| D.C. Offutt, Jr. Stephen Burchett Randall L. Saunders Ryan Q. Ashworth Offutt, Fisher & Nord Huntington, West Virginia Attorneys for the Appellants |
Bruce E. Stanley Tarek F. Abdalla Reed Smith LLP Pittsburgh, Pennsylvania Attorneys for the Appellee, Hugh M. Caperton |
Robert V. Berthold, Jr. Christina L. Smith Berthold, Tiano & O'Dell Charleston, West Virginia |
Bradley J. Pyles Pyles, Turner & Mick, LLP Logan, West Virginia Attorneys for Amicus Curiae United Mine Workers of America |
David B. Fawcett Buchanan Ingersoll & Rooney Pittsburgh, Pennsylvania Attorneys for the Appellees, Harman Development Corporation, Harman Mining Corporation, and Sovereign Coal Sales, Inc. |
Davis, Acting 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.
This case is presently before this Court on remand from the United States
Supreme Court. (See footnote 1) Based upon our thorough consideration of the parties' arguments, the
relevant case law, and the record on appeal, this Court concludes, 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, that the circuit court erred in denying a motion to dismiss filed by
A.T. Massey Coal Company and its subsidiaries. Accordingly, we reverse the judgment in
this case and remand for the circuit court to enter an order dismissing, with prejudice, this
case against A.T. Massey Coal Company and its subsidiaries.
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 11) 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 12) 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 13) 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 5th letter, Massey entered into 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 14) 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 on this
point,
[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 15) 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 16) Subsequently, the
Harman Companies filed for bankruptcy.
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)
In deciding this issue, we must first determine the applicability and
enforceability of the forum-selection clause at issue. In this regard, 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.”).
With due consideration for these standards, we proceed to our analysis of this
case.
by [asking this Court to] retroactively impose[] a tie vote, the
Corporate Appellees [Mr. Caperton and the Harman
Companies], in a manner contrary to well-accepted principles of
appellate procedure, seek . . . to constrain this Court's discretion
to proceed on remand. Plainly stated, this Court has not yet
reached a final decision in this matter and therefore cannot be
equally divided.
In addition, we note that the motion was properly denied based upon the reasoning used by
the United States Supreme Court in Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813, 106 S. Ct.
1580, 89 L. Ed.2d 823 (1986).
In Aetna Life, the United States Supreme Court addressed the issue of whether
an Alabama Supreme Court Justice should have recused himself from the case. The United
States Supreme Court concluded that the justice was disqualified and should have recused
himself. As a result of the disqualification of the justice, the vote in the case became four-
four. The United States Supreme Court determined that the opinion by the Alabama
Supreme Court could not survive because of the four-four decision. Consequently, the
Alabama Supreme Court decision was vacated and the case was remanded for further
proceedings. The opinion in Aetna Life cited the following procedure that was used by
Alabama when a justice was disqualified:
If Justice Embry had disqualified himself, the decision of
the trial court would not have been affirmed by a vote of an
equally divided court. Rather, Ala. Code § 12-2-14 (1975),
which authorizes the appointment of special justices in the event
disqualifications result in an even-numbered court which is
evenly divided on a matter, would presumably have come into
play.
Aetna Life, 475 U.S. at 828 n.5, 106 S. Ct. at 1589 n.5. After the case was remanded, the
matter was reheard by the Alabama Supreme Court and that Court once again affirmed the
verdict for the plaintiff. See Aetna Life Ins. Co. v. Lavoie, 505 So.2d 1050 (Ala. 1987).
Thus, Aetna Life stands for the proposition that, when the United States
Supreme Court disqualifies a state court justice, and such disqualification leaves an equally
divided state court, the case must be remanded for appointment of a new judge as provided
by state law.
West Virginia does not have a statute that expressly addresses the issue of the
disqualification of a justice. However, the disqualification issue is addressed in our state
constitution and rules of appellate procedure. Under Art. VIII, § 3 of the West Virginia
Constitution, it is stated that “[w]hen any justice is temporarily disqualified or unable to
serve, the chief justice may assign a judge of a circuit court or of an intermediate appellate
court to serve from time to time in his stead.” It is further provided in Rule 29(g) of the
Rules of Appellate Procedure that:
When any justice shall disqualify himself or herself
pursuant to the provisions of this rule, the chief justice or acting
chief justice may, in his or her discretion, assign a senior justice,
senior judge, or circuit judge to service for the disqualified
justice. The chief justice shall promptly notify the Clerk of the
Supreme Court of his or her decision regarding the necessity of
the appointment of a substitute justice and the Clerk of the
Supreme Court shall promptly notify the other justices and the
parties of such decision.
Thus, in accordance with our state constitution, our rules of appellate
procedure, and the United States Supreme Court's decision in Aetna Life Ins. Co. v. Lavoie,
we now expressly hold that, where the disqualification of a Justice of this Court, either by
decision of the United States Supreme Court or by his or her personal decision made after
an opinion has been issued by this Court, renders the decision of this Court a tie vote, then
the Chief Justice or Acting Chief Justice of this Court may, in his or her discretion, assign
a senior justice, senior judge, or circuit judge to serve in the place of the disqualified justice
pursuant to Art. VIII, § 3 of the West Virginia Constitution and Rule 29(g) of the West
Virginia Rules of Appellate Procedure.
The motions by Mr. Caperton and the Harman Companies additionally asked,
in the alternative, that this Court reconsider its prior decision to grant Massey's petition for
appeal. This motion was also denied in this Court's order of September 3, 2009, wherein the
Court observed that “[b]ecause it lacks specific directions about how to proceed, the opinion
of the Supreme Court of the United States constitutes a general--rather than a limited--
remand.” (Citing Syl. Pt. 2, in part, State ex rel Frazier & Oxley v. Cummings, 214 W. Va.
