State of West Virginia ex rel., 3C LLC and Justin Journay v. The Honorable Eric H. O'Briant, Judge of the Circuit Court of Logan County and Tri-State Wholesale, Inc. ( 2022 )

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
FILED
January 2022 Term
June 14, 2022
released at 3:00 p.m.
EDYTHE NASH GAISER, CLERK
SUPREME COURT OF APPEALS
No. 21-0441 OF WEST VIRGINIA
STATE OF WEST VIRGINIA EX REL. 3C LLC,
AND JUSTIN JOURNAY,
Petitioners,
v.
THE HONORABLE ERIC H. O’BRIANT,
JUDGE OF THE CIRCUIT COURT OF LOGAN COUNTY,
AND TRI-STATE WHOLESALE, INC.,
Respondents.
Petition for a Writ of Prohibition
WRIT GRANTED AS MOULDED
Submitted: April 13, 2022
Filed: June 14, 2022
Corey L. Palumbo, Esq. Russell D. Jessee, Esq.
Roger Hanshaw, Esq. John J. Meadows, Esq.
Joshua A. Lanham, Esq. Devon J. Stewart, Esq.
BOWLES RICE LLP Steptoe & Johnson PLLC
Charleston, West Virginia Charleston, West Virginia
Counsel for Petitioners Counsel for Respondent
Tri-State Wholesale, Inc.
JUSTICE WALKER delivered the Opinion of the Court.
JUSTICE BUNN did not participate in the decision of the Court.
SYLLABUS BY THE COURT
1. “In determining whether to entertain and issue the writ of prohibition
for cases not involving an absence of jurisdiction but only where it is claimed that the lower
tribunal exceeded its legitimate powers, this Court will examine five factors: (1) whether
the party seeking the writ has no other adequate means, such as direct appeal, to obtain the
desired relief; (2) whether the petitioner will be damaged or prejudiced in a way that is not
correctable on appeal; (3) whether the lower tribunal’s order is clearly erroneous as a matter
of law; (4) whether the lower tribunal’s order is an oft repeated error or manifests persistent
disregard for either procedural or substantive law; and (5) whether the lower tribunal’s
order raises new and important problems or issues of law of first impression. These factors
are general guidelines that serve as a useful starting point for determining whether a
discretionary writ of prohibition should issue. Although all five factors need not be
satisfied, it is clear that the third factor, the existence of clear error as a matter of law,
should be given substantial weight.” Syllabus Point 4, State ex rel. Hoover v. Berger, 199
W. Va. 12, 483 S.E.2d 12 (1996).
2. “‘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).” Syllabus Point 1, Caperton v. A.T.
Massey Coal Co., 225 W. Va. 128, 690 S.E.2d 322 (2009).
i
3. “Our review of the applicability and enforceability of a forum-
selection clause is de novo.” Syllabus Point 2, Caperton v. A.T. Massey Coal Co., 225 W.
Va. 128, 690 S.E.2d 322 (2009).
4. “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.” Syllabus Point 4, Caperton v. A.T. Massey Coal Co., 225 W. Va. 128,
690 S.E.2d 322 (2009).
5. “A range of transaction participants, signatories and non-signatories,
may benefit from and be subject to a forum[-]selection clause. In order for a non-signatory
to benefit from or be subject to a forum[-]selection clause, the non-signatory must be
closely related to the dispute such that it becomes foreseeable that the non-signatory may
ii
benefit from or be subject to the forum[-]selection clause.” Syllabus Point 8, Caperton v.
A.T. Massey Coal Co., 225 W. Va. 128, 690 S.E.2d 322 (2009).
6. A forum-selection clause may be found unreasonable and unjust if (1)
the complaining party will for all practical purposes be deprived of a day in court because
of the inconvenience or unfairness of the selected forum, (2) the chosen forum may deprive
the plaintiff of a remedy, or (3) its enforcement would contravene a strong public policy of
the forum state.
