Opinion ID: 4514409
Heading Depth: 2
Heading Rank: 1

Heading: Contract-based Claims

Text: Three counts in Respondents’ complaint – fraud in the inducement, breach of contract, and fraud in the performance – relate to contract negotiations, terms of the contract itself, and, of course, the performance of that contract. We have held that [t]he venue of a cause of action in a case involving breach of contract in West Virginia arises within the county: (1) in which the contract was made, that is, where the duty came into existence; or (2) in which the breach or violation of the duty occurs; or (3) in which the manifestation of the breach— substantial damage occurs.[8] The parties agree that this is the appropriate standard by which to judge venue as to the contractual-based causes of action. The parties further agree that the Purchase Agreement was made in Kanawha County and breached in Kanawha County. The crux of Respondents’ case for venue in Wyoming County is that the manifestation of the breachsubstantial damage occurred in Wyoming County. At Respondents urging, the circuit court reached the conclusion that venue was proper under the third prong of Wetzel by finding that as a result of American Staffing’s alleged breach, EIN lost 82 employees who were residents of Wyoming County and also lost the administrative fees generated by those employees in Wyoming County. In other words, EIN collects a fee equal to 2-2.5% of the gross pay of each employee the client-employer has contracted with EIN to manage. Since 8 Syl. Pt. 3, Wetzel County Sav. & Loan Co. v. Stern Bros., 156 W. Va. 693, 195 S.E.2d 732 (1973). 7 82 employees collected their paychecks in Wyoming County, the circuit court reasoned that Respondents’ damages were felt in Wyoming County. Petitioners rely on State ex rel. Galloway Group v. McGraw,9 in contending that this connection is far too tenuous to establish venue in Wyoming County. In Galloway, a law office (Fredeking & Fredeking) and law partnership (Galloway Group) entered into a fee-sharing agreement.10 When Galloway Group allegedly failed to pay monies due to Fredeking & Fredeking under the fee-sharing agreement, the latter filed suit in Wyoming County, contending that the parties generated fees from litigation involving the UMWA Health & Retirement Plan, and many UMWA members reside in Wyoming County. 11 Galloway Group challenged the propriety of venue in Wyoming County.12 The circuit court found that venue was proper, in part, because those UMWA members residing in Wyoming County generated the fees and debts that were the subject of the underlying dispute – in other words, those fees were the manifestation of the breach.13 We rejected that argument, somewhat summarily concluding that the circuit court’s reasoning was 9 227 W. Va. 435, 711 S.E.2d 257 (2011). 10 Id. at 436, 711 S.E.2d at 258. 11 Id. 12 Id. 13 Id. at 437, 711 S.E.2d at 259. 8 “invalid” and that “our law does not support the conclusion that this fact would establish venue in Wyoming County[.]”14 Petitioners’ takeaway from Galloway is a rule that venue may not be established by “where some non-party to the action might be found.” Conversely, Respondents make a nuanced argument that Galloway is distinguishable because in this case the employees in Wyoming County and the fees generated from them were the benefit of entering into the contract – they purchased the source of the fees from American Staffing. That relationship is, to Respondents, materially different than simply stating that the source of lost fees happen to reside in Wyoming County. While we do not read Galloway as stating any bright-line rule with respect to non-parties, we also find that these Wyoming County residents are as tangential to this underlying contractual dispute as the ones we addressed and found insufficient to establish venue in Galloway. Respondents represented to the circuit court that “[t]here were 850 employees that came over from our purchase contract. Three hundred and fifty of those employees were in West Virginia, of those 350 employees in West Virginia 82 were from Wyoming County; only 13 were in Kanawha County.” As conceded by counsel at oral argument, EIN operates much the same as any other PEO – the customers it purchased 14 Id. at 437-38, 711 S.E.2d at 259-60. This Court also took issue with a factual discrepancy that appeared to indicate that Galloway Group was not even party to an agreement with a provision regarding UMWA litigation. Id. at 437, 711 S.E.2d at 259. 9 from American Staffing are client-employers, not employees. While the employees of those client-employers, by agreement, become co-employees of EIN for tax purposes, EIN had no agreement whatsoever with any employees in any county – it did not purchase their willingness to stay on with the prospective client-employer; and it did not purchase an absolute number of employees to maintain for those client-employers. These Wyoming County employees have no relation to the underlying contract except insofar as their gross pay is used to calculate the fee owed by the clientemployer to the applicable PEO,15 and the contract at issue changed that PEO. The employees themselves are only affected by which PEO completes the human resources services for their client-employer insomuch as it changes the name on their paycheck and with whom they interact for human resource needs. Their job function does not change; their employment status is not jeopardized or in any way altered by their employer’s decision to contract with a PEO.16 Likewise, the fact that the fee collected from those client-employers is calculated based on the gross pay of the employees the clientemployers ask EIN to manage has no effect on whether those client-employers continued to do business with EIN. To simplify the point, EIN contracted with American Staffing to 15 While we note that Respondents take great care to characterize the administrative fee as being “generated” by the employees, by definition an “administrative fee” is the amount charged to a client-employer. See W. Va. Code § 33-46A-2(a). 16 Rather, West Virginia Code § 33-46A-6(b)(2) specifically provides, in part, that “[e]ach professional employment agreement shall provide that the client-employer shall retain the right to hire, discipline, and terminate a covered employee.” 10 purchase their customers. Their customers are client-employers – not the employees of client-employers. Respondents do not allege that any client-employers they lost as a result of the alleged breach of contract had a principal place of business in Wyoming County. Respondents make reference, by way of example to the circuit court, of a company called High-Voltage, which had a coal site in Wyoming County. According to the circuit court’s order, eighteen employees of High-Voltage residing in Wyoming County became coemployees of EIN under the Purchase Agreement. Respondents did not allege that HighVoltage or any Wyoming County client-employer was one of Mr. Wells’s companies that Mr. Ferrell or American Staffing had guaranteed would stay on with EIN for two years following the Purchase Agreement. They did not allege that High-Voltage or any Wyoming County client-employer was one such client-employer listed in the Purchase Agreement that was, in actuality, a client of The Chestnut Group rather than American Staffing. Finally, Respondents did not allege that High-Voltage or any Wyoming County client-employer had any obligation whatsoever under the Purchase Agreement such that its defection from EIN could be said to stem from the breach of contract. The record reveals that the Defendants reside in17 or have principal places of business in Kanawha County. Both PEOs are based in Kanawha County. They conducted 17 But see supra n. 2. 11 contract negotiations in Kanawha County and executed the Purchase Agreement in Kanawha County. The business relationship of the parties exists wholly within Kanawha County. The Purchase Agreement was allegedly breached in Kanawha County. The damages flowing from that alleged breach are made evident through the loss of EIN’s client-employers. The loss of the fees calculated based on employees of those clientemployers are so peripheral and incidental a damage that the residency of those employees is too far removed from the contractual relationship at issue here to establish venue. It is plain on these facts that venue for the contract-based claims properly lies in Kanawha County, not Wyoming County.