self-help. The term must:
    1. provide for notice of exercise as provided in subsection (d);
    2. state the name of the person designated by the licensee to which notice of exercise must be given and the manner in which notice must be given and place to which notice must be sent to that person; and
    3. provide a simple procedure for the licensee to change the designated person or place.
  4. Before resorting to electronic self-help authorized by a term of the license, the licensor shall give notice in a record to the person designated by the licensee stating:
    1. that the licensor intends to resort to electronic self-help as a remedy on or after forty-five days following receipt by the licensee of the notice;
    2. the nature of the claimed breach that entitles the licensor to resort to self-help; and
    3. the name, title, and address, including direct telephone number, facsimile number, or e-mail address, to which the licensee may communicate concerning the claimed breach.
  5. A licensee may recover direct and incidental damages caused by wrongful use of electronic self-help. The licensee may also recover consequential damages for wrongful use of electronic self-help, whether or not those damages are excluded by the terms of the license, if:
    1. within the period specified in subsection (d) (1), the licensee gives notice to the licensor’s designated person describing in good faith the general nature and magnitude of damages;
    2. the licensor has reason to know the damages of the type described in subsection (f) may result from the wrongful use of electronic self-help; or
    3. the licensor does not provide the notice required in subsection (d).
  6. Even if the licensor complies with subsections (c) and (d), electronic self-help may not be used if the licensor has reason to know that its use will result in substantial injury or harm to the public health or safety or grave harm to the public interest substantially affecting third persons not involved in the dispute.
  7. A court of competent jurisdiction of the Commonwealth shall give prompt consideration to a petition for injunctive relief and may enjoin, temporarily or permanently, the licensor from exercising electronic self-help even if authorized by a license term or enjoin the licensee from misappropriation or misuse of computer information, as may be appropriate, upon consideration of the following:
    1. harm of the kinds stated in subsection (f), or the threat thereof, whether or not the licensor has reason to know of those circumstances;
    2. irreparable harm or threat of irreparable harm to the licensee or licensor;
    3. that the party seeking the relief is more likely than not to succeed under his claim when it is finally adjudicated;
    4. that all of the conditions to entitle a person to the relief under the laws of the Commonwealth have been fulfilled; and
    5. that the party that may be adversely affected is adequately protected against loss, including a loss because of misappropriation or misuse of computer information, that he may suffer because the relief is granted under this chapter.
  8. Before breach of contract, rights or obligations under this section may not be waived or varied by an agreement, but the parties may prohibit use of electronic self-help, and the parties, in the term referred to in subsection (c), may specify additional provisions more favorable to the licensee.
  9. This section does not apply if the licensor obtains physical possession of a copy without a breach of the peace and without the use of electronic self-help; in which case, a lawfully obtained copy may be erased or disabled by electronic means.

History. 2000, cc. 101, 996; 2001, c. 763.

Effective date.

This section is effective July 1, 2001.

The 2001 amendments.

The 2001 amendment by c. 763, in subsection (a), added the subdivision (1) designator, added “and” at the end of subdivision (1), and added subdivision (2); added the second sentence in subsection (b); in subsection (c), inserted “If the parties agree to permit electronic self-help” at the beginning, and added the second sentence; deleted “grave” at the beginning of subdivision (g) (1); inserted “the parties may prohibit use of electronic self-help, and” in subsection (h); and in subsection (i), inserted “physical,” and substituted “without the use of electronic self-help; in which case, a lawfully obtained copy may be erased or disabled by electronic means” for “the electronic self-help is used solely with respect to that copy.”

Law Review.

For 2000 survey of Virginia corporate and business law, see 34 U. Rich. L. Rev. 697 (2000).

OFFICIAL COMMENT

  1. Scope of the Section. This section prohibits electronic self-help under this Act, denying a licensor a remedy to enforce its rights in the event of a breach by the licensee.
  2. Self-Help for Breach. Electronic self-help deals with use of electronic means to prevent use of the computer program after the licensee commits a breach of sufficient seriousness that it allows the licensor to cancel the contract. The use of electronics to enforce a remedy for breach under this Act is precluded. The section does not deal with use of electronic restraints to prevent breach by limiting the licensee’s performance to the terms of the contract or to the use of electronics when a license terminates by its own terms or otherwise without breach.
  3. Non-waiver. The limitations under this section cannot be waived by agreement before breach.
  4. Off-setting Rights. Electronic means of enforcing rights on breach are an efficient method of enforcing contract law rights that are important for small licensors that may be unable to litigate effectively against large licensees, such as a one-person developer who licenses software to a multi-national insurance company. Nevertheless, under this section, the developer is precluded from exercising electronic self-help under this Act. The section does not interfere with the licensor’s right to cancel the license upon material breach (subject, of course, to the license terms) and the breaching licensee does not have any right to continue to use the program after cancellation. As part of the decision to ban electronic self-help under this Act, Section 816 [§ 59.1-508.16] provides for an award of attorneys fees for the prevailing party and an expedited hearing on the issuance of an injunction to effect, by court order, the actual cessation of use that would have been effected through electronic self-help but for the ban in this section.
  5. Other Law. Nothing in this section alters the rights of a seller, lessor or a secured party to take possession or render goods unusable without removal and without judicial process if that can be done with no breach of the peace (see e.g., UCC §§ 2A-525; 9-609 (directly or via 2-401)) or rights under other law such as title 17 of the U.S. Code.

The award of attorneys fees is independently authorized by this section with respect to a proceeding for a prejudgment relief brought because this section prohibits electronic self-help, and not subject to other rules regarding attorneys fees such as rules that may require a contract term allowing such fees in order for a court to award them, or requiring qualification in equity in order to receive them. Here, the provision is intended to recognize that this Act’s ban on electronic self-help is unique and disadvantageous to licensors in ways that are not reflected in other state laws. To the extent attorneys fees are available under other laws in other cases, this section does not disturb those laws.

§§ 59.1-508.17 through 59.1-509. Reserved.

Article 9. Miscellaneous Provisions.

§ 59.1-509.1. Repealed by Acts 2015, c. 709, cl. 2.

Editor’s note.

Former § 59.1-509.1, pertaining to severability, derived from 2000, cc. 101, 996.

At the direction of the Code Commission, Parts have been changed to Articles in this chapter to correct the 2000 acts.

§ 59.1-509.2. Previous rights and transactions.

Contracts that are enforceable and rights of action that accrue before the effective date of this chapter are governed by the law then in effect unless the parties agree to be governed by this chapter.

History. 2000, cc. 101, 996.

Effective date.

This section is effective July 1, 2001.

Chapter 44. Virginia Telephone Privacy Protection Act.

§ 59.1-510. Definitions; rule of construction.

As used in this chapter:

“Established business relationship” means a relationship between the called person and the person on whose behalf the telephone solicitation call is being made or initiated based on (i) the called person’s purchase from, or transaction with, the person on whose behalf the telephone solicitation call is being made or initiated within the 18 months immediately preceding the date of the call or (ii) the called person’s inquiry or application regarding any property, good, or service offered by the person on whose behalf the telephone solicitation call is being made or initiated within the three months immediately preceding the date of the call.

“Personal relationship” means the relationship between a telephone solicitor making or initiating a telephone solicitation call and any family member, friend, or acquaintance of that telephone solicitor.

“Responsible person” means either or both of (i) a telephone solicitor or (ii) a seller if the telephone solicitation call offering or advertising the seller’s property, goods, or services is presumed to have been made or initiated on behalf of or for the benefit of the seller and the presumption is not rebutted as provided in subsection B of § 59.1-514.1.

“Seller” means any person on whose behalf or for whose benefit a telephone solicitation call offering or advertising the person’s property, goods, or services is made or initiated.

“Telephone solicitation call” means (i) any telephone call made or initiated to any natural person’s residence in the Commonwealth, to any landline or wireless telephone with a Virginia area code, or to a landline or wireless telephone registered to any natural person who is a resident of the Commonwealth or (ii) any text message sent to any wireless telephone with a Virginia area code or to a wireless telephone registered to any natural person who is a resident of the Commonwealth, for the purpose of offering or advertising any property, goods, or services for sale, lease, license, or investment, including offering or advertising an extension of credit or for the purpose of fraudulent activity, including engaging in any conduct that results in the display of false or misleading caller identification information on the called person’s telephone.

“Telephone solicitor” means any person who makes or initiates, or causes another person to make or initiate, a telephone solicitation call on its own behalf or for its own benefit or on behalf of or for the benefit of a seller.

History. 2001, cc. 528, 553; 2004, cc. 202, 224; 2019, cc. 256, 264; 2020, cc. 263, 607.

The 2004 amendments.

The 2004 amendments by cc. 202 and 224 are identical, and inserted the paragraphs defining “Established business relationship” and “Personal relationship”; in the paragraph defining “Telephone solicitation call,” inserted “or to any wireless telephone with a Virginia area code” in the first sentence and deleted the last sentence, pertaining to exclusions of telephone solicitation calls.

The 2019 amendments.

The 2019 amendments by cc. 256 and 264 are identical, and inserted the definitions of “Responsible person” and “Seller”; in the definition of “Established business relationship” inserted “or initiated” three times, in the definition of “Telephone solicitation call” inserted “or initiated” and “or to a wireless telephone registered to any natural person who is a resident of the Commonwealth”; in the definition of “Telephone solicitor,” inserted “or initiated” and “on its own behalf or for its own benefit or on behalf of or for the benefit of a seller.”

The 2020 amendments.

The 2020 amendments by cc. 263 and 607 are identical, and in the definition for “Telephone solicitation call,” inserted “(i),” “landline or” twice, and “or (ii) any text message sent to any wireless telephone with a Virginia area code or to a wireless telephone registered to any natural person who is a resident of the Commonwealth,” added “or for the purpose of fraudulent activity, including engaging in any conduct that results in the display of false or misleading caller identification information on the called person’s telephone” and made a stylistic change.

Michie’s Jurisprudence.

For related discussion, see 18 M.J. Telegraph and Telephone Companies, § 2.

CASE NOTES

Affirmative defense. —

Corporation was entitled to summary judgment in a recipient’s claim under the Virginia Telephone Privacy Protection Act, § 59.1-510 to 59.1-518, because the offending calls were placed by a third party, and although the corporation authorized independent contractors to solicit orders, there was no nexus between the third party and the corporation; the corporation’s failure to require its independent contractors to keep track of numbers was not fatal to an affirmative defense under § 59.1-514. Mantian Zhu v. Dish Network, LLC, 808 F. Supp. 2d 815, 2011 U.S. Dist. LEXIS 43965 (E.D. Va. 2011).

§ 59.1-511. Calling time restrictions.

No telephone solicitor shall initiate, or cause to be initiated, a telephone solicitation call at any time other than between 8:00 a.m. and 9:00 p.m. local time at the called person’s location, unless the telephone solicitor has obtained the prior consent of the called person.

History. 2001, cc. 528, 553; 2004, cc. 202, 224.

The 2004 amendments.

The 2004 amendments by cc. 202 and 224 are identical, and deleted “to a natural person’s residence” preceding “at any time.”

§ 59.1-512. Identification of telephone solicitor required.

A telephone solicitor who makes a telephone solicitation call shall identify himself by his first and last names and the name of the person on whose behalf the telephone solicitation call is being made promptly upon making contact with the called person.

History. 2001, cc. 528, 553.

CASE NOTES

Affirmative defense. —

Corporation was entitled to summary judgment in a recipient’s claim under the Virginia Telephone Privacy Protection Act, § 59.1-510 to 59.1-518, because the offending calls were placed by a third party, and although the corporation authorized independent contractors to solicit orders, there was no nexus between the third party and the corporation; the corporation’s failure to require its independent contractors to keep track of numbers was not fatal to an affirmative defense under § 59.1-514. Mantian Zhu v. Dish Network, LLC, 808 F. Supp. 2d 815, 2011 U.S. Dist. LEXIS 43965 (E.D. Va. 2011).

§ 59.1-513. Transmission of caller identification information required.

  1. A telephone solicitor who makes a telephone solicitation call shall transmit the telephone number, and, when available by the telephone solicitor’s carrier, the name of the telephone solicitor. The number so provided must permit, during regular business hours, any individual to make a request not to receive telephone solicitation calls.
  2. No telephone solicitor shall take any intentional action to prevent the transmission of the telephone solicitor’s name or telephone number to any person receiving a telephone solicitation call or engage in any conduct that results in the display of false or misleading caller identification information on the called person’s telephone.
  3. It shall not be a violation of this section to substitute for the name and telephone number used in, or billed for, making the call the name of the person on whose behalf the telephone solicitation call is being made and that person’s customer service telephone number.

History. 2001, cc. 528, 553; 2004, cc. 202, 224; 2020, cc. 263, 607.

The 2004 amendments.

The 2004 amendments by cc. 202 and 224 are identical, and added subsection A; and inserted the B designation at the beginning of the former first paragraph and deleted “when the equipment or service used by the telephone solicitor is capable of creating and transmitting the telephone solicitor’s name or telephone number” from the end.

The 2020 amendments.

The 2020 amendments by cc. 263 and 607 are identical, and in subsection A, deleted the second sentence, which read: “It shall not be a violation of this section to substitute (for the name and telephone number used in, or billed for, making the call) the name of the person on whose behalf the telephone solicitation call is being made and that person’s customer service telephone number”; in subsection B, added “or engage in any conduct that results in the display of false or misleading caller identification information on the called person’s telephone”; and added subsection C.

§ 59.1-513.1. Abandoned telephone solicitation calls.

Whenever a live sales representative is not available to speak with the person answering a telephone solicitation call within two seconds of the person’s completed greeting, the telephone solicitor shall play a prerecorded identification message that states the name and telephone number of the person on whose behalf the telephone solicitation call was being made. The number so provided shall permit, during regular business hours, any individual to make a request not to receive telephone solicitation calls.

History. 2004, cc. 202, 224.

§ 59.1-514. Unwanted telephone solicitation calls prohibited.

  1. No telephone solicitor shall initiate, or cause to be initiated, a telephone solicitation call to a telephone number when a person at such telephone number previously has stated that he does not wish to receive a telephone solicitation call made by or on behalf of the person on whose behalf the telephone solicitation call is being made. Such statement may be made to a telephone solicitor or to the person on whose behalf the telephone solicitation call is being made if that person is different from the telephone solicitor. Any such request not to receive telephone solicitation calls shall be honored for at least 10 years from the time the request is made.
  2. No telephone solicitor shall initiate, or cause to be initiated, a telephone solicitation call to a telephone number on the National Do Not Call Registry maintained by the federal government pursuant to the Telemarketing Sales Rule, 16 C.F.R. Part 310, and 47 C.F.R. § 64.1200.
  3. It shall be an affirmative defense in any action brought under § 59.1-515 or 59.1-517 for a violation of this section that the defendant has established and implemented, with due care, reasonable practices and procedures to effectively prevent telephone solicitation calls in violation of this section, including using in accordance with applicable federal regulations a version of the National Do Not Call Registry obtained from the administrator of the registry no more than 31 days prior to the date any telephone solicitation call is made.
  4. For purposes of this section, “telephone solicitation call” shall not include a telephone call made to any person: (i) with that person’s prior express invitation or permission as evidenced by a signed, written agreement stating that the person agrees to be contacted by or on behalf of a specific party and including the telephone number to which the call may be placed, (ii) with whom the person on whose behalf the telephone call is made has an established business relationship, or (iii) with whom the telephone solicitor making the telephone call has a personal relationship. The exemption for an established business relationship or a personal relationship shall not apply when the person called previously has stated that he does not wish to receive telephone solicitation calls as provided in subsection A.

History. 2001, cc. 528, 553; 2004, cc. 202, 224; 2005, c. 296.

The 2004 amendments.

The 2004 amendments by cc. 202 and 224 are identical, and combined former subsection B into subsection A and substituted “10” for “ten” in the last sentence; inserted subsection B; added the language beginning “including using in accordance with” at the end of subsection C; and added subsection D.

The 2005 amendments.

The 2005 amendment by c. 296 substituted “31 days” for “three months” in subsection C; and made a minor stylistic change.

CASE NOTES

Affirmative defense. —

Corporation was entitled to summary judgment in a recipient’s claim under the Virginia Telephone Privacy Protection Act, § 59.1-510 to 59.1-518, because the offending calls were placed by a third party, and although the corporation authorized independent contractors to solicit orders, there was no nexus between the third party and the corporation; the corporation’s failure to require its independent contractors to keep track of numbers was not fatal to an affirmative defense under § 59.1-514. Mantian Zhu v. Dish Network, LLC, 808 F. Supp. 2d 815, 2011 U.S. Dist. LEXIS 43965 (E.D. Va. 2011).

§ 59.1-514.1. Joint liability of seller and telephone solicitor for prohibited acts; rebuttable presumption.

  1. A seller on whose behalf or for whose benefit a telephone solicitor makes or initiates a telephone solicitation call in violation of any provision of § 59.1-511, 59.1-512, 59.1-513, or 59.1-514 and the telephone solicitor making or initiating the telephone call shall be jointly and severally liable for such violation.
  2. A telephone solicitation call offering or advertising a seller’s property, goods, or services shall be presumed to have been made or initiated on behalf of or for the benefit of the seller, whether or not any agency relationship exists between the telephone solicitor and the seller, whether or not the seller supervised or directed the conduct of the telephone solicitor, and whether or not the telephone solicitor is shown to have acted at the seller’s direction and request when making or initiating the telephone solicitation call. The presumption may be rebutted if it is shown by clear and convincing evidence that the seller did not retain or request the telephone solicitor to make telephone solicitation calls on the seller’s behalf or for the seller’s benefit and that the telephone solicitation calls offering or advertising the seller’s property, goods, or services were made by the telephone solicitor without the seller’s knowledge or consent.

History. 2019, cc. 256, 264.

§ 59.1-515. Individual action for damages.

  1. Any natural person who is aggrieved by a violation of this chapter shall be entitled to initiate an action against any responsible person to enjoin such violation and to recover from any responsible person damages in the amount of $500 for a first violation, $1,000 for a second violation, and $5,000 for each subsequent violation.
  2. If the court finds a willful violation, the court may, in its discretion, increase the amount of any damages awarded for a first or second violation under subsection A to an amount not exceeding $5,000.
  3. Notwithstanding any other provision of law to the contrary, in addition to any damages awarded, such person may be awarded under subsection A or B reasonable attorney fees and court costs.
  4. An action for damages, attorney fees, and costs brought under this section may be filed in an appropriate general district court or small claims court against any responsible person so long as the amount claimed does not exceed the jurisdictional limits set forth in § 16.1-77 or 16.1-122.2, as applicable. Any action brought under this section that includes a request for an injunction shall be filed in an appropriate circuit court.

History. 2001, cc. 528, 553; 2019, cc. 256, 264; 2020, cc. 263, 607.

The 2019 amendments.

