BLACKROCK CAPITAL INVESTMENT CORPORATION and 52nd STREET ADVISORS LLC, Defendants Below, Petitioners,
JERRY FISH; WILLIAM FISH; and FLORA FISH, as Administratrix of the Estates of James Eugene Fish and Jeffrey Scott Fish; RICHARD T. SWAIN, CATHY MAJORIS, and MEGAN SCHLOTTER SWAIN, as Co-Administrators of the Estate of Steven M. Swain; and DAVID SCOTT WILLIAMS and RUTH WILLIAMS, Plaintiffs Below; AL SOLUTIONS, INC.; and TREMONT ASSOCIATES, LLC, Defendants Below; and TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Intervenor Below, Respondents.
Submitted: January 25, 2017
from the Circuit Court of Hancock County The Honorable Ronald
E. Wilson, Judge Civil Action Nos. 11-C-88 and 11-C-90
Jeffrey A. Holmstrand, Esq. Grove, Holmstrand & Delk,
PLLC Counsel for the Petitioners
Tiffany R. Durst, Esq. Nathaniel D. Griffith, Esq. Brown
& Poe, PLLC Counsel for Respondent AL Solutions, Inc.
P. Fitzsimmons, Esq. Clayton J. Fitzsimmons, Esq. Fitzsimmons
Law Firm PLLC Wheeling, West Virginia Mark Colantonio, Esq.
M. Eric Frankovitch, Esq. Carl A. Frankovitch, Esq.
Frankovitch, Anetakis, Colantonio and Simon Counsel for the
LOUGHRY CHIEF JUSTICE dissents and reserves the right to file
a separate opinion, WALKER JUSTICE dissents and reserves the
right to file a separate opinion.
BY THE COURT
"A motion for summary judgment should be granted only
when it is clear that there is no genuine issue of fact to be
tried and inquiry concerning the facts is not desirable to
clarify the application of the law." Syllabus Point 3,
Aetna Casualty & Surety Co. v. Federal Insurance Co.
of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963).
"A circuit court's entry of summary judgment is
reviewed de novo." Syllabus Point 1,
Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755
"A circuit court's entry of a declaratory judgment
is reviewed de novo." Syllabus Point 3, Cox
v. Amick, 195 W.Va. 608, 466 S.E.2d 459 (1995).
Court reviews a circuit court's interpretation of a
contract de novo.
appeal from the Circuit Court of Hancock County, we examine
the equitable doctrine of unconscionability. Before the
circuit court, a subsidiary company sought a declaratory
judgment against its parent companies. The subsidiary
challenged three management agreements by which the parent
companies managed, controlled and participated in the affairs
of the subsidiary.
subsidiary company claimed that two clauses in the agreements
were unconscionable. One clause said the parent companies
could never be liable to the subsidiary; the other clause
required the subsidiary to indemnify the parent companies for
all legal and liability costs. The subsidiary company
asserted the parent companies unilaterally imposed the
clauses without giving the subsidiary any meaningful choice,
and asserted that the clauses were oppressive and unjust. The
circuit agreed and, in an order dated October 16, 2015,
declared that the two challenged clauses were unconscionable
the parent companies now appeals. As we discuss below, we
find no error in the circuit court's declaratory judgment
order ruling the clauses unconscionable.
December 2010, an explosion and fire killed three workers at
a processing plant in New Cumberland, West Virginia. The
plant processed powdered titanium and zirconium, metals that
are pyrophoric and "liable to ignite spontaneously on
exposure to air." Moreover, industry safety guides say that
water should never be sprayed on these metals if they catch
fire; the titanium and zirconium will dissociate water into
oxygen and hydrogen gas, and the hydrogen will then
explode. Prior to the fire, a water-based fire
suppression system was installed in the processing plant.
appeal centers on three agreements to manage the processing
plant that were executed four years before the fire, in
December 2006. These management agreements involved three
corporate parties: Tremont, Blackrock, and the subsidiary
they created, AL Solutions.
first corporate party, respondent Tremont Associates, LLC
("Tremont"), was a broker that connected buyers and
sellers of businesses. Tremont often took an ownership stake
in the businesses for its efforts. Tremont had no employees
and just two owners: Troy Kenyon and Henry Goddard.
mid-2006, Tremont learned that a company (called Jamegy,
Inc.) was seeking to sell its titanium and zirconium
processing business, including the West Virginia processing
plant. Tremont then searched for investors to buy the
investors Tremont settled upon are the second party.
Petitioner Blackrock Kelso Capital Corporation is an
investment fund; petitioner Blackrock Kelso Capital Advisors,
LLC, managed that investment fund. These two companies operated
jointly and seamlessly in the purchase of the West Virginia
processing plant, and we - like the parties - refer to them
singularly as "Blackrock." It is important to know
the names of two employees of Blackrock: Marshall Merriman
and Stephen Sachman.
December 6, 2006, Tremont and Blackrock (the parent
companies) came together and incorporated the third party, AL
Solutions, Inc. (the subsidiary). The stated function of AL
Solutions was to buy and operate the West Virginia processing
plant. The documents of incorporation fixed the number of
directors at three. Three directors were then appointed: Mr.
