NOTICE: On April 3, 2008 the Court granted a petition for rehearing in this matter. This opinion is therefore withdrawn and no longer effective.
D.C. Offutt, Jr.
Bruce E. Stanley
Stephen Burchett Tarek F. Abdalla
Perry W. Oxley
Reed Smith LLP
David E. Rich
Pittsburgh, Pennsylvania
Offutt, Fisher & Nord Attorneys for Appellee,
Huntington, West Virginia Hugh M.
Caperton
Attorneys for the Appellants
Robert V. Berthold, Jr.
Christina L. Smith
Berthold, Tiano & O'Dell
Charleston, West Virginia
David B. Fawcett
Buchanan Ingersoll & Rooney
Pittsburgh, Pennsylvania
Attorneys for Appellees,
Harman Development Corporation,
Harman Mining Corporation, and
Sovereign Coal Sales, Inc.
CHIEF JUSTICE DAVIS delivered the Opinion of the Court.
JUSTICES STARCHER AND ALBRIGHT dissent and reserve the right to file
dissenting opinions.
JUSTICE BENJAMIN concurs and reserves the right to file a concurring opinion.
1. “This Court's review of a trial court's decision on a motion to dismiss
for improper venue is for abuse of discretion.” Syllabus point 1, United Bank, Inc. v.
Blosser, 218 W. Va. 378, 624 S.E.2d 815 (2005).
2. Our review of the applicability and enforceability of a forum-selection
clause is de novo.
3. “A circuit court's entry of summary judgment is reviewed de novo.”
Syllabus point 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
4. “'“A motion for summary judgment should be granted only when it is
clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not
desirable to clarify the application of the law.” Syllabus Point 3, Aetna Casualty & Surety
Co. v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963).'
Syllabus Point 1, Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992).”
Syllabus point 2, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
5. “The circuit court's function at the summary judgment stage is not to
weigh the evidence and determine the truth of the matter, but is to determine whether there
is a genuine issue for trial.” Syllabus point 3, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d
755 (1994).
6. Determining whether to dismiss a claim based on a forum-selection
clause involves a four-part analysis. The first inquiry is whether the clause was reasonably
communicated to the party resisting enforcement. The second step requires classification of
the clause as mandatory or permissive, i.e ., whether the parties are required to bring any
dispute to the designated forum or are simply permitted to do so. The third query asks
whether the claims and parties involved in the suit are subject to the forum-selection clause.
If the forum-selection clause was communicated to the resisting party, has mandatory force
and covers the claims and parties involved in the dispute, it is presumptively enforceable.
The fourth, and final, step is to ascertain whether the resisting party has rebutted the
presumption of enforceability by making a sufficiently strong showing that enforcement
would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud
or overreaching.
7. There are two types of forum-selection clauses: mandatory and
permissive. A mandatory forum-selection clause contains clear language indicating that
jurisdiction is appropriate only in a designated forum. A permissive forum-selection clause authorizes litigation in a designated forum, but does not prohibit litigation elsewhere.
8. The determination of whether a forum-selection clause is mandatory or
permissive requires an examination of the particular language contained therein. If
jurisdiction is specified with mandatory terms such as “shall,” or exclusive terms such as
“sole,” “only,” or “exclusive,” the clause will be enforced as a mandatory forum-selection
clause. However, if jurisdiction is not modified by mandatory or exclusive language, the
clause will be deemed permissive only.
9. To determine whether certain claims fall within the scope of a
mandatory forum-selection clause, the deciding court must base its determination on the
language of the clause and the nature of the claims that are allegedly subject to the clause.
10. A plaintiff who is a non-signatory to a contract containing a forum-
selection clause may be bound by that clause when it is shown that his or her claims are
closely related to the contract.
11. A defendant who is a non-signatory to a contract containing a forum-
selection clause may enforce that clause when it is shown that the claims against him or her
are closely related to the contract.
12. A party may raise the defense of res judicata on appeal when the prior
judgment relied upon becomes final during the pendency of his/her appeal.
Davis, Chief Justice:
The Appellants herein and defendants below, A.T. Massey Coal Company,
Inc., and various of its subsidiaries, appeal from a March 15, 2005, order entered in the
Circuit Court of Boone County, which denied their post-judgment motions for judgment as
a matter of law, a new trial, or remittitur, in response to the entry of a judgment of more than
$50 million in favor of the appellees herein, and plaintiffs below, Hugh M. Caperton,
Harman Development Corporation, Harman Mining Corporation and Sovereign Coal Sales,
Inc. In this appeal, A.T. Massey Coal Company and its subsidiaries allege numerous errors
that purportedly occurred throughout the proceedings below. Based upon our thorough
consideration of the parties' arguments, the relevant case law and the record on appeal, we
conclude that this case may be resolved on two separate and mutually exclusive grounds.
First, we find that the circuit court erred in denying a motion to dismiss filed by A.T. Massey
Coal Company and its subsidiaries, based upon the existence of a forum-selection clause
contained in a contract that directly related to the conflict giving rise to the instant lawsuit.
Assuming, arguendo, that the circuit court's denial of the motion to dismiss was not in error,
we further conclude that the judgment should be reversed based upon the doctrine of res
judicata due to an earlier action that had been litigated in Buchanan County, Virginia.
Accordingly, we reverse the judgment in this case and remand for the circuit court to enter
an order dismissing this case against A.T. Massey Coal Company and its subsidiaries with
prejudice.
Central to the dispute underlying this appeal is the Harman Mine, an
underground coal mine located in Buchanan County, Virginia, that produced very high
quality metallurgical coal. Prior to 1993, Harman Mine was owned by Inspiration Coal
Corporation (hereinafter referred to as “Inspiration”) through three subsidiaries: Harman
Mining Corporation (hereinafter referred to as “Harman Mining”), Sovereign Coal Sales, Inc.
(hereinafter referred to as “Sovereign”), and Southern Kentucky Energy Company
(hereinafter referred to as “Southern”). For many years, all of the coal from the Harman
Mine had been sold to Wellmore Coal Corporation (hereinafter referred to as “Wellmore”),
a subsidiary of United Coal Corporation. In April 1992, Sovereign and Southern entered a
coal supply agreement (hereinafter referred to as “1992 CSA”) with Wellmore. Under the
1992 CSA, Wellmore was to purchase from Sovereign and Southern approximately 750,000
tons of coal per year for a period of ten years.
In 1993, Hugh M. Caperton (hereinafter referred to as “Mr. Caperton”), a
plaintiff below and appellee herein, formed Harman Development Corporation (See footnote 1) (hereinafter
referred to as “Harman Development”). (See footnote 2) In that same year, Harman Development purchased
the three previously mentioned subsidiaries of Inspiration: Harman Mining, (See footnote 3) Sovereign (See footnote 4) and
Southern, and thereby became the owner of the Harman Mine. (See footnote 5) Harman Development,
Harman Mining and Sovereign are all plaintiffs to this action below, and are appellees herein
(hereinafter collectively referred to as “the Harman Companies”). In 1997, in order to fund
improvements to the Harman Mine, the Harman Companies sold all the Harman Mine
reserves to Penn Virginia Corporation, and then leased back those reserves that could be
mined in a cost-effective manner.
From the time the Harman Companies became owners of the Harman Mine
until 1997, coal from the Harman Mine was purchased by Wellmore in accordance with the
1992 CSA. Prior to the expiration of the 1992 CSA, in March of 1997, a new CSA with a
higher price per ton of coal (hereinafter referred to as “the 1997 CSA”) was negotiated
between Sovereign, Wellmore and Harman Mining. (See footnote 6) The 1997 CSA was to be in effect for
a period of five years, commencing retroactively on January 1, 1997. However, the 1997
CSA included, among other things, a force majeure clause, (See footnote 7) and a forum-selection clause
requiring that “[a]ll actions brought in connection with this Agreement shall be filed in and
decided by the Circuit Court of Buchanan County, Virginia.” (See footnote 8)
During the course of the 1992 CSA, and at the time the 1997 CSA was
executed, one of Wellmore's primary customers was LTV Steel (hereinafter referred to as
“LTV”). Wellmore sold and shipped nearly two-thirds of the coal it purchased from the
Harman Companies to LTV's coke plant located in Pittsburgh, Pennsylvania. (See footnote 9) On July 19,
1997, LTV announced that it intended to close its Pittsburgh coke plant due to a change in
emissions regulations promulgated by the Environmental Protection Agency.
A.T. Massey Coal Company (hereinafter referred to as “Massey”), a defendant
below and appellant herein, had tried unsuccessfully for several years to sell its West
Virginia mined coal directly to LTV. (See footnote 10) Due to its lack of success in selling to LTV on its
own, Massey determined to acquire LTV's supplier Wellmore and its parent corporation,
United Coal Corporation (hereinafter referred to as “United”). (See footnote 11) Massey purchased
Wellmore and United on July 31, 1997. Since there was no long-term agreement between
LTV and Wellmore, Massey hoped to substitute its own coal for the Harman Mine coal that
Wellmore had been supplying to LTV. An internal Massey memorandum admitted during
trial revealed that Massey understood there were risks to its plan, most notably the possibility
that the relationship between LTV and Wellmore might not continue under Massey
ownership of Wellmore. The circuit court found that, in spite of this risk, and despite the
knowledge that LTV was “extremely reluctant to change a long-established, successful coal
blend” that included coal from the Harman Mine, Massey nevertheless “provided LTV with
firm price quotes for coal mainly from Massey Mines, not Harman coal, and insisted that
LTV make Massey its sole-source provider via a long-term coal contract.” (See footnote 12) As a
consequence of Massey's actions, LTV ceased buying coal from Wellmore. Thereafter, on
August 5, 1997, Wellmore, at the direction of Massey, gave notice to the Harman Companies
by letter stating that, if LTV did in fact close its Pittsburgh plant, then Wellmore anticipated
a pro rata reduction in tonnage under the force majeure clause of the 1997 CSA.
Subsequent to Wellmore's August 5 letter, Massey entered negotiations with
the Harman Companies for the purchase of the Harman Mine. During the course of these
negotiations, confidential information regarding the Harman Mine's operations, including
its desire to eventually mine adjoining Pittston reserves, (See footnote 13) as well as confidential information
pertaining to the finances of the Harman Companies and of Mr. Caperton, personally, was
shared with Massey. The Harman Companies also expressed to Massey their disagreement
that the LTV closure of its Pittsburgh coke plant constituted a force majeure event.
Thereafter, on December 1, 1997, Wellmore, at Massey's direction, declared force majeure based on LTV's closure of its Pittsburgh coke plant, and advised the Harman Companies that it would purchase only 205,707 tons of the 573,000 minimum tons of coal required under the 1997 CSA. According to the express findings of the circuit court in this matter,
[o]nly after Massey's marketing efforts caused the loss of LTV's
business did Massey direct Wellmore to declare “force majeure”
against Harman, a declaration which Massey knew would put
Harman out of business. Massey acknowledged Wellmore was
readily able to purchase and sell the Harman coal, but instead
chose to have Wellmore declare “force majeure” based upon a
cost benefit analysis Massey performed which indicated that it
would increase its profits by doing so. Furthermore, before
Massey directed the declaration of “force majeure”, Massey
concealed the fact that the LTV business was lost and Massey
delayed Wellmore's termination of Harman's contract until late
in the year, knowing it would be virtually impossible for
Harman to find alternate buyers for its coal at that point in time.