802, 591 S.E.2d 728 (2003) (“Limited remands explicitly outline the issues to be addressed
by the [lower] court and create a narrow framework within which to [lower] court must
operate. General remands, in contract, give [lower] courts authority to address all matters
so long as remaining consistent with the remand.”). This Court went on to explain that,
“[e]ven if this Court were obliged to reconsider whether the petition for appeal should be
granted, it is plain from the record that this case presents several points that are proper for
the consideration of this Court, and that the appeal was properly allowed.” (Citing W. Va.
Const. Art. VIII, sec. 4).
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., 519 F. Supp. 2d 430, 433 (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., 967 So. 2d 327, 330
(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), 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, 967 So. 2d at 330. 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
included 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,
finding that the forum-selection clause required the case be filed in a Virginia court. The
plaintiff appealed, arguing 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 28) 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? (See footnote 29) Mr. Caperton and the Harman Companies have 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 connection 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., 519 F. Supp. 2d 430, 434 & n.4 (S.D.N.Y 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. (See footnote 30) 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 31)
b. Are the parties involved in the suit subject to the forum-selection
clause? The Harman Companies and Mr. Caperton have 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 foreseeability that they would be
bound by the forum-selection clause: (See footnote 32)
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 33)
In another case, Great Northern Insurance Co. v. Constab Polymer-Chemie
GmbH & Co., No. 5:01-CV-0882 NAM GJD, 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. 2007
WL 2891981, at *1. The contract included a forum-selection clause specifying that
jurisdiction of certain disputes would be in Warstein, Germany. Id., 2007 WL 2891981, at
*7. Constab provided defective products to Schoeller USA, and Schoeller USA, through its
insurer, filed suit in California. (See footnote 34) 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 “foreseeable” 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
. . . .
2007 WL 2891981, at *8. See also Hellenic Inv. Fund, Inc. v. Det Norske Veritas, 464 F.3d
514, 517 (5th Cir. 2006) (enforcing forum selection clause against a non-signatory to the
contract on the basis that the non-signatory benefitted from the performance of the contract); Marano Enters. of Kansas v. Z-Teca Rests., L.P., 254 F.3d 753, 757 (8th Cir. 2001)
(concluding non-signatory to contract was “closely related to the disputes arising out of the
agreements and properly bound by the forum-selection provisions” due to his status of
“shareholder, officer and director” of corporate signatory (internal quotations and citation
omitted)); Medtronic, Inc. v. Endologix, Inc., 530 F. Supp. 2d 1054, 1056-57 (D. Minn. 2008)
(“[A] third party may be bound by a forum-selection clause where it is closely related to the
dispute such that it becomes foreseeable that it will be bound. . . . It is true that the majority
of cases binding a third party to a forum-selection clause under the closely-related-party
doctrine involved third parties suing as plaintiffs, rather than those being sued as defendants.
. . . But the Court does not believe that the closely-related-party doctrine is limited to
third-party plaintiffs. Indeed, when deciding whether the doctrine applies, a court must
answer only the following question: should the third party reasonably foresee being bound
by the forum-selection clause because of its relationships to the cause of action and the
signatory to the forum-selection clause?” (internal quotations and citations omitted)); Compana LLC v. Mondial Assistance SAS, No. 3:07-CV-1293-D, 2008 WL 190522, at *4
(N.D. Tex. Jan. 23, 2008) (“The Fifth Circuit recognizes two theories of estoppel that can
bind a nonparty of a contract to the contract's arbitration or forum selection clause. The first
is called an 'intertwined claims theory' of equitable estoppel, which grants a non-signatory
to a contract the right to enforce a provision of the contract against a signatory. . . . The Fifth
Circuit recognizes another form of estoppel-'direct benefits estoppel'-which grants a
signatory to a contract the right to enforce a contract provision against a non-signatory.”
(internal citations omitted)); Aspitz v. Witness Sys., Inc., No. C 07-02068 RS, 2007 WL
2318004, at *3 (N.D. Cal. Aug. 10, 2007) (observing fact that party did not sign agreement
is not controlling as to whether forum-selection clause would be enforced); Affiliated Mortg.
Prot., LLC v. Tareen, Civ. A. No. 06 4908 (DRD), 2007 WL 203947, at *4 (D.N.J. Jan. 24,
2007) (“[W]here a third party's conduct is closely related to the contractual relationship, the
forum selection clause applies to the third party.” (internal quotations and citation omitted)); Novak v. Tucows, Inc., No. 06CV1909 (JFB) (ARL), 2007 WL 922306, at *13 (E.D.N.Y.
March 26, 2007) (“[A]t least two courts within this Circuit have held that [i]t is well
established that a range of transaction participants, parties and non-parties, should benefit
from and be subject to forum selection clauses. . . . A non-party to an agreement may be
bound by a forum selection clause where the party is closely related to the dispute such that
it becomes foreseeable that it will be bound.” (internal quotations and citations omitted)); First Specialty Ins. Corp. v. Admiral Ins. Co., No. CV 07 408 MO, 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)); Hasler
Aviation, L.L.C. v. Aircenter, Inc., No. 1:06-CV-180, 2007 WL 2463283, at *6 (E.D. Tenn.
