D.C. Offutt, Jr.
Bruce E. Stanley
Stephen Burchett
Tarek F. Abdalla
Perry W. Oxley
Reed Smith LLP
David E. Rich
Pittsburgh, Pennsylvania
Offutt, Fisher & Nord
Attorneys for the Appellee,
Huntington, West Virginia
Hugh M. Caperton
Attorneys for the Appellants
Bradley J. Pyles
Pyles, Turner & Mick, LLP
Robert V. Berthold, Jr. Logan, West Virginia
Christina L. Smith
Attorneys for Amicus Curiae
Berthold, Tiano & O'Dell
United Mine Workers of America
Charleston, West Virginia
David B. Fawcett
Buchanan Ingersoll & Rooney
Pittsburgh, Pennsylvania
Attorneys for the Appellees,
Harman Development Corporation,
Harman Mining Corporation, and
Sovereign Coal Sales, Inc.
JUSTICE DAVIS delivered the Opinion of the Court.
CHIEF JUSTICE MAYNARD and JUSTICE STARCHER, deeming themselves
disqualified, did not participate in the decision of this case.
JUDGE COOKMAN and JUDGE FOX, sitting by temporary assignment.
JUSTICE ALBRIGHT and JUDGE COOKMAN dissent and reserve the right to file
dissenting opinions.
ACTING CHIEF JUSTICE BENJAMIN and JUDGE FOX concur and reserve the
right to file concurring opinions.
1. “This Court's review of a trial court's decision on a motion to dismiss
for improper venue is for abuse of discretion.” Syllabus point 1, United Bank, Inc. v.
Blosser, 218 W. Va. 378, 624 S.E.2d 815 (2005).
2. Our review of the applicability and enforceability of a forum-selection
clause is de novo.
3. “A circuit court's entry of summary judgment is reviewed de novo.”
Syllabus point 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
4. “'”A motion for summary judgment should be granted only when it is
clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not
desirable to clarify the application of the law.” Syllabus Point 3, Aetna Casualty & Surety
Co. v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963).'
Syllabus Point 1, Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992).”
Syllabus point 2, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
5. “The circuit court's function at the summary judgment stage is not to
weigh the evidence and determine the truth of the matter, but is to determine whether there
is a genuine issue for trial.” Syllabus point 3, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d
755 (1994).
6. Determining whether to dismiss a claim based on a forum-selection
clause involves a four-part analysis. The first inquiry is whether the clause was reasonably
communicated to the party resisting enforcement. The second step requires classification of
the clause as mandatory or permissive, i.e ., whether the parties are required to bring any
dispute to the designated forum or are simply permitted to do so. The third query asks
whether the claims and parties involved in the suit are subject to the forum-selection clause.
If the forum-selection clause was communicated to the resisting party, has mandatory force
and covers the claims and parties involved in the dispute, it is presumptively enforceable.
The fourth, and final, step is to ascertain whether the resisting party has rebutted the
presumption of enforceability by making a sufficiently strong showing that enforcement
would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud
or overreaching.
7. There are two types of forum-selection clauses: mandatory and
permissive. A mandatory forum-selection clause contains clear language indicating that
jurisdiction is appropriate only in a designated forum. A permissive forum-selection clause authorizes litigation in a designated forum, but does not prohibit litigation elsewhere.
8. The determination of whether a forum-selection clause is mandatory or
permissive requires an examination of the particular language contained therein. If
jurisdiction is specified with mandatory terms such as “shall,” or exclusive terms such as
“sole,” “only,” or “exclusive,” the clause will be enforced as a mandatory forum-selection
clause. However, if jurisdiction is not modified by mandatory or exclusive language, the
clause will be deemed permissive only.
9. To determine whether certain claims fall within the scope of a
mandatory forum-selection clause, the deciding court must base its determination on the
language of the clause and the nature of the claims that are allegedly subject to the clause.
10. A plaintiff who is a non-signatory to a contract containing a forum-
selection clause may be bound by that clause when it is shown that his or her claims are
closely related to the contract.
11. A defendant who is a non-signatory to a contract containing a forum-
selection clause may enforce that clause when it is shown that the claims against him or her
are closely related to the contract.
12. In determining whether to extend full retroactivity to a new principle of
law, established in a civil case that did not overrule any prior precedent, 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.
13. A party may raise the defense of res judicata on appeal when the prior
judgment relied upon becomes final during the pendency of his/her appeal.
Davis, 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 rehearing. (See footnote 1) Based upon our
thorough consideration of the parties' arguments on rehearing, the relevant case law and the
record on appeal, we again conclude that this case may be resolved on two separate and
mutually exclusive grounds. First, we find that the circuit court erred in denying a motion
to dismiss filed by A.T. Massey Coal Company and its subsidiaries, based upon the existence
of a forum-selection clause contained in a contract that directly related to the conflict giving
rise to the instant lawsuit. Assuming, arguendo, that the circuit court's denial of the motion
to dismiss was not in error, we further conclude that the judgment should be reversed based
upon the doctrine of res judicata due to an earlier action that had been litigated in Buchanan
County, Virginia. Accordingly, we reverse the judgment in this case and remand for the
circuit court to enter an order dismissing, with prejudice, this case against A.T. Massey Coal
Company and its subsidiaries.
Central to the dispute underlying this appeal is the Harman Mine, an underground coal mine located in Buchanan County, Virginia, that produced very high quality metallurgical coal. Prior to 1993, Harman Mine was owned by Inspiration Coal Corporation (hereinafter referred to as “Inspiration”) through three subsidiaries: Harman Mining Corporation (hereinafter referred to as “Harman Mining”), Sovereign Coal Sales, Inc. (hereinafter referred to as “Sovereign”), and Southern Kentucky Energy Company (hereinafter referred to as “Southern”). For many years, all of the coal from the Harman Mine had been sold to Wellmore Coal Corporation (hereinafter referred to as “Wellmore”), a subsidiary of United Coal Corporation. In April 1992, Sovereign and Southern entered a coal supply agreement (hereinafter referred to as “the 1992 CSA”) with Wellmore. Under the 1992 CSA, Wellmore was to purchase from Sovereign and Southern approximately 750,000 tons of coal per year for a period of ten years.
In 1993, Hugh M. Caperton (hereinafter referred to as “Mr. Caperton”), a
plaintiff below and appellee herein, formed Harman Development Corporation (See footnote 2) (hereinafter
referred to as “Harman Development”). (See footnote 3) In that same year, Harman Development purchased
the three previously mentioned subsidiaries of Inspiration: Harman Mining, (See footnote 4) Sovereign (See footnote 5) and
Southern, and thereby became the owner of the Harman Mine. (See footnote 6) Harman Development,
Harman Mining and Sovereign are all plaintiffs to this action below, and are appellees herein
(hereinafter collectively referred to as “the Harman Companies”). In 1997, in order to fund
improvements to the Harman Mine, the Harman Companies sold all the Harman Mine
reserves to Penn Virginia Corporation, and then leased back those reserves that could be
mined in a cost-effective manner.
From the time the Harman Companies became owners of the Harman Mine
until 1997, coal from the Harman Mine was purchased by Wellmore in accordance with the
1992 CSA. Prior to the expiration of the 1992 CSA, in March of 1997, a new CSA with a
higher price per ton of coal (hereinafter referred to as “the 1997 CSA”) was negotiated
between Sovereign, Wellmore and Harman Mining. (See footnote 7) The 1997 CSA was to be in effect for
a period of five years, commencing retroactively on January 1, 1997. However, the 1997
CSA included, among other things, a force majeure clause, (See footnote 8) and a forum-selection clause
requiring that “[a]ll actions brought in connection with this Agreement shall be filed in and
decided by the Circuit Court of Buchanan County, Virginia.” (See footnote 9)
During the course of the 1992 CSA, and at the time the 1997 CSA was
executed, one of Wellmore's primary customers was LTV Steel (hereinafter referred to as
“LTV”). Wellmore sold and shipped nearly two-thirds of the coal it purchased from the
Harman Companies to LTV's coke plant located in Pittsburgh, Pennsylvania. (See footnote 10) On July 19,
1997, LTV announced that it intended to close its Pittsburgh coke plant due to a change in
emissions regulations promulgated by the Environmental Protection Agency.
A.T. Massey Coal Company (hereinafter referred to as “Massey”), a defendant
below and appellant herein, had tried unsuccessfully for several years to sell its West
Virginia mined coal directly to LTV. (See footnote 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)
Shortly after the Virginia action was filed, on October 29, 1998, Harman
Development, Harman Mining, Sovereign and Mr. Caperton, individually, filed the instant
action in the Circuit Court of Boone County, West Virginia, against A.T. Massey Coal
Company, Inc., Elk Run Coal Company, Inc., Independence Coal Company, Inc., Mar Fork
Coal Company, Inc., Performance Coal Company, and Massey Coal Sales Company, Inc.
