Caperton v. A.T. Massey Coal Co. ( 2013 )

PRESENT: Lemons, Goodwyn, Millette, Mims, and Powell, JJ.,
and Russell and Koontz, S.JJ.
HUGH M. CAPERTON, ET AL.
OPINION BY
v. Record No. 121046 JUSTICE DONALD W. LEMONS
April 18, 2013
A.T. MASSEY COAL COMPANY, INC.
FROM THE CIRCUIT COURT OF BUCHANAN COUNTY
Henry A. Vanover, Judge
In yet another chapter in the contentious story of
litigation and controversy between Hugh M. Caperton
("Caperton") and Donald Blankenship ("Blankenship") and the
companies they control, we consider whether the trial court
erred in its application of the doctrine of res judicata.
Over the last fifteen years, litigation between Caperton
and his companies and Blankenship and his companies has
involved trips to many courts. These include suits in circuit
courts in both Virginia and West Virginia, proceedings in the
United States District Court for the Southern District of West
Virginia, and appeals to this Court, the Supreme Court of
Appeals of West Virginia, and the Supreme Court of the United
States.
The lineage of this dispute is as follows. Two of
Caperton's companies, Harman Mining Corporation ("Harman
Mining") and Sovereign Coal Sales ("Sovereign"), Incorporated,
first sued one of Blankenship's companies, Wellmore Coal
Corporation ("Wellmore"), in May 1998 for breach of contract.
This case was litigated in the Circuit Court of Buchanan
County, Virginia ("First Virginia Action"). Harman Mining
Corp. v. Wellmore Coal Corp., No. 226-98 (Cir. Ct. of Buchanan
County, Va. 1998). Caperton's companies prevailed. We later
dismissed Wellmore's appeal. Wellmore Coal Corp. v. Harman
Mining Corp., 264 Va. 279, 284, 568 S.E.2d 671, 673 (2002)
(per curiam).
In October 1998, Caperton, Harman Mining, Sovereign, and
Harman Development Corporation sued A.T. Massey Coal,
Incorporated ("Massey"), for certain tort claims in the
Circuit Court of Boone County, West Virginia. Caperton v.
A.T. Massey Coal Co., No. 98-C-192 (Cir. Ct. Boone County, W.
Va. 1998). Blankenship was president, chief executive
officer, and chairman of the board of Massey. Massey removed
the case to federal court. Caperton v. A.T. Massey Coal Co.,
251 B.R. 322, 324 (S.D. W. Va. 2000). The federal court later
remanded the case to the Boone County Circuit Court. Caperton
v. A.T. Massey Coal Co., 270 B.R. 654, 656 (S.D. W. Va. 2001);
see also A.T. Massey Coal Co. v. Harman Dev. Corp. (In re
Harman Dev. Corp.), No. 98-01990-WSB-11, Adv. No. 7-00-0057,
Jt. Mem. Op. and Order at 1 (Bankr. W.D. Va. Nov. 28, 2000).
Back in the West Virginia circuit court, Caperton and his
companies won a substantial jury verdict, which Massey
appealed to the Supreme Court of Appeals of West Virginia. On
2
its first consideration, the Supreme Court of Appeals of West
Virginia reversed, but the opinion was later vacated because
two justices who decided the case voluntarily disqualified
themselves after the decision. Caperton v. A.T. Massey Coal
Co. (Caperton I), No. 33350, 2007 W. Va. LEXIS 119, at *5-6
(W. Va. Nov. 21, 2007), vacated as noted in Caperton v. A.T.
Massey Coal Co. (Caperton II), 679 S.E.2d 223, 229 n.1 (2008).
On its second consideration, the Supreme Court of Appeals
of West Virginia again reversed and remanded the decision of
the West Virginia trial court. Caperton II, 679 S.E.2d at
229. Caperton and his companies appealed this decision to the
Supreme Court of the United States, arguing that another
justice should have recused himself, because Blankenship and
Massey contributed millions of dollars to the justice's
election campaign. The Supreme Court of the United States
agreed with Caperton and his companies and reversed and
remanded the case. Caperton v. A.T. Massey Coal Co. (Caperton
III), 556 U.S. 868, 890 (2009).