Aug. 27, 2007) (“Other courts have enforced a contractual forum selection clause against
non-signatories to the contract, so long as those parties were closely related to the dispute and
it was foreseeable they might be bound.” (internal quotations and citations omitted)); Weingard v. Telepathy, Inc., No. 05 Civ. 2024 (MBM), 2005 WL 2990645, at *5 (S.D.N.Y.
Nov. 7, 2005) (“Other Circuits have held that a contractually-based forum selection clause
also covers tort claims against non-signatories if the tort claims ultimately depend on the
existence of a contractual relationship between the signatory parties, . . . or if resolution of
the claims relates to interpretation of the contract, or if the tort claims involve the same
operative facts as a parallel claim for a breach of contract.” . . . (internal quotations and
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 quotations and
citations omitted)); Beck v. CIT Group/Credit Fin., Inc., Civ. A. No. 94-5513, 1995 WL
394067, at *6 (E.D. Pa. June 29, 1995) (“That Mr. Beck signed the Security Agreement as
president of Beck Co. is of little consequence given his intimate relationship to Beck Co., the
benefit to him from the funding provided, the circumstances giving rise to his claims that he
was personally injured by the manner in which defendant performed under the agreement and
his request to be credited personally for amounts allegedly overcharged to Beck
Co. . . . Assuming that Mrs. Beck has standing on the claims asserted, she is similarly subject
to the forum selection provisions. Moreover, given the relationship of the Becks and the
circumstances presented, it would be wholly inappropriate to permit Mr. Beck to evade the
forum provision in his guaranty and elsewhere by initiating suit jointly with Mrs. Beck.”
(internal citations and footnote omitted)); Sparks Tune-Up Ctrs., Inc. v. Strong, No. 92 C
5902, 1994 WL 188211, at *5 (N.D. Ill. May 12, 1994) (“The binding thread in cases which
hold that a non-signatory party should 'benefit from and be subject to' a forum selection
clause is an overriding concern to prevent a contracting party from escaping contractual
obligations which he bargained for and/or agreed upon.”); Lu v. Dryclean-U.S.A. of
California, Inc., 11 Cal. App. 4th 1490, 1493-94, 14 Cal. Rptr. 2d 906, 908 (1992)
(“[P]laintiffs argue enforcement of the forum selection clause would be unreasonable
because two of the defendants, Dryclean Franchise and Dryclean U.S.A., did not sign the
Agreement containing the clause. Again, we are compelled to disagree. A range of
transaction participants, parties and non-parties, should benefit from and be subject to forum
selection clauses.” (internal quotations and citation omitted)); Citigroup Inc. v. Caputo, 957
So. 2d 98, 102 (Fla. Ct. App. 2007) (“Even assuming Citigroup were not covered by the
Citibank Agreement, a non-signatory may invoke a signatory's forum selection clause where
the non-signatory and signatory are related.”); Deloitte & Touche v. Gencor Indus., Inc., 929
So. 2d 678, 684 (Fla. Dist. Ct. App. 2006) (observing that “where the interests of a non-party
are directly related to or completely derivative of those of the contracting party, the non-
signatory is bound by the contract's forum selection clause.”); Tuttle's Design-Build, Inc. v.
Florida Fancy, Inc., 604 So. 2d 873, 873-74 (Fla. Dist. Ct. App. 1992) (recognizing that
reasonable forum-selection clause would be enforced against non-signatory); Brinson v.
Martin, 220 Ga. App. 638, 640, 469 S.E.2d 537, 539-40 (Ga. Ct. App. 1996) (“[Plaintiff]
Brinson also contends the court erred in dismissing his claims against Martin. He argues that
regardless of whether the venue clause is applicable to Woodmen, the clause would not apply
to his claims against Martin for tortious interference with economic relations and unjust
enrichment because those claims do not arise out of the contract and involve parties who
were not signatories to the contract. . . . [D]espite Brinson's attempt to characterize his
claims against Martin as falling outside the business relationship he had with Woodmen, it
is clear from his complaint that the claims arose either directly or indirectly from his contract
with Woodmen. Under these circumstances, we are persuaded that if Martin were not
entitled to rely on the clause, separate actions would likely be brought, possibly resulting in
varying decisions, inconsistent with the administration of justice. For these reasons, we
conclude that the trial court did not err in ruling that Martin may rely on the forum selection
clause in this case.”); Grott v. Jim Barna Log Sys.-Midwest, Inc., 794 N.E.2d 1098, 1104-05
(Ind. Ct. App. 2003) (“The Texas Court of Appeals has applied forum-selection clauses to
nonsignatories to a contract who are transaction participants[,] . . . mean[ing] an employee
of one of the contracting parties who is individually named by another contracting party in
a suit arising out of the contract containing the forum-selection clause.” (internal quotations,
citations, and footnotes omitted)); Titan Indem. Co. v. Hood, 895 So. 2d 138, 148 (Miss.
2004) (quoting approvingly comment from Accelerated Christian Educ., Inc. v. Oracle
Corp., 925 S.W.2d 66, 75 (Tex. Ct. App. 1996), stating “[w]e agree with the federal court
that a valid forum selection clause governs all transaction participants, regardless of whether
the participants were actual signatories to the contract . . .”); 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 . . . .”); Kelly v. Bear, Stearns & Co. Inc., No. CONTROL 080832, 2001 WL
1807360, at *2 (Pa. Commw. Ct. Dec. 18, 2001) (“[P]laintiffs argue that as non-signatories
to the Engagement Letters, the forum selection clause does not apply to them. This court
disagrees. This dispute is governed by the forum selection clause because the claims asserted
clearly arise out of the only possible relationship plaintiffs had with Bear Stearns--the
Engagement Letters.”); Sevier County Bank v. Paymentech Merch. Servs., Inc., No.