(hereinafter collectively referred to as “the Massey Defendants”). (See footnote 18) The first amended
complaint in this action was filed on December 10, 1998, and asserted claims of tortious
interference with existing contractual relations, tortious interference with prospective
contractual relations, fraudulent misrepresentation, civil conspiracy, negligent
misrepresentation, and punitive damages. Though numerous pre-trial motions were filed in
the underlying action, two in particular are relevant to our resolution of this matter. First, in
December 1998, the Massey Defendants filed a motion to dismiss. In their memorandum in
support of the motion, the Massey Defendants argued, inter alia, that the forum-selection
clause of the 1997 CSA required this action to be filed in Buchanan County, Virginia. The
circuit court denied the Massey Defendants' motion to dismiss. Thereafter, in April 2002,
the Massey Defendants filed a motion for summary judgment, arguing, in relevant part, that
the instant action was barred under the legal principal of res judicata. The circuit court
denied this motion as well.
Ultimately, only three of the theories of liability asserted in this action were
presented to the jury for a verdict: (See footnote 19) tortious interference, fraudulent misrepresentation and
fraudulent concealment. On August 1, 2002, the jury found in favor of all plaintiffs on all
three grounds and returned a verdict, including punitive damages, of $50,038,406.00. On
August 30, 2002, the Massey Defendants filed a motion seeking judgment as a matter of law,
a new trial, or, in the alternative, remittitur. Following a lengthy delay, by order entered
March 17, 2005, the circuit court denied the post-trial motions. This appeal followed. (See footnote 20)
Our analysis of this case will consider two issues: first, whether the circuit
court erred in denying the Massey Defendants' motion to dismiss on the issue of the forum-
selection clause, and, in the alternative, whether the circuit court erred in denying the Massey
Defendants' motion for summary judgment on the issue of res judicata.
We first review the correctness of the circuit court's denial of the Massey
Defendants' motion to dismiss for improper venue in light of the forum-selection clause
contained in the 1997 CSA. “This Court's review of a trial court's decision on a motion to
dismiss for improper venue is for abuse of discretion.” Syl. pt. 1, United Bank, Inc. v.
Blosser, 218 W. Va. 378, 624 S.E.2d 815 (2005). (See footnote 21) However, we now hold that “[o]ur
review of the applicability and enforceability of [a] forum[-]selection clause is de novo.” Hugel v. Corporation of Lloyd's, 999 F.2d 206, 207 (7th Cir. 1993) (citing Northwestern
Nat'l Ins. Co. v. Donovan, 916 F.2d 372, 375 (7th Cir.1990); Riley v. Kingsley Underwriting
Agencies, Ltd., 969 F.2d 953, 956 (10th Cir. 1992)). Cf. Syllabus point 1, Chrystal R.M. v.
Charlie A.L., 194 W. Va. 138, 459 S.E.2d 415 (1995) (“Where the issue on an appeal from
the circuit court is clearly a question of law or involving an interpretation of a statute, we
apply a de novo standard of review.”).
We next consider the circuit court's denial of the Massey Defendants' motion
for summary judgment on the issue of res judicata. “A circuit court's entry of summary
judgment is reviewed de novo.” Syl. pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755
(1994). For purposes of our de novo review, we further note that
“'[a] motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.' Syllabus Point 3, Aetna Casualty & Surety Co. v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963).” Syllabus Point 1, Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992).
Syl. pt. 2, Painter. Finally, we note that “[t]he circuit court's function at the summary
judgment stage is not to weigh the evidence and determine the truth of the matter, but is to
determine whether there is a genuine issue for trial.” Syl. pt. 3, Painter. With these
considerations in mind, we proceed to address the dispositive issues raised in this appeal.
Although numerous issues have been raised on appeal in this case, we find that
the instant matter may be resolved on the issue of the forum-selection clause contained in the
1997 CSA between Sovereign Coal Sales, Inc., Wellmore Coal Corporation and Harman
Mining Corporation. In the alternative, this case may be resolved based on the doctrine of
res judicata. We address each of these issues in turn.
The 1997 CSA between Sovereign, Wellmore and Harman Mining provided
that the “[a]greement, in all respects, shall be governed, construed and enforced in
accordance with the substantive laws of the Commonwealth of Virginia. All actions brought
in connection with this Agreement shall be filed in and decided by the Circuit Court of
Buchanan County, Virginia. . . .” In the proceeding below, the Massey Defendants filed a
motion to dismiss alleging, in relevant part, that the forum-selection clause in the 1997 CSA
required that any action related to that agreement be brought in the Circuit Court of
Buchanan County, Virginia. Accordingly, the Massey Defendants argued that the action was
improperly before the Circuit Court of Boone County, West Virginia, and that the instant
action should therefore be dismissed. (See footnote 22) The circuit court denied the motion to dismiss.
This case presents the first opportunity for this Court to address substantive
issues involving forum-selection clauses. By way of definition, it has been recognized that
“[a] 'forum selection' provision in a contract designates a particular state or court as the
jurisdiction in which the parties will litigate disputes arising out of the contract and their
contractual relationship.” 17A Am. Jur. 2d Contracts § 259, at 255 (2004) (footnote
omitted). While forum-selection clauses historically were disfavored, such is no longer the
case, so long as the clause is fair and reasonable:
The right of an injured party to legal redress is jealously
guarded by the courts. Formerly, no agreement confining the
right of a party to sue in a particular court or tribunal or in the
courts or tribunals of a certain jurisdiction, or to determine the
venue of a suit in such a way as to deprive the defendant of his
statutory privileges as to place of trial was enforced, unless
perhaps where the agreement was made after the cause of action
had arisen and was part of a fair compromise. A minority of
courts still follow this older rule.
During the past two decades, the rules governing the
validity of various “forum selection” clauses have been relaxed
considerably, the courts following a pattern similar to that which
has already been discussed in connection with arbitration
clauses. Thus, while it remains true today that a clause or
provision unreasonably or improperly attempting to deprive a
court of its jurisdiction will not be enforced, the modern trend
is to respect the enforceability of contracts containing clauses
limiting judicial jurisdiction, if there is nothing unfair or
unreasonable about them. This trend is directly traceable to the
landmark case of M/S Bremen v Zapata Off-Shore Co., [407
U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972)], in which the
United States Supreme Court upheld the validity of a freely
negotiated forum selection clause in a commercial contract
between an American firm and a German concern, which
specified that any dispute must be determined by the English
courts. . . . 7 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 15:15, at 290-
301 (4th ed. 1997) (footnotes omitted). See also 17A Am. Jur. 2d Contracts § 259, at 255-
56 (“While there is contrary authority, generally modern courts will enforce forum-selection
clauses entered into by parties to a contract provided that the clauses are not unfair,
unreasonable, or unjust under [the] circumstances.” (footnotes omitted)).
Although this Court has not had occasion to address substantive issues
involving forum-selection clauses, we have previously indicated our general approval of
forum-selection clauses by noting that they are not contrary to public policy:
Unquestionably, forum selection clauses are not contrary
to public policy in and of themselves for they are sanctioned in
commercial sales agreements under W. Va. Code § 46-1-105(2).
Although an early case in our jurisprudence held void a clause
in a stock certificate requiring that stockholders bring suit in
New York, Savage v. People's Building, Loan and Savings
Association, 45 W. Va. 275, 31 S.E. 991 (1898), later cases have
sanctioned, at least implicitly, forum selection clauses. Axelrod
v. Premier Photo Service, Inc., 154 W. Va. 137, 173 S.E.2d 383
(1970). Board of Education v. W. Harley Miller, Inc., 159
W. Va. 120, 221 S.E.2d 882 (1975). . . .
As the Federal court observed, West Virginia appears not
to subscribe to the rule that choice of forum clauses are void per
se. “Rather the rule of most jurisdictions and the rule that this
Court believes that West Virginia should and would adopt is that
such clauses will be enforced only when found to be reasonable
and just”. Leasewell, Ltd. v. Jake Shelton Ford Inc., 423
F. Supp. 1011, 1015 (S.D.W. Va. 1976). See also, Kolendo v.
Jarell, Inc., 489 F. Supp. 983 (S.D.W. Va. 1980).
General Elec. Co. v. Keyser, 166 W. Va. 456, 461-62 n.2, 275 S.E.2d 289, 292-93 n.2
(1981). See also Franklin D. Cleckley, Robin J. Davis, & Louis J. Palmer, Jr., Litigation
Handbook on West Virginia Rules of Civil Procedure § 12(b)(3)[5], at 376-77 (2d ed. 2006)
(hereinafter referred to as “Litigation Handbook”) (“The Supreme Court has indicated in
passing that forum selection clauses are not contrary to public policy.” (citing General
Electric Co. v. Keyser)).