Once Wellmore suddenly stopped purchasing Harman's output,
Harman had no ability to stay in business. In the meantime,
Massey sold Wellmore.
Massey continued in negotiations with the Harman Companies and Mr.
Caperton for Massey's purchase of the Harman Mine, and the parties agreed to close the
transaction on January 31, 1998. However, Massey delayed and, as the circuit court found,
“ultimately collapsed the transaction in such a manner so as to increase [the Harman
Companies'] financial distress.” (See footnote 14) In addition, Massey utilized the confidential information
it had obtained from the Harman Companies to take further actions, such as purchasing a
narrow band of the Pittston coal reserves surrounding the Harman Mine in order to make the
Harman Mine unattractive to others and thereby decrease its value. During the negotiations
for the sale of the Harman Mine to Massey, Massey had also learned that Mr. Caperton had
personally guaranteed a number of the Harman Companies' obligations. (See footnote 15) Subsequently, the
Harman Companies, and Mr. Caperton, personally, filed for bankruptcy. (See footnote 16)
Thereafter, in May 1998, Harman Mining and Sovereign sued Wellmore in the
Circuit Court of Buchanan County, Virginia, alleging causes of action for breach of contract
and for breach of the covenant of good faith and fair dealing arising from Wellmore's
declaration of force majeure. However, Harman Mining and Sovereign voluntarily withdrew
their tort claim prior to trial. Following trial on the contract claim, a jury found in favor of
Harman Mining and Sovereign and awarded $6 million in damages. (See footnote 17)
Shortly after the Virginia action was filed, on October 29, 1998, Harman
Development, Harman Mining, Sovereign and Mr. Caperton filed the instant action in the
Circuit Court of Boone County, West Virginia, against A.T. Massey Coal Company, Inc., Elk
Run Coal Company, Inc., Independence Coal Company, Inc., Mar Fork Coal Company, Inc.,
Performance Coal Company, and Massey Coal Sales Company, Inc. (hereinafter collectively
referred to as “the Massey Defendants”). (See footnote 18) The first amended complaint in this action was
filed on December 10, 1998, and asserted claims of tortious interference with existing
contractual relations, tortious interference with prospective contractual relations, fraudulent
misrepresentation, civil conspiracy, negligent misrepresentation, and punitive damages.
Though numerous pre-trial motions were filed in the underlying action, two in particular are
relevant to our resolution of this matter. First, in December 1998, the Massey Defendants
filed a motion to dismiss. In their memorandum in support of the motion, the Massey
Defendants argued, inter alia, that the forum-selection clause of the 1997 CSA required this
action to be filed in Buchanan County, Virginia. The circuit court denied the Massey
Defendants' motion to dismiss. Thereafter, in April 2002, the Massey Defendants filed a
motion for summary judgment, arguing, in relevant part, that the instant action was barred
under the legal principal of res judicata. The circuit court denied this motion as well.
Ultimately, only three of the theories of liability asserted in this action were
presented to the jury for a verdict: (See footnote 19) tortious interference, fraudulent misrepresentation and
fraudulent concealment. On August 1, 2002, the jury found in favor of all plaintiffs on all
three grounds and returned a verdict, including punitive damages, of $50,038,406.00. On
August 30, 2002, the Massey Defendants filed a motion seeking judgment as a matter of law,
a new trial, or, in the alternative, remittitur. Following a lengthy delay, by order entered
March 17, 2005, the circuit court denied the post-trial motions. This appeal followed. (See footnote 20)
Our analysis of this case will consider two issues: first, whether the circuit
court erred in denying the Massey Defendants' motion to dismiss on the issue of the forum-
selection clause, and, in the alternative, whether the circuit court erred in denying the Massey
Defendants' motion for summary judgment on the issue of res judicata.
We first review the correctness of the circuit court's denial of the Massey
Defendants' motion to dismiss for improper venue in light of the forum-selection clause
contained in the 1997 CSA. “This Court's review of a trial court's decision on a motion to
dismiss for improper venue is for abuse of discretion.” Syl. pt. 1, United Bank, Inc. v.
Blosser, 218 W. Va. 378, 624 S.E.2d 815 (2005). (See footnote 21) However, we now hold that “[o]ur
review of the applicability and enforceability of [a] forum[-]selection clause is de novo.” Hugel v. Corporation of Lloyd's, 999 F.2d 206, 207 (7th Cir. 1993) (citing Northwestern
Nat'l Ins. Co. v. Donovan, 916 F.2d 372, 375 (7th Cir.1990); Riley v. Kingsley Underwriting
Agencies, Ltd., 969 F.2d 953, 956 (10th Cir. 1992)). Cf Syllabus point 1, Chrystal R.M. v.
Charlie A.L., 194 W. Va. 138, 459 S.E.2d 415 (1995) (“Where the issue on an appeal from
the circuit court is clearly a question of law or involving an interpretation of a statute, we
apply a de novo standard of review.”).
We next consider the circuit court's denial of the Massey Defendants' motion for summary judgment on the issue of res judicata. “A circuit court's entry of summary judgment is reviewed de novo.” Syl. pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994). For purposes of our de novo review, we further note that
“'[a] motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.' Syllabus Point 3, Aetna Casualty & Surety Co. v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963).” Syllabus Point 1, Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992).
Syl. pt. 2, Painter. Finally, we note that “[t]he circuit court's function at the summary
judgment stage is not to weigh the evidence and determine the truth of the matter, but is to
determine whether there is a genuine issue for trial.” Syl. pt. 3, Painter. With these
considerations in mind, we proceed to address the dispositive issues raised in this appeal.
At the outset, we wish to make perfectly clear that the facts of this case
demonstrate that Massey's conduct warranted the type of judgment rendered in this case.
However, no matter how sympathetic the facts are, or how egregious the conduct, we simply
cannot compromise the law in order to reach a result that clearly appears to be justified. As
we will demonstrate below, the law simply did not permit this case to be filed in West
Virginia.
Although numerous issues have been raised on appeal in this case, we
find that the instant matter may be resolved on the issue of the forum-selection clause
contained in the 1997 CSA between Sovereign Coal Sales, Inc., Wellmore Coal Corporation
and Harman Mining Corporation. In the alternative, this case may be resolved based on the
doctrine of res judicata. We address each of these issues in turn.
The 1997 CSA between Sovereign, Wellmore and Harman Mining provided
that the “[a]greement, in all respects, shall be governed, construed and enforced in
accordance with the substantive laws of the Commonwealth of Virginia. All actions brought
in connection with this Agreement shall be filed in and decided by the Circuit Court of
Buchanan County, Virginia. . . .” In the proceeding below the Massey Defendants filed a
motion to dismiss alleging, in relevant part, that the forum-selection clause in the 1997 CSA
required that any action related to that agreement be brought in the Circuit Court of
Buchanan County, Virginia. Accordingly, the Massey Defendants argued that the action was
improperly before the Circuit Court of Boone County, West Virginia, and that the instant
action should therefore be dismissed. (See footnote 22) The circuit court denied the motion to dismiss.
This case presents the first opportunity for this Court to address substantive
issues involving forum-selection clauses. By way of definition, it has been recognized that
“[a] 'forum selection' provision in a contract designates a particular state or court as the
jurisdiction in which the parties wil litigate disputes arising out of the contract and their
contractual relationship.” 17A Am. Jur. 2d Contracts § 259, at 255 (2004) (footnote
omitted). While forum-selection clauses historically were disfavored, such is no longer the
case, so long as the clause is fair and reasonable:
The right of an injured party to legal redress is jealously
guarded by the courts. Formerly, no agreement confining the
right of a party to sue in a particular court or tribunal or in the
courts or tribunals of a certain jurisdiction, or to determine the
venue of a suit in such a way as to deprive the defendant of his
statutory privileges as to place of trial was enforced, unless
perhaps where the agreement was made after the cause of action
had arisen and was part of a fair compromise. A minority of
courts still follow this older rule.
During the past two decades, the rules governing the
validity of various “forum selection” clauses have been relaxed
considerably, the courts following a pattern similar to that which
has already been discussed in connection with arbitration
clauses. Thus, while it remains true today that a clause or
provision unreasonably or improperly attempting to deprive a
court of its jurisdiction will not be enforced, the modern trend
is to respect the enforceability of contracts containing clauses
limiting judicial jurisdiction, if there is nothing unfair or
unreasonable about them. This trend is directly traceable to the
landmark case of M/S Bremen v Zapata Off-Shore Co., [407
U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972)], in which the
United States Supreme Court upheld the validity of a freely
negotiated forum selection clause in a commercial contract
between an American firm and a German concern, which
specified that any dispute must be determined by the English
courts. . . .
7 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 15:15, at 290-
301 (4th ed. 1997) (footnotes omitted). See also 17A Am. Jur. 2d Contracts § 259, at 255-
56 (“While there is contrary authority, generally modern courts will enforce forum-selection
clauses entered into by parties to a contract provided that the clauses are not unfair,
unreasonable, or unjust under [the] circumstances.” (footnotes omitted)).
Although this Court has not had occasion to address substantive issues
involving forum-selection clauses, we have previously indicated our general approval of
forum-selection clauses by noting that they are not contrary to public policy:
Unquestionably, forum selection clauses are not contrary
to public policy in and of themselves for they are sanctioned in
commercial sales agreements under W. Va. Code § 46-1-105(2).
Although an early case in our jurisprudence held void a clause
in a stock certificate requiring that stockholders bring suit in
New York, Savage v. People's Building, Loan and Savings
Association, 45 W. Va. 275, 31 S.E. 991 (1898), later cases have
sanctioned, at least implicitly, forum selection clauses. Axelrod
v. Premier Photo Service, Inc., 154 W. Va. 137, 173 S.E.2d 383
(1970). Board of Education v. W. Harley Miller, Inc., 159
W. Va. 120, 221 S.E.2d 882 (1975). . . .
As the Federal court observed, West Virginia appears not
to subscribe to the rule that choice of forum clauses are void per
se. “Rather the rule of most jurisdictions and the rule that this
Court believes that West Virginia should and would adopt is that
such clauses will be enforced only when found to be reasonable
and just”. Leasewell, Ltd. v. Jake Shelton Ford Inc., 423
F. Supp. 1011, 1015 (S.D.W.Va. 1976). See also, Kolendo v.
Jarell, Inc., 489 F. Supp. 983 (S.D.W.Va. 1980).
