Present: All the Justices
AMCHEM PRODUCTS, INC., ET AL.
OPINION BY JUSTICE LEROY R. HASSELL, SR.
v. Record No. 012576 June 7, 2002
NEWPORT NEWS CIRCUIT COURT
ASBESTOS CASES PLAINTIFFS
FROM THE CIRCUIT COURT OF THE CITY OF NEWPORT NEWS
Robert W. Curran, Judge
I.
In this interlocutory appeal, we consider whether the
circuit court erred by refusing to require the litigants to
resolve their purported dispute in accordance with an
arbitration provision in a contract.
II.
Five hundred and ninety-seven individual plaintiffs filed
lawsuits in the circuit court against certain asbestos
manufacturers and/or distributors, including the defendants,
Amchem Products, Inc., C.E. Thurston and Sons, Inc., and Dana
Corporation. The plaintiffs, who included personal
representatives of the estates of certain decedents, alleged
that they, or their decedents, sustained personal injury or
that their decedents died as a result of exposure to asbestos.
The defendants are members of the Center for Claims
Resolution, a Delaware corporation composed of companies
formerly engaged in the manufacture, sale, and/or distribution
of asbestos and products that contain asbestos. The Center
for Claims Resolution was created for the express purpose of
evaluating, negotiating, litigating, and settling asbestos-
related personal injury and property damage claims against its
members. In July 2000, the Center for Claims Resolution and
its members entered into a Master Settlement Agreement with
the plaintiffs in this appeal.
Pursuant to the terms of the Master Settlement Agreement,
the members of the Center for Claims Resolution agreed to
settle each plaintiff's claims against its members for sums
specified in the Master Settlement Agreement. The Master
Settlement Agreement states in part that "[t]his Settlement
Agreement is made by and between the members of the Center for
Claims Resolution, specifically, Amchem Products, Inc.,
Armstrong World Industries, Inc., The Asbestos Claims
Management Corporation (formerly known as National Gypsum
Company); . . . C.E. Thurston & Sons, Inc.; Dana Corporation;"
and certain law firms.
The Master Settlement Agreement, dated July 2000,
contained the following provision in paragraph 5(b):
"To encourage the resolution of disputes
without the need for arbitration, counsel for the
parties shall meet face to face at least twice per
year, and seven days prior to each meeting, the
parties shall exchange a list of the disputed issues
and/or individual cases and the pertinent
information regarding those cases or issues. If
counsel are unable to resolve any dispute arising
under this agreement, including either its
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interpretation or application, the matter shall be
referred to the McCammon Mediation Group, which
shall appoint an independent arbitrator to resolve
the matter. In each case, the decision of the
arbitrator shall be final and binding upon the
parties, and the cost of arbitration, including the
arbitrator's fees and expenses, shall be borne
equally by the parties, and each party shall bear
its own attorneys' fees."
On October 16, 2000, Michael Rooney, chief claims officer
for the Center for Claims Resolution, forwarded a letter to
counsel for the plaintiffs. This letter modified the Master
Settlement Agreement and stated in relevant part:
"Pursuant to the Master Settlement Agreement between
the Center for Claims Resolution and the law firms
of Patten, Wornom, Hatten & Diamonstein, L.C., and
Glasser & Glasser, P.L.C., for the resolution of
qualified cases . . . the [Center for Claims
Resolution] understands and consents that
plaintiff's counsel intends to make payment to all
of these qualified plaintiffs in three equal
installments rather than in full to three separate
groups . . . . Specifically, the [Center for Claims
Resolution] understands that plaintiff counsel
intends to pay each qualified plaintiff the
settlement values set forth in Paragraph 2 of the
agreement in three equal installments – the first of
which is due on or about October 30, 2000, the
second is due on or about April 30, 2001, and the
third is due on or about October 30, 2001.