7. In order to rebut the presumption of enforceability of a forum-
selection clause on the ground of fraud, the fraud alleged must be specific to the forum-
selection clause itself. General allegations of fraud with respect to the inducement of the
contract as a whole are insufficient to invalidate its forum-selection clause.
iii
WALKER, Justice:
This case involves a business dispute rooted in a contract between Petitioner
3C LLC, d/b/a 3Chi, a manufacturer of hemp-derived vaping cartridges, and Respondent
Tri-State Wholesale, Inc., d/b/a Tri-State Cannabis, its distributor. In October 2020, Tri-
State filed a complaint against 3Chi and Petitioner Justin Journay, the sole member of 3Chi,
in the Circuit Court of Logan County, West Virginia, even though their contract requires
that any lawsuit “arising out of the breach of [their] Agreement” be filed in the Circuit
Court of Hamilton County, Indiana. In this original jurisdiction action, we consider
whether the circuit court committed clear legal error by denying Petitioners’ motion to
dismiss the complaint based on the forum-selection clause. Because we conclude that the
circuit court incorrectly applied our holding in Caperton v. A.T. Massey Coal Company1
in evaluating the enforceability of the forum-selection clause, we grant Petitioners’ request
for a writ of prohibition as moulded. We remand the case for the circuit court to determine
whether Tri-State can make a “sufficiently strong showing that enforcement would be
unreasonable and unjust, or that the clause was invalid for such reasons as fraud or
overreaching.” 2
1
225 W. Va. 128, 690 S.E.2d 322 (2009).
2
Id. at 133, 690 S.E.2d at 327, syl. pt. 4.
1
I. FACTUAL AND PROCEDURAL BACKGROUND
Tri-State and 3Chi entered into an Exclusive Distribution Agreement in April
2020. The Agreement is for a three-year term and provides that Tri-State is the exclusive
distributor of 3Chi’s “Products,” as defined in the Agreement, in West Virginia and
Kentucky. 3 These products include Delta 8 hemp-derived vaping cartridges. 4 Tri-State
represents that “[b]ecause Delta 8 products are derived from hemp and contain less than
0.3% Delta 9 THC,” they may be lawfully sold under federal law.
This business arrangement quickly soured, and in October 2020, Tri-State
filed suit against 3Chi and Mr. Journay, 3Chi’s sole member, in the Circuit Court of Logan
County, West Virginia. 5 3Chi filed suit against Tri-State in the Circuit Court of Hamilton
County, Indiana, in March 2021, adhering to the Agreement’s forum-selection clause. 6
In this West Virginia action, Tri-State claims that it expended considerable
time and money to quickly establish an extensive retail network for 3Chi products in West
Virginia and Kentucky. It alleges that in August 2020, the United States Drug Enforcement
3
In May 2020, the parties amended the Agreement to enlarge Tri-State’s territory
to include the States of West Virginia and Kentucky.
4
Delta 8, as used in the Agreement, refers to the cannabinoid delta-8
tetrahydrocannabinol (THC), which is present in some hemp-derived extracts.
5
Tri-State filed an amended complaint in November 2020.
6
See note 8, below.
2
Agency (DEA) issued an Interim Final Rule (IFR) that called into question whether it was
legal to sell Delta 8 cartridges. Tri-State claims that while the hemp industry attempted to
understand the full effects and implications of the IFR, 3Chi posted a notice on its website
stating that the DEA had made the sale of the product illegal under the IFR. Tri-State
claims that this notice made the sale of the product financially infeasible and that 3Chi was
legally obligated under the Agreement to refund Tri-State the value of 3Chi’s products that
Tri-State had in its inventory, but that 3Chi refused to make the refund unless Tri-State
agreed to a non-compete provision. Tri-State maintains that it was not obligated under the
Agreement to agree to a non-compete provision in order to obtain a refund. It also claims
that 3Chi and Mr. Journay “made the illegality announcement, which they did not believe
themselves, in order to prevent Tri-State from being able to distribute Delta 8 products.”
Tri-State ultimately alleges that 3Chi and Mr. Journay’s conduct was a scheme to defraud:
3Chi and Mr. Journay’s conduct reveals a scheme to
defraud by inducing Tri-State to invest heavily in building
3Chi’s brand and warehousing 3Chi products, and once the
DEA’s IFR created industry uncertainty, manipulating that
uncertainty—by stating that they considered Delta 8 products
to be illegal and then promptly resuming sale of Delta 8
products—in order to appropriate Tri-State’s distribution
network for themselves.