General Elec. Co. v. Keyser, 166 W. Va. 456, 461-62 n.2, 275 S.E.2d 289, 292-93 n.2
(1981). See also Franklin D. Cleckley, Robin J. Davis, & Louis J. Palmer, Jr., Litigation
Handbook on West Virginia Rules of Civil Procedure § 12(b)(3)[5], at 376-77 (2d ed. 2006)
(hereinafter referred to as “Litigation Handbook”) (“The Supreme Court has indicated in
passing that forum selection clauses are not contrary to public policy.” (citing General
Electric Co. v. Keyser)).
Having found no impediment to the enforcement of forum-selection clauses
in general, we now must endeavor to specifically determine whether the forum-selection
clause of the 1997 CSA should have been enforced in the instant case.
In Phillips v. Audio Active Limited, 494 F.3d 378 (2d Cir. 2007), the United
States Court of Appeals for the Second Circuit articulated a four-part test for determining
whether a claim should be dismissed based upon a forum-selection clause. We find this test
supported by reason and logic, and by the manner in which such cases have been resolved
in other courts; therefore, we now hold that
[d]etermining whether to dismiss a claim based on a
forum[-]selection clause involves a four-part analysis. The first
inquiry is whether the clause was reasonably communicated to
the party resisting enforcement. . . . The second step requires
[classification of] the clause as mandatory or permissive, i.e., . . . whether the parties are required to bring any dispute to
the designated forum or [are] simply permitted to do so. [The
third query] asks whether the claims and parties involved in the
suit are subject to the forum selection clause. . . .
If the [forum-selection] clause was communicated to the
resisting party, has mandatory force and covers the claims and
parties involved in the dispute, it is presumptively enforceable.
. . . The fourth, and final, step is to ascertain whether the
resisting party has rebutted the presumption of enforceability by
making a sufficiently strong showing that “enforcement would
be unreasonable [and] unjust, or that the clause was invalid for
such reasons as fraud or overreaching.”
Phillips, 494 F.3d at 383-84 (internal citations omitted) (quoting M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1, 15, 92 S. Ct. 1907, 1916, 32 L. Ed. 2d 513 (1972)). See also Dexter Axle Co. v. Baan USA, Inc., 833 N.E.2d 43, 49 (Ind. Ct. App. 2005) (“Having found
that the forum selection clause in the Consulting Agreement is valid, binding, and
enforceable, we must next consider whether it applies to any or all of Dexter's claims against
Baan.”); Deep Water Slender Wells, Ltd. v. Shell Int'l Exploration & Prod., Inc., 234 S.W.3d
679, 687 (Tex. App. 2007) (“In deciding whether to enforce a mandatory forum-selection
clause, courts must determine whether the claims in the case at hand fall within the scope of
the forum-selection clause and whether the court should enforce the clause. In addition to
resolving issues of scope and enforceability, courts also may have to decide issues as to
whether nonsignatories to the contract can enforce the forum-selection clause contained
therein.”). We now follow this analysis to ascertain whether the instant case should have
been dismissed pursuant to the forum selection clause.
1. Reasonably Communicated. The first question we must answer is whether
the forum-selection clause was reasonably communicated to Mr. Caperton and the Harman
Companies. “Although a strong presumption of enforceability attaches to forum selection
clauses, see M/S Bremen, 407 U.S. at 15, 92 S. Ct. 1907, '[t]he legal effect of a
forum-selection clause depends in the first instance upon whether its existence was
reasonably communicated to the plaintiff . . . .'” Electroplated Metal Solutions, Inc. v.
American Servs., Inc., 500 F. Supp. 2d 974, 976 (N.D. Ill. 2007) (internal citation omitted)
(quoting Effron v. Sun Line Cruises, Inc., 67 F.3d 7, 9 (2d Cir. 1995)). See also 17A C.J.S. Contracts § 237, at 211 (1999) (“A forum selection clause is unenforceable as to a plaintiff
who did not have sufficient notice of the forum selection clause prior to entering the
contract.”).
This prong of the analysis is easily resolved as Mr. Caperton and the Harman
Companies have not argued that the forum-selection clause was not reasonably
communicated to them. Furthermore, Sovereign and Harman Mining were parties to the
agreement, and Mr. Caperton signed the contract in his capacity as president of Sovereign.
Therefore, these parties cannot claim ignorance of the plainly worded forum-selection clause,
which “clearly convey[ed] to any reader that any action regarding the [CSA] must be brought
in a specific court, and the location of that court [was] readily ascertainable . . . .” Klotz v.
Xerox Corp., No. 07 CIV 1734 (GEL), ___ F. Supp. 2d ___, ___, 2007 WL 3100220, at *2
(S.D.N.Y. Oct. 22, 2007). Moreover, though Harman Development, the parent company of
Sovereign and Harman Mining, was not a party to the 1997 CSA, Mr. Caperton is the sole
owner of Harman Development. Since Mr. Caperton had knowledge of the clause, Harman
Development is deemed to have knowledge of the clause. See Clark v. Milam, 192 W. Va.
398, 402, 452 S.E.2d 714, 718 (1994) (“Generally, a corporation 'knows,' or 'discovers,'
what its officers and directors know.”). Thus, we find sufficient evidence in the record of
this case to establish that the forum-selection clause was reasonably communicated to those
who now resist its application.
2. Mandatory or Permissive. The second step in our analysis is to determine
whether the forum-selection clause is mandatory or permissive. It has been widely
recognized, and we now expressly hold that “[t]here are two types of forum[-]selection
clauses: mandatory and permissive. A mandatory forum[-]selection clause contains clear
language indicating that jurisdiction is appropriate only in a designated forum. A permissive
forum[-]selection clause authorizes litigation in a designated forum, but does not prohibit
litigation elsewhere.” Litigation Handbook § 12(b)(3)[5], at 376 (footnote omitted) (citing
K.&V. Scientific Co., Inc. v. Bayerische Motoren Werke Aktiengesellschaft (“BMW”), 314
F.3d 494 (10th Cir. 2002)). See also Weisser v. PNC Bank, N.A., No. 3D07-487, ___ So. 2d
___, 2007 WL 2848118, at *2 (Fla. Dist. Ct. App. 2007) (“'Permissive [forum selection]
clauses constitute nothing more than a consent to jurisdiction and venue in the named forum
and do not exclude jurisdiction or venue in any other forum.' . . . In contrast, mandatory
forum selection clauses provide 'for a mandatory and exclusive place for future litigation.'”
(citations omitted)); Great N. Ins. Co. v. Constab Polymer-Chemie GmbH & Co., No. 5:01-
CV-0882 (NAM) (GJD), ___ F. Supp. 2d ___, 2007 WL 2891981, at *8 (N.D.N.Y. 2007)
(“A mandatory forum selection clause grants exclusive jurisdiction to a selected forum and
should control absent a strong showing that it should be set aside. . . . In contrast, 'a
permissive forum selection clause indicates the contracting parties' consent to resolve their
dispute in a given forum, but does not require the dispute to be resolved in that forum. . . .'”
(internal citations omitted)).
Resolution of the question of whether a forum-selection clause is mandatory
or permissive requires scrutiny of the particular language used.
In determining whether a forum selection clause is mandatory or permissive, the language of the clause must be examined. For example, in Quinones, the Florida Supreme Court found that the forum selection clause was permissive, not mandatory, because it provided that the creditor “may” institute legal proceedings in specified courts, not that it “shall” do so.[Quinones v. Swiss Bank Corp. (Overseas), S.A., 509 So. 2d 273, 275 (Fla. 1987)] (emphasis added) . . . . “Conversely forum selection clauses which state or clearly indicate that any litigation must or shall be initiated in a specified forum are mandatory.” Shoppes Ltd.[ P'ship v. Conn, 829 So. 2d 356, 358 (Fla. Dist. Ct. App. 2002)] (emphasis added) (citing Mgmt. Computer Controls, Inc. v. Charles Perry Constr., Inc., 743 So. 2d 627 (Fla. 1st DCA 1999)).
Weisser, 2007 WL 2848118, at *2-3. The Weisser Court also cited Regal Kitchens, Inc. v. O'Connor & Taylor Condominium Construction, Inc., 894 So. 2d 288, 290 (Fla. Dist. Ct. App. 2005), wherein the court examined a forum-selection clause which stated that “[a]ny litigation concerning this contract shall be governed by the law of the State of Florida, with proper venue in Palm Beach County.” (emphasis added). The Regal Kitchens court observed that the clause was mandatory as to the law to be applied, but permissive as to the forum, commenting that,
[i]n the instant case, although the venue clause unequivocally states that Florida law shall apply to any litigation of the subcontract, it lacks mandatory language or words of exclusivity to show that venue is proper only in Palm Beach County. See Shoppes Ltd. P'ship v. Conn., 829 So. 2d at 357-58. That is to say, this clause does not unequivocally mandate that a controversy or dispute be litigated in Palm Beach County, nor does it waive any other territorial jurisdiction. The language merely allows a party to file suit in Palm Beach County.
894 So. 2d at 291-92.
Thus, to be enforced as mandatory, a forum-selection clause must do more than
simply mention or list a jurisdiction; in addition, it must either specify venue in mandatory
language, or contain other language demonstrating the parties' intent to make jurisdiction
exclusive.
A forum selection clause is mandatory if jurisdiction and venue
are specified with mandatory or exclusive language. John
Boutari & Sons, Wine & Spirits, S.A. v. Attiki Imp. & Distribs.,
Inc., 22 F.3d 51, 53 (2d Cir. 1994). In Boutari, the Second
Circuit held that “[t]he general rule in cases containing forum
selection clauses is that [w]hen only jurisdiction is specified the
clause will generally not be enforced without some further
language indicating the parties' intent to make jurisdiction
exclusive.” Boutari, 22 F.3d at 52 . . . .
Great N. Ins. Co., 2007 WL 2891981, at *8 (additional citations omitted). See also K & V
Scientific Co., Inc. v. Bayerische Motoren Werke Aktiengesellschaft (“BMW”), 314 F.3d 494,
499 (10th Cir. 2002) (“'[W]here venue is specified [in a forum-selection clause] with
mandatory or obligatory language, the clause will be enforced; where only jurisdiction is
specified [in a forum-selection clause], the clause will generally not be enforced unless there
is some further language indicating the parties' intent to make venue exclusive.'” (quoting Paper Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th Cir.1992)). See
also Printing Servs. of Greensboro, Inc. v. American Capital Group, Inc., 637 S.E.2d 230,
232 (N.C. Ct. App. 2006) (“'[T]he general rule is when a jurisdiction is specified in a
provision of contract, the provision generally will not be enforced as a mandatory selection
clause without some further language that indicates the parties' intent to make jurisdiction
exclusive. Indeed, mandatory forum selection clauses recognized by our appellate courts
have contained words such as “exclusive” or “sole” or “only” which indicate that the
contracting parties intended to make jurisdiction exclusive.'” (quoting Mark Group Int'l, Inc.
v. Still, 566 S.E.2d 160, 161 (N.C. Ct. App. 2002)).