The 2019 amendments by cc. 256 and 264 are identical, and in subsection A, inserted “against any responsible person” and “from any responsible person”; in subsection B, substituted “any damages awarded under subsection A” for “the award”; in subsection C, inserted “under subsection A or B”; and in subsection D, inserted “against any responsible person”; and made stylistic changes.

The 2020 amendments.

The 2020 amendments by cc. 263 and 607 are identical, and in subsection A, substituted “for a first violation, $1,000 for a second violation, and $5,000 for each subsequent violation” for “for each such violation”; and in subsection B, inserted “for a first or second violation” and substituted “$5,000” for “$1,500.”

§ 59.1-516. Investigative authority.

Whenever the Attorney General has reasonable cause to believe that any person has engaged in, is engaging in, or is about to engage in any violation of this chapter, the Attorney General is empowered to issue a civil investigative demand. The provisions of § 59.1-9.10 shall apply mutatis mutandis to civil investigative demands issued pursuant to this section.

History. 2001, cc. 528, 553; 2019, cc. 256, 264.

The 2019 amendments.

The 2019 amendments by cc. 256 and 264 are identical, and deleted former subsection A, which read: “The Commissioner of the Department of Agriculture and Consumer Services, or his duly authorized representative, shall have the power to inquire into possible violations of this chapter, and to request, but not to require, an appropriate legal official to bring an action under § 59.1-517 with respect to such violation”; and deleted the designation for subsection B.

§ 59.1-517. Enforcement; civil penalties.

  1. The Attorney General, an attorney for the Commonwealth, or the attorney for any locality may cause an action to be brought in the name of the Commonwealth or of the locality, as applicable, to enjoin any violation of this chapter by any responsible person and to recover from any responsible person damages for aggrieved persons in the amount of $500 for a first violation, $1,000 for a second violation, and $5,000 for each subsequent violation.
  2. If the court finds a willful violation, the court may, in its discretion, also assess against any responsible person a civil penalty of not more than $5,000 for each such violation.
  3. In any action brought under this section, the Attorney General, the attorney for the Commonwealth, or the attorney for the locality may recover reasonable expenses incurred by the state or local agency in investigating and preparing the case, and attorney fees.
  4. Any civil penalties assessed under subsection B in an action brought in the name of the Commonwealth shall be paid into the Literary Fund. Any civil penalties assessed under subsection B in an action brought in the name of a locality shall be paid into the general fund of the locality.

History. 2001, cc. 528, 553; 2019, cc. 256, 264; 2020, cc. 263, 607.

The 2019 amendments.

The 2019 amendments by cc. 256 and 264 are identical, and substituted “locality” for “county, city or town” throughout; in subsection A, inserted “as applicable,” and substituted “responsible person and to recover from any responsible person” for “person and to recover”; in subsection B, substituted “assess against any responsible person” for “award”; in subsection D, substituted “assessed under subsection B” for “awarded under this section” twice; and made stylistic changes.

The 2020 amendments.

The 2020 amendments by cc. 263 and 607 are identical, and in subsection A, substituted “for a first violation, $1,000 for a second violation, and $5,000 for each subsequent violation” for “for each such violation”; and in subsection B, substituted “$5,000” for “$1,000.”

§ 59.1-518. Effect on other remedies, causes of action or penalties.

Nothing in this chapter shall be construed to limit any remedies, causes of action or penalties available to any person or governmental agency under any other federal or state law.

History. 2001, cc. 528, 553.

§ 59.1-518.01. Communication with state agencies.

The Attorney General shall establish ongoing communication with the Department for Aging and Rehabilitative Services to ensure that adults, as defined in § 63.2-1603 , have access to information regarding the prevention of potential patterns of financial exploitation. The Attorney General shall coordinate with the Commissioner of the Department for Aging and Rehabilitative Services to determine an effective and efficient manner of communicating such information, while also ensuring that confidential or privileged information is not exchanged.

History. 2020, c. 939.

Chapter 44.1. Automatic Dialing-Announcing Devices.

§ 59.1-518.1. Definitions.

As used in this chapter:

“Automatic dialing-announcing device” means a device that (i) selects and dials telephone numbers and (ii) working alone or in conjunction with other equipment, disseminates a prerecorded or synthesized voice message to the telephone number called.

“Caller” means a person that attempts to contact, or contacts, a subscriber in the Commonwealth by using a telephone or telephone line.

“Commercial telephone solicitation” means any unsolicited call to a subscriber when (i) the person initiating the call has not had a prior business or personal relationship with the subscriber and (ii) the purpose of the call is to solicit the purchase or the consideration of the purchase of goods or services by the subscriber. The term does not include calls initiated by the Commonwealth or a political subdivision for exclusively public purposes.

“Subscriber” means (i) a person who has subscribed to telephone service from a telephone company or (ii) other persons living or residing with the person.

History. 2009, c. 699.

Research References.

Friend’s Virginia Pleading and Practice (Matthew Bender). Chapter 29 Consumer Actions and Products Liability. § 29.03 Statutory Consumer Actions. Friend.

§ 59.1-518.2. When automatic dialing-announcing devices prohibited.

A caller shall not use an automatic dialing-announcing device in connection with making a commercial telephone solicitation unless:

  1. The subscriber has knowingly or voluntarily requested, consented to, permitted, or authorized receipt of the message, or
  2. The message is immediately preceded by a live operator who, after disclosing (i) the name of the entity sending the message, (ii) the purpose of the message, (iii) the kinds of goods or services the message is promoting, and (iv), if applicable, the fact that the message intends to solicit payment or the commitment of funds, obtains the subscriber’s consent before the commercial telephone solicitation is delivered.

History. 2009, c. 699.

§ 59.1-518.3. Disconnect requirement.

A caller shall not use an automatic dialing-announcing device or other device that disseminates a prerecorded or synthesized voice message to the telephone number called unless the device is designed and operated to disconnect, disengage, or terminate within five seconds after the party called terminates the telephone call by any method that is in accordance with normal operating procedures of his telephone receiver.

History. 2009, c. 699.

§ 59.1-518.4. Violations of chapter; penalty.

Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of the Virginia Consumer Protection Act (§ 59.1-196 et seq.).

History. 2009, c. 699.

Chapter 45. The Amusement Device Rider Safety Act.

§ 59.1-519. Definitions.

As used in this chapter:

“Amusement device” means (i) a device or structure open to the public by which persons are conveyed or moved in an unusual manner for diversion and (ii) a device suspended in the air by the use of steel cables, chains, belts, or ropes, and usually supported by trestles or towers with one or more spans, also known as a passenger tramway, used to transport passengers uphill.

“Operator” means the entity listed as operator on the Certificate of Inspection issued for the amusement device pursuant to § 36-98.3 and the regulations promulgated pursuant thereto.

“Owner” means the entity listed as owner on the Certificate of Inspection issued for the amusement device pursuant to § 36-98.3 and the regulations promulgated pursuant thereto.

“Parent or guardian” means any parent, guardian, legal custodian or other person having immediate control or charge of a child.

“Rider” means any person who is (i) waiting in the immediate vicinity to get on an amusement device; (ii) getting on an amusement device; (iii) using an amusement device; (iv) getting off an amusement device; or (v) leaving an amusement device and still in its immediate vicinity. “Rider” does not include employees, agents, or servants of the owner or operator of the amusement device while engaged in the duties of their employment.

History. 2002, c. 788.

§ 59.1-520. Rider conduct; reports.

  1. A rider, or his parent or guardian on a rider’s behalf, shall report in writing to the owner or operator any injury sustained on an amusement device before leaving the owner’s or operator’s premises,  or, if the parent or guardian is not present, then as soon as reasonably possible, including (i) the name, address, and phone number of the injured person; (ii) a full description of the incident, the injuries claimed, any treatment received, and the location, date, and time of the injury; (iii) the cause of the injury, if known; and (iv) the names, addresses, and phone numbers of any witnesses to the incident, if known by the rider or his parent or guardian. If the rider, or his parent or guardian on a rider’s behalf, is unable to file a report because of the severity of his injuries, he shall file the report as soon as reasonably possible. The failure of a rider, or his parent or guardian on a rider’s behalf, to report an injury under this subsection shall have no effect on the rider’s right to commence a civil action.
  2. A rider shall:
    1. Obey the posted rules, warnings, and oral instructions for an amusement device issued by the owner, operator or an employee or agent of the owner or operator; and
    2. Not intentionally act in any manner that may cause or contribute to injuring the rider or others, including:
      1. Interfering with safe operation of the amusement device;
      2. Failing to engage any safety devices that are provided;
      3. Disconnecting or disabling a safety device except at the express instruction of the owner’s or operator’s agent or employee;
      4. Altering or enhancing the intended speed, course, or direction of an amusement device;
      5. Using the controls of an amusement device designed solely to be operated by the owner’s or operator’s agent or employee;
      6. Throwing, intentionally dropping, or intentionally expelling an object from or toward an amusement device;
      7. Getting on or off an amusement device except at the designated time and area, if any, at the direction of the owner’s or operator’s agent or employee, or in an emergency;
      8. Not reasonably controlling the speed or direction of the rider or an amusement device that requires the rider to control or direct himself on a ride; and
      9. Overloading an amusement device beyond its posted capacity.

History. 2002, c. 788.

§ 59.1-521. Duty of parent or guardian.

Parents or guardians of a rider shall have a duty to ensure that the rider complies with all provisions of this chapter.

History. 2002, c. 788.

§ 59.1-522. Owner or operator duty to post.

  1. The owner or operator shall post signs stating “State law requires riders to obey all warnings and directions and behave in a manner that will not cause or contribute to injuring themselves or others. Riders shall report all injuries before leaving.”
  2. Such signs shall be posted at (i) any station designated for reporting an injury, (ii) any first aid station, and (iii) every entrance or exit to or from the premises designated for riders or any area or structure at which riders may purchase admission or obtain authority to use an amusement device.

History. 2002, c. 788.

§ 59.1-523. Enforcement; civil penalties; limitation.

  1. Enforcement of the provisions of this chapter may be brought only as follows:
    1. Any law-enforcement officer may issue a summons for a violation of this chapter; and
    2. The attorney for the county, city or town in which the alleged violation occurred may bring an action to recover the civil penalty authorized by subsection B.
  2. Except for the failure to report an injury, any person who violates the provisions of this chapter may be subject to a civil penalty in an amount not to exceed $500. Such penalty shall be paid into the local treasury.

History. 2002, c. 788.

§ 59.1-524. Common law doctrines not affected.

Nothing in this chapter shall be construed to repeal or diminish in any respect common law doctrines, which shall continue in full force and effect nor shall a violation of this chapter constitute negligence per se in any civil action.

History. 2002, c. 788.

Chapter 46. Virginia Post-Disaster Anti-Price Gouging Act.

§ 59.1-525. Title.

This chapter may be cited as the Virginia Post-Disaster Anti-Price Gouging Act.

History. 2004, cc. 798, 817.

§ 59.1-526. Definitions.

As used in this chapter:

“Consumer transaction,” “goods,” and “services,” have the same meanings as are set forth for those terms in § 59.1-198.

“Disaster” means any “disaster,” “emergency,” or “major disaster,” as those terms are used and defined in § 44-146.16, that results in the declaration of a state of emergency by the Governor or the President of the United States.

“Necessary goods and services” means any necessary good or service for which consumer demand does, or is likely to, increase as a consequence of the disaster, and includes water, ice, consumer food items or supplies, property or services for emergency cleanup, emergency supplies, communication supplies and services, medical supplies and services, home heating fuel, building materials and services, tree removal supplies and services, freight, storage services, housing, lodging, transportation, and motor fuels.

“Supplier” means a seller, lessor, licensor, or professional who advertises, solicits, or engages in consumer transactions, or a manufacturer, distributor, or licensor who sells, leases, or licenses goods or services to be resold, leased, or sublicensed by other persons in consumer transactions. However, a manufacturer, distributor, or licensor who sells, leases, or licenses agricultural goods or services to be resold, leased, or sublicensed by other persons in consumer transactions shall not be considered a “supplier” unless such manufacturer, distributor, or licensor advertises such agricultural goods or services.

“Time of disaster” means the shorter of (i) the period of time when a state of emergency declared by the Governor or the President of the United States as the result of a disaster, emergency, or major disaster, as those terms are used and defined in § 44-146.16, is in effect or (ii) 30 days after the occurrence of the disaster, emergency, or major disaster that resulted in the declaration of the state of emergency; however, if the state of emergency is extended or renewed within 30 days after such an occurrence, then such period shall be extended to include the 30 days following the date the state of emergency was extended or renewed.

History. 2004, cc. 798, 817; 2006, c. 362; 2008, cc. 121, 157; 2020, Sp. Sess. I, c. 16.

The 2006 amendments.

The 2006 amendment by c. 362, in the definition of “Time of disaster,” inserted “shorter of (i) the,” substituted “state of emergency declared” for “declaration of a state of emergency,” inserted the language beginning “as the result” and ending “§ 44-146.16,” inserted the clause (ii) designation, and in clause (ii), substituted the language beginning “natural disaster, man-made” for “event that constitutes the disaster, whichever is shorter.”

The 2008 amendments.

The 2008 amendments by cc. 121 and 157 are identical, and deleted “natural” preceding “disaster” and “man-made disaster” following “disaster” in the paragraphs defining “Disaster” and “Time of disaster.”

The 2020 Sp. Sess. I amendments.

The 2020 amendment by Sp. Sess. I, c. 16, effective March 1, 2021, substituted the definition “Consumer transaction,” “goods,” and “services,” for “Goods,” “services,” and “supplier,” deleted “but is not limited to” following “and includes” in the definition of “Necessary goods and services” and added the definition of “Supplier.”

§ 59.1-527. Prohibitions.

During any time of disaster, it shall be unlawful for any supplier to sell, lease, or license, or to offer to sell, lease, or license, any necessary goods and services at an unconscionable price within the area for which the state of emergency is declared. Actual sales at the increased price shall not be required for the increase to be considered unconscionable. In determining whether a price increase is unconscionable, the following shall be considered:

  1. Whether the price charged by the supplier grossly exceeded the price charged by the supplier for the same or similar goods or services during the 10 days immediately prior to the time of disaster, provided that, with respect to any supplier who was offering a good or service at a reduced price immediately prior to the time of disaster, the price at which the supplier usually offers the good or service shall be used as the benchmark for these purposes;
  2. Whether the price charged by the supplier grossly exceeded the price at which the same or similar goods or services were readily obtainable by purchasers in the trade area during the 10 days immediately prior to the time of disaster;
  3. Whether the increase in the amount charged by the supplier was attributable solely to additional costs incurred by the supplier in connection with the sale of the goods or services, including additional costs imposed by the supplier’s source. Proof that the supplier incurred such additional costs during the time of disaster shall be prima facie evidence that the price increase by that supplier was not unconscionable; and
  4. Whether the increase in the amount charged by the supplier was attributable solely to a regular seasonal or holiday adjustment in the price charged for the good or service. Proof that the supplier regularly increased the price for a particular good or service during portions of the period covered by the time of disaster would be prima facie evidence that the price increase was not unconscionable during those periods.

History. 2004, cc. 798, 817; 2020, Sp. Sess. I, c. 16.

The 2020 Sp. Sess. I amendments.

The 2020 amendment by Sp. Sess. I, c. 16, effective March 1, 2021, substituted “purchasers” for “consumers” in subdivision 2 and inserted “by that supplier” in subdivision 3.

§ 59.1-528. Complaint investigations.

In the event that the Attorney General, any attorney for the Commonwealth, or the attorney for any county, city, or town investigates a complaint for a violation of § 59.1-527 and determines that the supplier has not violated the section, and if the supplier requests, the Attorney General, any attorney for the Commonwealth, or the attorney for any county, city, or town shall promptly issue a signed statement indicating that a violation of § 59.1-527 has not been found. Subject to the disclosures allowed by this section, it shall be the duty of the Attorney General, the attorney for the Commonwealth, or the attorney for any city, county or town, or their designees, that investigates any complaint for violation of § 59.1-527 to maintain the confidentiality of all evidence, testimony, documents, or other results of such investigations, including the names of the complainant, and the individual, corporation or other entity that is the subject of the investigation. Nothing herein contained shall be construed to prevent the presentation and disclosure of any such investigative evidence in an action or proceeding brought under this chapter.

History. 2004, cc. 798, 817.

§ 59.1-529. Enforcement; penalties.

Any violation of this chapter shall constitute a prohibited practice under the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of Chapter 17 (§ 59.1-196 et seq.) of this title, except that § 59.1-204 notwithstanding, nothing in this chapter shall create a private cause of action in favor of any person aggrieved by a violation of this chapter.

History. 2004, cc. 798, 817.

§ 59.1-529.1. Emergency orders; penalties.

  1. Upon finding that during a time of disaster a supplier is selling, leasing, or licensing, or offering to sell, lease, or license, a necessary good or service within the area for which the state of emergency is declared at such an unconscionable price that such selling, leasing, or licensing, or offering to sell, lease, or license presents an imminent and substantial danger of endangering the public welfare by creating public panic, the Governor is authorized to issue for a period not to exceed 30 days, without hearing, an emergency order directing the supplier to reduce the price of the necessary good or service to the prevailing price in the local market. The confidentiality of all evidence, testimony, documents, or other results of investigations leading to issuance of the emergency order, including the names of the complainant and the person that is the subject of the investigation, shall be maintained.
  2. The supplier to whom such emergency order is issued shall be notified by certified mail, return receipt requested, sent to the last known address of the supplier, and by personal delivery by an agent of the Governor.
  3. If the supplier who has been issued such an emergency order is not complying with the terms thereof, the Governor shall notify the Attorney General, who shall immediately investigate as provided for under this chapter.

History. 2006, c. 451.

Chapter 47. Gift Certificate Disclosures.

§ 59.1-530. Definitions.

As used in this chapter, unless the context clearly requires otherwise:

“Gift certificate” or “certificate” means a certificate, electronic card, or other medium issued by a merchant that evidences the giving of consideration in exchange for the right to redeem the certificate, electronic card, or other medium for goods, food, services, credit, or money of at least an equal value, including any electronic card issued by a merchant with a banked dollar value where the issuer has received payment for the full banked dollar value for the future purchase, or delivery, of goods or services and any certificate issued by a merchant where the issuer has received payment for the full face value of the certificate for future purchases, or delivery, of goods or services.

“Merchant” means an owner or operator of any mercantile establishment or any agent, employee, lessee, consignee, officer, director, franchisee, or independent contractor of such owner or operator.

History. 2005, cc. 269, 303.

§ 59.1-531. Required disclosures.