On its third consideration, the Supreme Court of Appeals
of West Virginia again reversed and remanded the decision of
the West Virginia trial court. The court determined that a
forum selection clause in an agreement between the parties
required that suit be brought in Virginia. Caperton v. A.T.
Massey Coal Co. (Caperton IV), 690 S.E.2d 322, 328 (2009).
3
Caperton and his companies subsequently filed suit in
Virginia in November 2010, bringing many of the same tort
claims as they did just over twelve years earlier. Caperton
v. A.T. Massey Coal Co., No. 771-10 (Cir. Ct. Buchanan County,
Va. 2011) ("Second Virginia Action"). The Circuit Court of
Buchanan County held that res judicata barred the Plaintiffs'
claims. Whether this decision was correct is the issue we
decide in this appeal.
I. Facts and Proceedings Below
A. Caperton's acquisition of the Harman mining operations,
the Coal Supply Agreement with Wellmore, Wellmore's changing
corporate structure, and bankruptcy
On January 1, 1993, Appellant Caperton acquired Harman
Mining and Sovereign. He also formed Harman Development
Corporation ("Harman Development") that same year. Caperton
I, 2007 W. Va. LEXIS 119, at *7. Caperton, Harman Mining,
Sovereign, and Harman Development were all plaintiffs to this
action below, and are Appellants herein (hereinafter
collectively referred to as "Plaintiffs"). The chart below
details Caperton's organization of his companies:
4
Harman Mining and Sovereign were engaged in the mining
and sale of metallurgical coal from a mine in Buchanan County,
Virginia (the "Harman Mine"). In 1992, Harman Mining and
Sovereign entered into a Coal Supply Agreement with Wellmore,
whereby Harman Mining and Sovereign would supply a fixed
output of coal from the Harman Mine to Wellmore each year,
from 1993 through 2001. Harman Mining, Sovereign, and
Wellmore continued to fulfill their obligations under the
agreement through 1996.
Effective January 1, 1997, Harman Mining and Sovereign
entered into a new Coal Supply Agreement ("CSA") with
Wellmore. Because Caperton invested significant capital to
improve the long-term prospects of the Harman Mine, the CSA
reflected a substantial increase in price paid for coal by
5
Wellmore. Wellmore was willing to pay a higher fee because it
supplied LTV Steel Corporation ("LTV") with coal blended with
the Harman Mine product, and the metallurgical qualities of
that coal made it desirable to steel producers. Harman
Mining, Sovereign, and Wellmore all performed under the CSA
through 1997.
Prior to July 31, 1997, Wellmore's corporate parent was
United Coal Company ("UCC"). On that date, Massey, of which
Blankenship was president, chief executive officer, and
chairman of the board, acquired UCC. On December 1, 1997,
Wellmore informed Harman Mining and Sovereign that it would
only accept a significantly reduced quantity of coal in 1998,
205,707 tons, instead of the negotiated amount, 573,000 tons.
Wellmore cited the force majeure clause of the CSA to excuse
its performance. In January 1998, Harman Mining and Sovereign
tendered performance under the CSA. Wellmore rejected the
previously agreed-upon tender.
The effect of the tonnage reduction was the financial
collapse of Harman Mining. Caperton's ventures were unable to
survive with Wellmore purchasing less than half of the amount
agreed upon in the CSA. Although Harman Mining and Sovereign
attempted to compensate for the severely reduced demand, they
were unable to do so. Subsequently, Harman Mining and
Sovereign filed for bankruptcy protection.
6
B. Breach of Contract Suit in Virginia
On January 6, 2000, Harman Mining and Sovereign filed
their first amended motion for judgment against Wellmore, the
First Virginia Action, in the Circuit Court of Buchanan County
("circuit court"). The suit alleged that Wellmore breached
the CSA as of January 1998 and that Wellmore's stated reason
for its refusal to accept the 573,000 ton shipment of coal –
force majeure – was without foundation.
