Don't Miss
Home / Fulltext Opinions / Supreme Court of Virginia / VIRGINIA ELECTRIC AND POWER CO. v. WESTMORELAND-LG&E PARTNERS

VIRGINIA ELECTRIC AND POWER CO. v. WESTMORELAND-LG&E PARTNERS



NOTICE: The opinions posted here are
subject to formal revision. If you find a typographical error or
other formal error, please notify the Supreme Court of Virginia.


VIRGINIA ELECTRIC AND
POWER CO.

v.

WESTMORELAND-LG&E
PARTNERS


March 3, 2000

Record No. 990489

VIRGINIA ELECTRIC AND POWER COMPANY

v.

WESTMORELAND-LG&E PARTNERS

FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND

Theodore J. Markow, Judge

Present: Carrico, C.J., Compton,[1] Lacy, Hassell, Keenan, Koontz, and Kinser, JJ.

OPINION BY JUSTICE ELIZABETH B. LACY


The dispositive issue in this appeal is whether
the trial court correctly limited parol evidence to the intent of
the parties when executing a 1989 contract.

In 1988, Virginia Electric and Power Company
(Virginia Power) issued a request for proposals seeking
independent power producers who would supply electric power to
Virginia Power. One responding company was Beckley Cogeneration
Company (Beckley), a Delaware limited partnership. On January 24,
1989, Virginia Power and Beckley entered into a contract under
which Beckley agreed to build a waste-coal burning plant in West
Virginia and sell the electricity produced from that plant to
Virginia Power pursuant to the terms of the contract. Beckley,
however, abandoned the project and the partnership was dissolved.

Westmoreland Energy, Inc., an affiliate of one
of Beckley’s former general partners, along with another company,
sought to continue the project by building the power plant in
North Carolina, rather than in West Virginia, and using
pulverized coal rather than waste coal to produce the
electricity. A general partnership, Westmoreland-LG&E
Partners (WLP), was created to undertake the revised project.
[2] A contract between Virginia Power and WLP was executed
in March 1990, reflecting these changes in the project. Another
contract between WLP and Virginia Power was executed in November
1991, following WLP’s request for amendments to the 1990
contract. The 1991 contract remains in effect.

In 1994, WLP filed a motion for judgment
against Virginia Power, alleging breach of the 1991 contract and
seeking recovery of payments allegedly due WLP under that
contract. The trial court held that the contract provisions in
issue were unambiguous and entered summary judgment in favor of
Virginia Power. On appeal, this Court determined that the
contract provisions were ambiguous and, therefore, the trial
court erred in refusing to allow parol evidence to ascertain the
intent of the parties. The matter was remanded for further
proceedings. Westmoreland-LG&E Partners v. Virginia Power,
254 Va. 1, 486 S.E.2d 289 (1997)(Westmoreland I).

Prior to trial on remand, WLP filed a motion
seeking a determination that the parties’ intent regarding the
ambiguous provisions be determined as of the execution of the
1989 contract. WLP argued that this determination was required by
the decision in Westmoreland I. The trial court agreed and
excluded parol evidence offered by Virginia Power concerning the
parties’ intent at the time of the 1990 and 1991 contracts.

Following a hearing, the trial court adopted
the interpretation of the disputed provisions advanced by WLP and
entered judgment in favor of WLP for approximately $19 million
plus interest. We awarded Virginia Power an appeal. Because we
conclude that the decision in Westmoreland I did not limit
consideration of the parties’ intent regarding the disputed
sections to the intent existing in 1989, the judgment of the
trial court will be reversed and the case remanded for further
proceedings.

The trial court’s holding that the 1989
contract was the operative document for purposes of the parties’
intent was based on the use of the 1989 contract in Westmoreland
I
to determine whether the provisions in issue were
ambiguous. The trial court concluded that the opinion in Westmoreland
I
"seems to say that what we’re looking to determine is
the intent of the parties in the negotiation and execution of the
1989 document."

The issue in Westmoreland I, however,
was whether the trial court’s holding that the provisions at
issue were unambiguous was correct. In reviewing that decision,
it made no difference whether the 1989, 1990, or 1991 contract
was considered, because the language of the relevant provisions
was the same in all three contracts. Westmoreland I, 254
Va. at 4 n. 1, 486 S.E.2d at 291 n. 1. The reference to the 1989
contract, therefore, was not material to the question of
ambiguity under consideration in Westmoreland I.

Furthermore, in considering another issue
raised in that appeal, Westmoreland I referred to "?
1.20," for the definition of "Forced Outage Day,"
which is a reference to the 1991 contract. Westmoreland I,
254 Va. at 5-6, 486 S.E.2d at 291-92. In the 1989 contract, that
definition was contained in ? 1.21.