E2005-02420-COA-R3-CV, 2006 WL 2423547, at *9 (Tenn. Ct. App. Aug. 23, 2006) (“We
agree with the federal court that a valid forum selection clause governs all transaction
participants, regardless of whether the participants were actual signatories to the contract.
By transaction participant, we mean an employee of one of the contracting parties who is
individually named by another contracting party in a suit arising out of the contract
containing the forum selection clause. To hold otherwise would allow a nonsignatory
employee, who was a transaction participant, to defeat his company's agreed-to forum by
refusing to be bound by the employer's contract. This cannot be. We conclude the trial court
may apply a valid forum selection clause to all transaction participants. To conclude
otherwise would enable a party to bypass a valid forum selection clause by naming in its
petition a closely-related party who was not a party to the contract.”); Accelerated Christian
Educ., Inc. v. Oracle Corp., 925 S.W.2d 66, 75 (Tex. Ct. App. 1996) (“We conclude the trial
court may apply a valid forum selection clause to all transaction participants. To conclude
otherwise would enable a party to bypass a valid forum selection clause by naming in its
petition a closely-related party who was not a party to the contract.” (footnote omitted)), overruled in part on other grounds by In re Tyco Electronics Power Systems, Inc., No.
05-04-01808-CV, 2005 WL 237232 (Tex. Ct. App. Feb.2, 2005) (mem.).
Based upon the foregoing, we now hold that a range of transaction participants,
signatories and non-signatories, may benefit from and be subject to a forum selection clause.
In order for a non-signatory to benefit from or be subject to a forum selection clause, the non-
signatory must be closely related to the dispute such that it becomes foreseeable that the non-
signatory may benefit from or be subject to the forum selection clause.
Applying the foregoing holding to the facts of the instant case, we first note
that, as to the plaintiffs, Sovereign; Mr. Caperton, as president of Sovereign; and Harman
Mining were signatories to the 1997 CSA; Harman Development and Mr. Caperton, in his
individual capacity, 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, Mr. Caperton and Harman Development were closely
connected to the 1997 CSA such that it was foreseeable that they would be 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 35) 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 36) 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. Under these facts, it is clear that the Massey
Defendants are closely connected to the 1997 CSA such that it was foreseeable that they
should benefit from the enforcement of the forum-selection clause contained therein.
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,
i.e. requiring that this case be litigated in Virginia, was unreasonable or unjust at the time of
the Massey Defendants' motion to dismiss, (See footnote 37) or that the clause was invalid for such reasons
as fraud or overreaching. Instead, on the initial rehearing of this case, and again on remand
from the United States Supreme Court, the Harman Companies and Mr. Caperton have
argued, in part, that it is unjust to apply the forum-selection clause to deprive them of the
large jury verdict awarded below. However, this improperly frames the issue. The proper
question is whether enforcement of the forum-selection clause was unjust or unreasonable at the time of the Massey Defendants' motion to dismiss based upon the forum-selection
clause. The Harman Companies and Mr. Caperton have not come forth with any facts or
argument that enforcement of the forum-selection clause was unreasonable or unjust at that
time. 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 38)
5. Retroactivity of the New Forum-Selection Clause. On remand from
the United States Supreme Court, the Harman Companies and Mr. Caperton argue, as they
did on the initial rehearing of this case, that the new forum-selection clause principles of law
herein developed should not be applied retroactively to them. (See footnote 39) They contend, among other
things, that due process principles prohibit such application. We disagree.
To begin, we should make clear that, notwithstanding the due process argument
made by the Harman Companies and Mr. Caperton, “[i]t is within the inherent power of a
state's highest court to give a decision prospective or retrospective application without
offending [federal] constitutional principles.” Lopez v. Maez, 98 N.M. 625, 632, 651 P.2d
1269, 1276 (1982). Stated another way,
[t]he United States Constitution neither prohibits nor
requires retroactive application of a judicial decision, and the
question of retrospective or prospective application of a state
judicial decision to civil litigation in the state courts is a matter
of state law when, as here, the rule in question involves a matter
of a common-law tort and is not based on federal constitutional
or statutory law.
Martin Marietta Corp. v. Lorenz, 823 P.2d 100, 112 (Colo. 1992). See also Harper v.
Virginia Dep't of Taxation, 509 U.S. 86, 94, 113 S. Ct. 2510, 2516, 125 L. Ed. 2d 74 (1993)
(“Nothing in the Constitution alters the fundamental rule of 'retrospective operation' that has
governed 'judicial decisions for near a thousand years.'” (citation omitted)); Great N. Ry. v.
Sunburst Oil & Ref. Co., 287 U.S. 358, 364, 53 S. Ct. 145, 148, 77 L. Ed. 360 (1932) (“We
think the federal constitution has no voice upon the subject. A state in defining the limits of
adherence to precedent may make a choice for itself between the principle of forward
operation and that of relation backward.”). In addition to there being no federal
constitutional impediment to a judicial decision being applied retroactively, there is likewise
no state constitutional impediment. See Bradley v. Appalachian Power Co., 163 W. Va. 332,
347, 256 S.E.2d 879, 887 (1979) (“We do not find any provision in the West Virginia
Constitution which addresses this point.”).
