CHARLESTON – The state Supreme Court has ruled Circuit Judge Warren McGraw incorrectly tried to have a case heard before him in Wyoming County when it should have been handled in Kanawha County.
The justices granted a writ of prohibition March 10 in an opinion in a case regarding a purchase agreement between two companies.
And, the opinion written by Justice Beth Walker, references a similar ruling the court made in 2011 regarding another instance when McGraw also was overruled on a venue matter. It also says McGraw encouraged the rewriting of the original complaint in a way to benefit the plaintiffs.
Walker
McGraw is a former state Supreme Court justice and the brother of former Justice and former state Attorney General Darrell McGraw.
“Because the entirety of the business relationship between the parties giving rise to the underlying causes of action took place in Kanawha County and respondents have failed to meet their burden to prove any connection between the causes of action asserted and Wyoming County sufficient to establish venue there, we grant the writ of prohibition,” the opinion states.
In March 2018, American Staffing Inc. and president Michael B. Ferrell entered into a purchase agreement with Employers’ Innovative Network LLC and president Jeff Mullins for EIN to acquire American Staffing’s customer list, customer relationships and goodwill.
Both companies are Professional Employment Organizations, which often are used by small businesses to outsource human resources and other functions such as payroll.
EIN says at least eight of the clients purchased were companies owned in part by Shannon L. Wells. Ferrell guaranteed EIN and Mullins those companies would remain with EIN for at least two years. EIN also says Ferrell pressured it and Mullins to advance the remaining balance of the purchase price, and EIN paid the advance on Nov. 30, 2018.
On Dec. 3, 2018, Wells terminated the relationship between his companies and EIN. EIN also says numerous entities listed in the purchase agreement actually were clients of The Chestnut Group, another PEO.
EIN claims The Chestnut Group and Wells began telling new EIN clients that the company was engaged in improper business practices, including failure to pay taxes it withheld from its clients’ employees.
“When Mr. Mullins attempted to resolve this matter with Mr. Ferrell, Mr. Ferrell threatened him and told third parties that he had ‘hired someone from Chicago to kill’ Mr. Mullins,” the opinion states.
EIN and Mullins filed a lawsuit in Wyoming Circuit Court alleging six causes of action against American Staffing, Ferrell, Wells and The Chestnut Group. They were fraud in the inducement, breach of contract, slander, fraud in the performance, outrage and civil conspiracy.
The plaintiffs claimed venue in Wyoming County because they said the parties conducted business there. The defendants moved to dismiss for lack of venue because “all defendants, save one, reside or have a principal place of business in Kanawha County, the parties executing the purchase agreement reside or have a principal place of business in Kanawha County, the purchase agreement was executed in Kanawha County and the operative business relationship between the entities took place entirely in Kanawha County.”
The lone party that doesn’t live in Kanawha County is Wells, who lives in Kentucky.
McGraw denied the motion to dismiss for lack of venue because “82 employees to whom EIN would have provide PEO services were residents of Wyoming County.” American Staffing, Ferrell, Wells and The Chestnut Group then filed the writ with the Supreme Court.
In the 19-page opinion, Walker addresses a similar 2011 state Supreme Court ruling that also involved McGraw.
In State ex rel. Galloway Group v. McGraw, a law office (Fredeking & Fredeking) and a law partnership (Galloway Group) entered into a free-sharing agreement. When Galloway Group allegedly failed to pay monies due to Fredeking & Fredeking, the latter filed suit in Wyoming Circuit Court on the basis that the parties generated fees from litigation involving the United Mine Workers of America’s Health & Retirement Plan and that many UMWA members live in Wyoming County. Galloway Group challenged that venue.
In that case, McGraw “found that venue was proper, in part, because the UMWA members residing in Wyoming County generated the fees and debts that were the subject of the underlying dispute – in other words, those fees were the manifestation of the breach,” Walker wrote in the March 10 opinion. “We rejected that argument, somewhat summarily concluding that the circuit court’s reasoning was ‘invalid’ and that ‘our law does not support the conclusion that this fact would establish venue in Wyoming County.’”
Both sides contend the Galloway ruling benefit them in the PEO case.
According to the opinion, the court finds “that these Wyoming County residents are as tangential to this underlying contractual dispute as the ones we addressed and found insufficient to establish venue in Galloway. …
“These Wyoming County employees have no relation to the underlying contract except insofar as their gross pay is used to calculate the fee owed by the client-employer to the applicable PEO, and the contract at issue changed that PEO.”
The plaintiffs alleged Wells and The Chestnut Group had made defamatory statements about EIN and Mullins to third parties. The Supreme Court says McGraw agreed with the plaintiffs and assumed the defamatory statements were made to employees of the plaintiffs' client-employers in Wyoming County and found that sufficient to establish venue there.
The defendants, however, said there was no evidence that any slanderous statements were made in Wyoming County or reached a third party there.
"The circuit court (McGraw) took these pleadings one step further at the behest of the respondents (plaintiffs), reading into the complaint that some of the client-employers had employees at work locations in Wyoming County and those employees might have heard a slanderous statement," the opinion states. "Yet, there is no allegation that any slanderous statement was made to employees in Wyoming County or that Mr. Wells or The Chestnut Group had any communication at all with anyone in Wyoming County.
"Much more than taking the allegations as true, the circuit court (McGraw) did respondents the favor of rewriting their complaint."
Also, McGraw had noted that only discovery would reveal whether a slanderous statement had been made in Wyoming County. The Supreme Court said limited discovery can be used to address venue based on controverted facts.
“But, noticeably absent here are controverted facts,” Walker wrote. “There are no controversies surrounding the allegations the resolution of which could be accomplished by or would even support discovery; we utterly lack even a single allegation tying a slanderous statement to Wyoming County or tying any party alleged to have made a slanderous statement in Wyoming County.
“We have a bald assertion that because EIN has client-employers who have work locations in Wyoming County, some unspecified discovery, once conducted, might lead to a conclusion that some unknown statement was made to some unknown third-party who might have had some connection with Wyoming County. …
“Venue cannot lie by virtue of a request for a fishing expedition, and respondents have altogether failed to meet their burden to satisfy the requirements … with respect to their slander claim.”
Thus, the justices direct McGraw to dismiss the case from his docket without prejudice.
Warren McGraw served as a justice on the state Supreme Court from 1998 to 2004, when he was defeated by Brent Benjamin. Incidentally, Walker won her seat in 2016 by defeating Benjamin and McGraw's brother Darrell in the state's first non-partisan Supreme Court election.
McGraw also has served in the House of Delegates and state Senate (where he eventually was elected Senate President) as well as a member of the Wyoming County Board of Education and as the county's prosecuting attorney.
West Virginia Supreme Court of Appeals case number 19-0658