Having found no impediment to the enforcement of forum-selection clauses
in general, we now must endeavor to specifically determine whether the forum-selection
clause of the 1997 CSA should have been enforced in the instant case.
In Phillips v. Audio Active Limited, 494 F.3d 378 (2d Cir. 2007), the United
States Court of Appeals for the Second Circuit articulated a four-part test for determining
whether a claim should be dismissed based upon a forum-selection clause. We find this test
supported by reason and logic, and by the manner in which such cases have been resolved
in other courts; therefore, we now hold that
[d]etermining whether to dismiss a claim based on a forum[-]selection clause involves a four-part analysis. The first inquiry is whether the clause was reasonably communicated to the party resisting enforcement. . . . The second step requires [classification of] the clause as mandatory or permissive, i.e., . . . whether the parties are required to bring any dispute to the designated forum or [are] simply permitted to do so. [The third query] asks whether the claims and parties involved in the suit are subject to the forum selection clause. . . .
If the [forum-selection] clause was communicated to the resisting party, has mandatory force and covers the claims and parties involved in the dispute, it is presumptively enforceable. . . . The fourth, and final, step is to ascertain whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that “enforcement would be unreasonable [and] unjust, or that the clause was invalid for such reasons as fraud or overreaching.”
Phillips, 494 F.3d at 383-84 (internal citations omitted) (quoting M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1, 15, 92 S. Ct. 1907, 1916, 32 L. Ed. 2d 513 (1972)). See also Dexter Axle Co. v. Baan USA, Inc., 833 N.E.2d 43, 49 (Ind. Ct. App. 2005) (“Having found
that the forum selection clause in the Consulting Agreement is valid, binding, and
enforceable, we must next consider whether it applies to any or all of Dexter's claims against
Baan.”); Deep Water Slender Wells, Ltd. v. Shell Int'l Exploration & Prod., Inc., 234 S.W.3d
679, 687 (Tex. App. 2007) (“In deciding whether to enforce a mandatory forum-selection
clause, courts must determine whether the claims in the case at hand fall within the scope of
the forum-selection clause and whether the court should enforce the clause. In addition to
resolving issues of scope and enforceability, courts also may have to decide issues as to
whether nonsignatories to the contract can enforce the forum-selection clause contained
therein.”). We now follow this analysis to ascertain whether the instant case should have
been dismissed pursuant to the forum selection clause.
1. Reasonably Communicated. The first question we must answer is whether
the forum-selection clause was reasonably communicated to Mr. Caperton and the Harman
Companies. “Although a strong presumption of enforceability attaches to forum selection
clauses, see M/S Bremen, 407 U.S. at 15, 92 S. Ct. 1907, '[t]he legal effect of a
forum-selection clause depends in the first instance upon whether its existence was
reasonably communicated to the plaintiff . . . .'” Electroplated Metal Solutions, Inc. v.
American Servs., Inc., 500 F. Supp. 2d 974, 976 (N.D. Ill. 2007) (internal citation omitted)
(quoting Effron v. Sun Line Cruises, Inc., 67 F.3d 7, 9 (2d Cir. 1995)). See also 17A C.J.S. Contracts § 237, at 211 (1999) (“A forum selection clause is unenforceable as to a plaintiff
who did not have sufficient notice of the forum selection clause prior to entering the
contract.”).
This prong of the analysis is easily resolved as Mr. Caperton and the Harman
Companies have not argued that the forum-selection clause was not reasonably
communicated to them. Furthermore, Sovereign and Harman Mining were parties to the
agreement, and Mr. Caperton signed the contract in his capacity as president of Sovereign.
Therefore, these parties cannot claim ignorance of the plainly worded forum-selection clause,
which “clearly convey[ed] to any reader that any action regarding the [CSA] must be brought
in a specific court, and the location of that court [was] readily ascertainable . . . .” Klotz v.
Xerox Corp., No. 07 CIV 1734 (GEL), ___ F. Supp. 2d ___, ___, 2007 WL 3100220, at *2
(S.D.N.Y. Oct. 22, 2007). Moreover, though Harman Development, the parent company of
Sovereign and Harman Mining, was not a party to the 1997 CSA, Mr. Caperton is the sole
owner of Harman Development. Since Mr. Caperton had knowledge of the clause, Harman
Development is deemed to have knowledge of the clause. See Clark v. Milam, 192 W. Va.
398, 402, 452 S.E.2d 714, 718 (1994) (“Generally, a corporation 'knows,' or 'discovers,'
what its officers and directors know.”). Thus, we find sufficient evidence in the record of
this case to establish that the forum-selection clause was reasonably communicated to those
who now resist its application.
2. Mandatory or Permissive. The second step in our analysis is to determine
whether the forum-selection clause is mandatory or permissive. It has been widely
recognized, and we now expressly hold that “[t]here are two types of forum[-]selection
clauses: mandatory and permissive. A mandatory forum[-]selection clause contains clear
language indicating that jurisdiction is appropriate only in a designated forum. A permissive
forum[-]selection clause authorizes litigation in a designated forum, but does not prohibit
litigation elsewhere.” Litigation Handbook § 12(b)(3)[5], at 376 (footnote omitted) (citing K.&V. Scientific Co., Inc. v. Bayerische Motoren Werke Aktiengesellschaft (“BMW”), 314
F.3d 494 (10th Cir. 2002)). See also Weisser v. PNC Bank, N.A., No. 3D07-487, ___ So. 2d
___, 2007 WL 2848118, at *2 (Fla. Dist. Ct. App. 2007) (“'Permissive [forum selection]
clauses constitute nothing more than a consent to jurisdiction and venue in the named forum
and do not exclude jurisdiction or venue in any other forum.' . . . In contrast, mandatory
forum selection clauses provide 'for a mandatory and exclusive place for future litigation.'”
(citations omitted)); Great N. Ins. Co. v. Constab Polymer-Chemie GmbH & Co., No. 5:01-
CV-0882 (NAM) (GJD), ___ F. Supp. 2d ___, 2007 WL 2891981, at *8 (N.D.N.Y. 2007)
(“A mandatory forum selection clause grants exclusive jurisdiction to a selected forum and
should control absent a strong showing that it should be set aside. . . . In contrast, 'a
permissive forum selection clause indicates the contracting parties' consent to resolve their
dispute in a given forum, but does not require the dispute to be resolved in that forum. . . .'”
(internal citations omitted)).
Resolution of the question of whether a forum-selection clause is mandatory
or permissive requires scrutiny of the particular language used.
In determining whether a forum selection clause is mandatory or permissive, the language of the clause must be examined. For example, in Quinones, the Florida Supreme Court found that the forum selection clause was permissive, not mandatory, because it provided that the creditor “may” institute legal proceedings in specified courts, not that it “shall” do so.[Quinones v. Swiss Bank Corp. (Overseas), S.A., 509 So. 2d 273, 275 (Fla. 1987)] (emphasis added) . . . . “Conversely forum selection clauses which state or clearly indicate that any litigation must or shall be initiated in a specified forum are mandatory.” Shoppes Ltd.[P'ship v. Conn, 829 So. 2d 356, 358 (Fla. Dist. Ct. App. 2002)] (emphasis added) (citing Mgmt. Computer Controls, Inc. v. Charles Perry Constr., Inc., 743 So. 2d 627 (Fla. 1st DCA 1999)).
Weisser, 2007 WL 2848118, at *2-3. The Weisser Court also cited Regal Kitchens, Inc. v. O'Connor & Taylor Condominium Construction, Inc., 894 So. 2d 288, 290 (Fla. Dist. Ct. App. 2005), wherein the court examined a forum-selection clause which stated that “[a]ny litigation concerning this contract shall be governed by the law of the State of Florida, with proper venue in Palm Beach County.” (Emphasis added). The Regal Kitchens Court observed that the clause was mandatory as to the law to be applied, but permissive as to the forum, commenting that,
[i]n the instant case, although the venue clause
unequivocally states that Florida law shall apply to any litigation
of the subcontract, it lacks mandatory language or words of
exclusivity to show that venue is proper only in Palm Beach
County. See Shoppes Ltd. P'ship v. Conn., 829 So. 2d at
357-58. That is to say, this clause does not unequivocally
mandate that a controversy or dispute be litigated in Palm Beach
County, nor does it waive any other territorial jurisdiction. The
language merely allows a party to file suit in Palm Beach
County.
894 So. 2d at 291-92.
Thus, to be enforced as mandatory, a forum-selection clause must do more than
simply mention or list a jurisdiction; in addition, it must either specify venue in mandatory
language, or contain other language demonstrating the parties' intent to make jurisdiction
exclusive.
