Opinion ID: 1405111
Heading Depth: 1
Heading Rank: 3

Heading: Enforceability of the Forum-Selection Clause

Text: The majority announces that this case presents the first opportunity for this Court to address substantive issues relating to the enforcement of forum-selection clauses. In so stating, it broadly asserts that this Court has previously indicated our general approval of forum-selection clauses, because this Court has noted, in dicta contained in a footnote, that such clauses are not contrary to public policy. Specifically, in General Electric Company v. Keyser, 166 W.Va. 456, 275 S.E.2d 289 (1981), this Court stated in footnote two: 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 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 ., W. Va., [159 W.Va. 120] 221 S.E.2d 882 (1975). Both Axelrod and Miller involved contracts which contained arbitration clauses. In Axelrod, we gave full faith and credit to a New York Court decision which confirmed an arbitration award made pursuant to the contract terms requiring arbitration. In Miller, we held valid a contract provision which made arbitration a condition precedent to suit in the West Virginia courts. The writer of the Miller opinion noted that the common law rule preventing parties from ousting the court of jurisdiction by their agreement was archaic. 221 S.E.2d at 885. 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 [Jerell], Inc., 489 F.Supp. 983 (S.D.W.Va.1980). The factors to be weighed in determining the effectiveness of a forum selection clause are materially different from the factors a court will consider in determining the effectiveness of a choice of laws clause and speak to very different problems. Leasewell, supra at 1014. Choice of law clauses, however, are not automatically void either, as they too are sanctioned in commercial transactions by the West Virginia Code. W. Va.Code § 46-1-105(1). Thus it appears that we should not per se invalidate a choice of law clause without analysis anymore than we should invalidate a choice of forum clause without careful scrutiny. Id. at 461 n. 2, 275 S.E.2d at 292 n. 2. An objective reading of this footnote does not support the majority's sweeping conclusion that this Court's prior law indicates general approval of forum-selection clauses. Rather, the footnote indicates skepticism of such clauses by requiring that they be carefully analyzed, and further implies that such clauses should only be enforced where they are reasonable and just. Nevertheless, the majority misstates that forum-selection clauses are viewed with favor in West Virginia, and proceeds to adopt a test for determining the enforceability of a forum-selection clause established in Phillips v. Audio Active Limited, 494 F.3d 378 (2d Cir.2007). Specifically, the majority sets forth the following four factors for consideration: (1) whether the clause was reasonably communicated to the party resisting enforcement, (2) whether the clause is mandatory or permissive, (3) whether the claims and parties involved in the suit are subject to the forum-selection clause, and (4) 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. Although at least two of these four new factors obviously require fact-driven determinations, the majority not only adopts these new principles of law out of the blue, it then refuses to give the plaintiffs a chance to present evidence on them and, incredibly, proceeds to make de novo findings of fact themselves!
As an initial matter, I object to the majority's adoption of a completely new standard of review specifically for forum-selection clauses. The majority now holds, without providing any explanation, that [o]ur review of the applicability and enforceability of a forum-selection clause is de novo.  Given that this holding breaks from our existing precedent without justification, I cannot support this decision. While motions to dismiss based on a plaintiff's failure to state a claim are generally reviewed de novo, Sturm v. Board of Educ. of Kanawha County, 223 W.Va. 277, 280, 672 S.E.2d 606, 609 (2008), this Court has held that motions to dismiss based on venue are reviewed for abuse of discretion. Syl. Pt. 1, United Bank, Inc. v. Blosser, 218 W.Va. 378, 624 S.E.2d 815 (2005) (This Court's review of a trial court's decision on a motion to dismiss for improper venue is for abuse of discretion.). As recognized by the majority, motions to dismiss based on forum-selection clauses are motions to dismiss based on venue. Accordingly, by assigning a de novo standard of review to motions to dismiss based on forum-selection clauses specifically, the majority breaks with this Court's prior precedent. More importantly, this Court has long held as a general proposition that [i]n reviewing challenges to the findings and conclusions of the circuit court, we apply a two-prong deferential standard of review. We review the final order and the ultimate disposition under an abuse of discretion standard, and we review the circuit court's underlying factual findings under a clearly erroneous standard. Questions of law are subject to a de novo review. Syl. Pt. 2, Walker v. W. Va. Ethics Comm'n, 201 W.Va. 108, 492 S.E.2d 167 (1997). The new test set forth by the majority for determining whether to dismiss a claim based on a forum-selection clause necessarily requires that courts applying the test make findings of fact as well as determinations of law. Specifically, the first inquiry under the majority's new test is whether the clause was reasonably communicated to the party resisting enforcement. This element does not require a legal interpretation of the clause itself; rather, it turns solely on a question of fact specific to each individual case. Similarly, the fourth element of the new test requires a court to consider whether the party resisting enforcement of the forum-selection clause has made a sufficiently strong showing that