"Each settling plaintiff will execute a release to
the [Center for Claims Resolution] for the full
amount of the settlement prior to receiving the
first installment; however, it is specifically
understood and agreed that these releases are not
evidence of full satisfaction of the contractual
obligation of the [Center for Claims Resolution] to
pay the qualified plaintiffs the settlement values
that have been agreed upon, and should the [Center
for Claims Resolution] fail to timely make any or
all of the payments required by the Master
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Settlement Agreement, then in that event each
settling plaintiff who has not received full payment
may pursue a remedy in contract against the [Center
for Claims Resolution] members for any deficiency.
If such action is required, the [Center for Claims
Resolution] members shall be responsible to pay the
deficiency with interest at 8% per annum, and the
[Center for Claims Resolution] members will
reimburse each such settling plaintiff for
reasonable attorneys' fees and expenses that may be
required to collect this deficiency by lawsuit or
otherwise.
"This remedy in contract on the release will be the
sole legal remedy of each plaintiff who has executed
a release for the full consideration of his
settlement but fails to receive timely payment in
full."
The plaintiffs' claims were accepted by the Center for
Claims Resolution under the Master Settlement Agreement as
modified, and each plaintiff executed a release absolving all
the Center for Claims Resolution members from any liability.
Prior to the date that the Center for Claims Resolution
was required to make the payments specified in the Master
Settlement Agreement, two of its members defaulted on their
obligations to pay their prescribed share of the payments.
The Asbestos Claims Management Corporation declared itself
insolvent and failed to pay its obligations. Armstrong World
Industries, Inc., filed a petition in bankruptcy and also
defaulted on its settlement obligations. In January 2001, the
Center for Claims Resolution forwarded a check to plaintiffs'
counsel that represented the amounts due from the Center for
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Claims Resolution member companies other than the Asbestos
Claims Management Corporation and Armstrong World Industries,
Inc.
Subsequently, the plaintiffs filed a "Motion To Enforce
Settlement Agreement" in the circuit court. The plaintiffs
asserted that the Center for Claims Resolution and its member
companies are individually, jointly, and severally liable to
the plaintiffs for the payments due under the Master
Settlement Agreement, and interest and attorneys' fees
permitted by the agreement, including the October 16, 2000
modification. The defendants, relying upon paragraph 5(b) of
the Master Settlement Agreement, asserted that a dispute
existed and, therefore, the plaintiffs were required to submit
their claims to binding arbitration as required by the Federal
Arbitration Act and the Virginia Arbitration Act. The circuit
court denied the defendants' motion to compel arbitration, and
the defendants filed an interlocutory appeal from that order.
III.
A.
The defendants argue that the circuit court erred in
denying their motion to compel resolution of this purported
dispute by arbitration. The defendants assert that the Master
Settlement Agreement is governed by the Federal Arbitration
Act, and the Act reflects a liberal federal policy that favors
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enforcement of arbitration agreements. The defendants state
that paragraph 5(b) of the Master Settlement Agreement
contains a mandatory arbitration provision and that the
October 16, 2000 letter does not alter the arbitration
requirement.
Continuing, the defendants assert that a dispute exists
that is subject to binding arbitration because
"the proper interpretation of the October Letter,
and the proper application of the [Master Settlement
Agreement] in light of the October Letter, is
disputed by the parties. The plaintiffs read the
letter to create a new contract remedy against 'all
the [Center for Claims Resolution] members.' The
defendants read the letter to confirm the
plaintiffs' contract remedy against the 'defaulting
[Center for Claims Resolution] members.' As such,
the plaintiffs' motion to enforce the settlement
against the defendants herein necessarily depends in
the first instance on an interpretation of the
October Letter, and – under the arbitration clause
in § 5(b) of the agreement – only an arbitrator has
jurisdiction to render such an interpretation."
Responding, the plaintiffs initially contend that this
Court lacks jurisdiction of the circuit court's order denying
the defendants' motion to compel arbitration because such
order cannot be challenged by an interlocutory appeal but must
be contested solely by a writ of mandamus. Alternatively, the
plaintiffs assert that the October 2000 letter modified the
Master Settlement Agreement by providing the plaintiffs with a
new remedy against all members of the Center for Claims
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Resolution for any deficiencies in payment as provided by the
Master Settlement Agreement.