An example of a case illustrating a forum-selection clause that used mandatory
language is Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762 (9th Cir. 1989). In that
case, the plaintiff entered into a contract with the defendant to distribute equipment
manufactured by the defendant. The contract contained a forum-selection clause that
contained the following pertinent language: “Licensee hereby agrees and consents to the
jurisdiction of the courts of the State of Virginia. Venue of any action brought hereunder
shall be deemed to be in Gloucester County, Virginia.” Docksider, 875 F.2d at 763. A
dispute arose over the contract that resulted in the plaintiff filing an action against the
defendant in a federal district court in California. The district court dismissed the action on
the grounds that the forum-selection clause required the case be filed in a Virginia court. The
plaintiff appealed on the grounds that the forum-selection clause was permissive, not
mandatory. The Court of Appeals for the Ninth Circuit disagreed with the plaintiff, ruling
as follows:
The critical language in [the clause] is the final sentence:
“Venue of any action brought hereunder shall be deemed to be
in Gloucester County, Virginia.” The district judge concluded
that this language represented the parties' intent to pursue any
litigation that arose only in Virginia. [Plaintiff] contends that
this interpretation is erroneous because the contractual language
does not contain any express mandatory term such as
“exclusively” that would indicate the parties' intent to vest
Virginia with exclusive jurisdiction. [Plaintiff] has cited
numerous cases as support for this position, relying principally
on Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75
(9th Cir. 1987).
. . . .
Hunt Wesson is distinguishable because the forum
selection clause underlying this action contains the additional
sentence stating that “[v]enue of any action brought hereunder
shall be deemed to be in . . . Virginia.” This language requires
enforcement of the clause because [plaintiff] not only consented
to the jurisdiction of the state courts of Virginia, but further
agreed by mandatory language that the venue for all actions
arising out of the license agreement would be Gloucester
County, Virginia. This mandatory language makes clear that
venue, the place of suit, lies exclusively in the designated
county. Thus, whether or not several states might otherwise
have jurisdiction over actions stemming from the agreement, all
actions must be filed and prosecuted in Virginia.
Docksider, 875 F.2d at 763-64.
In accordance with the foregoing authorities, we now hold that the
determination of whether a forum-selection clause is mandatory or permissive requires an
examination of the particular language contained therein. If jurisdiction is specified with
mandatory terms such as “shall,” (See footnote 23) or exclusive terms such as “sole,” “only,” or “exclusive,”
the clause will be enforced as a mandatory forum-selection clause. However, if jurisdiction
is not modified by mandatory or exclusive language, the clause will be deemed permissive
only.
Turning to the instant case, the forum-selection clause utilized mandatory
language that identified the jurisdiction wherein disputes would be tried: “[a]ll actions
brought in connection with this Agreement shall be filed in and decided by the Circuit Court
of Buchanan County, Virginia.” (Emphasis added). Accordingly, we are presented with a
mandatory forum-selection clause. See Ex parte Bad Toys Holdings, Inc., 958 So. 2d 852,
856 (Ala. 2006) (“The forum-selection clause in the purchase agreement provides that
'[v]enue for any legal action which may be brought hereunder shall be deemed to lie in
Sullivan County, Tennessee' (emphasis added). The . . . use of the word 'shall' in the
forum-selection clause makes the clause mandatory, not permissive.”); Town of Homer v. United
Healthcare of Louisiana, Inc., 948 So. 2d 1163, 1167 (La. Ct. App. 2007) (“We find the
forum selection clause at issue to be clear and explicit. The clause expressly states that the
proper venue for any legal action shall be East Baton Rouge Parish. There is no ambiguity
in this mandatory provision.”); Polk County Recreational Ass'n v. Susquehanna Patriot
Commercial Leasing Co., Inc., 734 N.W.2d 750, 758 (Neb. 2007) (“The forum selection
clause in the Thornridge lease provides that any action concerning the lease 'shall be'
brought in Pennsylvania. We read this forum selection clause to be a mandatory
clause . . . .”); General Elec. Co. v. G. Siempelkamp GmbH & Co., 29 F.3d 1095, 1099 (6th
Cir. 1994) (“Because the clause states that 'all' disputes 'shall' be at Siempelkamp's
principal place of business, it selects German court jurisdiction exclusively and is
mandatory.”). Having determined that the forum-selection clause at issue in this case is a
mandatory clause, we must now determine whether the claims and parties involved in the suit
are governed by said clause.
3. Claims and Parties. The third part of our analysis is to determine whether
the claims and parties involved in the suit are governed by the forum-selection clause. We
address these questions separately.
a. Are the claims asserted in the instant suit subject to the forum-selection
clause? Before the circuit court, (See footnote 24) Mr. Caperton and the Harman Companies argued that the
claims asserted in this action are not governed by the forum-selection clause because they are
tort, as opposed to contract, claims. We disagree.
It has been recognized that,
[w]hen a party seeks to enforce a mandatory forum-selection clause, a court must determine whether the claims in question fall within the scope of that clause. . . . The court bases this determination on the language of the clause and the nature of the claims that are allegedly subject to the clause.
Deep Water Slender Wells, Ltd. v. Shell Int'l Exploration & Prod., Inc., 234 S.W.3d 679,
687-88 (Tex. App. 2007) (citing Marinechance Shipping, Ltd. v. Sebastian, 143 F.3d 216,
221-22 (5th Cir. 1998)). See also Phillips v. Audio Active Ltd., 494 F.3d 378, 388 (2d Cir.
2007) (“[W]hen ascertaining the applicability of a contractual provision to particular claims,
we examine the substance of those claims, shorn of their labels.”). Accordingly, we
expressly hold that, to determine whether certain claims fall within the scope of a mandatory
forum-selection clause, the deciding court must base its determination on the language of the
clause and the nature of the claims that are allegedly subject to the clause.
Turning to the case at hand, we must first examine the language of the
mandatory forum-selection clause at issue. Because the 1997 CSA expressly states that it
“shall be . . . construed . . . in accordance with the substantive laws of the Commonwealth
of Virginia,” we will scrutinize the language of the clause pursuant to Virginia law. Notably,
under Virginia law, “[w]ritten contracts are construed as written, without adding terms that
were not included by the parties. When the terms in a contract are plain and unambiguous,
the contract is construed according to its plain meaning. The words that the parties used are
normally given their usual, ordinary and popular meaning.” Heron v. Transportation Cas.
Ins. Co., 650 S.E.2d 699, 702 (Va. 2007).
The forum-selection clause of the 1997 CSA states in plain language that it
applies to “[a]ll actions brought in connection with this Agreement.” Due to the inclusion
of the phrase “all actions,” we perceive no intent by the parties to this agreement to limit in
any way the type of actions to which it applies. Thus, for example, it would apply equally
to contract claims, tort claims and statutory claims, so long as such claims are “brought in
connection with” the 1997 CSA.
Considering next the “usual, ordinary and popular meaning” of the phrase “in
connection with,” we find the intended scope of the forum-selection clause to be quite broad. Heron, 650 S.E.2d at 702. The word “connection” in the context herein used, is generally
understood to mean “[t]he condition of being related to something else by a bond of
interdependence, causality, logical sequence, coherence, or the like; relation between things
one of which is bound up with, or involved in another.” II The Oxford English Dictionary
838-39 (1970 re-issue). See also Random House Webster's Unabridged Dictionary 431-32
(2d ed.1998) (defining “connection” in part as “association; relationship . . .”); Webster's
Third New International Dictionary 481 (1993) (defining “connection” in relevant part as
“the state of being connected or linked . . . relationship or association in thought (as of cause
and effect, logical sequence, mutual dependence or involvement)”). Thus, so long as the
claims asserted in this action bear a logical relationship to the 1997 CSA, they fall within its
scope, regardless of whether they sound in contract, tort, or some other area of the law.
Other courts considering forum-selection clauses that contained broad language
such as that used in the instant clause have similarly determined that the clauses were not
intended to apply merely to breach of contract claims, but rather were intended to apply to
other claims as well. For example, the United States Court of Appeals for the Second Circuit
was asked to determine the scope of a forum-selection clause that stated: “'any legal
proceedings that may arise out of [the agreement] are to be brought in England.'” Phillips,
494 F.3d at 382. In determining the meaning of “arise out of,” the court contrasted language
such as “in connetion with” as being more expansive: “[w]e do not understand the words
'arise out of' as encompassing all claims that have some possible relationship with the
contract, including claims that may only 'relate to,' be 'associated with,' or 'arise in
connection with' the contract.” Id., 494 F.3d at 389 (emphasis added) (citations omitted).
In a different case, the Second Circuit also rejected an interpretation of a forum-selection
clause that utilized the phrase “in connection with” as applying only to breach of contract
claims:
There is ample precedent that the scope of clauses similar
to those at issue here is not restricted to pure breaches of the
contracts containing the clauses. The Managing and Members'
Agent's Agreements speak, . . . with respect to the forum
selection clauses, in terms of submission for “all purposes of
and in connection with” the agreements (emphasis added). In Bense v. Interstate Battery System of America, 683 F.2d 718,
720 (2d Cir.1982), we held that a forum selection clause that
applied to “causes of action arising directly or indirectly from
[the agreement]” covered federal antitrust actions. Similarly, the
Supreme Court in Scherk v. Alberto-Culver Co., 417 U.S. 506,
94 S. Ct. 2449, 41 L. Ed. 2d 270, reh'g denied, 419 U.S. 885, 95
S. Ct. 157, 42 L. Ed. 2d 129 (1974), held that controversies and
claims “arising out of” a contract for the sale of a business
covered securities violations related to that sale. Id., 417 U.S.
at 519-20, 94 S. Ct. at 2457. We find no substantive difference
in the present context between the phrases “relating to,” “in
connection with” or “arising from.” We therefore reject the
[Appellants'] contention that only allegations of contractual
violations fall within the scope of the clauses.
Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1361 (2d Cir. 1993).
Given the similarities between the phrases “in connection with” and “in relation
to,” we also note that the Third Circuit has reasoned,
In this case, we must interpret the provision in the forum selection clause that gives the English courts exclusive jurisdiction over “any dispute arising . . . in relation to” the 1990 Agreement. The ordinary meaning of the phrase “arising in relation to” is simple. To say that a dispute “arise[s] . . . in relation to” the 1990 Agreement is to say that the origin of the dispute is related to that agreement, i.e., that the origin of the dispute has some “logical or causal connection” to the 1990 Agreement. Webster's Third New International Dictionary, 1916 (1971).
John Wyeth & Bro. Ltd. v. CIGNA Int'l Corp., 119 F.3d 1070, 1074 (3d Cir. 1997). See also Klotz v. Xerox Corp., No. 07 CIV 1734 (GEL), ___ F. Supp. 2d ___, ___ & n.4, 2007 WL
3100220, at *2 & n.4 (S.D.N.Y Oct. 22, 2007) (concluding that “[p]laintiff raises no
challenge to the scope of the forum selection clause, nor could she, since the expansive
language of the provision-covering '[a]ny action in connection with the Plan by an
Employee'-plainly encompasses her claims”; and further commenting that “[p]laintiff's state
law tort and contract claims are also part of an 'action in connection with the Plan' and are
covered by the clause” (footnote omitted)); Doe v. Seacamp Assoc., Inc., 276 F. Supp. 2d
222, 227 (D. Mass. 2003) (“A review of the case law leads me to conclude that the tort
claims, too, are covered by the forum selection clause. The forum selection clause was
worded to indicate that it governed any claim related to or arising from a contract, the subject
of which were the terms and conditions of John Doe's enrollment at Seacamp.”); Dexter Axle
Co. v. Baan USA, Inc., 833 N.E.2d 43, 49 (Ind. Ct. App. 2005) (finding tort and statutory
claims were subject to forum-selection clause).