  1. Each gift certificate issued by a merchant in the Commonwealth that has an expiration date shall include either (i) a statement of the expiration date of the certificate or (ii) a telephone number or Internet address where the holder of the certificate may obtain information regarding the expiration date of the certificate.
  2. Each gift certificate issued by a merchant in the Commonwealth that diminishes in value over time shall include a telephone number or Internet address where the holder of the certificate may obtain information regarding the diminution in the value of the certificate over time.
  3. The information required by this section shall be clearly and permanently imprinted on the certificate.

History. 2005, cc. 269, 303.

§ 59.1-532. Enforcement; penalties.

Any violation of the provisions of this chapter shall constitute a prohibited practice pursuant to the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of Chapter 17 (§ 59.1-196 et seq.) of this title.

History. 2005, cc. 269, 303.

Chapter 48. Influenza Vaccine Price Gouging.

The number of this chapter was assigned by the Virginia Code Commission, the number in the 2005 act having been 47.

§ 59.1-533. Definitions.

As used in this chapter:

“Influenza vaccine” means a vaccine, intended to be administered by injection, that contains inactivated influenza viruses, that is prepared for the applicable influenza season.

“Influenza vaccine shortage period” means the period of time during which a proclamation of the Governor provides that an influenza vaccine shortage exists.

History. 2005, c. 861.

The numbers for the sections contained in this chapter, §§ 59.1-533 through 59.1-537, were assigned by the Virginia Code Commission, the numbers in the 2005 act having been §§ 59.1-530 through 59.1-534.

§ 59.1-534. Proclamation of influenza vaccine shortage.

In the event of an existing or threatened influenza vaccine shortage due to an abnormal market disruption or other extraordinary adverse circumstance, the Governor may issue an executive order proclaiming that an influenza vaccine shortage exists. Prior to issuing such a proclamation, the Governor shall consult with the State Health Commissioner. An executive order proclaiming that an influenza vaccine shortage exists shall not be issued unless the Governor determines that:

  1. The amount of influenza vaccine available for administration in the Commonwealth is not reasonably sufficient to provide influenza vaccinations to those persons residing in the Commonwealth who are in primary target groups recommended for annual influenza vaccination in accordance with the most recently available recommendations of the Advisory Committee on Immunization Practices of the federal Department of Health and Human Services’ Centers for Disease Control and Prevention; and
  2. Price gouging with respect to influenza vaccine is occurring or is likely to occur as the proximate result of the influenza vaccine shortage.

History. 2005, c. 861.

§ 59.1-535. Prohibitions.

During any influenza vaccine shortage period, it shall be unlawful for any person to sell or administer, or to offer to sell or administer, influenza vaccine at an unconscionable price within the Commonwealth. Actual sales at the increased price shall not be required for the increase to be considered unconscionable. In determining whether the price at which influenza vaccine is sold or administered is unconscionable, the following shall be considered:

  1. Whether the price charged by the person for selling or administering the influenza vaccine grossly exceeded the price charged by the person therefor during the 10 days immediately prior to the commencement of the influenza vaccine shortage period; however, with respect to any person who was offering influenza vaccine at a reduced price immediately prior to the commencement of the influenza vaccine shortage period, the price at which the person usually offers influenza vaccine shall be used as the benchmark for these purposes;
  2. Whether the price charged by the person grossly exceeded the price at which influenza vaccine was readily obtainable by consumers in the trade area during the 10 days immediately prior to the commencement of the influenza vaccine shortage period; and
  3. Whether the increase in the amount charged by the person was attributable solely to additional costs incurred by the person in connection with the sale of the influenza vaccine, including additional costs imposed by the person’s source. Proof that the person incurred such additional costs during the time of the influenza vaccine shortage period shall be prima facie evidence that the price increase was not unconscionable.

History. 2005, c. 861.

§ 59.1-536. Complaint investigations.

In the event that the Attorney General, any attorney for the Commonwealth, or the attorney for any county, city, or town investigates a complaint for a violation of § 59.1-535 and determines that the person has not violated the section, and if the person requests, the Attorney General, any attorney for the Commonwealth, or the attorney for any county, city, or town shall promptly issue a signed statement indicating that a violation of § 59.1-535 has not been found. Subject to the disclosures allowed by this section, it shall be the duty of the Attorney General, the attorney for the Commonwealth, or the attorney for any county, city, or town, or their designees, that investigates any complaint for violation of § 59.1-535 to maintain the confidentiality of all evidence, testimony, documents, or other results of such investigations, including the names of the complainant, and the person that is the subject of the investigation. Nothing herein contained shall be construed to prevent the presentation and disclosure of any such investigative evidence in an action or proceeding brought under this chapter.

History. 2005, c. 861.

§ 59.1-537. Enforcement; penalties.

Any violation of this chapter shall constitute a prohibited practice under the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of Chapter 17 (§ 59.1-196 et seq.) of this title except that, § 59.1-204 notwithstanding, nothing in this chapter shall create a private cause of action in favor of any person aggrieved by a violation of this chapter.

History. 2005, c. 861.

Chapter 49. Enterprise Zone Grant Program.

§ 59.1-538. Short title.

This chapter shall be known and may be cited as the “Enterprise Zone Grant Act.”

History. 2005, cc. 863, 884.

The number of this chapter was assigned by the Virginia Code Commission, the number in the 2005 act having been 47.

The numbers for the sections contained in this chapter, §§ 59.1-538 through 59.1-549, were assigned by the Virginia Code Commission, the numbers in the 2005 act having been §§ 59.1-530 through 59.1-541.

Cross references.

As to regulation of the Enterprise Zone Grant Program by the Department of Housing and Community Development, see 13 VAC 5-112-10 et seq.

Editor’s note.

Acts 2005, cc. 863 and 884, cl. 3, provides: “That the Board shall promulgate regulations to implement the provisions of this act to be effective within 280 days of its enactment.”

§ 59.1-539. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Board” means the Board of Housing and Community Development.

“Department” means the Department of Housing and Community Development.

“Enterprise zone” means an area declared by the Governor to be eligible for the benefits of this chapter.

“Local zone administrator” means the chief executive of the county or city in which the enterprise zone is located, or his designee.

History. 2005, cc. 863, 884.

§ 59.1-540. Administration.

The Department shall administer this chapter and shall have the following powers and duties:

  1. To establish the criteria for determining what areas qualify as enterprise zones. Such criteria shall include, but not be limited to, the distress criteria specified in § 59.1-545;
  2. To monitor the implementation and operation of this chapter;
  3. To evaluate and report on the Enterprise Zone Program;
  4. To administer, enforce, and interpret the regulations promulgated by the Board; and
  5. To allocate grant funds in accordance with the provisions of this chapter.

History. 2005, cc. 863, 884.

§ 59.1-541. Rules and regulations.

Rules and regulations prescribing procedures implementing the purpose of this chapter shall be promulgated by the Board in accordance with the Administrative Process Act.

History. 2005, cc. 863, 884.

§ 59.1-542. Enterprise zone designation.

  1. Upon the Department’s announcement of periodic zone designation competitions, the governing body of any county or city may make written application to the Department to have an area or areas declared an enterprise zone. Such application shall include a description of the area or areas to be included, the development potential of these areas, the need for special state incentives, the local incentives that shall be provided to support new economic activity, and other information that the Department deems necessary to assess requests for designation.
  2. Two or more adjacent localities may file a joint application for an enterprise zone. Localities applying for a joint zone shall demonstrate a regional need for an enterprise zone and a regional impact that could not be achieved through a single jurisdiction zone. Applicants for a joint zone shall also specify what mechanisms will be used to ensure that the economic benefits of such a zone are shared among the applicant localities.
  3. An enterprise zone may consist of no more than three noncontiguous areas. The aggregate size of these noncontiguous zone areas shall be as follows:
    1. For cities, the minimum size of an enterprise zone shall be one-quarter square mile and the maximum size of an enterprise zone shall be one square mile or seven percent of the jurisdiction’s land area or an area that includes seven percent of the population, whichever is largest.
    2. For towns designated as enterprise zones under former §§ 59.1-272 through 59.1-278, 59.1-279.1, or 59.1-280.2 through 59.1-284 of the Enterprise Zone Act (§ 59.1-270 et seq.), the size of an enterprise zone shall conform to the size requirements for cities in subdivision 1.
    3. For unincorporated areas of counties, the minimum size of an enterprise zone shall be one-half square mile and the maximum size of an enterprise zone shall be six square miles.
    4. For consolidated cities the enterprise zones in cities for which the boundaries were created through the consolidation of a city and county or the consolidation of two cities, the enterprise zone shall conform substantially to the size requirements for unincorporated areas of counties in subdivision 3.In no instance shall a zone consist only of a site for a single business firm. Localities shall be limited to three enterprise zone designations.
  4. A joint enterprise zone shall consist of no more than three noncontiguous zone areas for each participating locality. The aggregate size of these noncontiguous areas shall be specified by regulation.
  5. Upon recommendation of the Director of the Department, the Governor may designate up to 30 enterprise zones in accordance with the provisions of this chapter. Such designations are to be done in coordination with the expiration of existing zones designated under earlier Enterprise Zone Program provisions. The initial round of six zone designation applications and approval may be conducted prior to adoption of final program regulations provided that the process is consistent with the provisions of this chapter. Enterprise zones shall be designated for an initial 10-year period except as provided for in subsections A and B of § 59.1-546. Upon recommendation of the Director of the Department, the Governor may renew zones designated on or after July 1, 2005, for up to three five-year renewal periods and zones designated prior to July 1, 2005, for one five-year renewal period. Recommendations for five-year renewals shall be based on the locality’s performance of its enterprise zone responsibilities, the continued need for such a zone, and its effectiveness in creating jobs and capital investment.
  6. Localities that have zone designations are responsible for providing the local incentives specified in their applications, providing timely submission of enterprise zone reports and evaluations as required by regulation, verifying that businesses and properties seeking enterprise zone incentives are physically located within their zones, and implementing an active local enterprise zone program within the context of overall economic development efforts.

History. 2005, cc. 863, 884; 2018, c. 315; 2019, cc. 119, 496.

The 2018 amendments.

The 2018 amendment by c. 315, in subsection C, substituted “as follows” for “specified by regulation” in the introductory paragraph; added subdivisions C 1 through C 4; and inserted the first sentence in the last paragraph.

The 2019 amendments.

The 2019 amendments by cc. 119 and 496 are identical, and substituted “zones designated on or after July 1, 2005, for up to three five-year renewal periods and zones designated prior to July 1, 2005, for one five-year renewal period” for “zones for up to two five-year renewal periods” in subsection E.

OPINIONS OF THE ATTORNEY GENERAL

Reversion of city. —

A county may establish a local enterprise zone development taxation program in an enterprise zone located in a town within the county, where the town was a city when the enterprise zone was first established, and the city has since reverted to the status of a town. See opinion of Attorney General to Patrick J. Skelley II, Esquire, Bedford County Attorney, 16-026, 2016 Va. AG LEXIS 29 (11/17/16).

§ 59.1-543. Local incentives.

  1. Local governments submitting applications for enterprise zone designation shall propose local incentives that address the economic conditions within their locality and that will help stimulate real property improvements and new job creation. Such local incentives include, but are not limited to: (i) reduction of permit fees; (ii) reduction of user fees; (iii) reduction of business, professional and occupational license tax; (iv) partial exemption from taxation of substantially rehabilitated real estate pursuant to § 58.1-3221 ; and (v) adoption of a local enterprise zone development taxation program pursuant to Article 4.2 (§ 58.1-3245.6 et seq.) of Chapter 32 of Title 58.1. The extent and duration of such incentives shall conform to the requirements of the Constitution of Virginia and the Constitution of the United States. In making application for designation as an enterprise zone, the application may also contain proposals for regulatory flexibility, including but not limited to: (a) special zoning districts, (b) permit process reform, (c) exemptions from local ordinances, and (d) other public incentives proposed in the locality’s application which shall be binding upon the locality upon designation of the enterprise zone.
  2. A locality may establish eligibility criteria for local incentives that differ from the criteria required to qualify for the incentives provided in this chapter.

History. 2005, cc. 863, 884.

§ 59.1-544. Amendment of enterprise zones; redesignation of certain joint enterprise zones.

  1. Once an enterprise zone has been designated, the local government may make written application to the Department to amend the zone boundaries in accordance with the requirements of § 59.1-542. Such boundary amendments are subject to Department approval. Any amendment to an enterprise zone that includes the elimination of an area or areas from a zone shall not exceed the maximum size provisions of subsection C of § 59.1-542 and shall be reviewed by the Department with the potential impact on affected businesses and property owners given primary consideration. Local governing bodies may amend their local enterprise zone incentives with the approval of the Department provided that the proposed incentive is equal to or superior to that in the original application or any previous amendment approved by the Department.
  2. The Department may redesignate an existing joint enterprise zone consisting of two localities for the purpose of expanding the zone provided (i) all of the local governing bodies of the localities in which the proposed redesignated zone will be located have submitted to the Department resolutions supporting the proposed redesignation and applications for redesignation of the joint enterprise zone and (ii) the area of the locality added to the redesignated zone is contiguous to the existing joint enterprise zone and includes a revenue-sharing district that has experienced the loss of 900 permanent full-time positions within a 12-month period.
  3. When a county or city was previously added to an existing enterprise zone to create a joint enterprise zone, the Department shall redesignate the enterprise zone when the term of the joint enterprise zone expires. The duration of the enterprise zone redesignated pursuant to this subsection shall be equal to the length of time the original enterprise zone existed before the county or city was added to create the joint enterprise zone.
  4. As used in this section, “joint enterprise zone” means an enterprise zone located in two or more adjacent localities.
  5. Any redesignation of an existing joint enterprise zone shall be in compliance with all applicable regulations promulgated by the Department.

History. 2005, cc. 863, 884; 2011, cc. 254, 310; 2013, c. 514; 2018, c. 315.

The 2011 amendments.

The 2011 amendments by cc. 254 and 310 are identical, and designated the existing provisions of the section as subsection A; and added subsection B.

The 2013 amendments.

The 2013 amendment by c. 514 added subsection C and the subsection D and E designators, and substituted “section” for “subsection” in subsection D.

The 2018 amendments.

The 2018 amendment by c. 315 inserted the third sentence in subsection A.

§ 59.1-545. Application review.

  1. After announcement of a periodic zone designation application process, the Department shall review each application upon receipt and secure any additional information that it deems necessary for the purpose of evaluating the need and potential impact of a zone designation.
  2. The Department shall complete review of the applications within 60 days of the last date designated for receipt of an application. After review of the applications the Director of the Department shall recommend to the Governor those applications with the greatest potential for accomplishing the purpose of this chapter. If an application is denied, the governing body shall be informed of that fact, along with the reasons for the denial.
  3. Consideration for enterprise zone designations shall be based upon the locality-wide need and impact of such a designation. Need shall be assessed in part by the following distress factors: (i) the average unemployment rate for the locality over the most recent three-year period, (ii) the average median adjusted gross income for the locality over the most recent three-year period, and (iii) the average percentage of public school students within the locality receiving free or reduced price lunches over the most recent three-year period. These distress factors shall account for at least 50 percent of the consideration given to local governments’ applications for enterprise zone designation.

History. 2005, cc. 863, 884.

OPINIONS OF THE ATTORNEY GENERAL

Reversion of city. —

A county may establish a local enterprise zone development taxation program in an enterprise zone located in a town within the county, where the town was a city when the enterprise zone was first established, and the city has since reverted to the status of a town. See opinion of Attorney General to Patrick J. Skelley II, Esquire, Bedford County Attorney, 16-026, 2016 Va. AG LEXIS 29 (11/17/16).

§ 59.1-546. Review and termination of enterprise zones.

  1. If the local governing body is unable or unwilling to provide the specified local incentives as proposed in its application for zone designation or as approved by the Department in an amendment, the zone designation shall terminate. Qualified business firms located in such enterprise zone shall be eligible to receive the incentives provided by this chapter even though the zone designation has terminated. No business firm may become a qualified business firm after the date of zone termination.
  2. If no business firms have qualified for incentives as provided for in this chapter within a five-year period, the Department shall terminate that enterprise zone designation.
  3. The Department shall review the effectiveness in creating jobs and capital investment and activity occurring within designated enterprise zones and shall annually report its findings to the Senate Committee on Finance and Appropriations, the Senate Committee on Commerce and Labor, the House Committee on Appropriations, and the House Committee on Labor and Commerce.

History. 2005, cc. 863, 884.

Editor’s note.

The Virginia Code Commission authorized the substitution of “Senate Committee on Finance and Appropriations, the Senate Committee on Commerce and Labor, the House Committee on Appropriations, and the House Committee on Labor and Commerce” for “Senate Finance Committee, the Senate Committee on Commerce and Labor, the House Appropriations Committee, and the House Committee on Commerce and Labor.” March 10, 2021.

§ 59.1-547. Enterprise zone job creation grants.