The Supreme Court of Appeals of West Virginia, like all courts in the country,
adheres to the common law principle that, “[a]s a general rule, judicial decisions are
retroactive in the sense that they apply both to the parties in the case before the court and to
all other parties in pending cases.” Crowe v. Bolduc, 365 F.3d 86, 93 (1st Cir. 2004). See
also Alaskan Vill., Inc. v. Smalley, 720 P.2d 945, 949 (Alaska 1986) (“Absent special
circumstances, a new rule of law will apply in the case before the court and in all subsequent
cases.”); Citicorp N. Am., Inc. v. Franchise Tax Bd., 83 Cal. App. 4th 1403, 1422, 100
Cal. Rptr. 2d 509, 525 (2000) (“[T]he general rule as to judicial opinions is that they are fully
retroactive.”); Findley v. Findley, 280 Ga. 454, 460, 629 S.E.2d 222, 228 (2006) (“[W]e shall
continue to apply the general rule that a judicial decision announcing a new rule is
retroactive[.]”); Aleckson v. Village of Round Lake Park, 176 Ill. 2d 82, 86, 679 N.E.2d 1224,
1226 (1997) (“Generally, when a court issues an opinion, the decision is presumed to
apply . . . retroactively[.]”); Dempsey v. Allstate Ins. Co., 325 Mont. 207, 217 104 P.3d 483,
489 (2004) (“Therefore today we reaffirm our general rule that [w]e give retroactive effect
to judicial decisions.” (internal quotations and citation omitted)); Ireland v. Worcester Ins.
Co., 149 N.H. 656, 658, 826 A.2d 577, 580-81 (2003) (“At common law, appellate decisions
in civil cases are presumed to apply retroactively.”); Montells v. Haynes, 133 N.J. 282, 295,
627 A.2d 654, 660 (1993) (“The final issue is whether our decision should follow the general
rule of retroactive application[.]”); Beavers v. Johnson Controls World Servs., Inc., 118 N.M.
391, 398, 881 P.2d 1376, 1383 (1994) (“[W]e believe there should be a presumption that a
new rule adopted by a judicial decision in a civil case will operate retroactively.”); Christy
v. Cranberry Volunteer Ambulance Corps, Inc., 579 Pa. 404, 418, 856 A.2d 43, 51 (2004)
(“Our general principle is that we apply decisions involving changes of law in civil cases
retroactively[.]”); Carrollton-Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch.
Dist., 826 S.W.2d 489, 515 (Tex. 1992) (“Generally, judicial decisions apply retroactively.”); State v. Styles, 166 Vt. 615, 616, 693 A.2d 734, 735 (1997) (“We have previously adopted
the common law rule that a change in law will be given effect while a case is on direct
review, except in extraordinary cases. This rule applies whether the proceedings are civil or
criminal.”); In re Commitment of Thiel, 241 Wis. 2d. 439, 449, 625 N.W.2d 321, 326
(Ct. App. 2001) (“Wisconsin generally adheres to the 'Blackstonian Doctrine,' which
provides that a decision that clarifies, overrules, creates or changes a rule of law is to be
applied retroactively.”).
Although the common law rule presumes that appellate judicial decisions apply
retroactively, “[t]he courts of this country long have recognized exceptions to the rule of
retroactivity[.]” Ashland Oil, Inc. v. Rose, 177 W. Va. 20, 23, 350 S.E.2d 531, 534 (1986).
The seminal case by this Court addressing the issue of an exception to retroactivity is Bradley
v. Appalachian Power Co., 163 W. Va. 332, 256 S.E.2d 879 (1979).
In Bradley, this Court was asked to decide whether or not our contributory
negligence rule should be modified to allow for comparative negligence. After an exhaustive
examination of the history of the contributory negligence doctrine, Bradley found that
modification of the doctrine was warranted. In so doing the opinion held,
[o]ur present judicial rule of contributory negligence is therefore modified to provide that a party is not barred from recovering damages in a tort action so long as his negligence or fault does not equal or exceed the combined negligence or fault of the other parties involved in the accident. To the extent that our prior contributory negligence cases are inconsistent with this rule, they are overruled.
Bradley, 163 W. Va. at 342, 256 S.E.2d at 885.
Insofar as Bradley overruled prior contributory negligence case law, the
opinion addressed the issue of whether or not the new comparative negligence rule would be
applied retroactively to cases pending at the time of the decision. To resolve the issue of
retroactivity, in the context of new law that overruled prior case law, Bradley looked for
guidance from the United States Supreme Court's decision in Chevron Oil Co. v. Huson, 404
U.S. 97, 92 S. Ct. 349, 30 L. Ed. 2d 296 (1971), overruled by Harper v. Virginia Department
of Taxation, 509 U.S. 86, 113 S. Ct. 2510, 125 L. Ed. 2d 74 (1993). (See footnote 40) After examining
relevant language from the opinion in Chevron, Bradley fashioned the following test:
In determining whether to extend full retroactivity, the following factors are to be considered: First, the nature of the substantive issue overruled must be determined. If the issue involves a traditionally settled area of law, such as contracts or property as distinguished from torts, and the new rule was not clearly foreshadowed, then retroactivity is less justified. Second, where the overruled decision deals with procedural law rather than substantive, retroactivity ordinarily will be more readily accorded. Third, common law decisions, when overruled, may result in the overruling decision being given retroactive effect, since the substantive issue usually has a narrower impact and is likely to involve fewer parties. Fourth, where, on the other hand, substantial public issues are involved, arising from statutory or constitutional interpretations that represent a clear departure from prior precedent, prospective application will ordinarily be favored. Fifth, the more radically the new decision departs from previous substantive law, the greater the need for limiting retroactivity. Finally, this Court will also look to the precedent of other courts which have determined the retroactive/prospective question in the same area of the law in their overruling decisions.
Syl. pt. 5, Bradley.
