Present: Carrico, C.J., Compton, 1 Lacy, Hassell, Keenan,
Koontz, and Kinser, JJ.
VIRGINIA ELECTRIC AND POWER COMPANY
v. Record No. 990489 OPINION BY JUSTICE ELIZABETH B. LACY
March 3, 2000
WESTMORELAND-LG&E PARTNERS
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Theodore J. Markow, Judge
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,
1
Justice Compton participated in the hearing and decision
of this case prior to the effective date of his retirement on
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).
February 2, 2000.
2
The partnership consisted of Westmoreland-Roanoke
Valley, L.P. and Hadson Valley, L.P.
2
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
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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
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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
5
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.
6
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
7
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.
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
8
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
the conclusion that Brown sent a copy of the letter to the
attorney.
9
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
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
10
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-
90% of Westmoreland-Roanoke Valley, L.P., which along with
Hadson Roanoke Valley, L.P., comprise WLP.
11
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.
12