More importantly, nothing in Westmoreland I
directed or limited consideration on remand to the 1989 contract.
The order remanding the case likewise did not restrict the
proceedings on remand to the 1989 contract. As explained in Nassif
v. Board of Supervisors of Fairfax County
, 231 Va. 472, 481,
345 S.E.2d 520, 525 (1986), "[w]hen we limit issues on
remand we do so with words of limitation or restriction." In
the absence of such limitations or restriction, the trial court
was not limited to consideration of the 1989 contract on remand.

WLP asserts, however, that the trial court’s
conclusion was correct for other reasons. WLP asserts that,
because it was a "constant" to all the contracts
through affiliates and related partnerships and through its
representative Charles Brown, consideration of the 1989 contract
formation was proper. WLP also argues that the 1991 contract was
merely a reenactment and amendment of the prior contracts.
Therefore, WLP concludes, because the terms of the disputed
provisions remained unchanged throughout, parol evidence was
properly restricted to the parties’ intent as to the meaning of
those terms in 1989 when they were initially adopted.

The trial court did not address these arguments
because, as we have indicated, its decision was based solely on
the restriction it believed was mandated by Westmoreland I.
Furthermore, although Virginia Power disagrees with WLP’s
assertions and maintains that the 1991 contract was a novation of
the prior contracts and not a reenactment of them, it does not
seek to restrict parol evidence of the parties’ intent to the
1991 contract. The error of the trial court, according to
Virginia Power, was that it did not allow admission of evidence
relevant to the parties’ intent in 1991 in addition to,
not as a substitute for, evidence of that intent in 1989.

WLP sought recovery for a breach of the 1991
contract. Even though the disputed provisions in the 1991
contract have language identical to that in the 1989 contract,
identical provisions in successive contracts may or may not carry
the same meaning in each instance. See Galloway Corp.
v. S.B. Ballard Constr.
, 250 Va. 493, 502-06, 464 S.E.2d 349,
355-57 (1995). This is particularly true under the circumstances
of this case, where the provisions themselves are ambiguous and
the project at issue changed in material respects. Therefore, we
conclude that the trial court erroneously limited parol evidence
to the parties’ intent at the time of the 1989 contact.

WLP also asserts that Virginia Power should be
estopped from seeking to introduce evidence of the intent of the
1991 contract. WLP’s position in this regard is that, in Westmoreland
I
, Virginia Power relied on events surrounding the execution
of the 1989 contract in arguing that evidence of trade custom and
usage was inadmissible to inform the meaning of the provisions at
issue. Therefore, according to WLP, in this proceeding Virginia
Power should not be allowed to seek admission of evidence
relating to any contract other than the 1989 contract.

WLP’s argument overlooks the fact that in Westmoreland
I
, Virginia Power contended that the contract provisions were
unambiguous and under those circumstances any meaning based on
trade custom and usage attached in 1989 and remained unchanged.
Virginia Power, however, did not prevail in its contention that
the provisions were unambiguous and on remand was required to
treat the provisions as ambiguous and thus subject to
clarification by parol evidence of the parties’ intent. Virginia
Power’s assertion on remand that evidence of the parties intent
in 1991, as well as in 1989, should be admitted does not conflict
with its earlier position that any unambiguous meaning of the
provisions based on trade, custom, or usage arose in 1989.
Therefore, we reject WLP’s estoppel arguments.

In light of our conclusion that the trial court
erred in limiting parol evidence of intent to the parties’ intent
in executing the 1989 contract, we will remand the case for
further proceedings consistent with this opinion. Accordingly, we
need not address the assignments of error and cross-error
regarding Virginia Power’s proffer of evidence and the trial
court’s interpretation of the disputed provisions. However, we
will address Virginia Power’s assertion that the trial court
erred in holding that a draft letter was protected by the
attorney-client privilege and, therefore, was not subject to
discovery by Virginia Power, because the issue is likely to arise
on remand.

The letter in question was prepared in December
1990, by James S. Brown, then Chief Financial Officer of
Westmoreland Energy, to memorialize a conversation he had with
John Mable of Virginia Power regarding Mable’s understanding of
Virginia Power’s liability for capacity payments on days
determined to be forced outage days.
[3]
At that time, Brown and his counterpart at Hadson Power Systems,
Lawrence Sawyer Folks, were preparing a financial prospectus of
the cogeneration project for use in obtaining financing. Prior to
sending the letter to Mable, Brown sent the letter to Folks.
Folks apparently sent the letter to Charles Schwenck, in-house
counsel to Hadson Power Systems.
[4]
Brown testified that, when he wrote the letter, he intended to
seek legal advice both on its content and whether it should be
sent. Schwenck conferred with Brown regarding the letter and it
was discussed at a meeting of Brown, Folks, Schwenck, and Charles
Brown, an official with Westmoreland Energy. The draft letter was
never sent to Mable.