The retroactivity test announced in Bradley has been relied upon by this Court
whenever the issue of retroactivity has arisen in a civil case. However, the Bradley test is
narrowly confined to deciding whether to retroactively apply a new principle of law that was
created in a case that overruled prior precedent. The narrow constraints of Bradley have
proved to be problematic whenever this Court has examined retroactivity in the context of
a new principle of law created in a case that did not overrule prior precedent. See, e.g., Richmond v. Levin, 219 W. Va. 512, 517, 637 S.E.2d 610, 615 (2006) (“[T]he analysis
established by Bradley is not directly on point since the question in the case before us does
not involve overruling any prior authority[.]” (internal quotations and citation omitted)); Adkins v. Cline, 216 W. Va. 504, 510, 607 S.E.2d 833, 839 (2004) (“The Bradley formula
does not give specific guidance to our current situation[.]”); Kincaid v. Mangum, 189 W. Va.
404, 414, 432 S.E.2d 74, 84 (1993) (“[T]he plaintiffs correctly point out that the analysis
established by Bradley is not directly on point since the question in the case before us does
not involve overruling any prior authority[.]”). Because of the limitations imposed by Bradley on the issue of retroactivity, we believe that another test, designed to compliment Bradley, must be utilized whenever this Court is called upon to examine the issue of
retroactively applying a new rule of law from a case that did not overrule any prior decision
of this Court. In formulating such a test, we need look no further than the Bradley opinion
itself.
The retroactivity test created in Bradley was fashioned from the following
language that appeared in Chevron and was quoted in Bradley:
In our cases dealing with the nonretroactivity question, we have generally considered three separate factors. First, the decision to be applied nonretroactively must establish a new principle of law, . . . by deciding an issue of first impression whose resolution was not clearly foreshadowed. Second, it has been stressed that we must . . . weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation. Finally, we have weighed the inequity imposed by retroactive application, for where a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the injustice or hardship by a holding of nonretroactivity.
Bradley, 163 W. Va. at 347, 256 S.E.2d at 888 (quoting Chevron, 404 U.S. at 106-07, 92
S. Ct. at 355 (internal quotations and additional citations omitted)). (See footnote 41) With the Chevron
factors as a guide, we now hold that in determining whether to extend full retroactivity to a
new principle of law established in a civil case that does not overrule any prior precedent,
which is an issue that was not addressed in Syllabus point 5 of Bradley v. Appalachian Power
Co., 163 W. Va. 332, 256 S.E.2d 879 (1979), the following factors will be considered. First,
we will determine whether the new principle of law was an issue of first impression whose
resolution was clearly foreshadowed. Second, we must determine whether or not the purpose
and effect of the new rule will be enhanced or retarded by applying the rule retroactively.
Finally, we will determine whether full retroactivity of the new rule would produce
substantial inequitable results.
In the instant proceeding, we are called upon to decide whether or not the
principles of law developed in this opinion, involving forum-selection clauses, should be
applied retroactively to the parties. Under the test set out above, we find no impediment to
applying the new forum-selection clause principles to the parties in this case.
a. The new forum-selection clause principles were clearly foreshadowed. The Harman Companies and Mr. Caperton argue that the new forum-selection clause
principles applied in this case were not foreshadowed by any prior decision of this Court.
We disagree.
To begin, the Harman Companies and Mr. Caperton misunderstand the
meaning of “foreshadowed,” as that term is applied in the present context. Foreshadowing
does not mean that “there has to be clear precedent before a holding can be considered
clearly foreshadowed.” Collins v. Department of Corr., 167 Mich. App. 263, 267, 421
N.W.2d 657, 659 (1988). All that is required is some indication by a prior decision of this
Court or a national trend that would “put persons on notice that [this Court] could resolve the
issue either way[.]” Id. See also Founder v. Cabinet for Human Res., 23 S.W.3d 221, 224
(Ky. Ct. App. 1999) (holding that prior judicial decision put plaintiff “on notice that it was
possible that the filing of the complaint with the Commission would bar a separate action in
circuit court. Thus, it was not error for the court to retroactively apply [a new decision].”).
A case which helps illustrate the broad meaning of “foreshadowing” is Professional
Insurance Corp. v. Sutherland, 700 So. 2d 347 (Ala. 1997).
In Sutherland, the plaintiffs sued several defendant insurance companies in an
Alabama trial court for tort and breach of contract claims. The defendants filed a motion to
dismiss on the grounds that, under the terms of contractual forum-selection clauses between
the parties, all causes of action had to be filed in Florida. The trial court denied the motion
to dismiss on the grounds that prior Alabama case law held that “outbound” forum-selection
clauses were against public policy. The defendants appealed to the Alabama Supreme Court.
That Court apparently issued an opinion that was withdrawn after a rehearing was granted.
In the rehearing opinion, the Court held that it was overruling prior case law that barred
“outbound” forum-selection clauses. More important to the case at hand, the Court addressed
the issue of whether or not the new rule would be applied retroactively to the parties before
the Court. In finding that the decision would be applied to the parties, Sutherland addressed
the issue of foreshadowing as follows:
The plaintiffs contend that when they were negotiating
their contracts they relied upon the rule making forum selection
provisions invalid in Alabama and that the rule we adopt today
represents a fundamental change in the substantive law of this
state. Therefore, they claim, an application of the “new” rule
against them would be an unfair retroactive application. We
disagree.
. . . .