In its four-count amended complaint, Tri-State identifies the following
claims: (1) breach of contract against 3Chi for refusing to abide by the Agreement’s refund
provision in the event of a change in law; (2) breach of contract against 3Chi for violating
the Agreement’s exclusivity term; (3) fraud against 3Chi and Mr. Journay for engaging in
3
a scheme to defraud Tri-State by posting a false statement on 3Chi’s website which caused
Tri-State to lose the benefits of their Agreement; and (4) tortious interference with contracts
against 3Chi and Mr. Journay for interfering with the contracts Tri-State maintained with
the retailers it used to market the products. Tri-State alleges that “3Chi’s fraudulent scheme
was effected by Mr. Journay as 3Chi’s principal and the sole person controlling the
company.” It maintains that “Mr. Journay also is liable individually, because Mr. Journay
is directly liable for his own tortious conduct and because Mr. Journay is the sole member
of 3Chi and, . . . so controls 3Chi, disregarding the limited liability company formalities,
that there is an identity of interests between Mr. Journay and 3Chi.” Tri-State seeks
monetary damages including compensation for costs incurred in building its retail network
and promoting 3Chi’s products, compensation for lost future profits, attorney fees and
costs, and an injunction “requiring 3Chi to immediately cease all sales of its products into
West Virginia and Kentucky unless it does so in conformance with the parties’ Exclusive
Distribution Agreement[.]”
In December 2020, 3Chi and Mr. Journay moved to dismiss Tri-State’s case
with prejudice, contending that Tri-State failed to comply with the dispute resolution
provision of the Agreement, which requires mediation prior to suit 7 and includes a forum-
7
After the motion to dismiss was filed, the parties took their disputes to mediation
but were not successful in resolving this matter.
4
selection clause stating that “[a]ny legal suit, action, or proceeding arising out of the breach
of this Agreement . . . shall occur in the Circuit Court of Hamilton County, Indiana.”8
8
Specifically, the Agreement provided:
26. DISPUTE RESOLUTION
The Parties agree that in the event a dispute may arise
concerning any aspect of this Agreement, that said dispute will
be first submitted to mediation and that each party waives their
right to file any legal action within the federal and state courts
of Indiana or any other jurisdiction until mediation is held. To
begin such mediation, any party shall forward, in writing and
by certified mail, a request for mediation to the other party.
The parties shall then consult and if a single mediator cannot
be agreed upon within 30 days, each party shall appoint a
mediation/representative and those two
mediators/representatives shall then agree to [a] single and
final mediator. Said mediation shall occur in Hamilton
County, Indiana within sixty (60) days of the initial letter
requesting mediation unless otherwise agreed upon by the
parties and each side shall bear their own costs and fees
associated with said mediation.
If the dispute cannot be resolved at mediation, EACH PARTY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN RESPECT TO ANY LEGAL
ACTION ARISING OUT OF OR RELATING TO THIS
AGREMENT. Any legal suit, action, or proceeding arising out
of the breach of this Agreement or [sic] shall occur in the
Circuit Court of Hamilton County, Indiana. The prevailing
party or parties shall be entitled to an award of its reasonable
attorney fees and costs through every stage of the proceeding
and in obtaining and enforcing any judgment.
5
In its response to Petitioners’ motion to dismiss, Tri-State argued that “[i]t
would be unreasonable and unjust to allow 3Chi to strictly enforce the forum[-]selection
clause when it has disregarded every other provision of the Exclusive Distribution
Agreement.” It claimed that Mr. Journay lacked contractual privity to enforce the forum-
selection clause and that it was inapplicable to its claims against him. Tri-State also stated
that the provision setting Hamilton County, Indiana, as the exclusive venue for lawsuits
was invalid for reasons of fraud and overreaching, and that its enforcement would be
unreasonable and unjust.
Specifically, Tri-State claimed that Petitioners misrepresented that the venue
was selected because 3Chi was operating and planned to move its headquarters there. But
Tri-State contended that Petitioners misrepresented 3Chi’s location; it attached an affidavit
from a private investigator claiming that she could not find that 3Chi or Mr. Journay had
property or a physical address in Indiana other than 3Chi’s post office box. The private
investigator stated that records with the Indiana Secretary of State and Colorado Secretary
of State indicate that 3Chi is registered with a principal office location in Strongsville,
Ohio. In reply, Petitioners stated that 3Chi utilizes Hamilton County, Indiana, as its
principal place of business, and has done so since approximately April of 2020. They also
attached an affidavit from Mr. Journay stating that 3Chi moved its manufacturing facility
and its principal place of business there.