  1. As used in this section:“Base year” means either of the two calendar years immediately preceding a qualified business firm’s first year of grant eligibility, at the choice of the business firm.“Federal minimum wage” means the minimum wage standard as currently defined by the United States Department of Labor in the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. Such definition applies to permanent full-time employees paid on an hourly or wage basis. For those permanent full-time employees filling permanent full-time, salaried positions, the minimum wage is defined as the employee’s annual salary divided by 52 weeks per year divided by 35 hours per week.“Full month” means the number of days that a permanent full-time position must be filled in order to count in the calculation of the job creation grant amount. A full month is calculated by dividing the total number of days in the calendar year by 12. A full month for the purpose of calculating job creation grants is equivalent to 30.416666 days.“Grant eligible position” means a new permanent full-time position created above the threshold number at an eligible business firm. Positions in retail, personal service or food and beverage service shall not be considered grant eligible positions.“Minimum wage” means the federal minimum wage or the Virginia minimum wage, whichever is higher. The Department shall determine whichever is higher for the current calendar year as of December 1 of the prior calendar year, and its determination shall be continuously in effect throughout the calendar year, regardless of changes to the federal minimum wage or the Virginia minimum wage during that year.“Permanent full-time position” means a job of indefinite duration at a business firm located within an enterprise zone requiring the employee to report for work within the enterprise zone; and requiring (i) a minimum of 35 hours of an employee’s time per week for the entire normal year of the business firm’s operation, which “normal year” must consist of at least 48 weeks, (ii) a minimum of 35 hours of an employee’s time per week for the portion of the calendar year in which the employee was initially hired for or transferred to the business firm, or (iii) a minimum of 1,680 hours per year. Such position shall not include (i) seasonal, temporary or contract positions, (ii) a position created when a job function is shifted from an existing location in the Commonwealth to a business firm located within an enterprise zone, (iii) any position that previously existed in the Commonwealth, or (iv) positions created by a business that is simultaneously closing facilities in other areas of the Commonwealth.“Qualified business firm” means a business firm designated as a qualified business firm by the Department pursuant to § 59.1-542.“Report to work” means that the employee filling a permanent full-time position reports to the business’ zone establishment on a regular basis.“Subsequent base year” means the base year for calculating the number of grant eligible positions in a second or subsequent five consecutive calendar year grant period. If a second or subsequent five-year grant period is requested within two years after the previous five-year grant period, the subsequent base year will be the last grant year. The calculation of this subsequent base year employment will be determined by the number of permanent full-time positions in the preceding base year, plus the number of threshold positions, plus the number of grant eligible positions in the final year of the previous grant period. If a business firm applies for subsequent five consecutive calendar year grant periods beyond the two years immediately following the completion of the previous five-year grant period, the business firm shall use one of the two preceding calendar years as the subsequent base year, at the choice of the business firm.“Threshold number” means an increase of four permanent full-time positions over the number of permanent full-time positions in the base year or subsequent base year.“Virginia minimum wage” means the applicable minimum wage as determined pursuant to the Virginia Minimum Wage Act (§ 40.1-28.8 et seq.).
  2. A business firm shall be eligible to receive enterprise zone job creation grants for any and all years in which the business firm qualifies in the five consecutive calendar years period commencing with the first year of grant eligibility. A business firm may be eligible for subsequent five consecutive calendar year grant periods if it creates new grant eligible positions above the threshold for its subsequent base year.
  3. The amount of the grant for which a business firm is eligible shall be calculated as follows:
    1. Either (i) $800 per year for up to five consecutive years for each grant eligible position that during such year is paid a minimum of 175 percent of the minimum wage and that is provided with health benefits, or (ii) $500 per year for up to five years for each grant eligible position that during such year is paid less than 175 percent of the minimum wage, but at least 150 percent of the minimum wage, and that is provided with health benefits. In areas with an unemployment rate that is one and one-half times or more the state average, or for businesses that are certified under regulations adopted by the Director of the Department of Small Business and Supplier Diversity pursuant to subdivision 8 of § 2.2-1606 , the business firm will receive $500 per year for up to five years for each grant eligible position that during such year is paid at least 125 percent of the minimum wage and that is provided with health benefits. Unemployment rates used to determine eligibility for the reduced wage rate threshold shall be based on the most recent annualized unemployment data published by the Virginia Employment Commission. A business firm may receive grants for up to a maximum of 350 grant eligible jobs annually.
    2. Positions paying less than 150 percent of the minimum wage or that are not provided with health benefits shall not be eligible for enterprise zone job creation grants.
  4. Job creation grants shall be based on a calendar year. The amount of the grant for which a qualified business firm is eligible with respect to any permanent full-time position that is filled for less than a full calendar year shall be prorated based on the number of full months worked.
  5. The amount of the job creation grant for which a qualified business firm is eligible in any year shall not include amounts for grant eligible positions in any year other than the preceding calendar year. Job creation grants shall not be available for any calendar year prior to 2005.
  6. Permanent full-time positions that have been used to qualify for any other enterprise zone incentive pursuant to the Enterprise Zone Act (former § 59.1-270 et seq.) shall not be eligible for job creation grants and shall not be counted as a part of the minimum threshold of four new positions.
  7. Any qualified business firm receiving a major business facility job tax credit pursuant to § 58.1-439 shall not be eligible to receive an enterprise zone job creation grant under this section for any job used to qualify for the major business facility job tax credit.

History. 2005, cc. 863, 884; 2006, c. 668; 2010, c. 328; 2012, c. 445; 2021, Sp. Sess. I, c. 402.

Editor’s note.

Acts 2012, c. 445, cl. 2, provides: “That the amendment to § 58.1-439 of the Code of Virginia pursuant to the provisions of this act shall be effective for taxable years beginning on or after January 1, 2012, and the amendment to § 59.1-547 of the Code of Virginia pursuant to the provisions of this act shall be effective beginning with the 2012 grant year for enterprise zone job creation grants.”

Acts 2020, c. 1289, as amended by Acts 2021, Sp. Sess. I, c. 552, Item 115, effective for the biennium ending June 30, 2022, provides: “Out of the amounts in this Item, $14,500,000 the first year and $14,750,000 the second year from the general fund shall be provided to carry out the provisions of §§ 59.1-547 and 59.1-548, Code of Virginia, related to the Enterprise Zone Grant Act. Notwithstanding the provisions of §§ 59.1-547 and 59.1-548, Code of Virginia, the department is authorized to prorate, with no payment of the unpaid portion of the grant necessary in the next fiscal year, the amount of awards each business receives to match the appropriation for this Item. Should actual grants awarded in each fiscal year be less than the amounts provided in this Item, the excess shall not revert to the general fund but shall be deposited to the Virginia Removal or Rehabilitation of Derelict Structures Fund for revitalization purposes. Consistent with the provisions of § 59.1-548, Code of Virginia, beginning on January 1, 2019, the installation of solar panels shall be considered eligible investments for the purposes of the real property improvement grants, provided that such solar installation investment is in an amount of at least $50,000 and the grant shall be calculated at a rate of 20 percent of the amount of qualified real property investments in excess of $450,000 in the case of the construction of a new building or facility. Grants shall be calculated at a rate of 20 percent of the amount of qualified real property investment in excess of $50,000 in the case of the rehabilitation or expansion of an existing building or facility. In the case where a grant is awarded based solely on a solar investment, the grant shall be calculated at a rate of 20 percent of the amount of total qualified real property investments made in solar installation. For such properties eligible for real property improvement grants made solely on the basis of solar installation investments of at least $50,000 but not more than $100,000, awards shall not exceed $1,000,000 in aggregate in any fiscal year.”

Acts 2021, Sp. Sess. I, c. 402, cl. 2 provides: “That the provisions of this act shall become effective on January 1, 2022.”

The 2006 amendments.

The 2006 amendment by c. 668 substituted “personal” for “local” in the second sentence of the paragraph defining “Grant eligible position.”

The 2010 amendments.

The 2010 amendment by c. 328 inserted the second and third sentences of subdivision C 1.

The 2012 amendments.

The 2012 amendment by c. 445 rewrote subsection G, which formerly read: “Any qualified business firm receiving an enterprise zone job creation grant under this section shall not be eligible for a major business facility job tax credit pursuant to § 58.1-439 .” For applicability provision, see Editor’s note.

The 2020 Sp. Sess. I amendments.

The 2021 amendment by Sp. Sess. I, c. 402, effective January 1, 2022, in subsection A, inserted the definitions for “Minimum wage” and “Virginia minimum wage”; and in subsection C, deleted “federal” preceding “minimum wage” throughout and substituted “175” for “200” twice, “150” for “175” twice, and “125” for “150”; and inserted “or for businesses that are certified under regulations adopted by the Director of the Department of Small Business and Supplier Diversity pursuant to subdivision 8 of § 2.2-1606 ” in subdivision C 1.

§ 59.1-548. Enterprise zone real property investment grants.

  1. As used in this section:“Facility” means a complex of buildings, co-located at a single physical location within an enterprise zone, all of which are necessary to facilitate the conduct of the same trade or business. This definition applies to new construction as well as to the rehabilitation and expansion of existing structures.“Mixed use” means a building incorporating residential uses in which a minimum of 30 percent of the useable floor space will be devoted to commercial, office or industrial use.“Qualified real property investment” means the amount expended for improvements to rehabilitate, expand or construct depreciable real property placed in service during the calendar year within an enterprise zone provided that the total amount of such improvements equals or exceeds (i) $100,000 with respect to a single building or a facility in the case of rehabilitation or expansion or (ii) $500,000 with respect to a single building or a facility in the case of new construction. “Qualified real property investment” includes any such expenditure regardless of whether it is considered properly chargeable to a capital account or deductible as a business expense under federal Treasury Regulations.Qualified real property investments include expenditures associated with (a) any exterior, interior, structural, mechanical or electrical improvements necessary to construct, expand or rehabilitate a building for commercial, industrial or mixed use; (b) excavations; (c) grading and paving; (d) installing driveways; and (e) landscaping or land improvements. Qualified real property investments shall include, but not be limited to, costs associated with demolition, carpentry, sheetrock, plaster, painting, ceilings, fixtures, doors, windows, fire suppression systems, roofing, flashing, exterior repair, cleaning and cleanup.Qualified real property investment shall not include:
    1. The cost of acquiring any real property or building.
    2. Other costs including: (i) the cost of furnishings; (ii) any expenditure associated with appraisal, architectural, engineering, surveying, and interior design fees; (iii) loan fees, points, or capitalized interest; (iv) legal, accounting, realtor, sales and marketing, or other professional fees; (v) closing costs, permits, user fees, zoning fees, impact fees, and inspection fees; (vi) bids, insurance, signage, utilities, bonding, copying, rent loss, or temporary facilities incurred during construction; (vii) utility connection or access fees; (viii) outbuildings; (ix) the cost of any well or septic or sewer system; and (x) roads.
    3. The basis of any property: (i) for which a grant under this section was previously provided; (ii) for which a tax credit under § 59.1-280.1 was previously granted; (iii) which was previously placed in service in Virginia by the qualified zone investor, a related party as defined by Internal Revenue Code § 267 (b), or a trade or business under common control as defined by Internal Revenue Code § 52 (b); or (iv) which was previously in service in Virginia and has a basis in the hands of the person acquiring it, determined in whole or in part by reference to the basis of such property in the hands of the person from whom it was acquired or Internal Revenue Code § 1014 (a).“Qualified zone investor” means an owner or tenant of real property located within an enterprise zone who expands, rehabilitates or constructs such real property for commercial, industrial or mixed use. In the case of a tenant, the amounts of qualified zone investment specified in this section shall relate to the proportion of the building or facility for which the tenant holds a valid lease. In the case of an owner of an individual unit within a horizontal property regime, the amounts of qualified zone investments specified in this section shall relate to that proportion of the building for which the owner holds title and not to common elements.
  2. Grants shall be calculated at a rate of 20 percent of the amount of qualified real property investment in excess of $500,000 in the case of the construction of a new building or facility. Grants shall be calculated at a rate of 20 percent of the amount of qualified real property investment in excess of $100,000 in the case of the rehabilitation or expansion of an existing building or facility. For any qualified zone investor making $5 million or less in qualified real property investment, a real property investment grant shall not exceed $100,000 within any five-year period for any individual building or facility. For any qualified zone investor making more than $5 million in qualified real property investment, a real property investment grant shall not exceed $200,000 within any five-year period for any individual building or facility.
  3. A qualified zone investor shall apply for a real property investment grant in the calendar year following the year in which the property was placed in service.

History. 2005, cc. 863, 884; 2007, cc. 242, 287; 2009, cc. 207, 271; 2017, c. 451.

Editor’s note.

Acts 2007, cc. 242 and 287, cl. 2 provides: “That the provisions of this act shall apply to real property investment grants approved on or after July 1, 2007, by the Department of Housing and Community Development pursuant to Chapter 49 (§ 59.1-538 et seq.) of Title 59.1 of the Code of Virginia.”

Acts 2009, cc. 207 and 271, cl. 2 provides: “That the provisions of this act amending §§ 59.1-548 and 59.1-549 of the Code of Virginia shall be applicable for calendar year 2009 and for each calendar year thereafter.”

Acts 2020, c. 1289, as amended by Acts 2021, Sp. Sess. I, c. 552, Item 115, effective for the biennium ending June 30, 2022, provides: “Out of the amounts in this Item, $14,500,000 the first year and $14,750,000 the second year from the general fund shall be provided to carry out the provisions of §§ 59.1-547 and 59.1-548, Code of Virginia, related to the Enterprise Zone Grant Act. Notwithstanding the provisions of §§ 59.1-547 and 59.1-548, Code of Virginia, the department is authorized to prorate, with no payment of the unpaid portion of the grant necessary in the next fiscal year, the amount of awards each business receives to match the appropriation for this Item. Should actual grants awarded in each fiscal year be less than the amounts provided in this Item, the excess shall not revert to the general fund but shall be deposited to the Virginia Removal or Rehabilitation of Derelict Structures Fund for revitalization purposes. Consistent with the provisions of § 59.1-548, Code of Virginia, beginning on January 1, 2019, the installation of solar panels shall be considered eligible investments for the purposes of the real property improvement grants, provided that such solar installation investment is in an amount of at least $50,000 and the grant shall be calculated at a rate of 20 percent of the amount of qualified real property investments in excess of $450,000 in the case of the construction of a new building or facility. Grants shall be calculated at a rate of 20 percent of the amount of qualified real property investment in excess of $50,000 in the case of the rehabilitation or expansion of an existing building or facility. In the case where a grant is awarded based solely on a solar investment, the grant shall be calculated at a rate of 20 percent of the amount of total qualified real property investments made in solar installation. For such properties eligible for real property improvement grants made solely on the basis of solar installation investments of at least $50,000 but not more than $100,000, awards shall not exceed $1,000,000 in aggregate in any fiscal year.”

The 2007 amendments.

The 2007 amendments by cc. 242 and 287 are identical, and substituted “$5 million” for “2 million” and “20 percent” for “30 percent” in the first and second sentences of subsection B; and deleted the former second sentence of subsection C, pertaining to real property investments placed in service during 2004.

The 2009 amendments.

The 2009 amendments by cc. 207 and 271 are identical, and in the definition of “Qualified real property investment,” in the first sentence of the first paragraph, substituted “$100,000” for “$50,000” at the beginning of clause (i) and “$500,000” for “$250,000” at the beginning of clause (ii) and deleted “acquisition” following “Other” at the beginning of subdivision 2; in the definition of “Qualified zone investor,” substituted “building or facility” for “property” in the next-to-last sentence and added the last sentence; and rewrote subsection B. For applicability, see Editor’s note.

The 2017 amendments.

The 2017 amendment by c. 451, in subsection A, in the definition for “Qualified real property investment” substituted “expended” for “properly chargeable to a capital account” in the first sentence and added the second sentence.

§ 59.1-549. Policies and procedures for allocation of enterprise zone incentive grants.

  1. Qualified business firms and qualified zone investors shall be eligible to receive enterprise zone incentive grants provided for in this chapter to the extent that they apply for and are approved for grant allocations through the Department.
  2. If the sum of (i) the total amount of grants for which qualified business firms are eligible under § 59.1-547 plus (ii) the total amount of grants for which qualified zone investors are eligible under § 59.1-548 exceeds the total annual appropriation for the payment of all grants under this chapter for the relevant year, then the amount of the grant that each qualified business firm and qualified zone investor is eligible for shall be prorated in a proportional manner. The Department shall prioritize allocations to fully fund the grants under § 59.1-547 with any remaining funds to be allocated to grants under § 59.1-548. In such cases, the amount of the grant that each qualified zone investor is eligible for under § 59.1-548 shall be prorated in a proportional manner based on the funds remaining in the annual appropriation after full payment of the grants under § 59.1-547.
  3. Qualified zone businesses and qualified zone investors shall make application to the Department each year for which they seek eligibility for enterprise zone incentive grants. Such application is to be in accordance with regulations promulgated by the Board on forms supplied by the Department and in accordance with dates specified by the Department.
  4. The accuracy and validity of information on qualified real property investments, permanent full-time positions, wage rates and provision of health benefits provided in such applications are to be attested to by an independent certified public accountant licensed in Virginia through an agreed-upon procedures engagement conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants, using procedures provided by the Department. Business firms with base year employment of 100 or fewer permanent full-time positions and that create in a qualification year 25 or fewer grant eligible positions seeking to qualify for Job Creation Grants as provided for in § 59.1-547 shall be exempt from the attestation requirement for that qualification year. The permanent full-time positions, wage rates, and provision of health benefits of such business firms shall be subject to verification by the Department.
  5. Applicants for enterprise zone incentive grants under this chapter must have the local zone administrator verify that the location of their business or property is in the enterprise zone using a form supplied by the Department. The local zone administrator shall make this verification in accordance with dates specified by the Department.
  6. The Department may at any time review qualified zone businesses and qualified zone investors to assure that information provided in the application process is accurate.
  7. Qualified zone businesses shall maintain all documentation regarding qualification for enterprise zone job creation grants for at least one year after the final year of their five-year grant period. Qualified zone investors shall maintain all documentation regarding qualification for enterprise zone incentive grants for a minimum of three years following the receipt of any grant.
  8. Enterprise zone incentive grants that do not have adequate documentation regarding qualified real property investments, permanent full-time positions, wage rates and provision of health benefits may be subject to repayment by the qualified zone business or qualified zone investor.
  9. Actions of the Department relating to the approval or denial of applications for enterprise zone incentive grants under this chapter shall be exempt from the provisions of the Administrative Process Act pursuant to subdivision B 4 of § 2.2-4002 .

History. 2005, cc. 863, 884; 2009, cc. 207, 271; 2010, c. 328; 2011, cc. 202, 320.

Editor’s note.

Acts 2009, cc. 207 and 271, cl. 2 provides: “That the provisions of this act amending §§ 59.1-548 and 59.1-549 of the Code of Virginia shall be applicable for calendar year 2009 and for each calendar year thereafter.”

The 2009 amendments.

The 2009 amendments by c. 207 and 271 are identical, and rewrote subsection B; deleted former subsections C through E; and redesignated former subsections F through L as subsections C through I. For applicability, see Editor’s note.

The 2010 amendments.

The 2010 amendment by c. 328 added the second and third sentences of subsection B.

The 2011 amendments.

The 2011 amendments by cc. 202 and 320 are identical, and added the last two sentences in subsection D.

Chapter 50. Electronic Identity Management Act.

§ 59.1-550. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Attribute provider” means an entity, or a supplier, employee, or agent thereof, that acts as the authoritative record of identifying information about an identity credential holder.

“Commonwealth identity management standards” means the minimum specifications and standards that must be included in an identity trust framework so as to define liability pursuant to this chapter that are set forth in guidance documents approved by the Secretary of Administration pursuant to Chapter 4.3 (§ 2.2-436 et seq.) of Title 2.2.

“Federated digital identity system” or “federation” means a digital identity system that (i) utilizes federated identity management to enable the portability of identity information across otherwise autonomous security domains; (ii) is compliant with the Commonwealth’s identity management standards and with the provisions of the governing identity trust framework; (iii) has established identity, security, privacy, technology, and enforcement rules and policies adhered to by certified identity providers that are members of the federated digital identity system; (iv) includes as members federation administrators, federation operators, identity trust framework operators, and identity providers; and (v) allows, but does not require, relying parties to be members of the federated digital identity system in order to accept an identity credential issued by a certified identity provider to verify an identity credential holder’s identity.

“Federated identity management” means a process that allows the conveyance of identity credentials and authentication information across digital identity systems through the use of a common set of policies, practices, and protocols for managing the identity of users and devices across security domains.

“Federation administrator” means a person or entity that certifies compliance with the Commonwealth’s identity management standards by either a federation operator or an identity trust framework operator at the time of issuance of identity credentials, identity and entitlement attributes, or trustmarks.

