Opinion ID: 1405111
Heading Depth: 2
Heading Rank: 3

Heading: A Better Approach

Text: Importantly, this case involves fraud, rather than an act of negligence or straightforward breach of contract. Courts in many other jurisdictions have refused to enforce forum-selection clauses where the plaintiff has asserted claims of wide-ranging fraudulent conduct. In such cases, the court considering the forum-selection clause concluded that the gist of the asserted claims exceeded the scope of the contract containing the forum-selection clause and, thus, the court refused to allow the defendant to benefit from the clause. In Farmland Industries, Inc. v. Frazier-Parrott Commodities, Inc., 806 F.2d 848 (8th Cir.1986) ( abrogated on other grounds by Lauro Lines S.R.L. v. Chasser, 490 U.S. 495, 109 S.Ct. 1976, 104 L.Ed.2d 548 (1989)), the United States Court of Appeals for the Eighth Circuit affirmed a district court decision that the enforcement of a forum-selection clause would be unreasonable given that not all of the plaintiff's claims arose directly or indirectly from the agreement containing the clause. In that case, plaintiff Farmland Industries, Inc. (Farmland), an agricultural cooperative corporation, contracted with the defendants, commodity brokerage firms, to open several commodity futures trading accounts. Id. at 849. The contract, which was signed in May 1985, contained a very broad forum-selection clause which bound Farmland to bring any judicial action arising directly, indirectly, or otherwise in connection with, out of, related to or from this Agreement or any transaction covered hereby or otherwise arising in connection with the relationship between the parties ... in Cook County, Illinois. Id. In its complaint, Farmland alleged that prior to entering into the May 1985 contract, the defendants had engaged in various fraudulent activities, including a kick-back scheme in which several of the defendants would receive money for every closed contract on Farmland's commodities account. Farmland further alleged that the defendants had created a sham corporation to receive the kickbacks, and that some of Farmland's favorable commodities contracts had been transferred to an account set up for the sham corporation. Id. After discovering the fraudulent conduct, Farmland filed suit in the District Court for the Western District of Missouri, alleging fraud, breach of fiduciary duty, and violations of several federal statutes, including the Racketeer Influenced and Corrupt Organizations Act (RICO). Id. The defendants sought to dismiss the case based on improper venue pursuant to the forum-selection clause. Id. In reviewing the case, the Eighth Circuit concluded that the scope of the claims raised in the suit was broader than the scope of the forum-selection clause. Id. at 852. It found that: Plaintiff has alleged an elaborate scheme of fraud involving not only Heinold [a party to the contract containing the clause] and individuals associated with Heinold, but also involving other individuals outside the securities brokerages, sham corporations, and other matters not subject to the agreement between plaintiff and Heinold. Id. Thus, the Eighth Circuit agreed with the district court that not all of Farmland's claims arose directly or even indirectly from the contract, and Farmland could not have anticipated having to litigate these claims in Illinois. Id. It further found that Farmland's multiple claims were not intended to evade the forum selection clause, and that, although some of the claims were directly related to the contract containing the clause, it made no sense to transfer just those claims to the designated forum, thereby mandating the piecemeal resolution of the case. Id. Consequently, it affirmed the district court's decision. Similarly, in Armco Inc. v. North Atlantic Insurance Company Limited, 68 F.Supp.2d 330 (S.D.N.Y.1999), the district court for the Southern District of New York concluded that a forum-selection clause would not dictate venue in a case in which the plaintiff had alleged a fraudulent course of conduct by the defendants which pre-dated the signing of the clause-containing contract. In Armco, the plaintiff asserted common law fraud, conversion, breach of fiduciary duty, and violations of RICO, stemming from an alleged fraudulent scheme associated with the sale of several of its subsidiaries. Id. at 333. Prior to the sale, which was designed to be a management buy-out, several of the plaintiffs' employees entered into a secret agreement with the purchasers to eventually become joint-owners of the subsidiaries. Id. at 333-34. The plaintiffs alleged that, instead of being the product of an arms-length negotiation, the sale was part of a wide-ranging conspiracy to defraud Armco and its affiliates out of millions of dollars. Id. at 334. They further asserted that the fraudulent conduct commenced before the contract was entered into, and continued after the sale had been completed. Id. The sale contract in Armco included a forum-selection clause, stating that the parties irrevocably submit themselves to the exclusive jurisdiction of the English Courts to settle any dispute which may arise out of or in connection with this Agreement. Id. at 338. After the plaintiff initiated suit in the Southern District of New York, the defendant moved to dismiss asserting improper venue based on the clause. Id. at 333. The district court, however, concluded that the action did not arise out of or in connection with the sale contract. Id. at 338. It noted that the plaintiffs were not suing for breach of contract, alleging any lack of performance, or otherwise disputing either party's rights or obligations under the contract, but were instead alleging a series of fraudulent activities that included the negotiation and execution of the subject Sale Contract. Id. Indeed, the action arose out of the alleged wide ranging fraud, including numerous acts committed before the execution of the Sale Contract. Id. Thus, it concluded, the `gist' of plaintiffs' claims is not the breach of a contractual relationship, but the series of acts by defendants resulting in the fraud. Id. at 339 (emphasis added). Importantly, it noted that the signing of the sale contract was merely one important aspect of the defendant's fraudulent scheme. Id. at 340. I find the reasoning of the courts in Farmland and Armco compelling and the better view for this Court to have adopted in the instant case. Similar to the defendants in those cases, Massey engaged in a wide-ranging, fraudulent course of conduct for the purposes of obtaining access to new sources of metallurgical coal and new purchasers for that coal, while eliminating one of its competitors, the Harman Companies, in the process. To that end, Massey engaged in a series of acts, of which the declaration of force majeure was merely one important aspect. See Armco, 68 F.Supp.2d at 340. Like the defendants in Armco, who initiated their fraudulent plan before the sale contract was signed, Massey developed and initiated its fraudulent scheme prior to fraudulently declaring force majeure, and its fraudulent conduct continued after that declaration until it had financially ruined the Harman Companies and Mr. Caperton. Despite the clear evidence of the wide-ranging scope of Massey's fraudulent conduct, the majority concludes that Massey's conduct that was unrelated to the CSA did not, by itself, produce the ultimate injury, and thus it should be disregarded. Under Farmland and Armco, however, the entire course of conduct should be considered in determining the scope of the claims. Underlying the holdings in these cases is the proposition that courts should not reward wrong-doers by allowing them to benefit from contracts with which they have fraudulently interfered. Indeed, it is an immense irony that Massey, in directing the fraudulent declaration of force majeure, treated the CSA like it was not worth the paper it was written on. Yet in its now successful effort to wreak corporate and personal financial ruin on the Harman Companies and Mr. Caperton, Massey embraces the contract and its forum-selection clause almost amorously. The majority encourages this behavior by callously allowing Massey to benefit from the contract it sought to destroy.