6
On April 28, 2021, the circuit court conducted a hearing on Petitioners’
motion to dismiss; it relied on the pleadings, and other matters of record, rather than
conducting an evidentiary hearing. At the conclusion of the hearing, the circuit court
denied Petitioners’ motion to dismiss. In its May 21, 2021, order, it stated:
First, with regard to Mr. Journay, an individual, he is
not party to this contract at issue in this action. And, the
allegations against him sound in tort for fraud and tortious
interference with a contract, part of which was to be performed
here in Logan County. So, Mr. Journay, not having been a
party to the contract, would not be able to require the Plaintiff
to bring suit against him individually anywhere else. Nor does
the contract create a benefit for Mr. Journay for any claims
against him that sound in tort to be the subject to mediation
prior to suit. Moreover, it was argued and not disputed that the
mediation has now occurred, at least between the companies,
and was unsuccessful.
....
Second, with regard to the 3C LLC claim that the
Complaint should be dismissed as to it, the [c]ourt again,
taking the allegations in the Complaint as true, would find that
the mediation clause and the restricted venue clause would not
be jurisdictional but would be contract provisions. Those
contract provisions are presumptively enforceable unless the
[c]ourt would deem them to be unreasonable or unjust. The
[C]omplaint taken as a whole, would indicate that this
Defendant, 3C LLC, has engaged in fraudulent acts, which
affect the contract, part of which was to be enforceable here.
So, taking the allegations of the Complaint as true, the [c]ourt
would find that enforcement of these contract provisions would
be unreasonable and unjust as to the Plaintiff.
In May 2021, Petitioners petitioned this Court requesting that we enter a writ
of prohibition preventing the circuit court from continuing any further proceedings in this
7
case. They maintain that venue is appropriate in Hamilton County, Indiana, the forum
chosen by the parties in the Agreement.9
II. STANDARD OF REVIEW
We consider the following criteria when deciding whether to grant a writ of
prohibition where the lower court is acting within its jurisdiction but alleged to have
exceeded its powers:
In determining whether to entertain and issue the writ of
prohibition for cases not involving an absence of jurisdiction
but only where it is claimed that the lower tribunal exceeded
its legitimate powers, this Court will examine five factors: (1)
whether the party seeking the writ has no other adequate
means, such as direct appeal, to obtain the desired relief; (2)
whether the petitioner will be damaged or prejudiced in a way
that is not correctable on appeal; (3) whether the lower
tribunal’s order is clearly erroneous as a matter of law; (4)
whether the lower tribunal’s order is an oft repeated error or
manifests persistent disregard for either procedural or
substantive law; and (5) whether the lower tribunal’s order
raises new and important problems or issues of law of first
impression. These factors are general guidelines that serve as
a useful starting point for determining whether a discretionary
writ of prohibition should issue. Although all five factors need
not be satisfied, it is clear that the third factor, the existence of
clear error as a matter of law, should be given substantial
weight.[10]
9
After the circuit court denied their motion to dismiss, Petitioners filed an Answer
and Counterclaim in this action in June 2021.
10
Syl. Pt. 4, State ex rel. Hoover v. Berger, 199 W. Va. 12, 483 S.E.2d 12 (1996).
8
This Court considers a motion to dismiss, based on a forum-selection clause,
as a motion to dismiss for improper venue under Rule 12(b)(3) of the West Virginia Rules
of Civil Procedure,11 and we have entertained writs of prohibition in venue disputes. For
instance, in State ex rel. Mylan, Inc. v. Zakaib, 12 we stated that “a writ of prohibition is an
appropriate remedy ‘to resolve the issue of where venue for a civil action lies,’ because
‘the issue of venue [has] the potential of placing a litigant at an unwarranted disadvantage
in a pending action and [ ] relief by appeal would be inadequate.’” 13
In Caperton, we held that “[t]his Court’s review of a trial court’s decision on
a motion to dismiss for improper venue is for abuse of discretion[,]” 14 but our normal
deference does not apply where the law is misapplied. 15 Because forum-selection clauses
are contractual provisions agreed to by private parties, issues relating to their interpretation
11
Caperton, 225 W. Va. at 139, 690 S.E.2d at 333 (quoting 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 (2d ed. 2006)).