“Federation operator” means the entity that (i) defines rule and policies for member parties to a federation; (ii) certifies identity and entitlement attribute providers to be members of and issue identity credentials pursuant to the federation; and (iii) evaluates participation in the federation to ensure compliance by members of the federation with its rules and policies, including the ability to request audits of participants for verification of compliance.

“Identity attribute” means identifying information associated with an identity credential holder.

“Identity credential” means the data, or the physical object upon which the data may reside, that an identity credential holder may present to verify or authenticate his identity in a digital or online transaction.

“Identity credential holder” means a person bound to or in possession of an identity credential who has agreed to the terms and conditions of the identity provider.

“Identity proofer” means a person or entity authorized to act as a representative of an identity provider in the confirmation of a potential identity credential holder’s identification and identity attributes prior to issuing an identity credential to a person.

“Identity provider” means an entity, or a supplier, employee, or agent thereof, certified by an identity trust framework operator to provide identity credentials that may be used by an identity credential holder to assert his identity, or any related attributes, in a digital or online transaction. For purposes of this chapter, “identity provider” includes an attribute provider, an identity proofer, and any suppliers, employees, or agents thereof.

“Identity trust framework” means a digital identity system with established identity, security, privacy, technology, and enforcement rules and policies adhered to by certified identity providers that are members of the identity trust framework. Members of an identity trust framework include identity trust framework operators and identity providers. Relying parties may be, but are not required to be, a member of an identity trust framework in order to accept an identity credential issued by a certified identity provider to verify an identity credential holder’s identity.

“Identity trust framework operator” means the entity that (i) defines rules and policies for member parties to an identity trust framework, (ii) certifies identity providers to be members of and issue identity credentials pursuant to the identity trust framework, and (iii) evaluates participation in the identity trust framework to ensure compliance by members of the identity trust framework with its rules and policies, including the ability to request audits of participants for verification of compliance.

“Relying party” is an individual or entity that relies on the validity of an identity credential or an associated trustmark.

“Trustmark” means a machine-readable official seal, authentication feature, certification, license, or logo that may be provided by an identity trust framework operator to certified identity providers within its identity trust framework or federation to signify that the identity provider complies with the written rules and policies of the identity trust framework or federation.

History. 2015, cc. 482, 483; 2020, cc. 736, 738.

The 2020 amendments.

The 2020 amendment by c. 736 inserted the definitions for “Federated digital identity system” or “federation,” “Federated identity management,” “Federation administrator,” and “Federation operator” and in the definition for “Trustmark,” inserted “or federation” twice.

The 2020 amendment by c. 738 substituted “Administration” for “Technology” in the definition for “Commonwealth identity management standards.”

§ 59.1-551. Trustmark; warranty.

The use of a trustmark on an identity credential provides a warranty by the identity provider that the written rules and policies of the identity trust framework or federation of which it is a member have been adhered to in asserting the identity and any related attributes contained on the identity credential. No other warranties are applicable unless expressly provided by the identity provider.

History. 2015, cc. 482, 483; 2020, c. 736.

The 2020 amendments.

The 2020 amendment by c. 736 inserted “or federation” in the first sentence.

§ 59.1-552. Establishment of liability; limitation of liability.

  1. An identity trust framework operator, identity provider, federation administrator, or federation operator shall be liable if the issuance of an identity credential or assignment of an identity attribute, or a trustmark, is not in compliance with the Commonwealth’s identity management standards in place at the time of issuance. Further, the identity trust framework operator or identity provider shall be liable for noncompliance with applicable terms of any contractual agreement with a contracting party and any written rules and policies of the identity trust framework or federation of which it is a member.
  2. An identity trust framework operator, identity provider, federation administrator, or federation operator shall not be liable if the issuance of the identity credential or assignment of an identity attribute or a trustmark was in compliance with (i) the Commonwealth’s identity management standards in place at the time of issuance or assignment, (ii) applicable terms of any contractual agreement with a contracting party, and (iii) any written rules and policies of the identity trust framework or federation of which it is a member, provided such identity trust framework operator or identity provider did not commit an act or omission that constitutes gross negligence or willful misconduct. An identity trust framework operator or identity provider shall not be liable for misuse of an identity credential by the identity credential holder or by any other person who misuses an identity credential.

History. 2015, cc. 482, 483; 2020, c. 736.

The 2020 amendments.

The 2020 amendment by c. 736, in subsection A, inserted “federation administrator, or federation operator” in the first sentence and “or federation” in the last sentence; in subsection B, inserted “federation administrator, or federation operator” in the introductory wording and “or federation” in clause (iii) in the first sentence; and made stylistic changes.

§ 59.1-553. Commercially reasonable security procedures for electronic fund transfers.

Use of an identity credential or identity attribute shall satisfy any requirement for a commercially reasonable security or attribution procedure in Title 8.4A, the Uniform Electronic Transactions Act (§ 59.1-479 et seq.), and the Uniform Computer Information Transactions Act (§ 59.1-501.1 et seq.), provided that the identity credential or identity attribute was issued or assigned in accordance with (i) the Commonwealth’s identity management standards in place at the time of issuance or assignment, (ii) the terms of any contractual agreement, and (iii) any written rules and policies of the identity trust framework or federation of which the issuer is a member.

History. 2015, cc. 482, 483; 2020, c. 736.

The 2020 amendments.

The 2020 amendment by c. 736 inserted “or federation” in clause (iii).

§ 59.1-554. Applicability of chapter.

The provisions of this chapter shall not be construed to require any individual or entity to rely on or accept any identity credential or attribute issued in accordance with Commonwealth identity management standards or this chapter.

History. 2015, cc. 482, 483.

§ 59.1-555. Sovereign immunity.

No provisions of this chapter nor any act or omission of a state, regional, or local governmental entity related to the issuance of electronic identity credentials or attributes or the administration or participation in an identity trust framework or federation related to the issuance of electronic identity credentials or attributes shall be deemed a waiver of sovereign immunity to which the governmental entity or its officers, employees, or agents are otherwise entitled.

History. 2015, cc. 482, 483; 2020, c. 736.

The 2020 amendments.

The 2020 amendment by c. 736 inserted “or federation.”

Chapter 51. Fantasy Contests Act.

§ 59.1-556. Definitions.

As used in this chapter, unless the context requires otherwise:

“Confidential information” means information related to the play of a fantasy contest by fantasy contest players obtained as a result of or by virtue of a person’s employment.

“Department” means the Department of Agriculture and Consumer Services.

“Entry fee” means cash or cash equivalent that is required to be paid by a fantasy contest participant to a fantasy contest operator in order to participate in a fantasy contest.

“Fantasy contest” includes any online fantasy or simulated game or contest with an entry fee in which (i) the value of all prizes and awards offered to winning participants is established and made known to the participants in advance of the contest; (ii) all winning outcomes reflect the relative knowledge and skill of the participants and shall be determined by accumulated statistical results of the performance of individuals, including athletes in the case of sports events; and (iii) no winning outcome is based on the score, point spread, or any performance of any single actual team or combination of teams or solely on any single performance of an individual athlete or player in any single actual event.

“Fantasy contest operator” or “operator” means a person or entity that offers fantasy contests for a cash prize to members of the public.

“Fantasy contest player” or “player” means a person who participates in a fantasy contest offered by a fantasy contest operator.

“Principal stockholder” means any person who individually or in concert with his spouse and immediate family members beneficially owns or controls, directly or indirectly, 15 percent or more of the equity ownership of a fantasy contest operator or who in concert with his spouse and immediate family members has the power to vote or cause the vote of 15 percent or more of the equity ownership of any such operator.

History. 2016, cc. 318, 703.

§ 59.1-557. Registration of fantasy contest operators required; application for registration; issuance of registration certificate; penalty.

  1. No fantasy contest operator shall offer any fantasy contest in the Commonwealth without first being registered with the Department. Applications for registration shall be on forms prescribed by the Department. Any registration issued by the Department shall be valid for one year from the date of issuance.
  2. The application for registration submitted by a fantasy contest operator shall contain the following information:
    1. The name and principal address of the applicant; if a corporation, the state of its incorporation, the full name and address of each officer and director thereof, and, if a foreign corporation, whether it is qualified to do business in the Commonwealth; if a partnership or joint venture, the name and address of each officer thereof;
    2. The address of any offices of the applicant in the Commonwealth and its designated agent for process within the Commonwealth. If no such agent is designated, the applicant shall be deemed to have designated the Commissioner of the Department. If the operator does not maintain an office, the name and address of the person having custody of its financial records;
    3. The place where and the date when the applicant was legally established and the form of its organization;
    4. The names and addresses of the officers, directors, trustees, and principal salaried executive staff officer;
    5. The name and address of each principal stockholder or member of such corporation; and
    6. Such information as the Department deems necessary to ensure compliance with the provisions of this chapter.
  3. Every registration filed under this chapter shall be accompanied by a nonrefundable, initial application fee set by the Department.
  4. As a condition of registration, a fantasy contest operator shall submit evidence satisfactory to the Department that the operator has established and will implement procedures for fantasy contests that:
    1. Prevent him or his employees and relatives living in the same household as the operator from competing in any public fantasy contest offered by such operator in which the operator offers a cash prize;
    2. Prevent the sharing of confidential information that could affect fantasy contest play with third parties until the information is made publicly available;
    3. Verify that any fantasy contest player is 18 years of age or older;
    4. Ensure that players who are the subject of a fantasy contest are restricted from entering a fantasy contest that is determined, in whole or part, on the accumulated statistical results of a team of individuals in which such players are participants;
    5. Allow individuals to restrict themselves from entering a fantasy contest upon request and take reasonable steps to prevent those individuals from entering the operator’s fantasy contests;
    6. Disclose the number of entries a single fantasy contest player may submit to each fantasy contest and take reasonable steps to prevent such players from submitting more than the allowable number; and
    7. Segregate player funds from operational funds in separate accounts and maintain a reserve in the form of cash, cash equivalents, irrevocable letter of credit, bond, or a combination thereof in an amount sufficient to pay all prizes and awards offered to winning participants.
  5. If the registration forms are filed online using a website approved by the Commissioner of the Department, the operator shall follow the procedures on that website for signing the forms.
  6. Any operator that allows its registration to lapse, without requesting an extension of time to file, shall be required to resubmit an initial registration. An extension may be granted by the Department upon receipt of a written request.

History. 2016, cc. 318, 703.

Editor’s note.

Acts 2016, cc. 318 and 703, cl. 2 provides: “That the initial fee for an application for registration in accordance with this act shall be $50,000. Thereafter, the fee for an application for registration shall be set by the Department of Agriculture and Consumer Services in accordance with § 59.1-564 of the Code of Virginia, as created by this act.”

§ 59.1-558. Issuance of registration; denial of same.

  1. The Department shall consider all applications for registration and shall issue a valid registration to an applicant that meets the criteria set forth in this chapter.
  2. The Department shall deny registration to any applicant unless it finds that:
    1. If the corporation is a stock corporation, such stock is fully paid and nonassessable and has been subscribed and paid for only in cash or property to the exclusion of past services and, if the corporation is a nonstock corporation, that there are at least five members;
    2. All principal stockholders or members have submitted to the jurisdiction of the Virginia courts for the purposes of this chapter, and all nonresident principal stockholders or members have designated the Commissioner of the Department as their agent for receipt of process;
    3. The applicant’s articles of incorporation provide that the corporation may, on vote of a majority of the stockholders or members, purchase at fair market value the entire membership interest of any stockholder or require the resignation of any member who is or becomes unqualified for such position under subsection C; and
    4. The applicant meets the criteria established by the Department for the granting of registration.
  3. The Department may deny registration to an applicant if it finds that the applicant, or any officer, partner, principal stockholder, or director of the applicant:
    1. Has knowingly made a false statement of material fact or has deliberately failed to disclose any information requested;
    2. Is or has been found guilty of any illegal, corrupt, or fraudulent act, practice, or conduct in connection with any fantasy contest in this or any other state or has been convicted of a felony, a crime of moral turpitude, or any criminal offense involving dishonesty or breach of trust within the 10 years prior to the date of application for registration;
    3. Has at any time knowingly failed to comply with the provisions of this chapter or of any requirements of the Department;
    4. Has had a registration or permit to hold or conduct fantasy contests denied for just cause, suspended, or revoked in any other state or country;
    5. Has legally defaulted in the payment of any obligation or debt due to the Commonwealth; or
    6. Is not qualified to do business in the Commonwealth or is not subject to the jurisdiction of the courts of the Commonwealth.
  4. Any operator applying for registration or renewal of a registration may operate during the application period unless the Department has reasonable cause to believe that such operator is or may be in violation of the provisions of this chapter and the Department requires such operator to suspend the operation of any fantasy contest until registration or renewal of registration is issued.
  5. The Department shall issue such registration within 60 days of receipt of the application for registration. If the registration is not issued, the Department shall provide the operator with the justification for not issuing such registration with specificity.

History. 2016, cc. 318, 703.

§ 59.1-559. Independent audit required; submission to Department.

A registered operator shall (i) annually contract with a certified public accountant to conduct an independent audit, consistent with the standards accepted by the Board of Accountancy; (ii) annually contract with a testing laboratory recognized by the Department to verify compliance with the provisions of subsection D of § 59.1-557; and (iii) submit to the Department a copy of the (a) audit report and (b) report of the testing laboratory as required by clause (ii).

History. 2016, cc. 318, 703.

§ 59.1-560. Powers and duties of Department.

  1. The Department shall have all powers and duties necessary to carry out the provisions of this chapter. The Department may establish procedures deemed necessary to carry out the provisions of this chapter.
  2. Whenever it appears to the Department that any person has violated any provision of this chapter, it may apply to the appropriate circuit court for an injunction against such person. The order granting or refusing such injunction shall be subject to appeal as in other cases in equity.
  3. Whenever the Department has reasonable cause to believe that a violation of this chapter may have occurred, the Department, upon its own motion or upon complaint of any person, may investigate any fantasy contest operator to determine whether such operator has violated the provisions of this chapter. In the conduct of such investigation, the Department may:
    1. Require or permit any person to file a statement in writing, under oath or otherwise as the Department determines, as to all facts and circumstances concerning the matter to be investigated; and
    2. Administer oaths or affirmations and, upon its own motion or upon request of any party, subpoena witnesses and compel their attendance, take evidence, and require the production of any matter that is relevant to the investigation, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangibles and the identity and location of persons having knowledge of relevant facts or any other matter reasonably calculated to lead to the discovery of material evidence.
  4. Any proceedings or hearings by the Department under this chapter, where witnesses are subpoenaed and their attendance is required for evidence to be taken or any matter is to be produced to ascertain material evidence, shall take place within the City of Richmond.
  5. Upon failure to obey a subpoena and upon reasonable notice to all persons affected thereby, the Department may apply to the Circuit Court of the City of Richmond for an order imposing punishment for contempt of the subpoena or compelling compliance.

History. 2016, cc. 318, 703.

§ 59.1-561. Suspension or revocation of registration.

  1. After a hearing with 15 days’ notice, the Department may suspend or revoke any registration or impose on such operator a monetary penalty of not more than $1,000 for each violation of this chapter, not to exceed $50,000, in any case where a violation of this chapter has been shown by a preponderance of the evidence. The Department may revoke a registration if it finds that facts not known by it at the time it considered the application indicate that such registration should not have been issued.
  2. The Department may summarily suspend any registration for a period of not more than seven days pending a hearing and final determination by the Department if the Department determines that a violation of this chapter has occurred and emergency action is required to protect the public health, safety, and welfare. The Department shall (i) schedule a hearing within seven business days after the registration is summarily suspended and (ii) notify the registered operator not less than five business days before the hearing of the date, time, and place of the hearing.
  3. If any such registration is suspended or revoked, the Department shall state its reasons for doing so, which shall be entered of record. Such action shall be final unless appealed in accordance with § 59.1-562. Suspension or revocation of a registration issued by the Department for any violation shall not preclude civil liability for such violation.

History. 2016, cc. 318, 703.

§ 59.1-562. Hearing and appeal.

Any person aggrieved by a denial of the Department to issue a registration, the suspension or revocation of a registration, the imposition of a fine, or any other action of the Department may seek review of such action in accordance with Article 5 (§ 2.2-4025 et seq.) of the Administrative Process Act in the Circuit Court of the City of Richmond. Further appeals shall also be in accordance with Article 5 (§ 2.2-4025 et seq.) of the Administrative Process Act.

History. 2016, cc. 318, 703.

§ 59.1-563. Fees and charges.

All fees, charges, and monetary penalties collected by the Department as provided in this chapter shall be paid into a special fund of the state treasury. Such funds shall be used to finance the administration and operation of this chapter.

History. 2016, cc. 318, 703.

§ 59.1-564. Department to adjust fees; certain transfer of money collected prohibited.

  1. Nongeneral funds generated by fees collected in accordance with this chapter on behalf of the Department and accounted for and deposited into a special fund by the Commissioner of the Department shall be held exclusively to cover the expenses of the Department in administering this chapter and shall not be transferred to any other agency.
  2. Following the close of any biennium, when the account for the Department maintained under this chapter shows expenses allocated to it for the past biennium to be more than 10 percent greater or less than moneys collected on behalf of the Department, it shall revise the fees levied by it for registration and renewal thereof so that the fees are sufficient but not excessive to cover expenses.

History. 2016, cc. 318, 703.

Editor’s note.

Acts 2016, cc. 318 and 703, cl. 2 provides: “That the initial fee for an application for registration in accordance with this act shall be $50,000. Thereafter, the fee for an application for registration shall be set by the Department of Agriculture and Consumer Services in accordance with § 59.1-564 of the Code of Virginia, as created by this act.”

§ 59.1-565. Public inspection of information filed with Department; charges for production.

  1. Except as provided in subsection B, registrations required to be filed under this chapter shall be open to the public for inspection at such time and under such conditions as the Department may prescribe. A charge not exceeding $1 per page may be made for any copy of such documents as may be furnished to any person by the Department.
  2. Reports, data, or documents submitted to the Department pursuant to the audit requirements of § 59.1-559 and records submitted to the Department as part of an application for registration or renewal that contain information about the character or financial responsibility of the operator or its principal stockholders shall be deemed confidential and shall be exempt from disclosure under the Freedom of Information Act (§ 2.2-3700 et seq.).

History. 2016, cc. 318, 703.

§ 59.1-566. Registration not endorsement.

No registered operator shall use or exploit the fact of registration under this chapter so as to lead the public to believe that such registration in any manner constitutes an endorsement or approval by the Commonwealth.

History. 2016, cc. 318, 703.

§ 59.1-567. Acquisition of interest in fantasy contest operator.

  1. If any person acquires actual control of a registered operator, such person shall register with the Department in accordance with § 59.1-557.
  2. Where any such acquisition of control is without prior approval of the Department, the Department may suspend any registration it has issued to such operator, order compliance with this section, or take such other action as may be appropriate within the authority of the Department.

History. 2016, cc. 318, 703.

§ 59.1-568. Civil penalty.