Turning to the instant case, we note that the forum-selection clause issue was
addressed below in the context of a motion to dismiss; therefore, we consider the claims as
they were asserted in the amended complaint. Notably, though, only three of the claims
asserted in the amended complaint were ultimately presented to the jury for a verdict,
indicating that there was insufficient evidence to support the remaining claims. Accordingly,
in deciding whether the claims asserted below were “brought in connection with” the 1997
CSA, we will limit our consideration to only those three claims that ultimately went to the
jury. Those three claims, all sounding in tort, were: (1) tortious interference; (2) fraudulent
misrepresentation; and (3) fraudulent concealment. Based upon our review of these tort
claims, we conclude that they were indeed “brought in connection with” the 1997 CSA.
All of the injuries alleged in connection with the three aforementioned tort
claims flow directly from Wellmore's declaration of force majeure, an event that is
inextricably connected to the 1997 CSA. While the amended complaint methodically sets
out numerous details of purported pre-force majeure wrongful conduct, no injury resulted
from any of that alleged conduct without the declaration of force majeure under the 1997
CSA.
For example, “Count I” of the amended complaint alleges tortious interference
with existing contractual relations, and specifically identifies existing contracts with
Wellmore (the 1997 CSA), Penn Virginia (the lease of the Harman Coal reserves), and the
UMWA (a labor contract). Certainly a claim of interference with the 1997 CSA itself is
related to that contract. With respect to the Penn Virginia and UMWA contracts, it was
Wellmore's declaration of force majeure that placed the Harman Companies and Mr.
Caperton in the position of being unable to fulfill their contractual obligations. Without the force majeure, those contractual relations would have been unaffected by the actions of the
Massey Defendants. Thus, this claim is “brought in connection with” the 1997 CSA.
Count II of the amended complaint alleged tortious interference with
prospective contractual relations, again involving Wellmore, Penn Virginia and the UMWA.
As with Count I, the key to these claims remains Wellmore's wrongful declaration of force
majeure. In the absence of the declaration of force majeure, the Harman Companies would
not have been forced into bankruptcy and their prospective contractual relationships would
not have been impeded by Massey. Therefore this claim is “brought in connection with” the
1997 CSA.
Finally, Count III alleges fraudulent misrepresentation, deceit and concealment
either related to the declaration of force majeure itself or related to subsequent negotiations
between the Harman Companies and the Massey Defendants “regarding their intentions to
enter into a settlement agreement with Harman in connection with the 1997 CSA.” Insofar
as this claim either relates directly to the declaration of force majeure under the 1997 CSA,
or to the parties' efforts to reach a settlement with respect to the 1997 CSA, it is “brought in
connection with” the 1997 CSA.
Accordingly, because none of the relevant claims asserted in the amended
complaint would have existed in the absence of Wellmore's declaration of force majeure under the 1997 CSA, these claims are all “brought in connection with” the 1997 CSA and,
as a consequence, are within the scope of the forum-selection clause contained therein. (See footnote 25)
b. Are the parties involved in the suit subject to the forum-selection
clause? Before the circuit court, in their response to the Massey Defendants' motion to
dismiss, (See footnote 26) the Harman Companies and Mr. Caperton argued that, as strangers to the 1997
CSA, the Massey Defendants are precluded from enforcing its terms as they are not third-
party beneficiaries of the contract. The Harman Companies and Mr. Caperton further argued
that two of the plaintiffs to this action, Harman Development and Mr. Caperton (in his
individual capacity), are not signatories to the 1997 CSA and, therefore, may not be bound
by its terms. We disagree.
Other courts addressing the issue of whether non-signatories to a contract may
enforce, or be subject to, a forum-selection clause have found the clauses to be enforceable
under certain circumstances. One such case is Manetti-Farrow, Inc. v. Gucci America, Inc.,
858 F.2d 509 (9th Cir. 1988). The Manetti-Farrow case involved a contract between a
California corporation, Manetti-Farrow, and Gucci Parfums, an Italian corporation that was
a subsidiary of another Italian corporation, Guccio Gucci, S.p.A. (hereinafter referred to as
“Guccio Gucci”). The contract included a forum-selection clause that stated: “[f]or any
controversy regarding interpretation or fulfillment of the present contract, the Court of
Florence has sole jurisdiction.” Manetti-Farrow, 858 F.2d at 511. Another company, Gucci
America, signed a consent and ratification agreement, in which it consented to the contract
between Manetti-Farrow and Gucci Parfums. Ultimately a dispute arose, and Manetti-
Farrow filed suit in California alleging numerous causes of action, not only against Gucci
Parfums and Gucci America, but also against the parent company, Guccio Gucci, as well as
numerous officers of these companies. Manetti-Farrow, 858 F.2d at 511-12. Upholding the
district court's dismissal based upon the forum-selection clause, the Ninth Circuit found that
a forum-selection clause was applicable to “a range of transaction participants” who were
“closely related to the contractual relationship”:
Manetti-Farrow argues the forum selection clause can only apply to Gucci Parfums, which was the only defendant to sign the contract. However, “a range of transaction participants, parties and non-parties, should benefit from and be subject to forum selection clauses.” Clinton v. Janger, 583 F. Supp. 284, 290 (N.D. Ill. 1984) (citing Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 202-03 (3d Cir.), cert. denied, 464 U.S. 938, 104 S. Ct. 349, 78 L. Ed. 2d 315 (1983)). We agree with the district court that the alleged conduct of the non-parties is so closely related to the contractual relationship that the forum selection clause applies to all defendants.
858 F.2d at 514 n. 5.
Similarly, in Hugel v. Corporation of Lloyd's, 999 F.2d 206 (7th Cir. 1993),
it was argued that two corporate plaintiffs to a lawsuit, GCM and OMI, were not parties to
the contract containing the forum-selection clause (which plaintiff Hugel had signed), and
therefore, were not bound by the clause. In rejecting the argument, the court relied on the
companies' close relationship to the agreement and the foreseeablity that they would be
bound by the forum-selection clause: (See footnote 27)
In order to bind a non-party to a forum selection clause, the party must be “closely related” to the dispute such that it becomes “foreseeable” that it will be bound. . . . Hugel is President and Chairman of the Board of both GCM and OMI. In addition, Hugel owns 99% of the stock of GCM which, in turn, owns 100% of the stock of OMI. The alleged assurances of confidentiality were made to Hugel alone and Hugel alone decided that his corporations would participate in Lloyd's investigation.
Hugel and Lloyd's contracted to settle all of their disputes in England. Although GCM and OMI were not members of Lloyd's, in the course of a dispute between Hugel and Lloyd's, Hugel alone involved his two controlled corporations and supplied information allegedly belonging to those corporations. The district court found that the corporations owned and controlled by Hugel are so closely related to the dispute that they are equally bound by the forum selection clause and must sue in the same court in which Hugel agreed to sue. We hold these findings are not clearly erroneous.
999 F.2d at 209-10. Furthermore, the Hugel court made clear that a non-party to a contract need not be a third-party beneficiary in order for the forum-selection clause to be binding against such non-party:
Plaintiffs argue that the court must make a threshold
finding that a non-party to a contract is a third-party beneficiary
before binding him to a forum selection clause. While it may be
true that third-party beneficiaries of a contract would, by
definition, satisfy the “closely related” and “foreseeability”
requirements, see e.g., Coastal Steel, 709 F.2d at 203 (refusing
to absolve a third-party beneficiary from the strictures of a
forum selection clause which was foreseeable); Clinton v.
Janger, 583 F. Supp. 284, 290 (N.D. Ill. 1984), a third-party
beneficiary status is not required. Hugel, 999 F.2d at 209-10 n.7 (emphasis added). (See footnote 28)
In another case, Great Northern Insurance Co. v. Constab
Polymer-Chemie
GmbH & Co., No. 5:01-CV-0882 NAM GJD, ___ F. Supp. 2d ___, 2007 WL 2891981
(N.D.N.Y. Sept. 28, 2007), two German companies entered into a supply agreement whereby
Constab Polymer-Chemie (hereinafter referred to as “Constab”) would supply products used
to produce photo paper to Feliz Schoeller GmbH & Co., and its subsidiaries, one of which
was Schoeller-USA. ___ F. Supp. 2d at ___, 2007 WL 2891981, at *1. The contract
included a forum-selection clause specifying that jurisdiction of certain disputes would be
in Warstein, Germany. Id., ___ F. Supp. 2d at ___, 2007 WL 2891981, at *7. Constab
provided defective products to Schoeller USA, and Schoeller USA, through its insurer, filed
suit in California. (See footnote 29) In rejecting the argument that, as non-parties to the contract Great
Northern and Schoeller-USA could not enforce the forum-selection clause, the court
reasoned,
[n]either Great Northern nor [its insured] Schoeller-USA are
signatories to the Agreement. However, the enforcement of the
forum selection clause is clearly “forseeable” given the
relationships between the parties and the basis upon which
plaintiff has commenced this suit. Therefore, the Court finds
that the forum selection clause may be invoked against plaintiff
. . . .
___ F. Supp. 2d at ___, 2007 WL 2891981, at *8. See also First Specialty Ins. Corp. v.
Admiral Ins. Co., No. CV 07 408 MO, ___ F. Supp. 2d ___, ___, 2007 WL 1876516, at *3
(D. Or. June 22, 2007) (“[A] range of transaction participants, including non-parties, should
be bound by forum selection clauses of an underlying agreement if their conduct is 'closely
related to the contractual relationship.'. . . The fact that either one or both parties was not
a signatory to the underlying contract is not dispositive.” (internal citations omitted)); Graham Tech. Solutions, Inc. v. Thinking Pictures, Inc., 949 F. Supp. 1427, 1434 (N.D. Cal.
1997) (“It is well established that 'a range of transaction participants, parties and non-parties,
should benefit from and be subject to forum selection clauses.' . . . [T]he conduct of GTSI
and Mr. Fuller are closely related [to] the contractual relationship between Mr. Graham and
TPI, and the forum selection clause applies to both GTSI and Mr. Fuller in spite of the fact
that they are not signatories to the PSA.” (internal citations omitted)); Deloitte & Touche v.