12
227 W. Va. 641, 713 S.E.2d 356 (2011).
13
Id. at 645, 713 S.E.2d at 360 (quoting State ex rel. Huffman v. Stephens, 206 W.
Va. 501, 503, 526 S.E.2d 23, 25 (1999)); see also State ex rel. Riffle v. Ranson, 195 W. Va.
121, 124, 464 S.E.2d 763, 766 (1995) (“In recent times in every case that has had a
substantial legal issue regarding venue, we have recognized the importance of resolving
the issue in an original action.”).
14
225 W. Va. at 132, 690 S.E.2d at 323, syl. pt. 1 (quoting United Bank, Inc. v.
Blosser, 218 W. Va. 378, 624 S.E.2d 815 (2005)).
15
Riffle, 195 W. Va. at 124, 464 S.E.2d at 766.
9
and enforcement are matters of contract law. “Our review of the applicability and
enforceability of a forum-selection clause is de novo.” 16 When determining whether
extraordinary relief is warranted in this case, we turn our focus to whether Petitioners meet
the third Hoover factor—whether the circuit court’s order denying their motion to dismiss
on the basis of the forum-selection clause is clearly erroneous as a matter of law. 17
III. ANALYSIS
Forum-selection clauses have the “salutary effect of dispelling any confusion
about where suits arising from the contract must be brought and defended, sparing litigants
the time and expense of pretrial motions to determine the correct forum and conserving
judicial resources that otherwise would be devoted to deciding those motions.” 18 In
syllabus point 4 of Caperton, this Court adopted the following rule for determining how
courts should assess the enforceability of a forum-selection clause:
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
16
Caperton, 225 W. Va. at 133, 690 S.E.2d at 327, syl. pt. 2.
17
Hoover, 199 W. Va. at 14-15, 483 S.E.2d at 14-15, syl. pt. 4, in part.
18
Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593-94 (1991).
10
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.[19]
Petitioners contend that the circuit court’s ruling is clearly erroneous because
the parties’ Agreement contains a forum-selection clause that satisfies the above
requirements and Tri-State failed to overcome the presumption of its enforceability. They
claim that extraordinary relief is appropriate because a post-judgment appeal cannot
provide an adequate remedy for the breach of their Agreement requiring litigation
elsewhere. Tri-State counters that Petitioners’ failure to request and obtain an order
containing findings of fact and conclusions of law is fatal to their request to obtain an
extraordinary writ on an interlocutory order. 20 Responding to Petitioners’ substantive
19
Caperton, 225 W. Va. at 133, 690 S.E.2d at 327, syl. pt. 4.
20
See Syl. Pt. 8, State ex rel. Vanderra Res., LLC v. Hummel, 242 W. Va. 35, 829
S.E.2d 35 (2019) (“‘A party seeking to petition this Court for an extraordinary writ based
upon a non-appealable interlocutory decision of a trial court, must request the trial court
set out in an order findings of fact and conclusions of law that support and form the basis
of its decision. In making the request to the trial court, counsel must inform the trial court
specifically that the request is being made because counsel intends to seek an extraordinary
writ to challenge the court’s ruling. When such a request is made, trial courts are obligated
to enter an order containing findings of fact and conclusions of law. Absent a request by
the complaining party, a trial court is under no duty to set out findings of fact and
conclusions of law in non-appealable interlocutory orders.’ Syllabus Point 6, State ex rel.
Allstate v. Gaughan, 203 W. Va. 358, 508 S.E.2d 75 (1998).”).
11
claims, Tri-State argues that Petitioners fail to show clear legal error or a flagrant abuse of
discretion when the circuit court applied the fourth Caperton factor and found that
enforcement of the forum-selection clause would be unreasonable and unjust.
Although the circuit court’s order does not contain findings of fact and
conclusions of law, this Court still is able to determine that (1) the forum-selection clause
is presumptively enforceable because it “was communicated to the resisting party, has
mandatory force and covers the claims and parties involved in the dispute,” 21 and (2) the
circuit court failed to properly evaluate the fourth Caperton factor.