In addition to the provisions of § 59.1-561, any person, firm, corporation, association, agent, or employee who knowingly violates any procedure implemented under subsection D of § 59.1-557 or any other provision of this chapter shall be liable for a civil penalty of not more than $1,000 for each such violation. Such amount shall be recovered in a civil action brought by the Department and be paid into the State Literary Fund.

History. 2016, cc. 318, 703.

§ 59.1-569. Fantasy contests conducted under this chapter not illegal gambling.

  1. Nothing contained in Article 1 (§ 18.2-325 et seq.) of Chapter 8 of Title 18.2 shall be applicable to a fantasy contest conducted in accordance with this chapter. The award of any prize money for any fantasy contest shall not be deemed to be part of any gaming contract within the purview of § 11-14 .
  2. This section shall not apply to any sports betting or related activity that is lawful under Article 2 (§ 58.1-4030 et seq.) of Chapter 40 of Title 58.1, which shall be regulated pursuant to such chapter.

History. 2016, cc. 318, 703; 2020, cc. 1218, 1256.

Editor’s note.

Acts 2020, cc. 1218 and 1256, cl. 2 provides: “That the Virginia Lottery Board (the Board) shall promulgate regulations implementing the provisions of this act. The Board’s initial adoption of regulations shall be exempt from the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia), except that the Board shall provide an opportunity for public comment on the regulations prior to adoption. The Board shall complete work on such regulations no later than September 15, 2020.”

The 2020 amendments.

The 2020 amendments by cc. 1218 and 1256 are identical, and added subsection B.

§ 59.1-570. Liability imposed by other laws not decreased.

Except as provided in § 59.1-569, nothing contained in this chapter shall be construed as making lawful any act or omission that is now unlawful, or as decreasing the liability, civil or criminal, of any person, imposed by existing laws.

History. 2016, cc. 318, 703.

Chapter 52. Humane Cosmetics Act.

§ 59.1-571. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Cosmetic” means any article intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, including, without limitation, personal hygiene products such as deodorant, shampoo, or conditioner.

“Cosmetic animal testing” means the internal or external application of a cosmetic, either in its final form or any ingredient thereof, to the skin, eyes, or other body part of a live, nonhuman vertebrate. Merely reviewing, assessing, or retaining evidence from a cosmetic animal test shall not constitute developing or manufacturing using cosmetic animal testing for purposes of this chapter.

“Cosmetics manufacturer” means any person whose name appears on the label of a cosmetic product pursuant to the requirements of 21 C.F.R. § 701.12.

“Ingredient” has the meaning ascribed to it in 21 C.F.R. § 700.3(e).

History. 2021, Sp. Sess. I, cc. 113, 114.

Effective date.

This chapter is effective July 1, 2021.

§ 59.1-572. Prohibited conduct.

  1. Except as provided in subsection B, no cosmetics manufacturer shall:
    1. Conduct or contract for cosmetic animal testing that occurs in the Commonwealth on or after January 1, 2022;
    2. Manufacture or import for profit into the Commonwealth any cosmetic or ingredient thereof, if the cosmetics manufacturer knew or reasonably should have known that the cosmetic or any component thereof was developed or manufactured using cosmetic animal testing that was conducted on or after January 1, 2022; or
    3. Beginning July 1, 2022, sell or offer for sale within the Commonwealth any cosmetic, if the cosmetics manufacturer knows or reasonably should know that the cosmetic or any component thereof was developed or manufactured using cosmetic animal testing that was conducted on or after January 1, 2022.
  2. The prohibitions in subsection A shall not apply to cosmetic animal testing or a cosmetic for which cosmetic animal testing was conducted, if the cosmetic animal testing was conducted:
    1. To comply with a requirement of a federal or state regulatory agency and (i) the tested ingredient is in wide use and cannot be replaced by another ingredient capable of performing a similar function; (ii) a specific human health problem related to the cosmetic or ingredient is substantiated that justifies the need to conduct the cosmetic animal testing, and such testing is supported by a detailed research protocol proposed as the basis for the evaluation of the cosmetic or ingredient; and (iii) there does not exist a method of testing other than cosmetic animal testing that is accepted for the relevant purpose by the federal or state regulatory agency;
    2. To comply with a requirement of a regulatory agency of a foreign jurisdiction, so long as no evidence derived from such testing was relied upon to substantiate the safety of a cosmetic sold within Virginia by the cosmetics manufacturer;
    3. On any cosmetic or cosmetic ingredient subject to the requirements of Subchapter V of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 351 et seq.); or
    4. Pursuant to a requirement of a federal, state, or foreign regulatory agency for a purpose unrelated to cosmetics, provided that either no evidence derived from such testing was relied upon to substantiate the safety of the cosmetic or there is (i) documented evidence of a noncosmetic intent of the test and (ii) a history of use of the ingredient outside of cosmetics for at least 12 months prior to such reliance.

History. 2021, Sp. Sess. I, cc. 113, 114.

Effective date.

This section is effective July 1, 2021.

§ 59.1-573. Civil penalties.

Any person who violates any provision of this chapter is subject to a civil penalty of $5,000 and an additional $1,000 for each day the violation continues. Such penalty shall be collected by the Attorney General and the proceeds shall be deposited into the Literary Fund.

History. 2021, Sp. Sess. I, cc. 113, 114.

Effective date.

This section is effective July 1, 2021.

§ 59.1-574. Local regulation prohibited unless identical.

No locality may establish or continue any regulation relating to cosmetic animal testing that is not identical to the provisions set forth in this chapter.

History. 2021, Sp. Sess. I, cc. 113, 114.

Effective date.

This section is effective July 1, 2021.

Chapter 53. Consumer Data Protection Act.

[Effective January 1, 2023]

§ 59.1-575. (Effective until January 1, 2023) Definitions.

As used in this chapter, unless the context requires a different meaning:

“Affiliate” means a legal entity that controls, is controlled by, or is under common control with another legal entity or shares common branding with another legal entity. For the purposes of this definition, “control” or “controlled” means (i) ownership of, or the power to vote, more than 50 percent of the outstanding shares of any class of voting security of a company; (ii) control in any manner over the election of a majority of the directors or of individuals exercising similar functions; or (iii) the power to exercise controlling influence over the management of a company.

“Authenticate” means verifying through reasonable means that the consumer, entitled to exercise his consumer rights in § 59.1-577, is the same consumer exercising such consumer rights with respect to the personal data at issue.

“Biometric data” means data generated by automatic measurements of an individual’s biological characteristics, such as a fingerprint, voiceprint, eye retinas, irises, or other unique biological patterns or characteristics that is used to identify a specific individual. “Biometric data” does not include a physical or digital photograph, a video or audio recording or data generated therefrom, or information collected, used, or stored for health care treatment, payment, or operations under HIPAA.

“Business associate” means the same meaning as the term established by HIPAA.

“Child” means any natural person younger than 13 years of age.

“Consent” means a clear affirmative act signifying a consumer’s freely given, specific, informed, and unambiguous agreement to process personal data relating to the consumer. Consent may include a written statement, including a statement written by electronic means, or any other unambiguous affirmative action.

“Consumer” means a natural person who is a resident of the Commonwealth acting only in an individual or household context. It does not include a natural person acting in a commercial or employment context.

“Controller” means the natural or legal person that, alone or jointly with others, determines the purpose and means of processing personal data.

“Covered entity” means the same as the term is established by HIPAA.

“Decisions that produce legal or similarly significant effects concerning a consumer” means a decision made by the controller that results in the provision or denial by the controller of financial and lending services, housing, insurance, education enrollment, criminal justice, employment opportunities, health care services, or access to basic necessities, such as food and water.

“De-identified data” means data that cannot reasonably be linked to an identified or identifiable natural person, or a device linked to such person. A controller that possesses “de-identified data” shall comply with the requirements of subsection A of § 59.1-581.

“Fund” means the Consumer Privacy Fund established pursuant to § 59.1-585.

“Health record” means the same as that term is defined in § 32.1-127.1:03 .

“Health care provider” means the same as that term is defined in § 32.1-276.3 .

“HIPAA” means the federal Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.).

“Identified or identifiable natural person” means a person who can be readily identified, directly or indirectly.

“Institution of higher education” means a public institution and private institution of higher education, as those terms are defined in § 23.1-100 .

“Nonprofit organization” means any corporation organized under the Virginia Nonstock Corporation Act (§ 13.1-801 et seq.) or any organization exempt from taxation under § 501(c)(3), 501(c)(6), or 501 (c)(12) of the Internal Revenue Code, and any subsidiaries and affiliates of entities organized pursuant to Chapter 9.1 (§ 56-231.15 et seq.) of Title 56.

“Personal data” means any information that is linked or reasonably linkable to an identified or identifiable natural person. “Personal data” does not include de-identified data or publicly available information.

“Precise geolocation data” means information derived from technology, including but not limited to global positioning system level latitude and longitude coordinates or other mechanisms, that directly identifies the specific location of a natural person with precision and accuracy within a radius of 1,750 feet. “Precise geolocation data” does not include the content of communications or any data generated by or connected to advanced utility metering infrastructure systems or equipment for use by a utility.

“Process” or “processing” means any operation or set of operations performed, whether by manual or automated means, on personal data or on sets of personal data, such as the collection, use, storage, disclosure, analysis, deletion, or modification of personal data.

“Processor” means a natural or legal entity that processes personal data on behalf of a controller.

“Profiling” means any form of automated processing performed on personal data to evaluate, analyze, or predict personal aspects related to an identified or identifiable natural person’s economic situation, health, personal preferences, interests, reliability, behavior, location, or movements.

“Protected health information” means the same as the term is established by HIPAA.

“Pseudonymous data” means personal data that cannot be attributed to a specific natural person without the use of additional information, provided that such additional information is kept separately and is subject to appropriate technical and organizational measures to ensure that the personal data is not attributed to an identified or identifiable natural person.

“Publicly available information” means information that is lawfully made available through federal, state, or local government records, or information that a business has a reasonable basis to believe is lawfully made available to the general public through widely distributed media, by the consumer, or by a person to whom the consumer has disclosed the information, unless the consumer has restricted the information to a specific audience.

“Sale of personal data” means the exchange of personal data for monetary consideration by the controller to a third party. “Sale of personal data” does not include:

  1. The disclosure of personal data to a processor that processes the personal data on behalf of the controller;
  2. The disclosure of personal data to a third party for purposes of providing a product or service requested by the consumer;
  3. The disclosure or transfer of personal data to an affiliate of the controller;
  4. The disclosure of information that the consumer (i) intentionally made available to the general public via a channel of mass media and (ii) did not restrict to a specific audience; or
  5. The disclosure or transfer of personal data to a third party as an asset that is part of a merger, acquisition, bankruptcy, or other transaction in which the third party assumes control of all or part of the controller’s assets.“Sensitive data” means a category of personal data that includes:

    “Third party” means a natural or legal person, public authority, agency, or body other than the consumer, controller, processor, or an affiliate of the processor or the controller.

1. Personal data revealing racial or ethnic origin, religious beliefs, mental or physical health diagnosis, sexual orientation, or citizenship or immigration status;

2. The processing of genetic or biometric data for the purpose of uniquely identifying a natural person;

3. The personal data collected from a known child; or

4. Precise geolocation data. “State agency” means the same as that term is defined in § 2.2-307 . “Targeted advertising” means displaying advertisements to a consumer where the advertisement is selected based on personal data obtained from that consumer’s activities over time and across nonaffiliated websites or online applications to predict such consumer’s preferences or interests. “Targeted advertising” does not include:

1. Advertisements based on activities within a controller’s own websites or online applications;

2. Advertisements based on the context of a consumer’s current search query, visit to a website, or online application;

3. Advertisements directed to a consumer in response to the consumer’s request for information or feedback; or

4. Processing personal data processed solely for measuring or reporting advertising performance, reach, or frequency.

History. 2021, Sp. Sess. I, cc. 35, 36.

Section set out twice.

This section above is effective until January 1, 2023. For the version of the section effective January 1, 2023, see the following section, also numbered 59.1-575.

The numbers of this chapter and section were assigned by the Virginia Code Commission, the numbers in the 2021 Sp. Sess. I acts having been Chapter 52 (§ 59.1-571 et seq.).

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 2 provides: “The Chairman of the Joint Commission on Technology and Science shall create a work group composed of the Secretary of Commerce and Trade, the Secretary of Administration, the Attorney General, the Chairman of the Senate Committee on Transportation, representatives of businesses who control or process personal data of at least 100,000 persons, and consumer rights advocates. The work group shall review the provisions of this act and issues related to its implementation. The Chairman of the Joint Commission on Technology and Science shall submit the work group’s findings, best practices, and recommendations regarding the implementation of this act to the Chairmen of the Senate Committee on General Laws and Technology and the House Committee on Communications, Technology and Innovation no later than November 1, 2021.”

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 3 provides: “That any reference to federal law or statute in this act shall be deemed to include any accompanying rules or regulations or exemptions thereto. Further, this enactment is declaratory of existing law.”

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-575. (Effective January 1, 2023) Definitions.

As used in this chapter, unless the context requires a different meaning:

“Affiliate” means a legal entity that controls, is controlled by, or is under common control with another legal entity or shares common branding with another legal entity. For the purposes of this definition, “control” or “controlled” means (i) ownership of, or the power to vote, more than 50 percent of the outstanding shares of any class of voting security of a company; (ii) control in any manner over the election of a majority of the directors or of individuals exercising similar functions; or (iii) the power to exercise controlling influence over the management of a company.

“Authenticate” means verifying through reasonable means that the consumer, entitled to exercise his consumer rights in § 59.1-577, is the same consumer exercising such consumer rights with respect to the personal data at issue.

“Biometric data” means data generated by automatic measurements of an individual’s biological characteristics, such as a fingerprint, voiceprint, eye retinas, irises, or other unique biological patterns or characteristics that is used to identify a specific individual. “Biometric data” does not include a physical or digital photograph, a video or audio recording or data generated therefrom, or information collected, used, or stored for health care treatment, payment, or operations under HIPAA.

“Business associate” means the same meaning as the term established by HIPAA.

“Child” means any natural person younger than 13 years of age.

“Consent” means a clear affirmative act signifying a consumer’s freely given, specific, informed, and unambiguous agreement to process personal data relating to the consumer. Consent may include a written statement, including a statement written by electronic means, or any other unambiguous affirmative action.

“Consumer” means a natural person who is a resident of the Commonwealth acting only in an individual or household context. It does not include a natural person acting in a commercial or employment context.

“Controller” means the natural or legal person that, alone or jointly with others, determines the purpose and means of processing personal data.

“Covered entity” means the same as the term is established by HIPAA.

“Decisions that produce legal or similarly significant effects concerning a consumer” means a decision made by the controller that results in the provision or denial by the controller of financial and lending services, housing, insurance, education enrollment, criminal justice, employment opportunities, health care services, or access to basic necessities, such as food and water.

“De-identified data” means data that cannot reasonably be linked to an identified or identifiable natural person, or a device linked to such person. A controller that possesses “de-identified data” shall comply with the requirements of subsection A of § 59.1-581.

“Health record” means the same as that term is defined in § 32.1-127.1:03 .

“Health care provider” means the same as that term is defined in § 32.1-276.3 .

“HIPAA” means the federal Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.).

“Identified or identifiable natural person” means a person who can be readily identified, directly or indirectly.

“Institution of higher education” means a public institution and private institution of higher education, as those terms are defined in § 23.1-100 .

“Nonprofit organization” means any corporation organized under the Virginia Nonstock Corporation Act (§ 13.1-801 et seq.) or any organization exempt from taxation under § 501(c)(3), 501(c)(6), or 501(c)(12) of the Internal Revenue Code, any political organization, any organization exempt from taxation under § 501(c)(4) of the Internal Revenue Code that is identified in § 52-41 , and any subsidiary or affiliate of entities organized pursuant to Chapter 9.1 (§ 56-231.15 et seq.) of Title 56.

“Personal data” means any information that is linked or reasonably linkable to an identified or identifiable natural person. “Personal data” does not include de-identified data or publicly available information.

“Political organization” means a party, committee, association, fund, or other organization, whether or not incorporated, organized and operated primarily for the purpose of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, or local public office or office in a political organization or the election of a presidential/vice-presidential elector, whether or not such individual or elector is selected, nominated, elected, or appointed.

“Precise geolocation data” means information derived from technology, including but not limited to global positioning system level latitude and longitude coordinates or other mechanisms, that directly identifies the specific location of a natural person with precision and accuracy within a radius of 1,750 feet. “Precise geolocation data” does not include the content of communications or any data generated by or connected to advanced utility metering infrastructure systems or equipment for use by a utility.

“Process” or “processing” means any operation or set of operations performed, whether by manual or automated means, on personal data or on sets of personal data, such as the collection, use, storage, disclosure, analysis, deletion, or modification of personal data.

“Processor” means a natural or legal entity that processes personal data on behalf of a controller.

“Profiling” means any form of automated processing performed on personal data to evaluate, analyze, or predict personal aspects related to an identified or identifiable natural person’s economic situation, health, personal preferences, interests, reliability, behavior, location, or movements.

“Protected health information” means the same as the term is established by HIPAA.

“Pseudonymous data” means personal data that cannot be attributed to a specific natural person without the use of additional information, provided that such additional information is kept separately and is subject to appropriate technical and organizational measures to ensure that the personal data is not attributed to an identified or identifiable natural person.

“Publicly available information” means information that is lawfully made available through federal, state, or local government records, or information that a business has a reasonable basis to believe is lawfully made available to the general public through widely distributed media, by the consumer, or by a person to whom the consumer has disclosed the information, unless the consumer has restricted the information to a specific audience.

“Sale of personal data” means the exchange of personal data for monetary consideration by the controller to a third party. “Sale of personal data” does not include:

  1. The disclosure of personal data to a processor that processes the personal data on behalf of the controller;
  2. The disclosure of personal data to a third party for purposes of providing a product or service requested by the consumer;
  3. The disclosure or transfer of personal data to an affiliate of the controller;
  4. The disclosure of information that the consumer (i) intentionally made available to the general public via a channel of mass media and (ii) did not restrict to a specific audience; or
  5. The disclosure or transfer of personal data to a third party as an asset that is part of a merger, acquisition, bankruptcy, or other transaction in which the third party assumes control of all or part of the controller’s assets. “Sensitive data” means a category of personal data that includes: “State agency” means the same as that term is defined in § 2.2-307 . “Targeted advertising” means displaying advertisements to a consumer where the advertisement is selected based on personal data obtained from that consumer’s activities over time and across nonaffiliated websites or online applications to predict such consumer’s preferences or interests. “Targeted advertising” does not include: “Third party” means a natural or legal person, public authority, agency, or body other than the consumer, controller, processor, or an affiliate of the processor or the controller.