Gencor Indus., Inc., 929 So. 2d 678, 683 (Fla. Dist. Ct. App. 2006) (“The trial court found
that this [forum-selection] clause could not be enforced against Gencor because Gencor was
not a party to the contract. In other contexts, however, Florida courts have enforced contract
terms, including forum selection clauses, against non-signatories. See, e.g., World Vacation
Travel, S.A. v. Brooker, 799 So. 2d 410, 412 (Fla. Dist. Ct. App. 2001) (forum-selection
clause against non-signatory proper where the claims are directly out of the agreement and
the commercial relationship of the parties); Tuttle's Design-Build, Inc. v. Florida Fancy, Inc.,
604 So. 2d 873, 873-74 (Fla. 2d DCA 1992) (recognizing that a reasonable forum-selection
clause would be enforced against a non-signatory). This is particularly true where, as here,
there exists a close relationship between the non-signatory and signatory and the interests of
the non-signatory are derivative of the interests of the signatory. See, e.g., XR Co. v. Block
& Balestri, P.C., 44 F. Supp. 2d 1296, 1299 (S.D. Fla. 1999) (enforcing forum-selection
clause against sole shareholder of contracting corporation where the shareholder's interests
in the contract were derivative of the contracting party and the contract inured to the
non-signatory's benefit).” (footnote omitted)); Dogmoch Int'l. Corp. v. Dresdner Bank AG,
304 A.D.2d 396, 397, (N.Y. App. Div. 2003) (“Although defendant was a nonsignatory to
the account agreements, it was reasonably foreseeable that it would seek to enforce the forum
selection clause given the close relationship between itself and its subsidiary . . . .”).
Based upon the foregoing, we now hold that a plaintiff who is a non-signatory
to a contract containing a forum-selection clause may be bound by that clause when it is
shown that his or her claims are closely related to the contract. We further hold that a
defendant who is a non-signatory to a contract containing a forum-selection clause may
enforce that clause when it is shown that the claims against him or her are closely related to
the contract.
Applying the foregoing holdings to the facts of the instant case, we first note
that, as to the plaintiffs, Sovereign and Harman Mining were signatories to the 1997 CSA,
and Harman Development and Mr. Caperton, in his individual capacity, (See footnote 30) were not.
However, Sovereign and Harman are wholly-owned subsidiaries of Harman Development,
and Mr. Caperton is the sole owner of Harman Development. Under these facts, any claim
brought by Mr. Caperton and Harman Development in connection with the 1997 CSA are
closely related to the contract and are, therefore, subject to the forum-selection clause
contained therein. As we determined in the preceding section of this opinion, the three
factually-supported claims asserted in the first amended complaint (See footnote 31) all flowed from the
wrongful declaration of force majeure under the 1997 CSA, and were brought in connection
with that contract. Accordingly, we find that Mr. Caperton and Harman Development are
bound by the forum-selection clause of the 1997 CSA.
Turning to the Massey Defendants, we note that none of them were signatories
to the 1997 CSA. However, Defendant Massey subsequently became the parent company
to Wellmore, who is a signatory of the 1997 CSA, and Wellmore was Massey's subsidiary
at the time it declared force majeure. (See footnote 32) All the other Massey Defendants are also subsidiaries
of Massey. The complaint plainly alleges that Massey, along with all its subsidiaries who are
defendants in this action, exercised “domination and control” over Wellmore and directed
Wellmore to wrongfully declare force majeure. Because, as we previously determined, all
of the claims in this action flow directly from the declaration of force majeure, and the
complaint alleges that the Massey Defendants controlled Wellmore's declaration of force
majeure, the complaint plainly demonstrates that the claims against the Massey Defendants
are closely related to the contract. Therefore, we find that the Massey Defendants are entitled
to enforce the forum-selection clause of the 1997 CSA.
4. Rebuttal. Because the forum-selection clause was communicated to the
resisting party, has mandatory force and covers the claims and parties involved in this
dispute, it is presumptively enforceable. Thus, the final step to our analysis is to ascertain
whether the Harman Companies and Mr. Caperton have rebutted the presumption of
enforceability by making a sufficiently strong showing that enforcement would be
unreasonable or unjust, or that the clause was invalid for such reasons as fraud or
overreaching.
In this regard, it has been recognized that
[m]andatory choice of forum clauses will be enforced
unless they are “unreasonable.” Davis Media Group, 302
F. Supp. 2d at 466 (citing M/S Bremen v. Zapata Off-Shore Co.,
407 U.S. at 10, 92 S. Ct. 1907). “Choice of forum and law
provisions may be found unreasonable if (1) their formation was
induced by fraud or overreaching; (2) the complaining party
'will for all practical purposes be deprived of his day in court'
because of the grave inconvenience or unfairness of the selected
forum; (3) the fundamental unfairness of the chosen law may
deprive the plaintiff of a remedy; or (4) their enforcement would
contravene a strong public policy of the forum state.” Allen v.
Lloyd's of London, 94 F.3d 923, 928 (4th Cir. 1996).
Belfiore v. Summit Fed. Credit Union, 452 F. Supp. 2d 629, 631-32 (D. Md. 2006) (footnotes
omitted). Moreover,
[a] party trying to defeat a mandatory choice of forum clause bears a “heavy burden.” See Davis Media Group v. Best Western Int'l, Inc., 302 F. Supp. 2d, 464, 469-70 (D. Md. 2004); see also, e.g., Sarmiento v. BMG Entm't, 326 F. Supp. 2d 1108, 1111 (C.D. Cal. 2003) (“[I]f the resisting party fails to come forward with anything beyond general and conclusory allegations of fraud and inconvenience, the court must uphold the agreement”).
Id. at 631 n.1. In this case, the Harman Companies and Mr. Caperton have not argued, either
below or before this Court, that enforcement of the forum-selection clause of the 1997 CSA
would be unreasonable or unjust, or that the clause was invalid for such reasons as fraud or
overreaching. Accordingly, the forum-selection clause should have been enforced by the
circuit court, and that court's failure to grant the Massey Defendants' motion to dismiss
based upon the forum-selection clause was an abuse of discretion. (See footnote 33)
Although the forum-selection clause is dispositive of this case, we further
conclude that, assuming arguendo the forum-selection clause did not apply here, this case
is nevertheless barred by the doctrine of res judicata.
In addressing this issue, we are called upon to decide the res judicata effect of
the Virginia judgment on the instant West Virginia proceeding. We have previously held that
“[u]nder Article IV, Section 1, of the Constitution of the United States, a valid judgment of
a court of another state is entitled to full faith and credit in the courts of this State.” Syl. pt.
1, State ex rel. Lynn v. Eddy, 152 W. Va. 345, 163 S.E.2d 472 (1968). Further, “[b]y virtue
of the full faith and credit clause of the Constitution of the United States, a judgment of a
court of another state has the same force and effect in this State as it has in the state in which
it was pronounced.” Syl. pt. 3, Id. “In order to ensure that another state's judgment is given
the same force and effect it would have in that state, the general rule appears to be that '[t]he
validity and effect of a judgment must be determined by reference to the laws of the state
where it was rendered.'” Jordache Enters., Inc. v. National Union Fire Ins. Co. of
Pittsburgh, Pa., 204 W. Va. 465, 474, 513 S.E.2d 692, 701 (1998) (quoting 50 C.J.S. § 969,
at 563). Further, “the full faith and credit clause generally requires the courts of this State
to give [a foreign] judgment at least the res judicata effect which it would be accorded by
[the foreign] courts.” Jordache Enterprises, 204 W. Va. at 476, 513 S.E.2d at 703. See also
Martin v. SAIF Corp., 167 P.3d 916, 918-19 (Mont. 2007) (“Full faith and credit generally
requires every State to give to a judgment at least the res judicata effect which the judgment
would be accorded in the State which rendered it.” (internal quotations and citation
omitted)).
Before discussing the specific elements that must be established in order for
the preclusive effect of res judicata to apply under Virginia law, we must first address a
preliminary issue. Under the laws of Virginia, “a judgment is not final for the purposes of
res judicata . . . when it is being appealed or when the time limits fixed for perfecting the
appeal have not expired.” Faison v. Hudson, 243 Va. 413, 419, 417 S.E.2d 302, 305 (1992).
In the instant proceeding it appears that a trial court judgment in the Virginia proceeding was
entered on May 7, 2001. Subsequently, on April 1, 2002, Massey filed a motion for summary
judgment with the West Virginia circuit court, arguing that principles of res judicata required
dismissal of the West Virginia case as a result of the judgment in the Virginia case. On June
17, 2002, the circuit court denied the motion. The circuit court was correct in denying
summary judgment on res judicata grounds because, at the time Massey filed its motion and
the circuit court decided the matter, the Virginia judgment was being appealed by Wellmore.
As we have pointed out, under Virginia law “a judgment is not final for res judicata purposes
if it is being appealed.” CDM Enters., Inc. v. Commonwealth/Manufactured Housing Bd.,
32 Va. App. 702, 709, 530 S.E.2d 441, 445 (2000) (emphasis in original).
The Virginia judgment did not become final for purposes of res judicata until
September 13, 2002, when the Supreme Court of Virginia dismissed Wellmore's appeal. See Wellmore Coal Corp. v. Harman Mining Corp., 264 Va. 279, 568 S.E.2d 671 (2002)
(dismissing appeal). Consequently, the issue we now confront is whether or not this Court
may recognize the finality of the Virginia judgment, for purposes of addressing the res
judicata issue on appeal. A case squarely addressing this issue is Aronow v. Lacroix, 268
Cal. Rptr. 866, 219 Cal. App. 3d 1039 (1990).
The facts of Aronow involved two separate lawsuits filed by different plaintiffs
against the same law firm for malicious prosecution. (See footnote 34) One lawsuit was filed by Dr. Ann
Fitzsimmons, and the other was filed by Betty Aronow. In the case brought by Dr.
Fitzsimmons, a judgment was rendered in favor of the law firm on January 27, 1981.
However, as a result of an appeal, the case was not finally disposed of until June 24, 1987.
The action brought by Ms. Aronow went to trial on October 5, 1982. Prior to trial the law
firm raised the issue of res judicata, but the trial court found that res judicata did not apply
because Dr. Fitzsimmons' case was pending an appeal and therefore had not become final.
A jury ultimately returned a verdict in favor of Ms. Aronow and awarded her damages. The
law firm appealed the judgment. While the case was pending on appeal, Dr. Fitzsimmons'
case became final after an appellate court rendered a decision affirming the verdict in favor
of the law firm. As a result of Dr. Fitzsimmons' case becoming final, the law firm raised the
issue of res judicata in the appeal of Ms. Aronow's case. The appellate court in Aronow found that the issue could be raised on appeal:
First, we consider the question of a final judgment on the merits. At the time the court trial of [Ms. Aronow] began, [Dr. Fitzsimmons' case] was on appeal, so there was no final judgment . . . on which [the law firm] could rely to raise a res judicata defense in the trial court. . . . However, . . . our affirmance of the judgment in [the law firm's] favor [became] final, . . . on September 28, 1987, while the present appeal was pending.
Under these circumstances, [the law firm] now ha[s] a
final judgment on which to base a claim of res judicata, and they
can raise the issue on appeal. Although normally the res
judicata effect of a prior judgment must be pleaded and proven
at trial, when the judgment becomes final during the pendency
of an appeal in another action, the first final judgment may be
brought to the attention of the appellate court in which the
appeal is pending and may there be relied on as res judicata.