A. Forum-Selection Clause is Presumptively Enforceable
Tri-State does not contest that the forum-selection clause was reasonably
communicated to it or that it is mandatory, so we proceed to step three of Caperton to see
if it is presumptively enforceable. “The third query asks whether the claims and parties
involved in the suit are subject to the forum-selection clause.” 22 In its brief to this Court,
Tri-State makes no argument on this point, but we address it briefly as to Mr. Journay
because the circuit court denied Petitioners’ motion to dismiss with regard to him, in part,
on that basis.
21
Caperton, 225 W. Va. at 133, 690 S.E.2d at 327, syl. pt. 4, in part.
22
Id.12
The circuit court stated that “Mr. Journay, not having been a party to the
contract, would not be able to require” Tri-State “to bring suit against him individually
anywhere else.” But a party being a non-signatory to an agreement is insufficient, standing
alone, to preclude enforcement of a forum-selection clause. In syllabus point 8 of
Caperton, we recognized the breadth of forum-selection clauses and held that
[a] range of transaction participants, signatories and
non-signatories, may benefit from and be subject to a forum[-
]selection clause. In order for a non-signatory to benefit from
or be subject to a forum selection clause, the non-signatory
must be closely related to the dispute such that it becomes
foreseeable that the non-signatory may benefit from or be
subject to the forum[-] selection clause.[23]
Applying this rule to the facts presented here, even though Mr. Journay is not a party to the
Agreement, he may still enforce the forum-selection clause because Tri-State’s claims
against him are nearly identical to its claims against 3Chi and arise out of the same
transactions as those claims. In its amended complaint, Tri-State alleges that Mr. Journay
“so controls 3Chi, disregarding the limited liability company formalities, that there is an
identity of interests between Mr. Journay and 3Chi.” And because Mr. Journay is the sole
member of 3Chi, the parties to the Agreement could reasonably foresee that the forum-
selection clause may benefit and be binding on him.
23
Id. at 133, 690 S.E.2d at 327, syl. pt. 8.
13
Turning to whether the claims are subject to the forum-selection clause, the
circuit court stated that the allegations against Mr. Journay “sound in tort for fraud and
tortious interference with a contract, part of which was to be performed here in Logan
County.” But “[w]hether a forum[-]selection clause applies to tort claims depends on
whether resolution of the claims relates to interpretation of the contract.”24 And when
contract-related tort claims involve the same operative facts as a parallel claim for breach
of contract—as they do here—the claims should be heard in the forum selected by the
parties. 25 When we examine the substance of Tri-State’s tort claims, they clearly fall
within the scope of the forum-selection clause. 26
Because the first three Caperton factors are met, the forum-selection clause
is presumptively enforceable. The pivotal question then is whether Tri-State can satisfy its
burden to prevent the circuit court from enforcing it by rebutting the presumption of
enforceability.
24
Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 (9th Cir. 1988).
25
Lambert v. Kysar, 983 F.2d 1110, 1121-22 (1st Cir. 1993).
26
For instance, in Omron Healthcare, Inc. v. Maclaren Exports Limited, 28 F.3d
600 (7th Cir. 1994), the court enforced a similar forum-selection clause that covered “all
disputes arising out of” a contract when the plaintiff-distributor brought a trademark
infringement suit alleging that the defendant-manufacturer continued to sell merchandise
bearing the plaintiff’s trademark after the distribution agreement between the parties had
terminated. Id. at 601-604. The Omron court reasoned that “all disputes the resolution of
which arguably depend on the construction of an agreement ‘arise out of’ that agreement.”
Id. at 603.
14
B. Rebutting the Presumption of Enforceability
Under Caperton’s fourth factor, Tri-State can overcome the presumption that
the forum-selection clause is enforceable “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.” 27 The use of the disjunctive “or” suggests that the
resisting party can overcome the presumption of enforceability in two distinct ways. 28 In
Caperton, we relied on the following four-part test from the United States Court of Appeals
for the Fourth Circuit:
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
27
Caperton, 225 W. Va. at 133, 690 S.E.2d at 327, syl. pt. 4, in part (emphasis
added). In Caperton, the plaintiffs did not argue that enforcement of the forum-selection
clause of the contract, requiring that the case be litigated in Virginia, was unreasonable or
unjust at the time of the defendants’ motion to dismiss, or that the clause was invalid for
such reasons as fraud or overreaching. Id. at 155, 690 S.E.2d at 349. Rather, they argued,
in part, that it was “unjust to apply the forum-selection clause to deprive them of the large
jury verdict awarded below.” Id. So, it was unnecessary for this Court to discuss at length
how a party resisting a forum-selection clause can overcome the presumption of its
enforceability.