To justify its declaration, Wellmore claimed that LTV
determined it no longer was interested in purchasing the
Harman Mine/Wellmore coal blend because LTV was shutting down
its Pittsburgh processing plant. Harman Mining and Sovereign
alleged that Wellmore knew that LTV was not considering the
shutdown of its Pittsburgh plant. They also alleged that the
actual reason LTV declined to continue business with UCC,
Wellmore's parent company, was because Massey, upon purchasing
UCC, attempted to sell LTV a different, inferior blend of
coal.
The issues in the First Virginia Action were whether
Wellmore refused to purchase the agreed-upon amount of coal,
whether there was a force majeure event, and, if so, whether
that event prevented Wellmore from supplying coal to LTV. At
the conclusion of the liability phase of trial, the jury found
that Wellmore breached the CSA. The circuit court limited
7
Harman Mining and Sovereign to lost profits for 1998. The
jury returned a $6,000,000 verdict in favor of Harman Mining
and Sovereign and the circuit court entered judgment on May 7,
2001.
C. Events of 1997-1998
Prior to its July 31, 1997 acquisition of UCC, Massey had
tried unsuccessfully to sell its West Virginia-mined coal
directly to LTV. Caperton IV, 690 S.E.2d at 330. An internal
Massey memo, drafted prior to the acquisition of UCC,
recognized the risks of attempting this strategy. The Massey
memo stated that if Massey ultimately purchased UCC and
Wellmore, the relationship between LTV and Wellmore might not
continue. This was because LTV had little interest in
changing from Harman-sourced coal blends to Massey-sourced
coal blends. Id.
After Massey's acquisition of UCC and Wellmore but before
August 5, 1997, Massey, fully appreciating the potential
consequences, "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." Id. (internal quotation marks omitted). LTV
refused, and ceased buying coal from Wellmore. Id. On August
5, 1997 at Massey's direction, Wellmore for the first time
informed Plaintiffs that they should "be aware that LTV Steel
8
has announced plans to close one of its coking operations.
Should this occur, Wellmore anticipates reducing the tonnage
amount pro rata, in accordance with the force majeure
provisions of the Agreement."
On December 1, 1997, at Massey's direction, Wellmore
declared force majeure. Massey was aware that this would put
the Harman companies out of business. Id. at 330-31. As the
Supreme Court of Appeals of West Virginia noted, prior to the
force majeure declaration,
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.
Id. at 331 (internal quotation marks omitted).
Between August 5, 1997 and December 1, 1997, Massey
engaged in negotiations with Plaintiffs for the purchase of
the Harman Mine. Id. at 330. During this period, Plaintiffs
shared confidential information with Massey to accurately
9
reveal the Harman companies' worth. Id. Specifically, Massey
learned about Harman Development, Harman Mining, and
Sovereign's mining operations, including their desire to
acquire and mine the adjacent Pittston reserves, and about
Plaintiffs' finances, including Caperton's own personal
finances. Id.
After the force majeure declaration,
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." 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.
Subsequently, the Harman Companies filed
for bankruptcy.
Id. at 331.
Massey's continuing effort to delay acquiring Harman
Development, Harman Mining, and Sovereign continued throughout
early 1998. In February 1998, Massey produced a new agreement
that was allegedly designed to resolve issues that led to the
10
January 1998 failure to close. However, Massey never followed
through on this offer. The next month, Massey agreed to
another closing date, March 13, 1998, which it also did not
honor.
The Supreme Court of Appeals of West Virginia also noted
the lower court's finding that "many of the steps Massey took
were directed at Mr. Caperton personally." Id. at 331 n.16.