such enforcement would be unreasonable and unjust. Such showing likewise turns on the facts of the particular case, and is not related to the legal interpretation of the contract at issue. Faced with a similar question concerning what standard to use in reviewing the enforcement of a forum-selection clause, the Supreme Court of Washington acknowledged the nuances associated with reviewing such clauses, and concluded that: [G]enerally the abuse of discretion standard applies. Under this standard of review, a trial court abuses its discretion if its decision is manifestly unreasonable or based on untenable grounds. If the trial court's ruling is based on an erroneous view of the law or involves application of an incorrect legal analysis it necessarily abuses its discretion. Thus, the abuse of discretion standard gives deference to a trial court's fact-specific determination on enforceability of a forum selection clause, while permitting reversal where an incorrect legal standard is applied. If, however, a pure question of law is presented, such as whether public policy precludes giving effect to a forum selection clause in particular circumstances, a de novo standard of review should be applied as to that question. Dix v. ICT Group, Inc., 160 Wash.2d 826, 161 P.3d 1016, 1020 (2007) (internal citations omitted). Thus, while affirming the basic tenet that questions of law are reviewed de novo, the Supreme Court of Washington recognized that, even in the context of forum-selection clauses, trial courts should be afforded the typical measure of deference generally granted to their factual findings. This approach is in keeping with this Court's prior precedent and there is no good reason to alter longstanding law to require de novo review of a circuit court's findings of fact merely because they relate to the applicability of a forum-selection clause. See Syl. Pt. 2, Walker, 201 W.Va. 108, 492 S.E.2d 167. Thus, I cannot support the majority's new holding on this issue, as its approach is too simplistic, not in conformity with our longstanding law, and seems designed to achieve an outcome for one specific case.
The broad language of the forum-selection clause in this case provides that it applies to all actions brought in connection with  the CSA. The facts in this case, however, establish that it was Massey's actions relating to the sale of Mr. Caperton's interest in the Harman Companiesactions that were not related in any way to the CSAthat directly caused the Harman Companies' and Mr. Caperton's complete financial demise. [9] For example, had Massey merely directed Wellmore to fraudulently declare force majeure, but done nothing further, it is likely that Mr. Caperton would have found a buyer for the Harman Companies, which would have saved them from bankruptcy and saved Mr. Caperton from personal financial ruin. Indeed, Black Diamond, the company that ultimately purchased Wellmore from Massey, had previously expressed an interest in purchasing the Harman Companies. Massey, however, prevented any such deal by engaging Black Diamond as a buyer for Wellmore and then ordering Black Diamond not to communicate with representatives of Harman regarding its possible acquisition. Massey's directive to Black Diamond is just one example of an act by Massey that was wholly unrelated to the CSA and, in the absence of which, the Harman Companies may well have avoided bankruptcy. Similarly, had Mr. Caperton not shut down the Harman Companies' operations in mid-January, in reliance on Massey's fraudulent representations that it intended to close the deal by January 31, 1998, Mr. Caperton and the Harman Companies' financial distress would not have been as urgent or immediate as it was. With a little more time, they could have found another buyer for their extremely valuable coal. [10] As part of its scheme, however, starting in November 1997, Massey consistently led Mr. Caperton to believe that the parties would reach a deal for the sale of Mr. Caperton's interest in the Harman Companies' and, thus, Massey effectively prevented Mr. Caperton and the Harman Companies from seeking other buyers or pursuing other avenues for relief. Clearly, Massey's misrepresentations regarding its intent to reach a sale agreement, as well as its failure to follow through on the agreed-to closing date for this sale, bear no relation to the CSA. The actions did, however, directly lead to the Harman Companies' and Mr. Caperton's declarations of bankruptcy. Finally, Massey's use of confidential information, obtained during the sale negotiations with Mr. Caperton, to purchase the narrow band of coal reserves surrounding the Harman Companies' mine, provides another example of conduct unrelated to any aspect of the CSA. As admitted by Massey in its own internal documents, this purchase ensured that the Harman Companies' property would be unattractive to all potential buyers other than Massey. Clearly, such action was yet another aspect of Massey's fraudulent scheme to ensure the Harman Companies' total collapse, and to further Massey's goal of gaining access to the Harman Companies' valuable coal reserves. Accordingly, the majority is wrong when it concludes that, in 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. Rather, the facts indicate that Massey's fraudulent conduct neither began nor ended with that wrongful declaration and that it was Massey's misrepresentations and concealments made in connection with the proposed sale of Mr. Caperton's interest in the Harman Companies that directly caused their demise. The majority, however, makes no attempt to explain why all of Massey's conduct unrelated to the CSA can be characterized as flowing from the fraudulent declaration of force majeure. Like many of its other determinations, the majority simply makes conclusory statements without any support or reasoning.
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.