28
See Brickstreet Mut. Ins. Co. v. Zurich Am. Ins. Co., 240 W. Va. 414, 423-24, 813
S.E.2d 67, 76-77 (2018) (stating word “or” ordinarily connotes an alternative between the
two clauses it connects).
15
plaintiff of a remedy; or (4) their enforcement would
contravene a strong public policy of the forum state.[29]
Funneling these factors into our Caperton analysis, we see that two, three,
and four relate to whether enforcement of the forum-selection clause would be
unreasonable and unjust. And the first relates to whether the forum-selection clause is
invalid for reasons such as fraud or overreaching. In this case, the circuit court concluded
that because “[t]he complaint taken as a whole, would indicate that [3Chi] has engaged in
fraudulent acts, which affect the contract, . . . enforcement of these contract provisions
would be unreasonable and unjust[.]” So, the circuit court viewed the general allegations
of fraud as indicative of the unreasonableness or unjustness of enforcing the forum-
selection clause, not considering the “or” in syllabus point 4 of Caperton. The circuit court
conflated the two ways that a resisting party can overcome the presumption of
enforceability, and so failed to properly apply either.
A court may decline to enforce a forum-selection clause when the resisting
party makes “a sufficiently strong showing that enforcement would be unreasonable and
unjust[.]” 30 To that end, we hold that a forum-selection clause may be found unreasonable
29
Allen v. Lloyd’s of London, 94 F.3d 923, 928 (4th Cir. 1996) (quotation marks
omitted). In Caperton, we also relied on M/S Bremen v. Zapata Off-Shore Co., 407 U.S.
1, 10 (1972), where the United States Supreme Court concluded that, for purposes of
federal law, forum-selection clauses “are prima facie valid and should be enforced unless
enforcement is shown by the resisting party to be ‘unreasonable’ under the circumstances.”
30
Caperton, 225 W. Va. at 133, 690 S.E.2d at 327, syl. pt. 4, in part.
16
and unjust if (1) the complaining party will for all practical purposes be deprived of a day
in court because of the inconvenience or unfairness of the selected forum, (2) the chosen
forum may deprive the plaintiff of a remedy, or (3) its enforcement would contravene a
strong public policy of the forum state. 31 When analyzing this type of claim “courts focus
on whether the burdens claimed by the resisting party were foreseeable at the time the
resisting party ratified the agreement.”32 While most unreasonableness claims focus on the
high expense of travel associated with litigating in the selected forum, “[o]nly cases with
extreme facts seem to necessitate the invalidation of forum[-]selection clauses on grounds
of . . . inconvenience.” 33 While this issue does not appear to be the focus of Tri-State’s
argument, the circuit court should address any claim that enforcement of the forum-
selection clause here would be unreasonable or unjust on remand.
A court may also decline to enforce a forum-selection clause when the
resisting party makes “a sufficiently strong showing that . . . the clause was invalid for such
reasons as fraud or overreaching.” 34 The fact that Tri-State alleges that this entire
31
Id. at 154, 690 S.E.2d at 348 (quoting Belfiore v. Summit Fed. Credit Union, 452
F. Supp. 2d 629, 631 (D. Md. 2006)); see also M/S Bremen, 407 U.S. at 15.
32
J. Zak Ritchie, A Tie That Binds: Forum Selection Clause Enforceability in West
Virginia, 113 W. Va. L. Rev. 95, 126-27 (2010).
33
Id.34
Caperton, 225 W. Va. at 133, 690 S.E.2d at 327, syl. pt. 4, in part (emphasis
added).