Caperton "relied to his detriment on numerous false
representations made by Massey," including the closing
scheduled to take place on January 31, 1998. Id. Aware of
Caperton's personal obligations to entities such as
Inspiration Coal, Senstar Financial, Grundy National Bank, and
Vision Financial, Massey's continued delay in closing the sale
of the Harman companies not only detrimentally affected those
companies, but also Caperton individually. Id. In the spring
of 1998, Grundy National Bank obtained judgments against
Caperton, and Senstar Financial filed suit to enforce
Caperton's default on payment obligations for leased mining
equipment.
D. Tort Claims and Proceedings
On December 10, 1998, Plaintiffs filed their first
amended complaint against Massey in the Circuit Court of Boone
County, West Virginia (the "West Virginia Action"), detailing
Massey's actions as recounted in Section C, supra, and
11
alleging tortious interference with existing and prospective
contractual relations, fraudulent misrepresentation, civil
conspiracy, and negligent misrepresentation. 1 A jury awarded
the Plaintiffs approximately $50,000,000 in August 2002, which
the trial court confirmed.
A lengthy appellate process ensued. See Caperton III,
556 U.S. at 874-76; see also Caperton IV, 690 S.E.2d at 332-
33; Caperton II, 679 S.E.2d at 223, rev'd and remanded, 556
U.S. at 868; Caperton I, 2007 W. Va. LEXIS 119, at *1. On
review of Plaintiffs' appeal concerning due process violations
which resulted from the failure of a justice of the Supreme
Court of Appeals of West Virginia to recuse himself, the
Supreme Court of the United States characterized the evidence
of judicial impropriety before it as "extreme by any measure."
Caperton III, 556 U.S. at 887. This conduct took several
different forms.
For example, before Massey filed its first appeal with
the Supreme Court of Appeals of West Virginia, Blankenship
contributed $3 million to the election campaign fund of an
attorney, Brent Benjamin, who sought to replace a sitting
justice on the West Virginia high court. Id. at 873. "To
provide some perspective, Blankenship's $3 million in
1
Plaintiffs also included in their first amended
complaint a count for punitive damages.
12
contributions were more than the total amount spent by all
other Benjamin supporters and three times the amount spent by
Benjamin's own committee." Id. Benjamin won election. Id.
After the Supreme Court of Appeals of West Virginia's
first reversal of the jury verdict, Plaintiffs sought a
rehearing before that court, arguing that three of the five
justices who decided the appeal should have recused
themselves. Id. at 874. In addition to the campaign
contributions detailed above, "[p]hotos had surfaced of
Justice Maynard vacationing with Blankenship in the French
Riviera while the case was pending." Id. Although two of the
three justices disqualified themselves, the third, Justice
Benjamin, denied Caperton's recusal motion. Id. at 875.
However, the Supreme Court of Appeals of West Virginia granted
a rehearing, Caperton II, 679 S.E.2d at 229, and Caperton
again moved to disqualify then-acting Chief Justice Benjamin.
Caperton III, 556 U.S. at 875. Acting Chief Justice Benjamin
declined, and the Supreme Court of Appeals of West Virginia
reversed the trial court for a second time in a 3-2 decision.
Id. Acting Chief Justice Benjamin joined the majority, and
filed his own concurring opinion four months after the
decision. Id. at 876. The Supreme Court of the United States
granted Caperton's petition for a writ of certiorari. Id.
The Supreme Court of the United States concluded that
13
Blankenship's campaign contributions—in
comparison to the total amount contributed
to the campaign, as well as the total
amount spent in the election—had a
significant and disproportionate influence
on the electoral outcome. And the risk that
Blankenship's influence engendered actual
bias is sufficiently substantial that it
"must be forbidden if the guarantee of due
process is to be adequately implemented."
Id. at 885 (quoting Withrow v. Larkin, 421 U.S. 35,
47 (1975)).
After all of the litigation and "bouncing" back and forth
from the West Virginia trial court to the Supreme Court of
Appeals of West Virginia and even the Supreme Court of the
United States, the Supreme Court of Appeals of West Virginia
ultimately dismissed the case, because it held that a forum-
selection clause in the CSA required that Plaintiffs bring
their tort claims in Virginia. Caperton IV, 690 S.E.2d at
354, 357.