A forum selection clause is mandatory if jurisdiction and venue
are specified with mandatory or exclusive language. John
Boutari & Sons, Wine & Spirits, S.A. v. Attiki Imp. & Distribs.,
Inc., 22 F.3d 51, 53 (2d Cir. 1994). In Boutari, the Second
Circuit held that “[t]he general rule in cases containing forum
selection clauses is that [w]hen only jurisdiction is specified the
clause will generally not be enforced without some further
language indicating the parties' intent to make jurisdiction
exclusive.” Boutari, 22 F.3d at 52 . . . .Great N. Ins. Co., 2007 WL 2891981, at *8 (additional citations omitted). See also K & V
Scientific Co., Inc. v. Bayerische Motoren Werke Aktiengesellschaft (“BMW”), 314 F.3d 494,
499 (10th Cir. 2002) (“'[W]here venue is specified [in a forum-selection clause] with
mandatory or obligatory language, the clause will be enforced; where only jurisdiction is
specified [in a forum-selection clause], the clause will generally not be enforced unless there
is some further language indicating the parties' intent to make venue exclusive.'” (quoting Paper Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th Cir.1992)). See
also Printing Servs. of Greensboro, Inc. v. American Capital Group, Inc., 637 S.E.2d 230,
232 (N.C. Ct. App. 2006) (“'[T]he general rule is when a jurisdiction is specified in a
provision of contract, the provision generally will not be enforced as a mandatory selection
clause without some further language that indicates the parties' intent to make jurisdiction
exclusive. Indeed, mandatory forum selection clauses recognized by our appellate courts
have contained words such as “exclusive” or “sole” or “only” which indicate that the
contracting parties intended to make jurisdiction exclusive.'” (quoting Mark Group Int'l, Inc.
v. Still, 566 S.E.2d 160, 161 (N.C. Ct. App. 2002))).
An example of a case illustrating a forum-selection clause that used mandatory
language is Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762 (9th Cir. 1989). In that
case, the plaintiff entered into a contract with the defendant to distribute equipment
manufactured by the defendant. The contract contained a forum-selection clause that
contained the following pertinent language: “Licensee hereby agrees and consents to the
jurisdiction of the courts of the State of Virginia. Venue of any action brought hereunder
shall be deemed to be in Gloucester County, Virginia.” Docksider, 875 F.2d at 763. A
dispute arose over the contract that resulted in the plaintiff filing an action against the
defendant in a federal district court in California. The district court dismissed the action on
the grounds that the forum-selection clause required the case be filed in a Virginia court. The
plaintiff appealed on the grounds that the forum-selection clause was permissive, not
mandatory. The Court of Appeals for the Ninth Circuit disagreed with the plaintiff, ruling
as follows:
The critical language in [the clause] is the final sentence:
“Venue of any action brought hereunder shall be deemed to be
in Gloucester County, Virginia.” The district judge concluded
that this language represented the parties' intent to pursue any
litigation that arose only in Virginia. [Plaintiff] contends that
this interpretation is erroneous because the contractual language
does not contain any express mandatory term such as
“exclusively” that would indicate the parties' intent to vest
Virginia with exclusive jurisdiction. [Plaintiff] has cited
numerous cases as support for this position, relying principally
on Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75
(9th Cir. 1987).
. . . .
Hunt Wesson is distinguishable because the forum
selection clause underlying this action contains the additional
sentence stating that “[v]enue of any action brought hereunder
shall be deemed to be in . . . Virginia.” This language requires
enforcement of the clause because [plaintiff] not only consented
to the jurisdiction of the state courts of Virginia, but further
agreed by mandatory language that the venue for all actions
arising out of the license agreement would be Gloucester
County, Virginia. This mandatory language makes clear that
venue, the place of suit, lies exclusively in the designated
county. Thus, whether or not several states might otherwise
have jurisdiction over actions stemming from the agreement, all
actions must be filed and prosecuted in Virginia.
Docksider, 875 F.2d at 763-64.
In accordance with the foregoing authorities, we now hold that the
determination of whether a forum-selection clause is mandatory or permissive requires an
examination of the particular language contained therein. If jurisdiction is specified with
mandatory terms such as “shall,” (See footnote 23) or exclusive terms such as “sole,” “only,” or “exclusive,”
the clause will be enforced as a mandatory forum-selection clause. However, if jurisdiction
is not modified by mandatory or exclusive language, the clause will be deemed permissive
only.
Turning to the instant case, the forum-selection clause utilized mandatory
language that identified the jurisdiction wherein disputes would be tried: “[a]ll actions
brought in connection with this Agreement shall be filed in and decided by the Circuit Court
of Buchanan County, Virginia.” (Emphasis added). Accordingly, we are presented with a
mandatory forum-selection clause. See Ex parte Bad Toys Holdings, Inc., 958 So. 2d 852,
856 (Ala. 2006) (“The forum-selection clause in the purchase agreement provides that
'[v]enue for any legal action which may be brought hereunder shall be deemed to lie in
Sullivan County, Tennessee' (emphasis added). The . . . use of the word 'shall' in the
forum-selection clause makes the clause mandatory, not permissive.”); Town of Homer v. United
Healthcare of Louisiana, Inc., 948 So. 2d 1163, 1167 (La. Ct. App. 2007) (“We find the
forum selection clause at issue to be clear and explicit. The clause expressly states that the
proper venue for any legal action shall be East Baton Rouge Parish. There is no ambiguity
in this mandatory provision.”); Polk County Recreational Ass'n v. Susquehanna Patriot
Commercial Leasing Co., Inc., 734 N.W.2d 750, 758 (Neb. 2007) (“The forum selection
clause in the Thornridge lease provides that any action concerning the lease 'shall be'
brought in Pennsylvania. We read this forum selection clause to be a mandatory
clause . . . .”); General Elec. Co. v. G. Siempelkamp GmbH & Co., 29 F.3d 1095, 1099 (6th
Cir. 1994) (“Because the clause states that 'all' disputes 'shall' be at Siempelkamp's
principal place of business, it selects German court jurisdiction exclusively and is
mandatory.”). Having determined that the forum-selection clause at issue in this case is a
mandatory clause, we must now determine whether the claims and parties involved in the suit
are governed by said clause.
3. Claims and Parties. The third part of our analysis is to determine whether
the claims and parties involved in the suit are governed by the forum-selection clause. We
address these questions separately.
a. Are the claims asserted in the instant suit subject to the forum-selection
clause? 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., No. 07 CIV 1734 (GEL), ___ F. Supp. 2d ___, ___ & n.4, 2007 WL 3100220, at *2 & n.4 (S.D.N.Y Oct. 22, 2007) (concluding that “[p]laintiff raises no challenge to the scope of the forum selection clause, nor could she, since the expansive language of the provision--covering '[a]ny action in connection with the Plan by an Employee'--plainly encompasses her claims”; and further commenting that “[p]laintiff's state law tort and contract claims are also part of an 'action in connection with the Plan' and are covered by the clause” (footnote omitted)); Doe v. Seacamp Assoc., Inc., 276 F. Supp. 2d 222, 227 (D. Mass. 2003) (“A review of the case law leads me to conclude that the tort claims, too, are covered by the forum selection clause. The forum selection clause was worded to indicate that it governed any claim related to or arising from a contract, the subject of which were the terms and conditions of John Doe's enrollment at Seacamp.”); Dexter Axle Co. v. Baan USA, Inc., 833 N.E.2d 43, 49 (Ind. Ct. App. 2005) (finding tort and statutory claims were subject to forum-selection clause).
Turning to the instant case, we note that the forum-selection clause issue was
addressed below in the context of a motion to dismiss; therefore, we consider the claims as
they were asserted in the amended complaint. Notably, though, only three of the claims
asserted in the amended complaint were ultimately presented to the jury for a verdict,
indicating that there was insufficient evidence to support the remaining claims. Accordingly,
in deciding whether the claims asserted below were “brought in connection with” the 1997
CSA, we will limit our consideration to only those three claims that ultimately went to the
jury. Those three claims, all sounding in tort, were: (1) tortious interference; (2) fraudulent
misrepresentation; and (3) fraudulent concealment. Based upon our review of these tort
claims, we conclude that they were indeed “brought in connection with” the 1997 CSA.
All of the injuries alleged in connection with the three aforementioned tort
claims flow directly from Wellmore's declaration of force majeure, an event that is
inextricably connected to the 1997 CSA. While the amended complaint methodically sets
out numerous details of purported pre-force majeure wrongful conduct, no injury resulted
from any of that alleged conduct without the declaration of force majeure under the 1997
CSA.
For example, “Count I” of the amended complaint alleges tortious interference
with existing contractual relations, and specifically identifies existing contracts with
Wellmore (the 1997 CSA), Penn Virginia (the lease of the Harman Coal reserves), and the
UMWA (a labor contract). Certainly a claim of interference with the 1997 CSA itself is
related to that contract. With respect to the Penn Virginia and UMWA contracts, it was
Wellmore's declaration of force majeure that placed the Harman Companies and Mr.
