Construction Law Insights

McClung-Logan Equip. Co. v. Harbour Construction, Co., 2019 Va. Unpub. LEXIS 31, 2019 WL 6792473 (Va. Dec. 12. 2019)

In December 2011, McClung-Logan Equipment Company, Inc. (“McClung”) filed suit against Harbour Constructors, Co. and Cross-Land Harbour, Inc. (collectively, “Harbour”) alleging a breach of contract for failing to pay for the rental of construction equipment. In December of 2016, Harbour moved to dismiss and asked the court to enforce the contract’s forum selection clause, which provided for Maryland as the venue. The trial court stayed the Virginia proceedings for a period of six months to allow for refilling and, upon notice to the trial court of a new filing in Maryland, the Virginia proceedings would be dismissed. If, after six months, neither party filed suit in Maryland, the Virginia proceedings would be placed back on the docket for trial. Prior to the expiration of the

six months, Cross-Land Harbour, Inc. filed suit in Maryland Federal court. The Virginia trial court dismissed the stayed proceedings without prejudice on June 20, 2017. McClung did not appeal the trial court’s dismissal. Cross-Land Harbour, Inc. then moved to voluntarily dismiss its Maryland action and the Maryland court granted the dismissal. McClung did not file a request to set aside the dismissal.

On September 14, 2017, McClung filed a complaint in Maryland federal court and Harbour moved to dismiss pursuant to Maryland’s statute of limitations. The Maryland court dismissed the complaint as time barred. On June 22, 2018, McClung brought another suit in Virginia, to which Harbour demurred. On September 17, 2018, the Virginia trial court sustained Harbour’s demurrer stating that Harbour was acting within their legal rights by filing and voluntarily dismissing the Maryland lawsuit. McClung appealed, arguing that it was error for the trial court to sustain the demurrer: (i) on McClung’s breach of contract, unjust enrichment, and quantum meruit claims; (ii) as to McClung’s fraud on the court claim, when Harbour allegedly asserted that they would litigate in Maryland, inducing the trial court to dismiss the prior Virginia proceedings; and (iii) as to the forum selection clause, where McClung demonstrated that Harbour had waived its enforcement.

As to McClung’s waiver argument, the Supreme Court of Virginia agreed with the trial court. Under the “law of the case” doctrine, when a party fails to challenge a decision rendered by a court at one stage of litigation, that party is deemed to have waived its right to challenge that decision during later stages of the same litigation. When two cases involve identical parties and issues and one case has been resolved finally, a court will not re-examine the merits of issues involved in the first litigation. In the original Virginia proceeding, the trial court found the forum selection clause to be valid and dismissed the case, which McClung did not appeal.

As to McClung’s fraud on the court argument, the Supreme Court of Virginia agreed with the trial court. The controlling factor of fraud on the court is whether the misconduct tampers with the judicial machinery and subverts the integrity of the court itself. A court judgment procured by intrinsic fraud is voidable by direct attack at any time before the judgment becomes final. A court judgment procured by extrinsic fraud (i.e. conduct that prevents a fair submission of the controversy to the court) is void and subject to attack at any time. Because the prior trial court’s original decision was final and not subject to direct attack, McClung had to allege extrinsic fraud by clear and convincing evidence. McClung acknowledged that there was no “prevention,” but that Harbour’s conduct gamed the system. Even if true, such conduct did not prevent the submission of the controversy to the court, as required for extrinsic fraud. Furthermore, McClung had the opportunity to submit its claims to the Maryland courts, but did not do so.

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