On November 9, 2010, Plaintiffs filed a complaint in the
Circuit Court of Buchanan County against Massey, the Second
Virginia Action, alleging tortious interference with existing
and prospective contractual and business relations, fraudulent
misrepresentation/deceit/concealment, and seeking punitive
damages. In response, Massey filed a plea of res judicata and
14
the statute of limitations. 2 Massey alleged that because all
of Plaintiffs' claims arose out of Wellmore's declaration of
force majeure, Plaintiffs "could have brought their tort and
contract claims together in the First Virginia Action but
chose not to do so." The circuit court agreed with Massey and
sustained its plea.
Plaintiffs timely filed their notice and petition for
appeal. We awarded them an appeal on the following
assignments of error:
1. The Circuit Court erred in ruling that if a claim
"could have been litigated" in a proceeding, it is
barred by res judicata – irrespective of whether it was
based on the "same evidence" used to prove, or arose
from the "same transaction" as, the previously
litigated claims.
2. The Circuit Court erred in ruling that the "same
transaction" test rather than the "same evidence" test
governs whether Plaintiffs' tort claims are identical
to the contract claim in the First Virginia Action, in
disregard of due process and fundamental fairness.
3. The Circuit Court erred in ruling that, under either
the "same transaction" test or the "same evidence"
2
The plea of the statute of limitations remains
unresolved. It is not before this Court on appeal.
15
test, Plaintiffs' tort claims against Massey are
identical to the contract claim against Wellmore in the
First Virginia Action.
4. The Circuit Court erred in ruling that Caperton and
Harman Development are in privity with the plaintiffs
in the First Virginia Action because of their
controlling ownership of those plaintiffs.
5. The Circuit Court violated the due process clauses of
the Virginia and U.S. Constitutions by interpreting
Virginia res judicata law, as it existed between 1998
and 2001, in a way inconsistent with and not supported
by this Court's precedents at that time, and applying
that interpretation retroactively so as to deprive
Plaintiffs of their constitutionally protected tort
claims and any remedies for those claims.
II. Analysis
A. Standard of Review
Whether Plaintiffs' Second Virginia Action is precluded
by res judicata is a question of law that we review de novo.
Westgate at Williamsburg Condo. Ass’n v. Philip Richardson
Co., 270 Va. 566, 574, 621 S.E.2d 114, 118 (2005). "[T]he one
asserting the defense of res judicata-bar . . . must show by a
preponderance of the evidence that the claim or issue should
16
be precluded by the prior judgment." Bates v. Devers, 214 Va.
667, 671, 202 S.E.2d 917, 921 (1974).
B. Proceedings in the Circuit Court
On December 14, 2011, the circuit court concluded that
"[h]aving found that all four elements of res judicata exist,
the Court sustains the Defendant's Plea of Res Judicata based
upon the First Virginia Action." The circuit court, relying
on Weinberger v. Tucker, 510 F.3d 486, 492 (4th Cir. 2007),
held that privity existed between the plaintiffs in the First
and Second Virginia Actions, because "[i]n Virginia, a
controlling shareholder and a parent corporation have an
identity of interest with the corporation the shareholder
controls such that the two are in privity for the purposes of
res judicata." The court also held that the identity of the
persons for and against the claim and the identity of remedies
sought was the same between both actions.
The circuit court also considered whether the identity of
the cause of action between the First and Second Virginia
Actions was the same. At the time of the First Virginia
Action, the circuit court concluded, "Virginia applied the
transactional approach followed by Bates and its progeny for
the purpose of determining identity between two causes of
action. Under the transactional approach, it is patent that
there is identity between the cause of action in the instant
17
matter and the First Virginia Action." The circuit court
further stated that
[t]he facts giving rise to the breach of
contract in the First Virginia Action and
the facts giving rise to the tort claims in
the instant action are related in time,
space, origin, and motivation . . . . it is
clear to this Court that Wellmore's
declaration of force majeure was the
paramount event leading to the breach of
contract in the First Virginia Action. It
is equally clear that Wellmore's
declaration of force majeure is the
paramount event for the tort claims
asserted in the instant action.