Aronow, 268 Cal. Rptr. at 870, 219 Cal. App. 3d at 1046 (internal quotations and citations
omitted) (footnote omitted). The appellate Court in Aronow went on to analyze the case
under res judicata principles and found that the doctrine applied “to preclude [Ms.] Aronow
from a judgment in her favor in her own case.” Aronow, 268 Cal. Rptr. at 875, 219
Cal. App. 3d at 1053.
In accordance with Aronow, we now hold that a party may raise the defense of
res judicata on appeal when the prior judgment relied upon becomes final during the
pendency of his/her appeal. Although our holding on this issue permits us to exercise our
inherent authority to consider Massey's res judicata argument, we believe the decisions of
the Supreme Court of Virginia demonstrate that that court would also exercise its inherent
authority to address the issue under the facts presented.
The decision by the Supreme Court of Virginia in Ward v. Charlton, 177 Va.
101, 12 S.E.2d 791 (Va. 1941), is instructive of how we believe that court would respond to
the issue of res judicata raised in this case. The facts of Ward show that James R. Ward
drove his car into the rear of a tractor being driven by Henry Harper. The tractor was owned
by Sidney Charlton. Mr. Ward sued Mr. Charlton and, in a separate action, Mr. Harper sued
Mr. Ward. Mr. Ward also brought a counter-claim against Mr. Harper.
In Mr. Ward's suit against Mr. Charlton, a jury returned a verdict in favor of
Mr. Ward. However, the trial court set aside the verdict and granted judgment to Mr.
Charlton. Mr. Ward appealed. While Mr. Ward's appeal was pending, a jury decided the
case brought by Mr. Harper. In that case, the jury determined Mr. Harper was not entitled
to recover from Mr. Ward, and Mr. Ward was not entitled to recover from Mr. Harper on the
counter-claim.
As a result of the disposition of the Harper-Ward lawsuit, Mr. Charlton asked
the Supreme Court of Virginia to dismiss Mr. Ward's appeal on res judicata grounds. Mr.
Charlton took the position “that since it has been adjudicated by a court of competent
jurisdiction that Ward . . . can not recover of Harper, the original tort feasor, a fortiori Ward
can not recover of Harper's master, Charlton, whose liability, if any, depends entirely upon
the liability of Harper, under the doctrine of respondeat superior.” Ward, 177 Va. at 106, 12
S.E.2d at 792. In response, Mr. Ward argued, among other things, that Mr. Charlton could
not raise the defense of res judicata for the first time on appeal. The Supreme Court of
Virginia disagreed:
The present [appeal] presents the sole question as to whether Ward is entitled to a judgment against Charlton by reason of the alleged negligent acts of Charlton's servant, Harper. The petition for a writ of error prays that the verdict which Ward obtained against Charlton and which the trial court set aside, be restored, and that this court enter a final judgment on said verdict against Charlton. It conclusively appears from extrinsic evidence, which is not controverted, that subsequent to the closing of the record in the instant case a court of competent jurisdiction has determined that Ward is not entitled to recover the judgment which he here seeks.[ (See footnote 35) ]
Must this court shut its eyes to these admitted facts and
sagely proceed to consider an issue which has already been
decided by a court of competent jurisdiction, and possibly enter
a final judgment directly in conflict with that already rendered?
We think not. In our opinion this court has the jurisdiction and
it is its duty to examine this extrinsic evidence in determining
whether it will proceed to hear the pending matter or dismiss it
because the issue between the parties has been settled.
. . . .
It is true, as argued by the learned counsel for [Ward],
that an appellate court in reviewing the record of the
proceedings in the court below will not entertain the defense of
res judicata if it was available and was not made below. This is
so because the defense is an affirmative one and if not asserted
below is deemed to have been waived. . . .
But this principle does not apply to the instant case where
the defense was not available and could not have been asserted
during the trial below.
. . . .
The doctrine of res judicata or estoppel by judgment is
based on public policy. . . . It proceeds upon the principle that
one person shall not the second time litigate, with the same
person or with another so identified in interest with such person
that he represents the same legal right, precisely the same
question, particular controversy, or issue which has been
necessarily tried and finally determined, upon the merits, by a
court of competent jurisdiction, in a judgment in personam in a
former suit. . . .
The doctrine is firmly established in our jurisprudence
and should be maintained where applicable. . . .
Here it has been brought to our attention by undisputed evidence that since the trial below another court of competent jurisdiction has finally adjudicated that the plaintiff in error, Ward, is not entitled to a judgment against Charlton, the defendant in error. Hence, the plaintiff in error is estopped to ask this court to review the record before it and to enter in his favor a judgment. . . .
Ward, 177 Va. at 110-15, 12 S.E.2d at 793-96 (internal quotations and citations omitted)
(footnote added).
Clearly under the decision in Ward, the Supreme Court of Virginia would
address the issue of res judicata presented in this case, even though the doctrine did not
become ripe until the case was presented on appeal. Consequently, we find that, although
the circuit court was correct in denying summary judgment to Massey on res judicata grounds
because the Virginia judgment was pending appeal, this Court may now address the issue
anew because a final judgment was rendered in the Virginia case by the time this appeal was
prosecuted.
The Supreme Court of Virginia has described the doctrine of res judicata, and
its purpose, as follows:
the rationale for this judicially created doctrine [is that] it “rests upon public policy considerations which favor certainty in the establishment of legal relations, demand an end to litigation, and seek to prevent the harassment of parties. . . . The doctrine prevents 'relitigation of the same cause of action, or any part thereof which could have been litigated, between the same parties and their privies.'”
City of Virginia Beach v. Harris, 259 Va. 220, 229, 523 S.E.2d 239, 243 (2000) (quoting Bill
Greever Corp. v. Tazewell Nat'l Bank, 256 Va. 250, 254, 504 S.E.2d 854, 856 (1998)
(additional citation omitted)). See also Smith v. Ware, 244 Va. 374, 376, 421 S.E.2d 444,
445 (1992) (“The bar of res judicata precludes relitigation of the same cause of action, or any
part thereof, which could have been litigated between the same parties and their privies.”
(citing Bates v. Devers, 214 Va. 667, 670-71, 202 S.E.2d 917, 920-21 (1974); Flora, Flora
& Montague, Inc. v. Saunders, 235 Va. 306, 310, 367 S.E.2d 493, 495 (1988); Brown v.
Haley, 233 Va. 210, 215, 355 S.E.2d 563, 567 (1987); and Worrie v. Boze, 198 Va. 533,
537-38, 95 S.E.2d 192, 196-97 (1956), aff'd on reh'g, 198 Va. 891, 96 S.E.2d 799 (1957))).
With respect to the application of res judicata, the Virginia Court has been
consistent in holding that
[f]our elements must be present before res judicata can be asserted to bar a subsequent proceeding: “(1) identity of the remedies sought; (2) identity of the cause of action; (3) identity of the parties; and (4) identity of the quality of the persons for or against whom the claim is made.” Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125, 128 (1986). See also Mowry v. City of Virginia Beach, 198 Va. 205, 211, 93 S.E.2d 323, 327 (1956).
Smith v. Ware, 244 Va. 374, 376, 421 S.E.2d 444, 445. See also State Water Control Bd. v.
Smithfield Foods, Inc. 261 Va. 209, 214, 542 S.E.2d 766, 769 (2001) (same); Balbir Brar
Assoc., Inc. v. Consolidated Trading and Servs. Corp., 252 Va. 341, 346, 477 S.E.2d 743,
746 (1996) (same). We will address each of these elements in turn.
1. Identity of the remedies sought. The Harman Companies argue that
because the Virginia proceeding awarded damages for breach of contract, while the instant
action awarded damages in tort, the remedies sought in these two actions are not the same.
We disagree.
The Supreme Court of Virginia has not squarely defined what is meant by
“identity of the remedies sought” for purposes of the res judicata test. Ware, 244 Va. at 376,
421 S.E.2d at 445. However, in the Ware case the court addressed the issue of whether there
was identity of remedies, and concluded that because the earlier action sought relief in the
court of law, while the latter action sought equitable relief in the court of chancery, there was
no identity of remedy: “Mrs. Smith, in her motion for judgment for unlawful detainer, sought
the remedy of possession and damages. . . . Mrs. Smith, in her bill of complaint, does not
seek possession of the property. Rather, she seeks a commutation of her dower interest,
which is a different remedy.” Ware, 244 Va. at 376-77, 421 S.E.2d 445-46. (See footnote 36) Thus, it
appears that the “remedy” element of res judicata refers, at least in significant part, to the
distinction between legal and equitable remedies. The legal definition of the term “remedy”
supports this view. See, e.g., Black's Law Dictionary 1296 (7th ed. 1999) (defining
“remedy” as '[t]he means of enforcing a right or preventing or redressing a wrong; legal or
equitable relief'”).
Our conclusion is further supported by the opinion in Cherokee Corp. of Linden, Virginia, Inc. v. Richardson, 1996 WL 1065553, at *1 (Va. Cir. Ct. 1996), wherein the Circuit Court of Virginia explained the concept in this way:
At first brush [Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125, 128 (1986),] appears to a retrenchment in the scope of the doctrine of res judicata by its addition of the requirement of “identify of remedies,” because if remedy were synonymous with “right of action,” the implication is that the aggrieved party, confronted with a judgment for the defendant, may simply successively file actions based on different remedies or rights of action until he receives a favorable verdict. If this were true, the doctrine of Res Judicata would be substantially emasculated.
Black's Law Dictionary (5th ed. 1979) defines remedy as “the rights given to a party by law or by contract which that party may exercise upon a default by the other party, or upon the commission of a wrong (a tort) by another party,” so remedy in this context is actually consonant with the broader concept of “cause of action.” Moreover, the Supreme Court in Ware v. Smith, [244 Va. 374, 421 S.E.2d 444 (1992)], noted that the causes of action were different and relied upon Bates v. Devers, 214 Va. 667, 670-71, 202 S.E.2d 917, 920-21 (1974), which clearly held:
Res judicata-bar, is the particular preclusive effect commonly meant by the use of the term “res judicata.” A valid, personal judgment on the merits in favor of a defendant bars relitigation of the same cause of action, or any part thereof which could have been litigated, between the same parties and their privies. See Restatement of Judgments 47, 62, 83 (1942).
Collateral estoppel is the preclusive effect impacting in a subsequent action based upon a collateral and different cause of action.
The ostensibly inconsistent rule of this case derives from
the fact that Virginia still recognizes a distinction between law
and equity, and this legal relic affects the court's res judicata
decisions. In Ware v. Smith, supra; Brown v. Haley, 233 Va.
210, 219, 355 S.E.2d 563 (1987) (equitable claim for easement
arose from different transaction and could not be asserted in
earlier ejectment action at law between the same parties); and Wright v. Castles, 232 Va. 218, 349 S.E.2d 125 (prior chancery
suit for injunction does not bar later suit for monetary damages,
the court was confronted by later cases being filed on a different
side of the court, because of the dichotomy between law and
equity[)]. . . .