17
Agreement was procured as the result of fraud on the part of Petitioners is inapposite to the
determination of whether the forum-selection clause is enforceable. As explained in
another jurisdiction, “every other court to have addressed this issue has agreed that, to
render a forum[-]selection clause unenforceable, the party seeking to avoid the clause must
show that the clause itself was procured by fraud.” 35 This inquiry must precede any
analysis of the merits of the contract’s validity. The Supreme Court of Alabama explained
the logic behind considering the validity of the forum-selection clause before analyzing the
validity of the contract as a whole:
By requiring the plaintiff specifically to allege that the choice
[of venue] clause itself was included in the contract due to
fraud in order to succeed in a claim that the choice is
unenforceable, courts may ensure that more general claims of
fraud will be litigated in the chosen forum, in accordance with
the contractual expectations of the parties.[36]
35
Edge Telecom, Inc. v. Sterling Bank, 143 P.3d 1155, 1162 (Colo. App. 2006); see
also In re Lyon Fin. Servs., Inc., 257 S.W.3d 228, 232 (Tex. 2008) (“We have held that
fraudulent inducement to sign an agreement containing a dispute resolution agreement such
as an arbitration clause or forum-selection clause will not bar enforcement of the clause
unless the specific clause was the product of fraud or coercion.”); Paul Bus. Sys., Inc. v.
Canon U.S.A., Inc., 397 S.E.2d 804, 807 (Va. 1990) (“According to the modern view,
which we now embrace, contractual provisions limiting the place or court where potential
actions between the parties may be brought are prima facie valid and should be enforced,
unless the party challenging enforcement establishes that such provisions are unfair or
unreasonable, or are affected by fraud[.]”).
Ex parte PT Sols. Holdings, LLC, 225 So. 3d 37, 45 (Ala. 2016) (quoting Lipcon
36
v. Underwriters at Lloyd’s, London, 148 F.3d 1285, 1296 (11th Cir. 1998)).
18
If a forum-selection clause were to be rejected simply based on a general
claim of fraud in the inducement of the contract, then forum-selection clauses would not
only be rendered meaningless, but their benefits would be lost. “Predictability would be
lost because the parties would not be able to know the locus of litigation in advance (and
perhaps retain counsel accordingly). Efficiency would be lost because it would be
necessary to litigate the merits in order to determine the locus of litigation.”37
We hold that in order to rebut the presumption of enforceability of a forum-
selection clause on the ground of fraud, the fraud alleged must be specific to the forum-
selection clause itself. General allegations of fraud with respect to the inducement of the
contract as a whole are insufficient to invalidate its forum-selection clause.
As discussed above, in its response to Petitioners’ motion to dismiss, Tri-
State argued that the forum-selection clause setting Hamilton County, Indiana, as the
exclusive venue for lawsuits was invalid for reasons of fraud, in part, because Petitioners
misrepresented that 3Chi’s headquarters and operations would be in that area. Petitioners
denied that they made any misrepresentation and attached an affidavit from Mr. Journay
stating that 3Chi moved its facility to Hamilton County, Indiana. The circuit court should
consider this evidence and arguments when ultimately determining whether the forum-
selection clause is enforceable under the standards set forth in this opinion. The circuit
37
Karon v. Elliott Aviation, 937 N.W.2d 334, 346 (Iowa 2020).
19
court may, in its discretion, hold a pretrial evidentiary hearing to resolve Petitioners’
motion to dismiss. 38
IV. CONCLUSION
For the reasons set out above, we find that the circuit court committed clear
legal error when applying the Caperton factors. So, we grant Petitioners’ request for a writ
of prohibition as moulded. We remand the case for the circuit court to determine whether
Tri-State can rebut the presumption of enforceability of the Agreement’s forum-selection
clause.
Writ granted as moulded.
See generally Bowers v. Wurzburg, 202 W. Va. 43, 49, 501 S.E.2d 479, 485
38
(1998) (“When a defendant files a motion to dismiss for lack of personal jurisdiction under
W. Va. R. Civ. P. 12(b)(2), the circuit court may rule on the motion upon the pleadings,
affidavits and other documentary evidence or the court may permit discovery to aid in its
decision[;]” it may also conduct “a pretrial evidentiary hearing on the motion[.]”); see also
Ecocards v. Tekstir, Inc., 459 P.3d 1111, 1116 (Wyo. 2020) (“If there are disputed issues
of fact regarding venue, the district court may, in its discretion, hold an evidentiary hearing
to resolve the Rule 12(b)(3) motion.”).
20