Caperton in the position of being unable to fulfill their contractual obligations. Without the force majeure, those contractual relations would have been unaffected by the actions of the
Massey Defendants. Thus, this claim is “brought in connection with” the 1997 CSA.
“Count II” of the amended complaint alleged tortious interference with
prospective contractual relations, again involving Wellmore, Penn Virginia and the UMWA.
As with Count I, the key to these claims remains Wellmore's wrongful declaration of force
majeure. In the absence of the declaration of force majeure, the Harman Companies would
not have been forced into bankruptcy and their prospective contractual relationships would
not have been impeded by Massey. Therefore this claim is “brought in connection with” the
1997 CSA.
Finally, “Count III” alleges fraudulent misrepresentation, deceit and
concealment either related to the declaration of force majeure itself or related to subsequent
negotiations between the Harman Companies and the Massey Defendants “regarding their
intentions to enter into a settlement agreement with Harman in connection with the 1997
CSA.” Insofar as this claim either relates directly to the declaration of force majeure under
the 1997 CSA, or to the parties' efforts to reach a settlement with respect to the 1997 CSA,
it is “brought in connection with” the 1997 CSA.
Accordingly, because none of the relevant claims asserted in the amended
complaint would have existed in the absence of Wellmore's declaration of force majeure under the 1997 CSA, these claims are all “brought in connection with” the 1997 CSA and,
as a consequence, are within the scope of the forum-selection clause contained therein. (See footnote 24)
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 25) 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 26)
In another case, Great Northern Insurance Co. v. Constab Polymer-Chemie
GmbH & Co., No. 5:01-CV-0882 NAM GJD, ___ F. Supp. 2d ___, 2007 WL 2891981
(N.D.N.Y. Sept. 28, 2007), two German companies entered into a supply agreement whereby
Constab Polymer-Chemie (hereinafter referred to as “Constab”) would supply products used
to produce photo paper to Feliz Schoeller GmbH & Co. and its subsidiaries, one of which
was Schoeller-USA. ___ F. Supp. 2d at ___, 2007 WL 2891981, at *1. The contract
included a forum-selection clause specifying that jurisdiction of certain disputes would be
in Warstein, Germany. Id., ___ F. Supp. 2d at ___, 2007 WL 2891981, at *7. Constab
provided defective products to Schoeller USA, and Schoeller USA, through its insurer, filed
suit in California. (See footnote 27) 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
. . . .
___ F. Supp. 2d at ___, 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)).
Based upon the foregoing, we now hold that a plaintiff who is a non-signatory
to a contract containing a forum-selection clause may be bound by that clause when it is
shown that his or her claims are closely related to the contract. We further hold that a
defendant who is a non-signatory to a contract containing a forum-selection clause may
enforce that clause when it is shown that the claims against him or her are closely related to
the contract.
Applying the foregoing holdings to the facts of the instant case, we first note
that, as to the plaintiffs, Sovereign; 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, any claim brought by Mr. Caperton and Harman
Development in connection with the 1997 CSA are closely related to the contract and are,
therefore, subject to the forum-selection clause contained therein. As we determined in the
preceding section of this opinion, the three factually-supported claims asserted in the first
amended complaint (See footnote 28) 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 29) All the other Massey Defendants are also subsidiaries
of Massey. The complaint plainly alleges that Massey, along with all its subsidiaries who are
defendants in this action, exercised “domination and control” over Wellmore and directed
Wellmore to wrongfully declare force majeure. Because, as we previously determined, all
of the claims in this action flow directly from the declaration of force majeure, and the
complaint alleges that the Massey Defendants controlled Wellmore's declaration of force
majeure, the complaint plainly demonstrates that the claims against the Massey Defendants
are closely related to the contract. Therefore, we find that the Massey Defendants are entitled
to enforce the forum-selection clause of the 1997 CSA.
4. Rebuttal. Because the forum-selection clause was communicated to the
resisting party, has mandatory force and covers the claims and parties involved in this
dispute, it is presumptively enforceable. Thus, the final step to our analysis is to ascertain
whether the Harman Companies and Mr. Caperton have rebutted the presumption of
enforceability by making a sufficiently strong showing that enforcement would be
unreasonable or unjust, or that the clause was invalid for such reasons as fraud or
overreaching.
In this regard, it has been recognized that
[m]andatory choice of forum clauses will be enforced
unless they are “unreasonable.” Davis Media Group, 302
F. Supp. 2d at 466 (citing M/S Bremen v. Zapata Off-Shore Co.,
407 U.S. at 10, 92 S. Ct. 1907). “Choice of forum and law
provisions may be found unreasonable if (1) their formation was
induced by fraud or overreaching; (2) the complaining party
'will for all practical purposes be deprived of his day in court'
because of the grave inconvenience or unfairness of the selected
forum; (3) the fundamental unfairness of the chosen law may
deprive the plaintiff of a remedy; or (4) their enforcement would
contravene a strong public policy of the forum state.” Allen v.
Lloyd's of London, 94 F.3d 923, 928 (4th Cir. 1996).
Belfiore v. Summit Fed. Credit Union, 452 F. Supp. 2d 629, 631-32 (D. Md. 2006) (footnotes
omitted). Moreover,
[a] party trying to defeat a mandatory choice of forum clause bears a “heavy burden.” See Davis Media Group v. Best Western Int'l, Inc., 302 F. Supp. 2d, 464, 469-70 (D. Md. 2004); see also, e.g., Sarmiento v. BMG Entm't, 326 F. Supp. 2d 1108, 1111 (C.D. Cal. 2003) (“[I]f the resisting party fails to come forward with anything beyond general and conclusory allegations of fraud and inconvenience, the court must uphold the agreement”).
Id. at 631 n.1. In this case, the Harman Companies and Mr. Caperton have not argued, either
below or before this Court, that enforcement of the forum-selection clause of the 1997 CSA,
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 30) or that the clause was invalid for such reasons
as fraud or overreaching. Accordingly, the forum-selection clause should have been enforced
by the circuit court, and that court's failure to grant the Massey Defendants' motion to
dismiss based upon the forum-selection clause was an abuse of discretion. (See footnote 31)
5. Retroactivity of the New Forum-Selection Clause. On rehearing, the
Harman Companies and Mr. Caperton have argued that the new forum-selection clause
principles of law developed in this case should not be applied retroactively to them. (See footnote 32) 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 doing so 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 33) 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 34) 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 did not overrule any prior precedent, 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, ___, 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 35) 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 36)
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 37)
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 38) 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 39)
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 40) 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 assests 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.”).
Although the forum-selection clause is dispositive of this case, we further
conclude that, assuming arguendo the forum-selection clause did not apply here, this case
is nevertheless barred by the doctrine of res judicata.
In addressing this issue, we are called upon to decide the res judicata effect of the Virginia judgment on the instant West Virginia proceeding. We have previously held that “[u]nder Article IV, Section 1, of the Constitution of the United States, a valid judgment of a court of another state is entitled to full faith and credit in the courts of this State.” Syl. pt. 1, State ex rel. Lynn v. Eddy, 152 W. Va. 345, 163 S.E.2d 472 (1968). Further, “[b]y virtue of the full faith and credit clause of the Constitution of the United States, a judgment of a court of another state has the same force and effect in this State as it has in the state in which it was pronounced.” Syl. pt. 3, id. “In order to ensure that another state's judgment is given the same force and effect it would have in that state, the general rule appears to be that '[t]he validity and effect of a judgment must be determined by reference to the laws of the state where it was rendered.'” Jordache Enters., Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 204 W. Va. 465, 474, 513 S.E.2d 692, 701 (1998) (quoting 50 C.J.S. § 969, at 563). Further, “the full faith and credit clause generally requires the courts of this State to give [a foreign] judgment at least the res judicata effect which it would be accorded by [the foreign] courts.” Jordache Enterprises, 204 W. Va. at 476, 513 S.E.2d at 703. See also Martin v. SAIF Corp., 167 P.3d 916, 918-19 (Mont. 2007) (“Full faith and credit generally requires every State to give to a judgment at least the res judicata effect which the judgment would be accorded in the State which rendered it.” (internal quotations and citation omitted)).
Before discussing the specific elements that must be established in order for
the preclusive effect of res judicata to apply under Virginia law, we must first address a
preliminary issue. Under the laws of Virginia, “a judgment is not final for the purposes of
res judicata . . . when it is being appealed or when the time limits fixed for perfecting the
appeal have not expired.” Faison v. Hudson, 243 Va. 413, 419, 417 S.E.2d 302, 305 (1992).
In the instant case, it appears that a trial court judgment in the Virginia proceeding was
entered on May 7, 2001. Subsequently, on April 1, 2002, Massey filed a motion for summary
judgment with the West Virginia circuit court, arguing that principles of res judicata required
dismissal of the West Virginia case as a result of the judgment in the Virginia case. On June
17, 2002, the circuit court denied the motion. The circuit court was correct in denying
summary judgment on res judicata grounds because, at the time Massey filed its motion and
the circuit court decided the matter, the Virginia judgment was being appealed by Wellmore.