Kenyon (from Tremont), and Mr. Merriman and Mr. Sachman (from
Blackrock). Those three directors then anointed Mr. Goddard
(from Tremont) as president of AL Solutions. Mr. Goddard
later testified that the decision to appoint him as president
was "dictated . . . by the guys at Blackrock."
December 29, 2006, three management agreements were executed
between AL Solutions on the one side (identified in the
agreements as "the company"), and Tremont and
Blackrock on the other (identified as "the management
parties"). Each management agreement required Tremont
and Blackrock to provide "certain services" to AL
Solutions. The three agreements were:
● The "Management Services Agreement, " under
which Tremont and Blackrock agreed to provide "certain
agreed upon management and financial services" to AL
● The "Advisory Services Agreement, " which
required the provision of "certain advisory
services" to AL Solutions; and
● The "Transaction Fee Agreement, " requiring
the provision of "certain consulting and advisory
services" to AL Solutions.
exchange for providing "certain services" to AL
Solutions, Tremont and Blackrock were entitled to collect
fees. In an e-mail, Mr. Goddard said these fees were
important to Tremont because "management fees keep the
lights on over here."
"certain services" Tremont and Blackrock were
required to provide are nowhere defined, in the agreements or
elsewhere. In discovery, individuals from Tremont and
Blackrock all claimed in some fashion that the agreements
made them responsible for providing AL Solutions with
"management services" or "guidance and
assistance." However, they were also of the opinion that
safety issues at the processing plant were not within the
scope of the agreements. For instance, Mr. Sachman testified
that safety was "completely outside the purview" of
the Management Services Agreement, but conceded, "I
can't point you to a specific clause within the agreement
that explicitly says that."
each of these management agreements are two clauses that are
the focus of this appeal. The first is an indemnification
clause that requires AL Solutions to indemnify Tremont and
Blackrock "from any and all losses, claims, damages and
liabilities" arising out of the agreements or "the
rendering of any other advice or performance of any other
services[.]" The second clause is titled "no
liability, " and says that Tremont and Blackrock cannot
be liable to AL Solutions "in contract or tort or
otherwise" for anything arising out of the
meeting on December 29, 2006, lawyers employed by Tremont and
Blackrock presented the three management agreements to Mr.
Goddard. No lawyer was hired to represent the interests of AL
Solutions, either in the negotiation or the execution of the
agreements. Mr. Goddard signed the three agreements as
"president" of AL Solutions; he then signed the
same documents as the "managing director" of
Tremont. The chief operating officer of Blackrock (Michael
Lazar) signed, and then the board of directors for AL
Solutions approved the agreements.
signing the three management agreements, and on the same day,
Mr. Goddard stepped down as president of AL Solutions. Mr.
Goddard admitted in a deposition that his sole purpose in
being appointed as president of AL Solutions for less than
one month was to "just sign some papers to set the
the period that Tremont and Blackrock were negotiating and
consummating the December 2006 purchase of the titanium and
zirconium business, several fires or explosions occurred at
the processing plant. In July 2006, a worker died in a fire.
Fires also occurred on December 21, 2006, and February 7,
2007. Testimony suggested no one from Tremont or Blackrock
investigated the cause of these fires. Instead, even though
safety documents said water should never be used on titanium
and zirconium fires, a water deluge system was installed.
Despite the fire suppression system, at least three more
fires occurred at the processing plant.
December 9, 2010, another explosion and fire occurred at the
processing plant. Three AL Solutions employees were killed in
the fire: brothers James Eugene Fish and Jeffrey Scott Fish
died inside the plant; Steven M. Swain's skin was burnt
off inside the plant but he escaped and collapsed outside,
only to die of his burn injuries four days later. A
contractor, David Scott Williams, escaped but received burns.
Employees Jerry Fish and William Fish - brothers of decedents
James and Jeffrey Fish - suffered emotional distress when
they witnessed the fire that killed their brothers.
circuit court noted that, over a 15-year period culminating
in December 2010, fires and explosions had killed nearly 20%
of the workforce at this plant.
plaintiffs (the injured workers and the family members of the
deceased workers) sued defendants AL Solutions, Tremont, and
Blackrock. The plaintiffs asserted that, through powers
conferred by the three management agreements, Tremont and
Blackrock actively managed, controlled, and participated in
the daily affairs of AL Solutions. The plaintiffs alleged that,
acting together, the three defendants recklessly operated and
managed the West Virginia processing plant and that they
knowingly failed to comply with federal, state, and industry
Solutions answered the plaintiffs' complaints, it also
asserted a cross-claim for contribution and/or
indemnification against its parent corporations, Tremont and
Blackrock. Tremont and Blackrock countered by asserting
claims against AL Solutions pursuant to the indemnification
and no-liability clauses in the three management agreements.
Tremont and Blackrock alleged that AL Solutions was
contractually obligated to pay for their attorney fees and
costs defending against the plaintiffs' case and to
indemnify them from liability.