1. Personal data revealing racial or ethnic origin, religious beliefs, mental or physical health diagnosis, sexual orientation, or citizenship or immigration status;

2. The processing of genetic or biometric data for the purpose of uniquely identifying a natural person;

3. The personal data collected from a known child; or

4. Precise geolocation data.

1. Advertisements based on activities within a controller’s own websites or online applications;

2. Advertisements based on the context of a consumer’s current search query, visit to a website, or online application;

3. Advertisements directed to a consumer in response to the consumer’s request for information or feedback; or

4. Processing personal data processed solely for measuring or reporting advertising performance, reach, or frequency.

History. 2021, Sp. Sess. I, cc. 35, 36; 2022, cc. 451, 452.

Section set out twice.

This section above is effective January 1, 2023. For the version of the section effective until January 1, 2023, see the preceding section, also numbered 59.1-575.

The 2022 amendments.

The 2022 amendments by cc. 451 and 452 are identical, and deleted the definition of “Fund,” which read: “‘Fund’ means the Consumer Privacy Fund established pursuant to § 59.1-585”; in the definition of “Nonprofit organization,” inserted “any political organization, any organization exempt from taxation under § 501(c)(4) of the Internal Revenue Code that is identified in § 52-41 ” and substituted “subsidiary or affiliate” for “subsidiaries and affiliates”; added the definition of “Political organization”; and made a stylistic change.

§ 59.1-576. (Effective January 1, 2023) Scope; exemptions.

  1. This chapter applies to persons that conduct business in the Commonwealth or produce products or services that are targeted to residents of the Commonwealth and that (i) during a calendar year, control or process personal data of at least 100,000 consumers or (ii) control or process personal data of at least 25,000 consumers and derive over 50 percent of gross revenue from the sale of personal data.
  2. This chapter shall not apply to any (i) body, authority, board, bureau, commission, district, or agency of the Commonwealth or of any political subdivision of the Commonwealth; (ii) financial institution or data subject to Title V of the federal Gramm-Leach-Bliley Act (15 U.S.C. § 6801 et seq.); (iii) covered entity or business associate governed by the privacy, security, and breach notification rules issued by the U.S. Department of Health and Human Services, 45 C.F.R. Parts 160 and 164 established pursuant to HIPAA, and the Health Information Technology for Economic and Clinical Health Act (P.L. 111-5); (iv) nonprofit organization; or (v) institution of higher education.
  3. The following information and data is exempt from this chapter:
    1. Protected health information under HIPAA;
    2. Health records for purposes of Title 32.1;
    3. Patient identifying information for purposes of 42 U.S.C. § 290dd-2;
    4. Identifiable private information for purposes of the federal policy for the protection of human subjects under 45 C.F.R. Part 46; identifiable private information that is otherwise information collected as part of human subjects research pursuant to the good clinical practice guidelines issued by The International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use; the protection of human subjects under 21 C.F.R. Parts 6, 50, and 56, or personal data used or shared in research conducted in accordance with the requirements set forth in this chapter, or other research conducted in accordance with applicable law;
    5. Information and documents created for purposes of the federal Health Care Quality Improvement Act of 1986 (42 U.S.C. § 11101 et seq.);
    6. Patient safety work product for purposes of the federal Patient Safety and Quality Improvement Act (42 U.S.C. § 299b-21 et seq.);
    7. Information derived from any of the health care-related information listed in this subsection that is de-identified in accordance with the requirements for de-identification pursuant to HIPAA;
    8. Information originating from, and intermingled to be indistinguishable with, or information treated in the same manner as information exempt under this subsection that is maintained by a covered entity or business associate as defined by HIPAA or a program or a qualified service organization as defined by 42 U.S.C. § 290dd-2;
    9. Information used only for public health activities and purposes as authorized by HIPAA;
    10. The collection, maintenance, disclosure, sale, communication, or use of any personal information bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living by a consumer reporting agency or furnisher that provides information for use in a consumer report, and by a user of a consumer report, but only to the extent that such activity is regulated by and authorized under the federal Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.);
    11. Personal data collected, processed, sold, or disclosed in compliance with the federal Driver’s Privacy Protection Act of 1994 (18 U.S.C. § 2721 et seq.);
    12. Personal data regulated by the federal Family Educational Rights and Privacy Act (20 U.S.C. § 1232g et seq.);
    13. Personal data collected, processed, sold, or disclosed in compliance with the federal Farm Credit Act (12 U.S.C. § 2001 et seq.); and
    14. Data processed or maintained (i) in the course of an individual applying to, employed by, or acting as an agent or independent contractor of a controller, processor, or third party, to the extent that the data is collected and used within the context of that role; (ii) as the emergency contact information of an individual under this chapter used for emergency contact purposes; or (iii) that is necessary to retain to administer benefits for another individual relating to the individual under clause (i) and used for the purposes of administering those benefits.
  4. Controllers and processors that comply with the verifiable parental consent requirements of the Children’s Online Privacy Protection Act (15 U.S.C. § 6501 et seq.) shall be deemed compliant with any obligation to obtain parental consent under this chapter.

History. 2021, Sp. Sess. I, cc. 35, 36.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-572.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 3 provides: “That any reference to federal law or statute in this act shall be deemed to include any accompanying rules or regulations or exemptions thereto. Further, this enactment is declaratory of existing law.”

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-577. (Effective until January 1, 2023) Personal data rights; consumers.

  1. A consumer may invoke the consumer rights authorized pursuant to this subsection at any time by submitting a request to a controller specifying the consumer rights the consumer wishes to invoke. A known child’s parent or legal guardian may invoke such consumer rights on behalf of the child regarding processing personal data belonging to the known child. A controller shall comply with an authenticated consumer request to exercise the right:
    1. To confirm whether or not a controller is processing the consumer’s personal data and to access such personal data;
    2. To correct inaccuracies in the consumer’s personal data, taking into account the nature of the personal data and the purposes of the processing of the consumer’s personal data;
    3. To delete personal data provided by or obtained about the consumer;
    4. To obtain a copy of the consumer’s personal data that the consumer previously provided to the controller in a portable and, to the extent technically feasible, readily usable format that allows the consumer to transmit the data to another controller without hindrance, where the processing is carried out by automated means; and
    5. To opt out of the processing of the personal data for purposes of (i) targeted advertising, (ii) the sale of personal data, or (iii) profiling in furtherance of decisions that produce legal or similarly significant effects concerning the consumer.
  2. Except as otherwise provided in this chapter, a controller shall comply with a request by a consumer to exercise the consumer rights authorized pursuant to subsection A as follows:
    1. A controller shall respond to the consumer without undue delay, but in all cases within 45 days of receipt of the request submitted pursuant to the methods described in subsection A. The response period may be extended once by 45 additional days when reasonably necessary, taking into account the complexity and number of the consumer’s requests, so long as the controller informs the consumer of any such extension within the initial 45-day response period, together with the reason for the extension.
    2. If a controller declines to take action regarding the consumer’s request, the controller shall inform the consumer without undue delay, but in all cases and at the latest within 45 days of receipt of the request, of the justification for declining to take action and instructions for how to appeal the decision pursuant to subsection C.
    3. Information provided in response to a consumer request shall be provided by a controller free of charge, up to twice annually per consumer. If requests from a consumer are manifestly unfounded, excessive, or repetitive, the controller may charge the consumer a reasonable fee to cover the administrative costs of complying with the request or decline to act on the request. The controller bears the burden of demonstrating the manifestly unfounded, excessive, or repetitive nature of the request.
    4. If a controller is unable to authenticate the request using commercially reasonable efforts, the controller shall not be required to comply with a request to initiate an action under subsection A and may request that the consumer provide additional information reasonably necessary to authenticate the consumer and the consumer’s request.
  3. A controller shall establish a process for a consumer to appeal the controller’s refusal to take action on a request within a reasonable period of time after the consumer’s receipt of the decision pursuant to subdivision B 2. The appeal process shall be conspicuously available and similar to the process for submitting requests to initiate action pursuant to subsection A. Within 60 days of receipt of an appeal, a controller shall inform the consumer in writing of any action taken or not taken in response to the appeal, including a written explanation of the reasons for the decisions. If the appeal is denied, the controller shall also provide the consumer with an online mechanism, if available, or other method through which the consumer may contact the Attorney General to submit a complaint.

History. 2021, Sp. Sess. I, cc. 35, 36.

Section set out twice.

This section above is effective until January 1, 2023. For the version of the section effective January 1, 2023, see the following section, also numbered 59.1-577.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-573.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-577. (Effective January 1, 2023) Personal data rights; consumers.

  1. A consumer may invoke the consumer rights authorized pursuant to this subsection at any time by submitting a request to a controller specifying the consumer rights the consumer wishes to invoke. A known child’s parent or legal guardian may invoke such consumer rights on behalf of the child regarding processing personal data belonging to the known child. A controller shall comply with an authenticated consumer request to exercise the right:
    1. To confirm whether or not a controller is processing the consumer’s personal data and to access such personal data;
    2. To correct inaccuracies in the consumer’s personal data, taking into account the nature of the personal data and the purposes of the processing of the consumer’s personal data;
    3. To delete personal data provided by or obtained about the consumer;
    4. To obtain a copy of the consumer’s personal data that the consumer previously provided to the controller in a portable and, to the extent technically feasible, readily usable format that allows the consumer to transmit the data to another controller without hindrance, where the processing is carried out by automated means; and
    5. To opt out of the processing of the personal data for purposes of (i) targeted advertising, (ii) the sale of personal data, or (iii) profiling in furtherance of decisions that produce legal or similarly significant effects concerning the consumer.
  2. Except as otherwise provided in this chapter, a controller shall comply with a request by a consumer to exercise the consumer rights authorized pursuant to subsection A as follows:
    1. A controller shall respond to the consumer without undue delay, but in all cases within 45 days of receipt of the request submitted pursuant to the methods described in subsection A. The response period may be extended once by 45 additional days when reasonably necessary, taking into account the complexity and number of the consumer’s requests, so long as the controller informs the consumer of any such extension within the initial 45-day response period, together with the reason for the extension.
    2. If a controller declines to take action regarding the consumer’s request, the controller shall inform the consumer without undue delay, but in all cases and at the latest within 45 days of receipt of the request, of the justification for declining to take action and instructions for how to appeal the decision pursuant to subsection C.
    3. Information provided in response to a consumer request shall be provided by a controller free of charge, up to twice annually per consumer. If requests from a consumer are manifestly unfounded, excessive, or repetitive, the controller may charge the consumer a reasonable fee to cover the administrative costs of complying with the request or decline to act on the request. The controller bears the burden of demonstrating the manifestly unfounded, excessive, or repetitive nature of the request.
    4. If a controller is unable to authenticate the request using commercially reasonable efforts, the controller shall not be required to comply with a request to initiate an action under subsection A and may request that the consumer provide additional information reasonably necessary to authenticate the consumer and the consumer’s request.
    5. A controller that has obtained personal data about a consumer from a source other than the consumer shall be deemed in compliance with a consumer’s request to delete such data pursuant to subdivision A 3 by either (i) retaining a record of the deletion request and the minimum data necessary for the purpose of ensuring the consumer’s personal data remains deleted from the business’s records and not using such retained data for any other purpose pursuant to the provisions of this chapter or (ii) opting the consumer out of the processing of such personal data for any purpose except for those exempted pursuant to the provisions of this chapter.
  3. A controller shall establish a process for a consumer to appeal the controller’s refusal to take action on a request within a reasonable period of time after the consumer’s receipt of the decision pursuant to subdivision B 2. The appeal process shall be conspicuously available and similar to the process for submitting requests to initiate action pursuant to subsection A. Within 60 days of receipt of an appeal, a controller shall inform the consumer in writing of any action taken or not taken in response to the appeal, including a written explanation of the reasons for the decisions. If the appeal is denied, the controller shall also provide the consumer with an online mechanism, if available, or other method through which the consumer may contact the Attorney General to submit a complaint.

History. 2021, Sp. Sess. I, cc. 35, 36; 2022, c. 423.

Section set out twice.

This section above is effective January 1, 2023. For the version of the section effective until January 1, 2023, see the preceding section, also numbered 59.1-577.

The 2022 amendments.

The 2022 amendments by c. 423 added subdivision B 5.

§ 59.1-578. (Effective January 1, 2023) Data controller responsibilities; transparency.

  1. A controller shall:
    1. Limit the collection of personal data to what is adequate, relevant, and reasonably necessary in relation to the purposes for which such data is processed, as disclosed to the consumer;
    2. Except as otherwise provided in this chapter, not process personal data for purposes that are neither reasonably necessary to nor compatible with the disclosed purposes for which such personal data is processed, as disclosed to the consumer, unless the controller obtains the consumer’s consent;
    3. Establish, implement, and maintain reasonable administrative, technical, and physical data security practices to protect the confidentiality, integrity, and accessibility of personal data. Such data security practices shall be appropriate to the volume and nature of the personal data at issue;
    4. Not process personal data in violation of state and federal laws that prohibit unlawful discrimination against consumers. A controller shall not discriminate against a consumer for exercising any of the consumer rights contained in this chapter, including denying goods or services, charging different prices or rates for goods or services, or providing a different level of quality of goods and services to the consumer. However, nothing in this subdivision shall be construed to require a controller to provide a product or service that requires the personal data of a consumer that the controller does not collect or maintain or to prohibit a controller from offering a different price, rate, level, quality, or selection of goods or services to a consumer, including offering goods or services for no fee, if the consumer has exercised his right to opt out pursuant to § 59.1-577 or the offer is related to a consumer’s voluntary participation in a bona fide loyalty, rewards, premium features, discounts, or club card program; and
    5. Not process sensitive data concerning a consumer without obtaining the consumer’s consent, or, in the case of the processing of sensitive data concerning a known child, without processing such data in accordance with the federal Children’s Online Privacy Protection Act (15 U.S.C. § 6501 et seq.).
  2. Any provision of a contract or agreement of any kind that purports to waive or limit in any way consumer rights pursuant to § 59.1-577 shall be deemed contrary to public policy and shall be void and unenforceable.
  3. Controllers shall provide consumers with a reasonably accessible, clear, and meaningful privacy notice that includes:
    1. The categories of personal data processed by the controller;
    2. The purpose for processing personal data;
    3. How consumers may exercise their consumer rights pursuant § 59.1-577, including how a consumer may appeal a controller’s decision with regard to the consumer’s request;
    4. The categories of personal data that the controller shares with third parties, if any; and
    5. The categories of third parties, if any, with whom the controller shares personal data.
  4. If a controller sells personal data to third parties or processes personal data for targeted advertising, the controller shall clearly and conspicuously disclose such processing, as well as the manner in which a consumer may exercise the right to opt out of such processing.
  5. A controller shall establish, and shall describe in a privacy notice, one or more secure and reliable means for consumers to submit a request to exercise their consumer rights under this chapter. Such means shall take into account the ways in which consumers normally interact with the controller, the need for secure and reliable communication of such requests, and the ability of the controller to authenticate the identity of the consumer making the request. Controllers shall not require a consumer to create a new account in order to exercise consumer rights pursuant to § 59.1-577 but may require a consumer to use an existing account.

History. 2021, Sp. Sess. I, cc. 35, 36.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-574.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 3 provides: “That any reference to federal law or statute in this act shall be deemed to include any accompanying rules or regulations or exemptions thereto. Further, this enactment is declaratory of existing law.”

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-579. (Effective January 1, 2023) Responsibility according to role; controller and processor.

  1. A processor shall adhere to the instructions of a controller and shall assist the controller in meeting its obligations under this chapter. Such assistance shall include:
    1. Taking into account the nature of processing and the information available to the processor, by appropriate technical and organizational measures, insofar as this is reasonably practicable, to fulfill the controller’s obligation to respond to consumer rights requests pursuant to § 59.1-577.
    2. Taking into account the nature of processing and the information available to the processor, by assisting the controller in meeting the controller’s obligations in relation to the security of processing the personal data and in relation to the notification of a breach of security of the system of the processor pursuant to § 18.2-186.6 in order to meet the controller’s obligations.
    3. Providing necessary information to enable the controller to conduct and document data protection assessments pursuant to § 59.1-580.
  2. A contract between a controller and a processor shall govern the processor’s data processing procedures with respect to processing performed on behalf of the controller. The contract shall be binding and clearly set forth instructions for processing data, the nature and purpose of processing, the type of data subject to processing, the duration of processing, and the rights and obligations of both parties. The contract shall also include requirements that the processor shall:
    1. Ensure that each person processing personal data is subject to a duty of confidentiality with respect to the data;
    2. At the controller’s direction, delete or return all personal data to the controller as requested at the end of the provision of services, unless retention of the personal data is required by law;
    3. Upon the reasonable request of the controller, make available to the controller all information in its possession necessary to demonstrate the processor’s compliance with the obligations in this chapter;
    4. Allow, and cooperate with, reasonable assessments by the controller or the controller’s designated assessor; alternatively, the processor may arrange for a qualified and independent assessor to conduct an assessment of the processor’s policies and technical and organizational measures in support of the obligations under this chapter using an appropriate and accepted control standard or framework and assessment procedure for such assessments. The processor shall provide a report of such assessment to the controller upon request; and
    5. Engage any subcontractor pursuant to a written contract in accordance with subsection C that requires the subcontractor to meet the obligations of the processor with respect to the personal data.
  3. Nothing in this section shall be construed to relieve a controller or a processor from the liabilities imposed on it by virtue of its role in the processing relationship as defined by this chapter.
  4. Determining whether a person is acting as a controller or processor with respect to a specific processing of data is a fact-based determination that depends upon the context in which personal data is to be processed. A processor that continues to adhere to a controller’s instructions with respect to a specific processing of personal data remains a processor.

History. 2021, Sp. Sess. I, cc. 35, 36.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-575.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-580. (Effective January 1, 2023) Data protection assessments.

  1. A controller shall conduct and document a data protection assessment of each of the following processing activities involving personal data:
    1. The processing of personal data for purposes of targeted advertising;
    2. The sale of personal data;
    3. The processing of personal data for purposes of profiling, where such profiling presents a reasonably foreseeable risk of (i) unfair or deceptive treatment of, or unlawful disparate impact on, consumers; (ii) financial, physical, or reputational injury to consumers; (iii) a physical or other intrusion upon the solitude or seclusion, or the private affairs or concerns, of consumers, where such intrusion would be offensive to a reasonable person; or (iv) other substantial injury to consumers;
    4. The processing of sensitive data; and
    5. Any processing activities involving personal data that present a heightened risk of harm to consumers.
  2. Data protection assessments conducted pursuant to subsection A shall identify and weigh the benefits that may flow, directly and indirectly, from the processing to the controller, the consumer, other stakeholders, and the public against the potential risks to the rights of the consumer associated with such processing, as mitigated by safeguards that can be employed by the controller to reduce such risks. The use of de-identified data and the reasonable expectations of consumers, as well as the context of the processing and the relationship between the controller and the consumer whose personal data will be processed, shall be factored into this assessment by the controller.
  3. The Attorney General may request, pursuant to a civil investigative demand, that a controller disclose any data protection assessment that is relevant to an investigation conducted by the Attorney General, and the controller shall make the data protection assessment available to the Attorney General. The Attorney General may evaluate the data protection assessment for compliance with the responsibilities set forth in § 59.1-578. Data protection assessments shall be confidential and exempt from public inspection and copying under the Virginia Freedom of Information Act (§ 2.2-3700 et seq.). The disclosure of a data protection assessment pursuant to a request from the Attorney General shall not constitute a waiver of attorney-client privilege or work product protection with respect to the assessment and any information contained in the assessment.
  4. A single data protection assessment may address a comparable set of processing operations that include similar activities.
  5. Data protection assessments conducted by a controller for the purpose of compliance with other laws or regulations may comply under this section if the assessments have a reasonably comparable scope and effect.
  6. Data protection assessment requirements shall apply to processing activities created or generated after January 1, 2023, and are not retroactive.