As we have pointed out, under Virginia law “a judgment is not final for res judicata purposes
if it is being appealed.” CDM Enters., Inc. v. Commonwealth/Manufactured Hous. Bd., 32
Va. App. 702, 709, 530 S.E.2d 441, 445 (2000) (emphasis in original).
The Virginia judgment did not become final for purposes of res judicata until
September 13, 2002, when the Supreme Court of Virginia dismissed Wellmore's appeal. See Wellmore Coal Corp. v. Harman Mining Corp., 264 Va. 279, 568 S.E.2d 671 (2002)
(dismissing appeal). Consequently, the issue we now confront is whether or not this Court
may recognize the finality of the Virginia judgment, for purposes of addressing the res
judicata issue on appeal. A case squarely addressing this issue is Aronow v. Lacroix, 268
Cal. Rptr. 866, 219 Cal. App. 3d 1039 (1990).
The facts of Aronow involved two separate lawsuits filed by different plaintiffs
against the same law firm for malicious prosecution. (See footnote 41) One lawsuit was filed by Dr. Ann
Fitzsimmons, and the other was filed by Betty Aronow. In the case brought by Dr.
Fitzsimmons, a judgment was rendered in favor of the law firm on January 27, 1981.
However, as a result of an appeal, the case was not finally disposed of until June 24, 1987.
The action brought by Ms. Aronow went to trial on October 5, 1982. Prior to trial the law
firm raised the issue of res judicata, but the trial court found that res judicata did not apply
because Dr. Fitzsimmons' case was pending an appeal and therefore had not become final.
A jury ultimately returned a verdict in favor of Ms. Aronow and awarded her damages. The
law firm appealed the judgment. While the case was pending on appeal, Dr. Fitzsimmons'
case became final after an appellate court rendered a decision affirming the verdict in favor
of the law firm. As a result of Dr. Fitzsimmons' case becoming final, the law firm raised the
issue of res judicata in the appeal of Ms. Aronow's case. The appellate court in Aronow found that the issue could be raised on appeal:
First, we consider the question of a final judgment on the merits. At the time the court trial of [Ms. Aronow] began, [Dr. Fitzsimmons' case] was on appeal, so there was no final judgment . . . on which [the law firm] could rely to raise a res judicata defense in the trial court. . . . However, . . . our affirmance of the judgment in [the law firm's] favor [became] final, . . . on September 28, 1987, while the present appeal was pending.
Under these circumstances, [the law firm] now ha[s] a final judgment on which to base a claim of res judicata, and they can raise the issue on appeal. Although normally the res judicata effect of a prior judgment must be pleaded and proven at trial, when the judgment becomes final during the pendency of an appeal in another action, the first final judgment may be brought to the attention of the appellate court in which the appeal is pending and may there be relied on as res judicata.
Aronow, 268 Cal. Rptr. at 870, 219 Cal. App. 3d at 1046 (internal quotations, citations, and
footnote omitted). The appellate Court in Aronow went on to analyze the case under res
judicata principles and found that the doctrine applied “to preclude [Ms.] Aronow from a
judgment in her favor in her own case.” Aronow, 268 Cal. Rptr. at 875, 219 Cal. App. 3d at
1053.
In accordance with Aronow, we now hold that a party may raise the defense of
res judicata on appeal when the prior judgment relied upon becomes final during the
pendency of his/her appeal. Although our holding on this issue permits us to exercise our
inherent authority to consider Massey's res judicata argument, we believe the decisions of
the Supreme Court of Virginia demonstrate that that Court would also exercise its inherent
authority to address the issue under the facts presented.
The decision by the Supreme Court of Virginia in Ward v. Charlton, 177 Va.
101, 12 S.E.2d 791 (1941), is instructive of how we believe that Court would respond to the
issue of res judicata raised in this case. The facts of Ward show that James R. Ward drove
his car into the rear of a tractor being driven by Henry Harper. The tractor was owned by
Sidney Charlton. Mr. Ward sued Mr. Charlton, and, in a separate action, Mr. Harper sued Mr.
Ward. Mr. Ward also brought a counter-claim against Mr. Harper.
In Mr. Ward's suit against Mr. Charlton, a jury returned a verdict in favor of
Mr. Ward. However, the trial court set aside the verdict and granted judgment to Mr.
Charlton. Mr. Ward appealed. While Mr. Ward's appeal was pending, a jury decided the
case brought by Mr. Harper. In that case, the jury determined Mr. Harper was not entitled
to recover from Mr. Ward, and Mr. Ward was not entitled to recover from Mr. Harper on the
counter-claim.
As a result of the disposition of the Harper-Ward lawsuit, Mr. Charlton asked
the Supreme Court of Virginia to dismiss Mr. Ward's appeal on res judicata grounds. Mr.
Charlton took the position “that since it has been adjudicated by a court of competent
jurisdiction that Ward . . . can not recover of Harper, the original tort feasor, a fortiori Ward
can not recover of Harper's master, Charlton, whose liability, if any, depends entirely upon
the liability of Harper, under the doctrine of respondeat superior.” Ward, 177 Va. at 106, 12
S.E.2d at 792. In response, Mr. Ward argued, among other things, that Mr. Charlton could
not raise the defense of res judicata for the first time on appeal. The Supreme Court of
Virginia disagreed:
The present [appeal] presents the sole question as to whether Ward is entitled to a judgment against Charlton by reason of the alleged negligent acts of Charlton's servant, Harper. The petition for a writ of error prays that the verdict which Ward obtained against Charlton and which the trial court set aside, be restored, and that this court enter a final judgment on said verdict against Charlton. It conclusively appears from extrinsic evidence, which is not controverted, that subsequent to the closing of the record in the instant case a court of competent jurisdiction has determined that Ward is not entitled to recover the judgment which he here seeks.[ (See footnote 42) ]
Must this court shut its eyes to these admitted facts and
sagely proceed to consider an issue which has already been
decided by a court of competent jurisdiction, and possibly enter
a final judgment directly in conflict with that already rendered?
We think not. In our opinion this court has the jurisdiction and
it is its duty to examine this extrinsic evidence in determining
whether it will proceed to hear the pending matter or dismiss it
because the issue between the parties has been settled.
. . . .
It is true, as argued by the learned counsel for [Ward],
that an appellate court in reviewing the record of the
proceedings in the court below will not entertain the defense of
res judicata if it was available and was not made below. This is
so because the defense is an affirmative one and if not asserted
below is deemed to have been waived. . . .
But this principle does not apply to the instant case where
the defense was not available and could not have been asserted
during the trial below.
. . . .
The doctrine of res judicata or estoppel by judgment is
based on public policy. . . . It proceeds upon the principle that
one person shall not the second time litigate, with the same
person or with another so identified in interest with such person
that he represents the same legal right, precisely the same
question, particular controversy, or issue which has been
necessarily tried and finally determined, upon the merits, by a
court of competent jurisdiction, in a judgment in personam in a
former suit. . . .
The doctrine is firmly established in our jurisprudence and should be maintained where applicable. . . .
Here it has been brought to our attention by undisputed
evidence that since the trial below another court of competent
jurisdiction has finally adjudicated that the plaintiff in error,
Ward, is not entitled to a judgment against Charlton, the
defendant in error. Hence, the plaintiff in error is estopped to
ask this court to review the record before it and to enter in his
favor a judgment. . . .
Ward, 177 Va. at 110-15, 12 S.E.2d at 793-96 (internal quotations and citations omitted)
(footnote added).
Clearly, under the decision in Ward, the Supreme Court of Virginia would
address the issue of res judicata presented in this case, even though the doctrine did not
become ripe until the case was presented on appeal. Consequently, we find that, although
the circuit court was correct in denying summary judgment to Massey on res judicata grounds
because the Virginia judgment was pending appeal, this Court may now address the issue
anew because a final judgment was rendered in the Virginia case by the time this appeal was
prosecuted.
The Supreme Court of Virginia has described the doctrine of res judicata, and
its purpose, as follows:
the rationale for this judicially created doctrine [is that] it “rests upon public policy considerations which favor certainty in the establishment of legal relations, demand an end to litigation, and seek to prevent the harassment of parties. . . . The doctrine prevents 'relitigation of the same cause of action, or any part thereof which could have been litigated, between the same parties and their privies.'”