1996 WL 1065553, at *10 (emphasis added).
With respect to the case presently before us, both the Virginia proceeding and
the instant proceeding sought the legal remedy of monetary damages stemming from
Wellmore's wrongful declaration of force majeure under the 1997 CSA. Accordingly, the
identity of remedy element of Virginia's res judicata test has been met.
2. Identity of the cause of action. The Harman Companies contend that
the breach of contract cause of action litigated in Virginia differs from the tort claims
asserted in the instant action. We disagree.
As demonstrated by Rule 1:6 of the Rules of the Supreme Court of Virginia,
Virginia applies the transactional approach to the element of res judicata requiring identity
of the cause of action: (See footnote 37)
A party whose claim for relief arising from identified conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be forever barred from prosecuting any second or subsequent civil action against the same opposing party or parties on any claim or cause of action that arises from that same conduct, transaction or occurrence, whether or not the legal theory or rights asserted in the second or subsequent action were raised in the prior lawsuit, and regardless of the legal elements or the evidence upon which any claims in the prior proceeding depended, or the particular remedies sought. A claim for relief pursuant to this rule includes those set forth in a complaint, counterclaim, cross-claim or third-party pleading.
(Emphasis added). See also Virginia Imports, Ltd. v. Kirin Brewery of America, LLC, 50 Va. App. 395, 410 n.6, 650 S.E.2d 554, 561 n.6 (2007) (noting that Rule 1:6 represented the transactional approach). The transactional approach has been explained as follows:
As can be seen, Virginia follows the transaction rule set forth in the Restatement of Judgments 2d, 24 for purposes of defining “cause of action.” The importance of understanding the broad concept of “cause of action” is essential to understanding the application of res judicata. One “cause of action” may give rise to myriad rights of action, e.g., breach of contract, breach of warranty, negligence, and statutory claims; however, if the rights of action arise from the same operative set of facts and could legally be asserted therein, they are all the same “cause of action” for purposes of the application of the doctrine of res judicata. “There can be no right of action until there is a cause of action.” Stone v. Ethan Alan, 232 Va. 365, 368-369, 350 S.E.2d 629 (1986), citing Caudill v. Wise Rambler, 210 Va. 11, 13 168 S.E.2d 257, 259 (1969). However, as broad as the application of the doctrine of res judicata is, it applies only to rights of action which have accrued from the cause of action and could have been asserted in the proceeding upon which the plea is based. As the Supreme Court of Virginia noted in Southern. R. Co. v. Wash. & C. R. Co., 102 Va. 483, 491, 46 S.E. 784 (1904):
[R]es judicata applies, except in special
cases, not only to points upon which the court was
actually required, by the parties, to form an
opinion and pronounce a judgment, but to every
point which properly belonged to the subject of
the litigation, and which the parties, exercising
reasonable diligence, might have brought forward
at the time. Diamond State Iron Co. v. Rarig &
Co., 93 Va. 603, 25 S.E. 894, and authorities
cited. But it cannot be applied to a matter not
adjudicated in a former action and which could
not have been brought forward for adjudication
upon the pleadings in the cause; nor to a matter
arising after the former adjudication, even in a
second suit between the parties to the former or
their privies, if the causes of action are not the
same. (cites omitted)
Cherokee Corp., 1996 WL 1065553, at *8. See also Allstar Towing, Inc. v. City of
Alexandria, 231 Va. 421, 425, 344 S.E.2d 903, 905-06 (1986) (commenting that “[f]or the
purposes of res judicata, a 'cause of action' may be defined broadly 'as an assertion of
particular legal rights which have arisen out of a definable factual transaction,'” and
concluding that second action was not barred by first because “the facts giving rise to the
second cause of action were not even in existence when the first action was heard and
decided on the merits” (internal citation omitted)).
Notably, the transactional approach of Rule 1:6 applies to “any claim or cause
of action that arises from that same conduct, transaction or occurrence, whether or not the
legal theory or rights asserted in the second or subsequent action were raised in the prior
lawsuit.” Rule 1:6 (emphasis added). Stated another way,
[u]nder settled principles, the “effect of a final decree is
not only to conclude the parties as to every question actually
raised and decided, but as to every claim which properly
belonged to the subject of litigation and which the parties, by the
exercise of reasonable diligence, might have raised at the time.” Smith v. Holland, 124 Va. 663, 666, 98 S.E. 676, 676 (1919)
(emphasis added). This could-have-litigated-should-have-
litigated principle applies to . . . the broader transactional
approach adopted by Rule 1:6 . . . .
Virginia Imports, 50 Va. App. at 410 n.6, 650 S.E.2d at 561 n.6.
Turning to the case at bar, although the Virginia proceeding addressed contract
claims, while the instant proceeding addressed tort claims, this distinction is of no moment.
Both the tort claims asserted in the case sub judice and the earlier contract claims asserted
in the Virginia proceeding arise from the same “conduct, transaction or occurrence,” namely
the wrongful declaration of force majeure by Wellmore, which was carried out under the
direction and control of the Massey Defendants. Thus, the tort claims asserted in this action
arise from the same transactional facts as the Virginia proceeding and should have been
asserted in that proceeding.
3. Identity of the parties. Mr. Caperton and Harman Development were not
parties to the Virginia action, and neither were any of the Massey Defendants named in the
instant suit. The Harman Companies argue that there is no identity of the parties as there is
no privity between the Massey Defendants and Wellmore. We disagree, finding there is
identity of the parties between the Virginia proceeding and the instant proceeding under the
doctrine of privity.
Pursuant to Virginia law,
[t]he doctrine of res judicata applies not only to the
actual parties in a case but also to those in privity with them. See City of Virginia Beach v. Harris, 259 Va. 220, 229, 523
S.E.2d 239, 243 (2000). In other words, res judicata applies to
anyone “'so identified in interest with [a party] that he
represents the same legal right, precisely the same question,
particular controversy, or issue.'” Johnson, 7 Va. App. at 618,
376 S.E.2d at 788 (citation omitted).
CDM Enters., Inc. v. Commonwealth/Manufactured Housing Bd., 32 Va. App. 702, 710, 530 S.E.2d 441, 445 (2000). One Virginia court has explained the requirement for the identity of parties in this way:
“One of the fundamental prerequisites to the application of the doctrine of res judicata is that there must be an identity of the parties between the present suit and prior litigation asserted as a bar. A party to the present suit, to be barred by the doctrine, must have been a party to the prior litigation, or represented by another so identified in interest that he represents the same legal right.” Dotson, 232 Va. at 404-405, 350 S.E.2d at 644.
There is no fixed definition of privity that automatically can be applied in all cases involving res judicata issues. While privity generally involves a party so identified in interest with another that he represents the same legal right, a determination of . . . who are privies requires a careful examination of the circumstances of each case.
Nero v. Ferris, 222 Va. 807, 813, 284 S.E.2d 828, 831 (1981).
In Patterson v. Saunders, the Supreme Court stated:
It is generally held that “'privity' means a mutual or successive relationship to the same rights of property, or such an identification in interest of one person with another as to represent the same legal rights, and the term 'privy,' when applied to a judgment or decree refers to one whose interest has been legally represented at the trial.”
194 Va. at 613, 74 S.E.2d at 208 (citation omitted).Commonwealth ex rel. Gray v. Johnson, 7 Va. App. 614, 619, 376 S.E.2d 787, 789 (1989).
Turning to the instant case, we find that the parties to the Virginia proceeding
“are so identified in interest” with the parties to the instant proceeding that they “represent
the same legal right[s].” CDM Enters., Inc., 32 Va. App. at 710, 530 S.E.2d at 445 (internal
quotations and citations omitted). In the Virginia proceeding, Harman Mining and Sovereign
sued Wellmore for breach of contract related to the wrongful declaration of force majeure under the 1997 CSA. It bears reiterating that all of the harm that has been claimed by Mr.
Caperton and the Harman Companies in the instant action has stemmed directly from that
wrongful declaration of force majeure under the 1997 CSA. Because the question of whether
the declaration of force majeure was wrongful was the exact issue addressed in the Virginia
proceeding, the interests of the various parties to the instant suit, which also depends upon
the propriety of the declaration of force majeure, is directly aligned with the interests of the
related corporate entities who participated in the Virginia action.
Moreover, it has been recognized that a parent company is in privity with its
subsidiary. See Mullins v. Daily New Leader, 2001 WL 1772679, at *2 (Va. Cir. Ct. 2001)
(“The Daily News Leader and Gannett Co., Inc., are in privity as Gannett is the parent
company of the Daily News Leader.”). Thus, Harman Development is plainly in privity with
its susidiaries, Harman Mining and Sovereign, who were parties to the Virginia action. Mr.
Caperton is also in privity with Harman Mining and Sovereign to the extent that he signed
the 1997 CSA in his capacity as president of Sovereign, and insofar as Harman Mining and
Sovereign are wholly-owned subsidiaries of Harman Development, and Mr. Caperton is the
sole owner of Harman Development. Likewise, A.T. Massey Coal Company is in privity
with its subsidiary Wellmore, as are the remaining Massey Defendants, who are also
subsidiaries of Massey and sister corporations to Wellmore.
4. Identity of the quality of the persons for or against whom the claim is
made. As previously indicated, for purposes of res judicata Virginia requires a determination
be made of the identity of the quality of the persons for or against whom the claim was made.
As explained by a Virginia trial court, “[t]he 'identity of quality' element is a requirement
that the parties in conflict appear in the identical capacities or on 'the same side of the
versus' in both proceedings.” Winchester Homes, Inc. v. Hoover Universal, Inc., 1994 WL
1031408, at *2 (Va. Cir. Ct. 1994) (citing Greene v. Warrenton Prod. Credit Ass'n, 223 Va.
463, 291 S.E.2d 209 (1982)). The facts of the instant case clearly establish that this element
has been met. The original plaintiffs in the Virginia suit are plaintiffs in the West Virginia
proceeding, and they sued in the same capacity in both litigations. None of the Massey
Defendants in the instant proceeding was a plaintiff in the Virginia proceeding. See Byrum
v. Ames & Webb, Inc., 196 Va. 597, 85 S.E.2d 364 (1955) (finding that prior litigation was
not res judicata to subsequent litigation because plaintiff and defendant were both
nonadversarial defendants in the prior litigation); Ezrin v. Stack, 281 F. Supp. 2d 67 (D.D.C.
2003) (applying Virginia law to find that res judicata applied where both parties were on
opposite sides of the “v.” in prior litigation).
5. Preclusive Effect of Res Judiciata. Because the four elements of res
judicata have been met in this case, as demonstrated above, we conclude that the instant
action is barred.
For the reasons stated in the body of this opinion, we reverse the judgment in
this case and remand for the circuit court to enter an order dismissing this case against A.T.
Massey Coal Company and its subsidiaries with prejudice.