Because the court found that all four elements of res judicata
existed, Massey's plea was sustained. On March 21, 2012, the
court entered its final order.
C. The Law of Res Judicata in Virginia before Rule 1:6
Both parties agree that the law of res judicata as it
existed in 1998, the time of the First Virginia Action,
governs this Court's analysis. Prior to the adoption of Rule
1:6, the law of res judicata in Virginia consisted of four
elements. Smith v. Ware, 244 Va. 374, 376, 421 S.E.2d 444,
445 (1992). For res judicata to bar subsequent proceedings, a
defendant must show "'(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.'" Id. (quoting Wright v. Castles, 232
Va. 218, 222, 349 S.E.2d 125, 128 (1986)).
18
In Davis v. Marshall Homes, Inc., 265 Va. 159, 165, 576
S.E.2d 504, 506 (2003), a majority of the Court held that a
circuit court erred in concluding that res judicata barred the
plaintiff from bringing a cause of action for breach of
contract. The majority explained that identity of the causes
of action was lacking between the plaintiff's two suits
because
[i]n her fraud action, plaintiff would have
had to present evidence of the deed of
trust notes and defendants' failure to
satisfy those notes to show that she was
damaged as a result of the
misrepresentations. However, this evidence
does not satisfy the remaining elements
that plaintiff would have had to prove to
establish a prima facie case of actual
fraud by clear and convincing evidence. The
mere fact that some evidence relevant in
plaintiff's action for fraud may be
relevant to prove her distinct and separate
contract claim for nonpayment of the deed
of trust notes does not, for purposes of
res judicata, mean that plaintiff only has
one cause of action.
Id. at 166, 576 S.E.2d at 507.
In Davis, a majority of this Court stated that our
jurisprudence had previously settled any tension between the
"same evidence" test and the "same transaction" test when it
stated that
just one year after this Court decided
Allstar [Towing, Inc. v. City of
Alexandria, 231 Va. 421, 344 S.E.2d 903(1986)], we implicitly rejected the
transactional analysis test in Brown v.
19
Haley, [233 Va. 210, 355 S.E.2d 563(1987)], when we stated that "[t]he test to
determine whether claims are part of a
single cause of action is whether the same
evidence is necessary to prove each claim."
233 Va. at 216, 355 S.E.2d at 567.
Therefore, in accordance with our
precedent, we explicitly reject the
application of the transactional analysis
test when deciding whether a claim is
barred by res judicata.
Id. at 171, 576 S.E.2d at 510 (emphasis added) (citing State
Water Control Bd. v. Smithfield Foods, Inc., 261 Va. 209, 214,
542 S.E.2d 766, 769 (2001); Ware, 244 Va. at 376, 421 S.E.2d
at 445; Flora, Flora & Montague, Inc. v. Saunders, 235 Va.
306, 310-11, 367 S.E.2d 493, 495 (1988); Haley, 233 Va. at
216, 355 S.E.2d at 567). Three Justices dissented. Davis,
265 Va. at 172, 576 S.E.2d at 511 (Kinser, J., dissenting);
Id. at 185, 576 S.E.2d at 518 (Lemons, J., dissenting).
The majority in Davis also stated that
[i]n the present case, just as in Haley,
the doctrine of res judicata is simply not
applicable. The facts necessary to prove
plaintiff's action for actual fraud are
different from the facts she must prove for
her action based upon nonpayment of the
deed of trust notes. In the present appeal,
as in Haley, there is "no identity of facts
necessary to prove each claim."
Id. at 168, 576 S.E.2d at 508 (quoting Haley, 233 Va. at 217,
355 S.E.2d at 568). The Davis opinion remained the law of the
20
Commonwealth until our adoption of Rule 1:6. 3 It is apparent
that at the time of Plaintiffs' suit, the same evidence test
applied to determine whether identity of cause of action
existed. See Jones v. Morris Plan Bank, 168 Va. 284, 291, 191
S.E. 608, 610 (1937) ("If the same evidence will support both
actions there is but one cause of action.").