City of Virginia Beach v. Harris, 259 Va. 220, 229, 523 S.E.2d 239, 243 (2000) (quoting Bill Greever Corp. v. Tazewell Nat'l Bank, 256 Va. 250, 254, 504 S.E.2d 854, 856 (1998)) (additional citation omitted). See also Smith v. Ware, 244 Va. 374, 376, 421 S.E.2d 444, 445 (1992) (“The bar of res judicata precludes relitigation of the same cause of action, or any part thereof, which could have been litigated between the same parties and their privies.” (citing Bates v. Devers, 214 Va. 667, 670-71, 202 S.E.2d 917, 920-21 (1974); Flora, Flora & Montague, Inc. v. Saunders, 235 Va. 306, 310, 367 S.E.2d 493, 495 (1988); Brown v. Haley, 233 Va. 210, 215, 355 S.E.2d 563, 567 (1987); and Worrie v. Boze, 198 Va. 533, 537-38, 95 S.E.2d 192, 196-97 (1956), aff'd on reh'g, 198 Va. 891, 96 S.E.2d 799 (1957))).
With respect to the application of res judicata, the Virginia Court has been consistent in holding that
[f]our elements must be present before res judicata can be asserted to bar a subsequent proceeding: “(1) identity of the remedies sought; (2) identity of the cause of action; (3) identity of the parties; and (4) identity of the quality of the persons for or against whom the claim is made.” Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125, 128 (1986). See also Mowry v. City of Virginia Beach, 198 Va. 205, 211, 93 S.E.2d 323, 327 (1956).
Smith v. Ware, 244 Va. at 376, 421 S.E.2d at 445. See also State Water Control Bd. v.
Smithfield Foods, Inc. 261 Va. 209, 214, 542 S.E.2d 766, 769 (2001) (same); Balbir Brar
Assoc., Inc. v. Consolidated Trading & Servs. Corp., 252 Va. 341, 346, 477 S.E.2d 743, 746
(1996) (same). We will address each of these elements in turn.
1. Identity of the remedies sought. The Harman Companies argue that
because the Virginia proceeding awarded damages for breach of contract, while the instant
action awarded damages in tort, the remedies sought in these two actions are not the same.
We disagree.
The Supreme Court of Virginia has not squarely defined what is meant by
“identity of the remedies sought” for purposes of the res judicata test. Ware, 244 Va. at 376,
421 S.E.2d at 445. However, in the Ware case, the Court addressed the issue of whether
there was identity of remedies, and concluded that because the earlier action sought relief in
the court of law, while the latter action sought equitable relief in the court of chancery, there
was no identity of remedy: “Mrs. Smith, in her motion for judgment for unlawful detainer,
sought the remedy of possession and damages. . . . Mrs. Smith, in her bill of complaint, does
not seek possession of the property. Rather, she seeks a commutation of her dower interest,
which is a different remedy.” Ware, 244 Va. at 376-77, 421 S.E.2d 445-46. (See footnote 43) Thus, it
appears that the “remedy” element of res judicata refers, at least in significant part, to the
distinction between legal and equitable remedies. The legal definition of the term “remedy”
supports this view. See, e.g., Black's Law Dictionary 1296 (7th ed. 1999) (defining
“remedy” as “[t]he means of enforcing a right or preventing or redressing a wrong; legal or
equitable relief”).
Our conclusion is further supported by the opinion in Cherokee Corp. of
Linden, Virginia, Inc. v. Richardson, Chancery No. 95-130, Chancery No. 96-34, now Law
No. L-96-148, 1996 WL 1065553, at *1 (Va. Cir. Ct. June 5, 1996), wherein the Circuit
Court of Virginia explained the concept in this way:
At first brush [Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125, 128 (1986),] appears to [be] a retrenchment in the scope of the doctrine of res judicata by its addition of the requirement of “identity of remedies,” because if remedy were synonymous with “right of action,” the implication is that the aggrieved party, confronted with a judgment for the defendant, may simply successively file actions based on different remedies or rights of action until he receives a favorable verdict. If this were true, the doctrine of Res Judicata would be substantially emasculated.
Black's Law Dictionary (5th ed. 1979) defines remedy as “the rights given to a party by law or by contract which that party may exercise upon a default by the other party, or upon the commission of a wrong (a tort) by another party,” so remedy in this context is actually consonant with the broader concept of “cause of action.” Moreover, the Supreme Court in Ware v. Smith, [244 Va. 374, 421 S.E.2d 444 (1992)], noted that the causes of action were different and relied upon Bates v. Devers, 214 Va. 667, 670-71, 202 S.E.2d 917, 920-21 (1974), which clearly held:
Res judicata-bar, is the particular preclusive effect commonly meant by the use of the term “res judicata.” A valid, personal judgment on the merits in favor of a defendant bars relitigation of the same cause of action, or any part thereof which could have been litigated, between the same parties and their privies. See Restatement of Judgments 47, 62, 83 (1942).
Collateral estoppel is the preclusive effect impacting in a subsequent action based upon a collateral and different cause of action.
The ostensibly inconsistent rule of this case derives from
the fact that Virginia still recognizes a distinction between law
and equity, and this legal relic affects the court's res judicata
decisions. In Ware v. Smith, supra; Brown v. Haley, 233 Va.
210, 219, 355 S.E.2d 563 (1987) (equitable claim for easement
arose from different transaction and could not be asserted in
earlier ejectment action at law between the same parties); and Wright v. Castles, 232 Va. 218, 349 S.E.2d 125 (prior chancery
suit for injunction does not bar later suit for monetary damages,
the court was confronted by later cases being filed on a different
side of the court, because of the dichotomy between law and
equity[)]. . . .
1996 WL 1065553, at *10 (emphasis added). See also Davis v. Marshall Homes, Inc., 265
Va. 159, 175, 576 S.E.2d 504, 512 (2003) (Kinser, J., dissenting) (“Nor was there an identity
of remedies [in Brown v. Haley, 233 Va. 210, 355 S.E.2d 563 (1987),] because the two
claims could not have been brought in one proceeding. If the Haleys had asserted what
would have been a counterclaim in the ejectment action, the court could not have granted the
requested relief regarding the easement in that action since the relief was equitable in nature
and the ejectment action was at law. [Brown] at 218, 355 S.E.2d at 568.” (emphasis added)).
With respect to the case presently before us, both the Virginia proceeding and
the instant proceeding sought the legal remedy of monetary damages stemming from
Wellmore's wrongful declaration of force majeure under the 1997 CSA. Accordingly, the
identity of remedy element of Virginia's res judicata test has been met.
2. Identity of the cause of action. The Harman Companies contend that
the breach of contract cause of action litigated in Virginia differs from the tort claims
asserted in the instant action. In reaching this conclusion, the Harman Companies argue that
the proper standard to be applied is the “same evidence” test set out in Davis v. Marshall
Homes, Inc., 265 Va. 159, 166, 576 S.E.2d 504, 507 (2003). We disagree.
To decide the proper rule to be applied in addressing this issue, we look to the Virginia law in effect at the time the complaint was filed in the Circuit Court of Boone County in October, 1998. (See footnote 44) At that time, Virginia applied the transactional approach to determine whether there was identity of the cause of action for purposes of res judicata. See Allstar Towing, Inc. v. City of Alexandria, 231 Va. 421, 344 S.E.2d 903 (1986). In Allstar, the City of Alexandria, Virginia, had initiated a bidding process to procure a contract to tow vehicles in the City. Allstar Towing, Inc., was the only company to submit a bid, but the company was declared ineligible because Allstar “was not a registered corporation” on the bid opening date. Id. at 422, 344 S.E.2d at 904. Allstar's certificate of incorporation was issued by the State Corporation Commission the following day. Allstar petitioned the circuit court for an appeal of the determination of ineligibility, or in the alternative, an award of the “'reasonable profits' which it would have earned 'over the course of the prospective agreement.'” Id. Allstar also sought a temporary injunction to prevent the city from awarding a towing contract. The circuit court denied both the petition for appeal and the motion seeking injunctive relief. Meanwhile, the City requested and accepted bids for a towing contract a second time. Allstar again submitted a bid, but the contract was awarded to another company, Franconia Towing & Storage. Allstar then filed a second action against the city in the circuit court alleging that Franconia had failed to meet the city's specifications, which Allstar had met. Allstar sought damages “representing 'lost income that it would have received . . . had the contract been awarded to it.'” Id. at 423, 344 S.E.2d at 905. The circuit court ruled that, under the principles of res judicata, the second action was barred by the earlier action. Allstar appealed the case to the Supreme Court of Virginia, where that court found that the second action was not barred, as “the same cause of action was not involved in the two cases.” Id. at 425, 344 S.E.2d at 906. The Supreme Court of Virginia found that “[i]n the first case, Allstar sought relief because the City had determined it to be a 'non- responsible' bidder,” based on its lack of a certificate of incorporation; while in the second action Allstar sought relief in connection with a second invitation to bid, which it claimed was improperly awarded to a contractor who failed to meet the city's specifications. Id. The Allstar Court then concluded that the second action asserted by Allstar was not barred by the first because “the facts giving rise to the second cause of action were not even in existence when the first action was heard and decided on the merits on December 31, 1984.” Id. In reaching its conclusion, the Supreme Court of Virginia adopted the transactional approach when it announced that “[f]or the purposes of res judicata, a 'cause of action' may be defined broadly 'as an assertion of particular legal rights which have arisen out of a definable factual transaction.'” Id. (internal citation omitted)). (See footnote 45)
The transactional approach has also been explained as follows:
As can be seen, Virginia follows the transaction rule set forth in the Restatement of Judgments 2d, '24 for purposes of defining “cause of action.” The importance of understanding the broad concept of “cause of action” is essential to understanding the application of res judicata. One “cause of action” may give rise to myriad rights of action, e.g., breach of contract, breach of warranty, negligence, and statutory claims; however, if the rights of action arise from the same operative set of facts and could legally be asserted therein, they are all the same “cause of action” for purposes of the application of the doctrine of res judicata. “There can be no right of action until there is a cause of action.” Stone v. Ethan Alan, 232 Va. 365, 368-369, 350 S.E.2d 629 (1986), citing Caudill v. Wise Rambler, 210 Va. 11, 13 168 S.E.2d 257, 259 (1969). However, as broad as the application of the doctrine of res judicata is, it applies only to rights of action which have accrued from the cause of action and could have been asserted in the proceeding upon which the plea is based. As the Supreme Court of Virginia noted in Southern. R. Co. v. Wash. & C. R. Co., 102 Va. 483, 491, 46 S.E. 784 (1904):
[R]es judicata applies, except in special cases, not only to points upon which the court was actually required, by the parties, to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time. Diamond State Iron Co. v. Rarig & Co., 93 Va. 603, 25 S.E. 894, and authorities cited. But it cannot be applied to a matter not adjudicated in a former action and which could not have been brought forward for adjudication upon the pleadings in the cause; nor to a matter arising after the former adjudication, even in a second suit between the parties to the former or their privies, if the causes of action are not the same. (cites omitted).
