Blackrock Capital Inv. Corp. v. Fish

• Decision Date: 24 April 2017
• Docket Number: No. 15-1122,15-1122
• Citation: 799 S.E.2d 520
• Parties: BLACKROCK CAPITAL INVESTMENT CORPORATION and 52 Street Advisors LLC, Defendants Below, Petitioners v. 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
• Court: West Virginia Supreme Court

799 S.E.2d 520

BLACKROCK CAPITAL INVESTMENT CORPORATION and 52^nd Street Advisors LLC, Defendants Below, Petitioners

v.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

No. 15-1122

Supreme Court of Appeals of West Virginia.

Submitted: January 25, 2017

Filed: April 24, 2017

Jeffrey A. Holmstrand, Esq., Grove, Holmstrand & Delk, PLLC, Wheeling, West Virginia, Counsel for the Petitioners

Tiffany R. Durst, Esq., Nathaniel D. Griffith, Esq., Pullin, Fowler, Flanigan, Brown & Poe, PLLC, Morgantown, West Virginia, Counsel for Respondent, AL Solutions, Inc.

Robert 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, Weirton, West Virginia, Counsel for the Plaintiffs Below

Justice Ketchum :

In this 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.

The 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 and unenforceable.

One of 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.

I.FACTUAL BACKGROUND

In 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."¹Moreover, 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.²Prior to the fire, a water-based fire suppression system was installed in the processing plant.

This 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.

The first corporate party, respondentTremont 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.

In 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 processing business.

The investors Tremont settled upon are the second party.PetitionerBlackrock Kelso Capital Corporation is an investment fund; petitionerBlackrock Kelso Capital Advisors, LLC, managed that investment fund.³These 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.

On December 6, 2006, Tremont and Blackrock (the parent companies) came together and incorporated the third party, AL Solutions, Inc.(the subsidiary).⁴The 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."

On 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").⁵Each 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 Solutions;

• 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.

In 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."

The "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."

Within 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[.]"⁶The 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 agreements.⁷

At a 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.

After 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 shell up."

During 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.⁸

On December 9, 2010, another explosion and fire occurred at the processing plant.Three AL Solutions employees were killed in the fire: brothersJames 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.

The 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.

II.PROCEDURAL BACKGROUND

The 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.⁹The 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 safety standards.¹⁰

When AL...