We conclude that it is fair to apply the rule enforcing
forum selection clauses to the parties in this case. As noted
previously, while American courts traditionally disfavored
outbound forum selection clauses, the overwhelming trend,
following the United States Supreme Court's decision in M/S
Bremen, supra, has been toward allowing enforcement of those
clauses. That nationwide trend foreshadowed our adoption
today of the rule that such clauses are not per se void, providing
notice that Alabama might follow suit and thereby reducing the
reliance these plaintiffs could reasonably have placed upon the
continued viability of the traditional rule in Alabama.Sutherland, 700 So. 2d at 351-52 (emphasis added).
Although the Alabama Supreme Court relied upon a nationwide trend as
foreshadowing its new rule in Sutherland, we need not look to a national trend to find that
the new forum-selection clause principles developed in this case were foreshadowed. As
previously pointed out in this opinion, over twenty-five years ago in General Electric Co. v.
Keyser, 166 W. Va. 456, 275 S.E.2d 289 (1981), this Court indicated that forum-selection
clauses were not against the public policy of this State. Specifically, we stated in Keyser,
We have had occasion, however, to discuss, indirectly,
forum selection clauses. Although our law on this point is
skeletal, it does indicate that contract clauses which affect
matters such as jurisdiction and the like should be carefully
analyzed. Unquestionably, forum selection clauses are not
contrary to public policy in and of themselves for they are
sanctioned in commercial sales agreements[.]
Keyser, 166 W. Va. at 461 n.2, 275 S.E.2d at 291 n.2. Clearly, Keyser placed the parties in
this action on notice that, when presented with an opportunity, this Court would “carefully”
analyze all matters relevant to the forum-selection clause presented on appeal. Contrary to
the arguments of the Harman Companies and Mr. Caperton, there is no requirement that there
must exist specific precedent that foreshadowed exactly how this Court would resolve new
issues involving a forum-selection clause. If such a situation was the law in this State or any
jurisdiction in the country, there would be very few cases decided on appeal that created new
law which could be applied to the parties before the appellate court. This is not the law in
the country nor in West Virginia. Consequently, we find that the new forum-selection clause
principles created in this opinion were foreshadowed by Keyser.
b. The purpose and effect of the new rules will be enhanced by applying
the rules retroactively to the parties. In other parts of this opinion we have discussed the
general purpose and effect of forum-selection clauses. The new forum-selection clause
principles announced in this decision simply provide parameters for the enforcement of
forum-selection clauses. To deny application of those principles to the parties in this
litigation would undermine the very essence of forum-selection clauses, which is to require
parties and those in privity thereto to litigate claims in a forum voluntarily chosen by them.
c. No substantial inequitable results would flow from applying the new
forum-selection clause principles retroactively. We have not been presented with any
valid reason to show that applying the new principles would bring about a substantial
inequitable result. “Indeed, limiting this decision to prospective application would produce
inequitable results[.]” Cundiff v. State Farm Mut. Auto. Ins. Co., 217 Ariz. 358, 362, 174
P.3d 270, 274 (2008). This is true because there is no evidence in the record to show that the
forum-selection clause involved in this case was not freely bargained for by the actual
signatories to the agreement. To allow one signatory to the agreement to escape its effects
through prospective application of our new principles would simply be inequitable.
Accordingly, we conclude that the forum-selection clause principles of law
adopted by this opinion may properly be applied to the parties to the instant proceeding.
6. The bankruptcy court's order did not have any preclusive effect on the
forum selection clause issue. The final matter we must address in this area concerns Mr.
Caperton's argument “that the United States Bankruptcy Court for the Western District of
Virginia has rendered a final, uncontested ruling specifically finding West Virginia to be the
proper forum for this Action.” (See footnote 42) As a result of this alleged final decision, Mr. Caperton
contends that the doctrine of collateral estoppel precludes relitigation of the issue in the state
court proceedings. (See footnote 43)
To begin, we note that “[t]here is no question that the doctrines of res judicata
and collateral estoppel apply to decisions rendered in Federal Bankruptcy Courts.” Jerome
J. Steiker Co., Inc. v. Eccelston Props. Ltd., 593 N.Y.S.2d 394, 398 (1992). Further, because
Mr. Caperton contends that the bankruptcy proceeding adjudicated the forum selection clause
issue, “the federal rules of preclusion must be applied.” Sea Quest Int'l., Inc. v. Trident
Shipworks, Inc., 958 So. 2d 1115, 1119 (Fla. Dist. Ct. App. 2007). Under federal law, a party
asserting collateral estoppel as a bar to relitigating an issue must establish
(1) the issue to be precluded is identical to the issue
already litigated, (2) the issue was actually determined in the
prior proceeding, (3) the determination of the issue was an
essential part of the decision in the prior proceeding, (4) the
prior judgment was final and valid, and (5) the party against
whom estoppel is asserted had a full and fair opportunity to
litigate the issue.
In re Coleman, 426 F.3d 719, 729 (4th Cir. 2005). (See footnote 44)
We need not labor long on this issue. The second element of collateral estoppel
is dispositive of the matter. In order for collateral estoppel to apply to the forum selection
clause issue, the matter had to actually be determined in the bankruptcy proceeding. As we
shall demonstrate below, it was not.