Cherokee Corp., 1996 WL 1065553, at *8 (emphasis added). See also Virginia Imports, 50
Va. App. at 410 n.6, 650 S.E.2d at 561 n.6 (“Under settled principles, the 'effect of a final
decree is not only to conclude the parties as to every question actually raised and decided, but
as to every claim which properly belonged to the subject of litigation and which the parties,
by the exercise of reasonable diligence, might have raised at the time.' Smith v. Holland, 124
Va. 663, 666, 98 S.E. 676, 676 (1919) (emphasis added).”).
Turning to the case at bar, although the Virginia proceeding addressed contract
claims, while the instant proceeding addressed tort claims, this distinction is of no moment.
Both the tort claims asserted in the case sub judice and the earlier contract claims asserted
in the Virginia proceeding arise from the same “conduct, transaction or occurrence,” namely
the wrongful declaration of force majeure by Wellmore, which was carried out under the
direction and control of the Massey Defendants. Thus, the tort claims asserted in this action
arise from the same transactional facts as the Virginia proceeding and should have been
asserted in that proceeding.
3. Identity of the parties. Mr. Caperton and Harman Development were not
parties to the Virginia action, and neither were any of the Massey Defendants named in the
instant suit. The Harman Companies argue that there is no identity of the parties as there is
no privity between the Massey Defendants and Wellmore. We disagree, finding there is
identity of the parties between the Virginia proceeding and the instant proceeding under the
doctrine of privity.
Pursuant to Virginia law,
[t]he doctrine of res judicata applies not only to the
actual parties in a case but also to those in privity with them.
See City of Virginia Beach v. Harris, 259 Va. 220, 229, 523
S.E.2d 239, 243 (2000). In other words, res judicata applies to
anyone “'so identified in interest with [a party] that he
represents the same legal right, precisely the same question,
particular controversy, or issue.'” Johnson, 7 Va. App. at 618,
376 S.E.2d at 788 (citation omitted).
CDM Enters., Inc. v. Commonwealth/Manufactured Housing Bd., 32 Va. App. 702, 710, 530 S.E.2d 441, 445 (2000). One Virginia court has explained the requirement for the identity of parties in this way:
“One of the fundamental prerequisites to the application of the doctrine of res judicata is that there must be an identity of the parties between the present suit and prior litigation asserted as a bar. A party to the present suit, to be barred by the doctrine, must have been a party to the prior litigation, or represented by another so identified in interest that he represents the same legal right.” Dotson, 232 Va. at 404-405, 350 S.E.2d at 644.
There is no fixed definition of privity that automatically can be applied in all cases involving res judicata issues. While privity generally involves a party so identified in interest with another that he represents the same legal right, a determination of . . . who are privies requires a careful examination of the circumstances of each case.
Nero v. Ferris, 222 Va. 807, 813, 284 S.E.2d 828, 831 (1981).
In Patterson v. Saunders, the Supreme Court stated:
It is generally held that “'privity' means a mutual or successive relationship to the same rights of property, or such an identification in interest of one person with another as to represent the same legal rights, and the term 'privy,' when applied to a judgment or decree refers to one whose interest has been legally represented at the trial.”
194 Va. at 613, 74 S.E.2d at 208 (citation omitted).
Commonwealth ex rel. Gray v. Johnson, 7 Va. App. 614, 619, 376 S.E.2d 787, 789 (1989).
Turning to the case sub judice, we find that the parties to the Virginia
proceeding “are so identified in interest” with the parties to the instant proceeding that they
“represent the same legal right[s].” CDM Enters., Inc., 32 Va. App. at 710, 530 S.E.2d at
445 (internal quotations and citations omitted). In the Virginia proceeding, Harman Mining
and Sovereign sued Wellmore for breach of contract related to the wrongful declaration of force majeure under the 1997 CSA. It bears reiterating that all of the harm that has been
claimed by Mr. Caperton and the Harman Companies in the instant action has stemmed
directly from that wrongful declaration of force majeure under the 1997 CSA. Because the
question of whether the declaration of force majeure was wrongful was the exact issue
addressed in the Virginia proceeding, the interests of the various parties to the instant suit,
which also depends upon the propriety of the declaration of force majeure, is directly aligned
with the interests of the related corporate entities who participated in the Virginia action.
Moreover, it has been recognized that a parent company is in privity with its
subsidiary. See Mullins v. Daily New Leader, 2001 WL 1772679, at *2 (Va. Cir. Ct. Oct. 24,
2001) (“The Daily News Leader and Gannett Co., Inc., are in privity as Gannett is the parent
company of the Daily News Leader.”). Thus, Harman Development is plainly in privity with
its susidiaries, Harman Mining and Sovereign, who were parties to the Virginia action. Mr.
Caperton is also in privity with Harman Mining and Sovereign to the extent that he signed
the 1997 CSA in his capacity as president of Sovereign, and insofar as Harman Mining and
Sovereign are wholly-owned subsidiaries of Harman Development, and Mr. Caperton is the
sole owner of Harman Development. Likewise, A.T. Massey Coal Company is in privity
with its subsidiary Wellmore, as are the remaining Massey Defendants, who are also
subsidiaries of Massey and sister corporations to Wellmore.
4. Identity of the quality of the persons for or against whom the claim is
made. As previously indicated, for purposes of res judicata, Virginia requires a
determination be made of the identity of the quality of the persons for or against whom the
claim was made. As explained by a Virginia trial court, “[t]he 'identity of quality' element
is a requirement that the parties in conflict appear in the identical capacities or on 'the same
side of the versus' in both proceedings.” Winchester Homes, Inc. v. Hoover Universal, Inc.,
LAW NO. 122509, 1994 WL 1031408, at *2 (Va. Cir. Ct. Nov. 2, 1994) (citing Greene v.
Warrenton Prod. Credit Ass'n, 223 Va. 463, 291 S.E.2d 209 (1982)). The facts of the instant
case clearly establish that this element has been met. The original plaintiffs in the Virginia
suit are plaintiffs in the West Virginia proceeding, and they sued in the same capacity in both
litigations. None of the Massey Defendants in the instant proceeding was a plaintiff in the
Virginia proceeding. See Byrum v. Ames & Webb, Inc., 196 Va. 597, 85 S.E.2d 364 (1955)
(finding that prior litigation was not res judicata to subsequent litigation because plaintiff and
defendant were both nonadversarial defendants in the prior litigation); Ezrin v. Stack, 281
F. Supp. 2d 67 (D.D.C. 2003) (applying Virginia law to find that res judicata applied where
both parties were on opposite sides of the “v.” in prior litigation).
5. Preclusive Effect of Res Judiciata. Because the four elements of res
judicata have been met in this case, as demonstrated above, we conclude that the instant
action is barred.
For the reasons stated in the body of this opinion, we reverse the judgment in
this case and remand for the circuit court to enter an order dismissing this case against A.T.
Massey Coal Company and its subsidiaries with prejudice.