The attorney-client privilege does not attach
to a document merely because a client delivers it to his
attorney. However, the privilege does attach to a document
prepared with the purpose of being sent to counsel for legal
advice. Robertson v. Commonwealth, 181 Va. 520, 539-40, 25
S.E.2d 352, 360 (1943). The party seeking to assert the
attorney-client privilege bears the burden of persuasion on the
issue. Commonwealth v. Edwards, 235 Va. 499, 509, 370
S.E.2d 296, 301 (1988).

Although Brown testified that he drafted the
letter with the intent of getting legal advice, Virginia Power
asserts that the Brown letter was not entitled to the
attorney-client privilege because it does not qualify as a
document prepared for the purpose of obtaining legal advice.
Virginia Power apparently considers the privilege applicable only
to a document which by its own terms conveys a request for legal
advice. Such an application of the privilege requirement is too
narrow.

The privilege attaches to a document even if
the document does not contain, or is not accompanied by, a
written request for legal advice, if the proponent of the
privilege sustains its burden of proof to show that the document
was prepared with the intention of securing legal advice on its
contents. Robertson, 181 Va. at 540, 25 S.E.2d at 360. As
we have said, the record in this case contains the testimony of
Brown that when he drafted the letter he intended to get legal
advice on its content and on whether he should deliver it to
Mable.

Virginia Power also argues that any privilege
that may have attached to the draft letter was waived when the
draft letter was sent to Folks and to in-house counsel for Hadson
Power Systems. We disagree.

Communications between officers and employees
of the same entity relayed to corporate counsel for the purpose
of obtaining legal advice are entitled to the attorney-client
privilege. Owens-Corning Fiberglas Corp. v. Watson, 243
Va. 128, 141, 413 S.E.2d 630, 638 (1992)(citing Upjohn Co. v.
United States
, 449 U.S. 383 (1981)). Under the circumstances
of this case, the relationship of Folks, Brown, and Schwenck is
tantamount to that of employees of the same entity for purposes
of the application of the privilege. WLP is the entity asserting
the privilege. Folks and Brown are employed by parent
corporations of the WLP partnership.
[5] Both Folks and Brown sought to secure legal advice
regarding the letter. The Brown letter was prepared in connection
with the business of WLP and, as the trial court acknowledged,
"the respective companies were partners on the project
sharing a common concern."

Finally, Virginia Power argues that it is only
seeking factual material, the contents of the letter, not the
advice counsel gave to Brown and Folks concerning the letter.
However, the substance of the letter in this case constitutes the
very matter for which legal advice was sought. There is no
"factual material" apart from the substance of the
letter itself.

The record in this case does not support
Virginia Power’s assertion that the draft letter was
"created, exchanged or discussed" outside of the
attorney-client relationship. Rather, the record shows that the
letter was created, exchanged and discussed within the perimeters
of WLP, the party seeking to assert the privilege, with the
expectation that legal advice would be secured prior to
finalization and transmission of the letter. Considering this
record, we conclude that the trial court did not err in its
conclusion that WLP met its burden of producing evidence to show
that the draft letter was entitled to the protection of the
attorney-client privilege and not subject to discovery by
Virginia Power.

For the reasons stated, we will reverse the
judgment of the trial court and remand the case for further
proceedings consistent with this opinion.

Reversed and remanded.

 

FOOTNOTES:

[1] Justice Compton participated in
the hearing and decision of this case prior to the effective date
of his retirement on February 2, 2000.

[2] The partnership consisted of
Westmoreland-Roanoke Valley, L.P. and Hadson Valley, L.P.

[3] The draft letter was reviewed by the trial court in
camera
and submitted under seal to this Court.

[4] The trial court stated in its
opinion letter that Folks sent the letter to Schwenck, although
the record also supports the conclusion that Brown sent a copy of
the letter to the attorney.

[5] Folks’ direct employer, Hadson
Power Systems, owns Hadson Power, Inc., which in turn owns Hadson
Roanoke Valley L.P. Brown’s direct employer, Westmoreland Energy,
Inc., owns 90% of Westmoreland-Roanoke Valley, L.P., which along
with Hadson Roanoke Valley, L.P., comprise WLP.

 

Scroll To Top