Solutions subsequently amended its cross-claim against
Tremont and Blackrock and added a request for a declaratory
judgment. AL Solutions asked the circuit court to declare
that the indemnification and no-liability clauses in the
management agreements were unconscionable and unenforceable.
On November 18, 2014, AL Solutions filed a motion for partial
summary judgment regarding the unconscionability of those two
order dated October 16, 2015, the circuit court granted
partial summary judgment in favor of AL Solutions. Applying
West Virginia law to the contracts, the circuit court found
the indemnification and no-liability clauses procedurally and
now appeals the circuit court's partial summary judgment
STANDARD OF REVIEW
motion for summary judgment should be granted only when it is
clear that there is no genuine issue of fact to be tried and
inquiry concerning the facts is not desirable to clarify the
application of the law."
review a circuit court's entry of an order granting
summary judgment, as well as an order granting a declaratory
judgment, de novo. Additionally, this Court
reviews a circuit court's interpretation of a contract
de novo. The term "de novo"
means "Anew; afresh; a second time." "We have
often used the term 'de novo' in connection
with the term 'plenary.' . . . Perhaps more
instructive for our present purposes is the definition of the
term 'plenary, ' which means '[f]ull, entire,
complete, absolute, perfect,
therefore give a new, complete and unqualified review to the
parties' arguments and the record before the circuit
court. Our goal is to determine if there is any genuine issue
of fact about the unconscionability of the two clauses, or if
any inquiry concerning the facts is desirable to clarify the
application of the law.
appeal of the circuit court's order boils down to two
assertions of error. Blackrock's central argument is that
the circuit court ignored a choice of law provision within
each management agreement that required the application of
New York, not West Virginia, law. When construed under New
York principles of contract law, Blackrock argues that the
indemnification and no-liability clauses are conscionable and
fair. Blackrock's second argument challenges the manner
in which the circuit court entered its ruling, asserting the
circuit court ruled on an incomplete record and thereby
deprived it of due process.
address and, as explained below, reject Blackrock's two
Unconscionability in General
first argument we address is Blackrock's assertion that
the indemnification and no-liability clauses are conscionable
and fair. Blackrock contends the circuit court erred in
finding the clauses to be unconscionable, in part because it
failed to interpret the clauses under New York law.
circuit court found the indemnification clause and the
no-liability clause unconscionable after applying West
Virginia law. However, the management agreements contain a
choice of law provision providing that they would "be
governed and construed in accordance with the internal laws
of the State of New York[.]" This Court has recognized
"the presumptive validity of a choice of law
provision" and found that such a provision is
"not automatically void[.]"
Blackrock argues the circuit court erred in applying West
Virginia law. We agree with Blackrock on this point, and hold
that the circuit court should have assessed the
unconscionability of the two clauses under New York law, not
West Virginia law. Nevertheless, New York's
unconscionability jurisprudence is structured almost
identically to West Virginia's. Under a plenary review,
when we apply New York's contract law to the record, the
outcome of this case remains unchanged: the indemnification
clause and no-liability clause in the management agreements
New York law, like under West Virginia law, an unconscionable
agreement is one that "is so grossly unreasonable or
unconscionable in the light of the mores and business
practices of the time and place as to be unenforcible [sic]
according to its literal terms." "[A]n
unconscionable contract is one such as no man in his senses
and not under a delusion would make on the one hand, and as
no honest or fair man would accept, on the
other." The doctrine of unconscionability is
rooted in equitable principles, is flexible, and is
"intended to be sensitive to the realities and nuances
of the bargaining process[.]"
West Virginia, New York law holds that a party alleging
unconscionability must generally show that "the contract
was both procedurally and substantively unconscionable when
made - i.e., some showing of an absence of meaningful choice
on the part of one of the parties together with contract
terms which are unreasonably favorable to the other
party." "The procedural element of
unconscionability concerns the contract formation process and
the alleged lack of meaningful choice; the substantive
element looks to the content of the contract, per
se." A court assesses the existence of
overall unconscionability under a sliding scale between
procedural and substantive unconscionability: "the more
questionable the meaningfulness of choice, the less imbalance
in a contract's terms should be tolerated and vice
court summarized New York's doctrine of unconscionability
In determining the conscionability of a contract, no set
weight is to be given any one factor; each case must be
decided on its own facts. However, in general, it can be said
that procedural and substantive unconscionability operate on
a "sliding scale"; the more questionable the
meaningfulness of choice, the less imbalance in a
contract's terms should be tolerated and vice versa.
While there may be extreme cases where a contractual term is
so outrageous and oppressive as to warrant a finding of
unconscionability irrespective of the contract formation
process such cases are the exception. Generally, there must
be a showing of both a lack of a meaningful choice and the
presence of contractual terms which unreasonably favor one
party. . . . Absent some violation of law or transgression of
a strong public policy, the parties to a contract are
basically free to make whatever agreement they wish, no
matter how unwise it might appear to a third party. The
doctrine of unconscionability, with its emphasis on the