As previously indicated in this opinion, the Massey Defendants attempted to
have the instant case removed to a federal district court in the Southern District of West
Virginia. In response to the removal, the Harman Companies and Mr. Caperton asked the
federal district court to remand the case to state court. The federal district court issued a
written opinion indicating that it would hold in abeyance any ruling about the propriety of
the case being in federal court until the bankruptcy court made a ruling on the claims asserted
by Massey as an intervenor. See Caperton v. A.T. Massey Coal Co., Inc., 251 B.R. 322
(S.D.W. Va. 2000). (See footnote 45) Subsequent to the bankruptcy court issuing an order that involved
Massey's intervention claims, the federal district court issued another written order that
interpreted the bankruptcy court's order regarding Massey's claims. The federal district
court made the following findings:
As set forth in its November 28, 2000 Joint Memorandum Opinion, the Bankruptcy Court attempted to respond to this Court's Memorandum Opinion and Order and determined the crucial question was whether Caperton and/or Harman Development have any independent causes of action under West Virginia law. The Bankruptcy Court then clarified what possible claims Caperton and Harman Development might have that are independent and non-derivative of the bankrupt estates' claims. It declined, however, to decide whether such claims have actual, legal validity under West Virginia state law. Instead, the Bankruptcy Court opined this question was better addressed by a West Virginia court, either state or federal, and abstained from deciding the questions presented by the declaratory judgment/adversary proceedings. Integral to its decision to abstain and dismiss the adversary proceedings, the Bankruptcy Court determined the claims of all parties, and defenses thereto, can be adjudicated satisfactorily in the West Virginia action.
Caperton v. A.T. Massey Coal Co., Inc., 270 B.R. 654, 655-56 (S.D.W. Va. 2001) (emphasis
added). As a result of the federal district court's determination that the bankruptcy court
abstained from deciding any issue involving the Massey intervention claims, the federal
district court declined a motion by the Massey Defendants to transfer the case to a federal
district court in Virginia. Specifically, the federal district court held that the Massey
Defendants' “motion for transfer of venue to the District Court of the Western District of
Virginia is DENIED as moot, leaving the Circuit Court of Boone County to decide whether
transfer of venue remains for determination.” Caperton, 270 B.R. at 656. (See footnote 46)
It is generally acknowledged that “the lower federal courts do not have
appellate jurisdiction over the state courts and their decisions are not conclusive on state
courts, even on questions of federal law.” State v. Robinson, 82 P.3d 27, 30 (Mont. 2003). See also Cash Distrib. Co., Inc. v. Neely, 947 So. 2d 286, 292 n.5 (Miss. 2007) (“[S]tate
supreme courts are not duty-bound to follow a federal court of appeals' interpretation of
federal law.”). Thus, the federal district court's interpretation of the bankruptcy court's order
is not binding on this Court. Even so, we agree with the federal district court that the
bankruptcy court's order did not address the merits of any issue or claim raised by Massey's
attempted intervention in the bankruptcy proceeding. (See footnote 47) The bankruptcy court's Joint
Memorandum Opinion made the following findings:
By this adversary proceeding, Massey seeks a
determination of the respective ownership interests of Caperton
and the bankruptcy estates of the Debtors in causes of action
currently being pursued jointly by Caperton and the Debtors in
the West Virginia Action. . . .
. . . .
. . . Massey alleges that Caperton and Harman
Development are seeking to enforce for their own benefit
alleged claims which are assets solely of the bankruptcy estates
of Harman Mining and Sovereign. However, in these
proceedings, Massey's real object appears to be to obtain a
judicial determination that under West Virginia law Caperton
and Harman Development have no independent claims of their
own which they can pursue against Massey for its alleged
wrongful conduct. Because such a determination can be better
rendered in the West Virginia Action, this Court chooses to
abstain from hearing these declaratory judgment actions in favor
of resolution by an appropriate West Virginia forum, whether
state or federal.
. . .
. . . Most important to this Court's decision to abstain in
these adversary proceedings is that the viability of Caperton's
and Harman Development's claims is determined by West
Virginia state law and not federal bankruptcy law. Accordingly,
all of these issues can be addressed satisfactorily and most
appropriately in the West Virginia Action.
Additionally, the bankruptcy court's Joint Order filed with the Joint
Memorandum Opinion made the following conclusions of law:
For the reasons expressed in this Court's Joint
Memorandum Opinion entered contemporaneously herewith, in
the event that Hugh Caperton and/or Harman Development
Corporation are determined to have alleged independent, non-
derivative claims pursuant to West Virginia law, those causes of
action are hereby DECLARED not to be property of the
bankruptcy estate of either Harman Mining Corporation or
Sovereign Coal Sales, Incorporated. However, also for the
reasons stated in such Joint Memorandum Opinion, this Court
ABSTAINS from deciding whether any such claims are properly
alleged or have legal validity. Accordingly, it is ORDERED
that these adversary proceedings are DISMISSED.
Clearly it is evident that the bankruptcy court's Joint Memorandum Opinion
and Joint Order did not address the merits of any claim, issue or defense involved in the state
court proceeding. Further, “[b]ecause the [forum selection clause] issue . . . was neither
decided on the merits nor necessary to support the bankruptcy court's judgment, we agree
with [the Massey Defendants] that the doctrines of collateral estoppel and res judicata do not
bar [raising the defense] in this case.” Cousatte v. Lucas, 136 P.3d 484, 491 (Kan. Ct. App.
2006). See also Kennedy v. First Nat'l Bank of Decatur, 473 N.E.2d 604, 608 (Ill. App. Ct.
1985) (“[T]he doctrine of collateral estoppel does not bar the issue of whether [plaintiff] was
injured individually because (1) such issue was not actually or necessarily decided in the
bankruptcy proceeding, and (2) the Bankruptcy Court expressly determined that it had no
jurisdiction over such issue.”); Eicher v. Mid Am. Fin. Inv. Corp., 702 N.W.2d 792, 810
(Neb. 2005) (“Because [plaintiff's] claim in this case was not barred by the judgment in the
prior bankruptcy action under the doctrines of either res judicata or collateral estoppel, the
district court erred in granting the motion for partial summary judgment dismissing his
claim.”). (See footnote 48)