History. 2021, Sp. Sess. I, cc. 35, 36.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-576.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-581. (Effective January 1, 2023) Processing de-identified data; exemptions.

  1. The controller in possession of de-identified data shall:
    1. Take reasonable measures to ensure that the data cannot be associated with a natural person;
    2. Publicly commit to maintaining and using de-identified data without attempting to re-identify the data; and
    3. Contractually obligate any recipients of the de-identified data to comply with all provisions of this chapter.
  2. Nothing in this chapter shall be construed to (i) require a controller or processor to re-identify de-identified data or pseudonymous data or (ii) maintain data in identifiable form, or collect, obtain, retain, or access any data or technology, in order to be capable of associating an authenticated consumer request with personal data.
  3. Nothing in this chapter shall be construed to require a controller or processor to comply with an authenticated consumer rights request, pursuant to § 59.1-577, if all of the following are true:
    1. The controller is not reasonably capable of associating the request with the personal data or it would be unreasonably burdensome for the controller to associate the request with the personal data;
    2. The controller does not use the personal data to recognize or respond to the specific consumer who is the subject of the personal data, or associate the personal data with other personal data about the same specific consumer; and
    3. The controller does not sell the personal data to any third party or otherwise voluntarily disclose the personal data to any third party other than a processor, except as otherwise permitted in this section.
  4. The consumer rights contained in subdivisions A 1 through 4 of § 59.1-577 and § 59.1-578 shall not apply to pseudonymous data in cases where the controller is able to demonstrate any information necessary to identify the consumer is kept separately and is subject to effective technical and organizational controls that prevent the controller from accessing such information.
  5. A controller that discloses pseudonymous data or de-identified data shall exercise reasonable oversight to monitor compliance with any contractual commitments to which the pseudonymous data or de-identified data is subject and shall take appropriate steps to address any breaches of those contractual commitments.

History. 2021, Sp. Sess. I, cc. 35, 36.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-577.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-582. (Effective January 1, 2023) Limitations.

  1. Nothing in this chapter shall be construed to restrict a controller’s or processor’s ability to:
    1. Comply with federal, state, or local laws, rules, or regulations;
    2. Comply with a civil, criminal, or regulatory inquiry, investigation, subpoena, or summons by federal, state, local, or other governmental authorities;
    3. Cooperate with law-enforcement agencies concerning conduct or activity that the controller or processor reasonably and in good faith believes may violate federal, state, or local laws, rules, or regulations;
    4. Investigate, establish, exercise, prepare for, or defend legal claims;
    5. Provide a product or service specifically requested by a consumer, perform a contract to which the consumer is a party, including fulfilling the terms of a written warranty, or take steps at the request of the consumer prior to entering into a contract;
    6. Take immediate steps to protect an interest that is essential for the life or physical safety of the consumer or of another natural person, and where the processing cannot be manifestly based on another legal basis;
    7. Prevent, detect, protect against, or respond to security incidents, identity theft, fraud, harassment, malicious or deceptive activities, or any illegal activity; preserve the integrity or security of systems; or investigate, report, or prosecute those responsible for any such action;
    8. Engage in public or peer-reviewed scientific or statistical research in the public interest that adheres to all other applicable ethics and privacy laws and is approved, monitored, and governed by an institutional review board, or similar independent oversight entities that determine: (i) if the deletion of the information is likely to provide substantial benefits that do not exclusively accrue to the controller; (ii) the expected benefits of the research outweigh the privacy risks; and (iii) if the controller has implemented reasonable safeguards to mitigate privacy risks associated with research, including any risks associated with reidentification; or
    9. Assist another controller, processor, or third party with any of the obligations under this subsection.
  2. The obligations imposed on controllers or processors under this chapter shall not restrict a controller’s or processor’s ability to collect, use, or retain data to:
    1. Conduct internal research to develop, improve, or repair products, services, or technology;
    2. Effectuate a product recall;
    3. Identify and repair technical errors that impair existing or intended functionality; or
    4. Perform internal operations that are reasonably aligned with the expectations of the consumer or reasonably anticipated based on the consumer’s existing relationship with the controller or are otherwise compatible with processing data in furtherance of the provision of a product or service specifically requested by a consumer or the performance of a contract to which the consumer is a party.
  3. The obligations imposed on controllers or processors under this chapter shall not apply where compliance by the controller or processor with this chapter would violate an evidentiary privilege under the laws of the Commonwealth. Nothing in this chapter shall be construed to prevent a controller or processor from providing personal data concerning a consumer to a person covered by an evidentiary privilege under the laws of the Commonwealth as part of a privileged communication.
  4. A controller or processor that discloses personal data to a third-party controller or processor, in compliance with the requirements of this chapter, is not in violation of this chapter if the third-party controller or processor that receives and processes such personal data is in violation of this chapter, provided that, at the time of disclosing the personal data, the disclosing controller or processor did not have actual knowledge that the recipient intended to commit a violation. A third-party controller or processor receiving personal data from a controller or processor in compliance with the requirements of this chapter is likewise not in violation of this chapter for the transgressions of the controller or processor from which it receives such personal data.
  5. Nothing in this chapter shall be construed as an obligation imposed on controllers and processors that adversely affects the rights or freedoms of any persons, such as exercising the right of free speech pursuant to the First Amendment to the United States Constitution, or applies to the processing of personal data by a person in the course of a purely personal or household activity.
  6. Personal data processed by a controller pursuant to this section shall not be processed for any purpose other than those expressly listed in this section unless otherwise allowed by this chapter. Personal data processed by a controller pursuant to this section may be processed to the extent that such processing is:
    1. Reasonably necessary and proportionate to the purposes listed in this section; and
    2. Adequate, relevant, and limited to what is necessary in relation to the specific purposes listed in this section. Personal data collected, used, or retained pursuant to subsection B shall, where applicable, take into account the nature and purpose or purposes of such collection, use, or retention. Such data shall be subject to reasonable administrative, technical, and physical measures to protect the confidentiality, integrity, and accessibility of the personal data and to reduce reasonably foreseeable risks of harm to consumers relating to such collection, use, or retention of personal data.
  7. If a controller processes personal data pursuant to an exemption in this section, the controller bears the burden of demonstrating that such processing qualifies for the exemption and complies with the requirements in subsection F.
  8. Processing personal data for the purposes expressly identified in subdivisions A 1 through 9 shall not solely make an entity a controller with respect to such processing.

History. 2021, Sp. Sess. I, cc. 35, 36.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-578.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-583. (Effective January 1, 2023) Investigative authority.

Whenever the Attorney General has reasonable cause to believe that any person has engaged in, is engaging in, or is about to engage in any violation of this chapter, the Attorney General is empowered to issue a civil investigative demand. The provisions of § 59.1-9.10 shall apply mutatis mutandis to civil investigative demands issued under this section.

History. 2021, Sp. Sess. I, cc. 35, 36.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-579.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-584. (Effective until January 1, 2023) Enforcement; civil penalty; expenses.

  1. The Attorney General shall have exclusive authority to enforce the provisions of this chapter.
  2. Prior to initiating any action under this chapter, the Attorney General shall provide a controller or processor 30 days’ written notice identifying the specific provisions of this chapter the Attorney General alleges have been or are being violated. If within the 30-day period, the controller or processor cures the noticed violation and provides the Attorney General an express written statement that the alleged violations have been cured and that no further violations shall occur, no action shall be initiated against the controller or processor.
  3. If a controller or processor continues to violate this chapter following the cure period in subsection B or breaches an express written statement provided to the Attorney General under that subsection, the Attorney General may initiate an action in the name of the Commonwealth and may seek an injunction to restrain any violations of this chapter and civil penalties of up to $7,500 for each violation under this chapter.
  4. The Attorney General may recover reasonable expenses incurred in investigating and preparing the case, including attorney fees, in any action initiated under this chapter.
  5. Nothing in this chapter shall be construed as providing the basis for, or be subject to, a private right of action for violations of this chapter or under any other law.

History. 2021, Sp. Sess. I, cc. 35, 36.

Section set out twice.

This section above is effective until January 1, 2023. For the version of the section effective January 1, 2023, see the following section, also numbered 59.1-584.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-580.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

§ 59.1-584. (Effective January 1, 2023) Enforcement; civil penalty; expenses.

  1. The Attorney General shall have exclusive authority to enforce the provisions of this chapter.
  2. Prior to initiating any action under this chapter, the Attorney General shall provide a controller or processor 30 days’ written notice identifying the specific provisions of this chapter the Attorney General alleges have been or are being violated. If within the 30-day period the controller or processor cures the noticed violation and provides the Attorney General an express written statement that the alleged violations have been cured and that no further violations shall occur, no action shall be initiated against the controller or processor.
  3. If a controller or processor continues to violate this chapter following the cure period in subsection B or breaches an express written statement provided to the Attorney General under that subsection, the Attorney General may initiate an action in the name of the Commonwealth and may seek an injunction to restrain any violations of this chapter and civil penalties of up to $7,500 for each violation under this chapter. All civil penalties, expenses, and attorney fees collected pursuant to this chapter shall be paid into the state treasury and credited to the Regulatory, Consumer Advocacy, Litigation, and Enforcement Revolving Trust Fund.
  4. The Attorney General may recover reasonable expenses incurred in investigating and preparing the case, including attorney fees, in any action initiated under this chapter.
  5. Nothing in this chapter shall be construed as providing the basis for, or be subject to, a private right of action for violations of this chapter or under any other law.

History. 2021, Sp. Sess. I, cc. 35, 36; 2022, cc. 451, 452.

Section set out twice.

This section above is effective January 1, 2023. For the version of the section effective until January 1, 2023, see the preceding section, also numbered 59.1-584.

The 2022 amendments.

The 2022 amendments by cc. 451 and 452 are identical, and added the second sentence in subsection C.

§ 59.1-585. Repealed by Acts 2022, cc. 451 and 452, cl. 2.

History. 2021, , Sp. Sess. I, c. 35; 2022, cc. 451, 452.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been § 59.1-581.

Editor’s note.

Acts 2021, Sp. Sess. I, cc. 35 and 36, cl. 4 provides: “That the provisions of the first and third enactments of this act shall become effective on January 1, 2023.”

Chapter 54. Fair Food Delivery Act.

§ 59.1-586. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Food delivery platform” means a person that operates a mobile application or other online service to act as an intermediary between consumers and multiple restaurants to submit food orders on behalf of a consumer to a participating restaurant and to arrange for the delivery of the order from the restaurant to the consumer.

“Restaurant” has the same meaning as provided in § 35.1-1 and excludes establishments listed in § 35.1-25 .

History. 2021, Sp. Sess. I, c. 485.

The number of this chapter and section were assigned by the Virginia Code Commission, the numbers in the 2021 Sp. Sess. I act having been Chapter 52 (§ 59.1-571 et seq.).

Effective date.

This chapter is effective July 1, 2021.

§ 59.1-587. Food delivery platform; agreements required.

No food delivery platform shall submit an order on behalf of a consumer to a restaurant or arrange for the delivery of an order from a restaurant without first obtaining an agreement with the restaurant expressly authorizing the food delivery platform to submit orders to and deliver food prepared by the restaurant.

History. 2021, Sp. Sess. I, c. 485.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been 59.1-572.

Effective date.

This section is effective July 1, 2021.

§ 59.1-588. Enforcement; penalties.

Any violation of this chapter shall constitute a prohibited practice under the provisions of § 59.1-200 and shall be subject to any and all of the enforcement provisions of Chapter 17 (§ 59.1-196 et seq.).

History. 2021, Sp. Sess. I, c. 485.

The number of this section was assigned by the Virginia Code Commission, the number in the 2021 Sp. Sess. I act having been 59.1-573.

Effective date.

This section is effective July 1, 2021.

Chapter 55. Benefits Consortium.

§ 59.1-589. Definitions.

As used in this chapter, unless the context requires a different meaning:

“Benefits consortium” means a trust that is a self-funded MEWA, as defined in § 38.2-3420 , and that complies with the conditions set forth in § 59.1-590.

“ERISA” means the federal Employee Retirement Income Security Act of 1974, P.L. 93-406, 88 Stat. 829, as amended.

“Health benefit plan” has the same meaning as in § 38.2-3431 .

“Member” means a person that is part of a sponsoring association, that conducts business operations within the Commonwealth, and that employs individuals who reside in the Commonwealth.

“Sponsoring association” has the same meaning as in § 38.2-3431 and includes any wholly owned subsidiary of a sponsoring association.

“Trust” means a trust that (i) is established to accept and hold assets of a health benefit plan in trust in accordance with the terms of the written trust document for the sole purposes of providing medical, prescription drug, dental, and vision benefits and defraying reasonable administrative costs of providing health benefits under a health benefit plan and (ii) complies with the conditions set forth in § 59.1-590.

History. 2022, cc. 405, 404.

§ 59.1-590. Conditions for a benefits consortium.

  1. This section does not apply to a multiple employer welfare arrangement (MEWA) that offers or provides health benefit plans that are fully insured by an insurer authorized to transact the business of health insurance in the Commonwealth.
  2. A trust shall constitute a benefits consortium and shall be authorized to sell or offer to sell health benefit plans to members of a sponsoring association in accordance with the provisions of this chapter if all of the following conditions are satisfied:
    1. The trust shall be subject to (i) ERISA and U.S. Department of Labor regulations applicable to multiple employer welfare arrangements and (ii) the authority of the U.S. Department of Labor to enforce such law and regulations;
    2. A Form M-1, Report for Multiple Employer Welfare Arrangements (MEWAs), for the applicable plan year shall be filed with the U.S. Department of Labor identifying the arrangement among the trust, sponsoring association, and health benefit plans offered through the trust as a multiple employer welfare arrangement;
    3. The trust’s organizational documents shall:
      1. Provide that the trust is sponsored by the sponsoring association;
      2. State that the purpose of the trust is to provide medical, prescription drug, dental, and vision benefits to participating employees of the sponsoring association or its members, and the dependents of those employees, through health benefit plans;
      3. Provide that the funds of the trust are to be used for the benefit of participating employees, and the dependents of those employees, through self-funding of claims, the purchase of reinsurance, or a combination thereof, as determined by the trustee, and for defraying reasonable expenses of administering and operating the trust and any health benefit plan;
      4. Limit participation in health benefit plans to participating employees of the sponsoring association and its members;
      5. Provide for a board of trustees, composed of no fewer than five trustees, that has complete fiscal control over the arrangement and is responsible for all operations of the arrangement. The trustees selected for the board shall be owners, partners, officers, directors, or employees of one or more employers in the arrangement. A trustee or director may not be an owner, officer, or employee of the administrator or service company of the arrangement. The board shall have the authority to approve applications of association members for participation in the arrangement and to contract with a licensed administrator or service company to administer the day-to-day affairs of the arrangement;
      6. Provide for the election of trustees to the board of trustees; and
      7. Require the trustees to discharge their duties with respect to the trust in accordance with the fiduciary duties defined in ERISA;

4. Five or more members shall participate in one or more health benefit plans;

5. The trust shall establish and maintain reserves determined in accordance with sound actuarial principles and in compliance with all financial and solvency requirements imposed upon domestic self-funded MEWAs;

6. The trust shall purchase and maintain policies of specific, aggregate, and terminal excess insurance with retention levels determined in accordance with sound actuarial principles from insurers licensed to transact the business of insurance in the Commonwealth;

7. The trust shall secure one or more guarantees or standby letters of credit that:

a. Guarantee the payment of claims under the health benefit plan in an aggregate amount not less than the amount of the trust’s annual aggregate excess insurance retention level minus (i) the annual premium assessments for the health benefit plans and (ii) the trust’s net assets, which amount shall be the net of the trust’s reasonable estimate of incurred but not reported claims; and

b. Have been issued by a qualified United States financial institution, as such term is used in subdivision 2 c of § 38.2-1316.4 ;

8. The trust shall purchase and maintain commercially reasonable fiduciary liability insurance;

9. The trust shall purchase and maintain a bond that satisfies the requirements of ERISA;

10. The trust is audited annually by an independent certified public accountant; and

11. The trust does not include in its name the words “insurance,” “insurer,” “underwriter,” “mutual,” or any other word or term or combination of words or terms that is uniquely descriptive of an insurance company or insurance business unless the context of the remaining words or terms clearly indicates that the entity is not an insurance company and is not transacting the business of insurance.

History. 2022, cc. 405, 404.

§ 59.1-591. Additional requirements.

  1. The board of trustees established pursuant to subsection B of § 59.1-590 shall (i) operate any health benefit plans in accordance with the fiduciary duties defined in ERISA and (ii) have the power to make and collect special assessments against members and, if any assessment is not timely paid, to enforce collection of such assessment.
  2. Each member shall be liable for his allocated share of the liabilities of the sponsoring association under a health benefit plan as determined by the board of trustees.
  3. Health benefit plan documents shall have the following statement printed on the first page in size 14-point boldface type:

    “This coverage is not insurance and is not offered through an insurance company. This coverage is not required to comply with certain federal market requirements for health insurance, nor is it required to comply with certain state laws for health insurance. Each member shall be liable for his allocated share of the liabilities of the sponsoring association under the health benefit plan as determined by the board of trustees. This means that each member may be responsible for paying an additional sum if the annual premiums present a deficit of funds for the trust. The trust’s financial documents shall be available for public inspection at (insert website of where sponsoring association trust documents are posted).”

History. 2022, cc. 405, 404.

§ 59.1-592. Exemptions; license tax.

Notwithstanding any other provision of law, a benefits consortium or sponsoring association, by virtue of its sponsorship of a benefits consortium or any health benefit plan, shall not be subject to the following: (i) the provisions of Chapter 17 (§ 38.2-1700 et seq.) of Title 38.2 or any regulations adopted thereunder or (ii) any annual license tax levied pursuant to § 58.1-2501 .

History. 2022, cc. 405, 404.