D. Does the Same Evidence Test Bar Plaintiffs' Second
Virginia Action?
The evidence from the Second Virginia Action was
different from the proof necessary to support the claims in
the First Virginia Action. Specifically, the First Virginia
Action was based on breach of the CSA, where Harman Mining and
Sovereign were required to show that: (1) The CSA legally
3
Rule 1:6 states in relevant part:
(a) Definition of Cause of Action. – A
party whose claim for relief arising from
identified conduct, a transaction, or an
occurrence, is decided on the merits by a
final judgment, shall be forever barred
from prosecuting any second or subsequent
civil action against the same opposing
party or parties on any claim or cause of
action that arises from that same conduct,
transaction or occurrence, whether or not
the legal theory or rights asserted in the
second or subsequent action were raised in
the prior lawsuit, and regardless of the
legal elements or the evidence upon which
any claims in the prior proceeding
depended, or the particular remedies
sought. A claim for relief pursuant to this
rule includes those set forth in a
complaint, counterclaim, cross-claim or
third-party pleading.
21
obligated Wellmore to purchase a defined amount of coal; (2)
Wellmore violated that obligation; and (3) Wellmore's breach
caused damage to Harman Mining and Sovereign. See Sunrise
Continuing Care, LLC v. Wright, 277 Va. 148, 154, 671 S.E.2d
132, 135 (2009) (stating the elements of a breach of contract
action).
Harman Mining and Sovereign were limited in their
introduction of evidence to establishing these elements, and
their proof primarily focused on whether Wellmore suffered a
force majeure event. Additionally, the circuit court in the
First Virginia Action limited evidence on damages to Harman
Mining and Sovereign's lost profits for 1998. During the
damages phase of trial, Wellmore itself characterized the
First Virginia Action as concerning
only the issue of any damages Wellmore
caused [Harman Mining and Sovereign] as a
result of the jury's determination that
Wellmore wrongfully refused to accept
573,000 tons of coal from Harman [Mining
and Sovereign] in 1998. Evidence on any
other subject has no relevance to the issue
to be decided by the jury.
In contrast, Plaintiffs are required to introduce
different evidence to support their claims of tortious
interference with existing and prospective business and
contractual relations, fraudulent misrepresentation, deceit,
22
and concealment. A review of the elements of their claims
makes this abundantly clear.
For example,
[t]o establish a claim for tortious
interference with a business or contract
expectancy, [the plaintiff is] required to
show that (1) it had a contract expectancy;
(2) [the defendant] knew of the expectancy;
(3) [the defendant] intentionally
interfered with the expectancy; (4) [the
defendant] used improper means or methods
to interfere with the expectancy; and (5)
[the plaintiff] suffered a loss as a result
of [the defendant's] disruption of the
contract expectancy.
Preferred Sys. Solutions, Inc. v. GP Consulting, LLC, 284 Va.
382, 403-04, 732 S.E.2d 676, 688 (2012) (citing Maximus, Inc.
v. Lockheed Info. Mgmt. Sys. Co., 254 Va. 408, 413, 493 S.E.2d
375, 378 (1997)). Harman Mining and Sovereign's breach of
contract action shares no elements with Plaintiffs' claim of
tortious interference with a business or contract expectancy.
The evidence required to sustain each action is therefore
different. See Worrie v. Boze, 198 Va. 533, 539-40, 95 S.E.2d
192, 197-98 (1958) (holding that separate causes of action
existed because "[a]n essential element in the [current] case"
was "absent in the first").
Additionally, fraudulent misrepresentation requires that
a plaintiff show a "false representation of a material fact;
made intentionally, in the case of actual fraud, or
23
negligently, in the case of constructive fraud; reliance on
that false representation to their detriment; and resulting
damage." Klaiber v. Freemason Assocs., Inc., 266 Va. 478,
485, 587 S.E.2d 555, 558 (2003) (citing Evaluation Research
Corp. v. Alequin, 247 Va. 143, 148, 439 S.E.2d 387, 390
(1994)). Fraudulent misrepresentation shares none of the
elements of a breach of contract action, and the evidence
required to support each claim is, therefore, manifestly
different.
Plaintiffs' allegations further demonstrate that the
First and Second Virginia Actions involve different causes of
action. Even before Massey acquired Wellmore, Massey
attempted to destabilize Harman Mining, Sovereign, and
Wellmore's relationship with 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.
24
Caperton IV, 690 S.E.2d at 330 (internal quotation marks
omitted). Massey knew "that LTV had historically demonstrated
a preference for multiple suppliers and had not entered multi-
year coal supply contracts," and Massey similarly increased
the price at which it offered to sell coal to LTV. Id. at 330
n.13. Not surprisingly, "LTV ceased buying coal from
Wellmore." Id. at 330.
Massey also knowingly concealed the loss of LTV's
business from Plaintiffs. Massey took this action in late
1997, according to the Supreme Court of Appeals of West
Virginia, because it knew that "it would be virtually
impossible for Harman to find alternate buyers for its coal at
that point in time." Id. at 331. Massey's discussions to
purchase the Harman companies were not pursued in good faith,
because Plaintiffs had to shut down business operations in
anticipation of a sale that never occurred. The Supreme Court
of Appeals of West Virginia noted that the delay "ultimately
collapsed the transaction in such a manner so as to increase
the Harman Companies' financial distress." Id. (internal
punctuation omitted).
Additionally, during negotiations for the sale of the
Harman companies, Massey allegedly acquired confidential
information about Caperton and his companies. "Massey
utilized the confidential information it had obtained from the
25
Harman Companies to take further actions, such as purchasing a
narrow band of the Pittston coal reserves surrounding the
Harman Mine." Id. Explaining why Massey acquired the land, a
Massey executive stated that
[t]he property we have acquired provides a
fairly effective block against anyone else
cutting a deal with Pittston on the balance
of their Splashdam coal. It also greatly
diminishes the attractiveness of the Harman
property to parties other than Massey, so
we will more than likely get Harman in the
long run.
Massey's actions were not simply limited to Harman
Development, Harman Mining, and Sovereign, however. Having
learned that Caperton personally guaranteed a number of the
Harman companies' obligations, Massey made false
representations to Caperton about the closing date for the
sale of Harman Development, Harman Mining, and Sovereign,
causing Caperton to default on those obligations.
Consequently, in the spring of 1998, both Grundy National Bank
and Senstar Financial took actions that severely impacted
Caperton's credit rating and creditworthiness.
Additionally, Massey's actions caused Caperton to be
listed on the "Applicant Violator System," a database
maintained by the Department of the Interior's Office of
Surface Mining, which listing effectively prevents Caperton
from conducting business in the mining industry in the future.
26
Finally, "[t]he [West Virginia] circuit court noted in its
Final Order denying Massey's post-trial motions that Mr.
Caperton suffered additional mental anguish due to Massey's
trespassing on his personal property and photographing his
personal residence." Id. at 361 n.8 (Workman, J.,
dissenting).
It is clear that proof of these acts is not necessary to
prove the breach of contract claims arising out of the CSA.
Accordingly, since "[t]he test to determine whether claims are
part of a single cause of action is whether the same evidence
is necessary to prove each claim," Haley, 233 Va. at 216, 355
S.E.2d at 567, and because the same evidence from the First
Virginia Action is not necessary to prove Plaintiffs' claims
in the Second Virginia Action, res judicata will not bar the
Second Virginia Action. 4
III. Conclusion
We hold that the circuit court erred in determining that
res judicata operates to bar Plaintiffs' action. Accordingly,
we will reverse the judgment of the circuit court, and remand
for proceedings consistent with this opinion.
Reversed and remanded.
4
Our holding makes it unnecessary to address the privity
issue and the due process claim.
27