Continuing, the plaintiffs state that the language in the
October 2000 letter is clear, unambiguous, and not subject to
varying interpretations. Thus, the plaintiffs assert that
there is no dispute that the October 2000 letter, which
modified the Master Settlement Agreement, gave them a
contractual right to pursue an action for breach of contract
and reasonable attorneys' fees and expenses against all the
Center for Claims Resolution members jointly and severally if
the Center for Claims Resolution fails to make the payments
required by the Master Settlement Agreement.
B.
Initially, we observe that this Court has jurisdiction to
decide whether the plaintiffs' claims are subject to the
arbitration agreement. Code § 8.01-581.01 states in part that
"[a] written agreement to submit any existing controversy to
arbitration or a provision in a written contract to submit to
arbitration any controversy thereafter arising between the
parties is valid, enforceable and irrevocable, except upon
such grounds as exist at law or in equity for the revocation
of any contract." Code § 8.01-581.02 confers upon a circuit
court the power to compel or stay arbitration proceedings.
Code § 8.01-581.01 confers upon this Court jurisdiction to
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review a circuit court's order that denies or compels
arbitration.
C.
Our resolution of this appeal is governed in part by the
Federal Arbitration Act because the Master Settlement
Agreement, as modified by the October 2000 letter, "involved
interstate commerce." Thus, we must apply the federal
substantive law to determine whether the parties must submit
to binding arbitration as required by the contract. Allied-
Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 268-70, 281-82
(1995); see 9 U.S.C. § 1, et seq. (2000). Therefore, we must
apply the following federal principles.
The question whether a party has agreed to arbitrate a
particular issue is a matter of contract interpretation. The
Supreme Court has stated that a "party cannot be required to
submit to arbitration any dispute which he has not agreed so
to submit." United Steelworkers of America v. Warrior & Gulf
Navigation Co., 363 U.S. 574, 582 (1960). The Federal
Arbitration Act contains "a congressional declaration of a
liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies
to the contrary. The effect of [§ 2 of the Act] is to create
a body of federal substantive law of arbitrability, applicable
to any arbitration agreement within the coverage of the Act."
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Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460
U.S. 1, 24 (1983).
The Supreme Court has stated that the Federal Arbitration
Act "establishes that, as a matter of federal law, any doubts
concerning the scope of arbitrable issues should be resolved
in favor of arbitration, whether the problem at hand is the
construction of the contract language itself or an allegation
of waiver, delay, or a like defense to arbitrability." Id. at
24-25 (footnote omitted). This strong presumption of
arbitrability mandates that a court must require the parties
to submit to arbitration if the scope of an arbitration clause
subject to the federal act is open to question. American
Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d
88, 92 (4th Cir. 1996); Peoples Sec. Life Ins. Co. v.
Monumental Life Ins. Co., 867 F.2d 809, 812 (4th Cir. 1989).
The Supreme Court has held that a court must compel
parties to arbitrate pursuant to the terms of an agreement
covered by the federal Act "unless it may be said with
positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted
dispute." Warrior & Gulf Navigation Co., 363 U.S. at 582-83;
accord Long v. Silver, 248 F.3d 309, 316 (4th Cir.), cert.
denied, ___ U.S. ___, 122 S.Ct. 213 (2001).
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However, in determining whether a contractual dispute
exists that is subject to arbitration, we must review the
language contained in the Master Settlement Agreement and the
October 2000 modification to ascertain the meaning of these
documents, and in making this determination, we must apply the
substantive contract law of this Commonwealth. The question
"[w]hether a party agreed to arbitrate a particular dispute is
an issue for judicial determination to be decided as a matter
of contract." Johnson v. Circuit City Stores, Inc., 148 F.3d
373, 377 (4th Cir. 1998); accord AT&T Technologies, Inc. v.
Communications Workers of America, 475 U.S. 643, 648-49
(1986); Arrants v. Buck, 130 F.3d 636, 640 (4th Cir. 1997).
In making this determination, the courts should apply
"ordinary state-law principles that govern the formation of
contracts." First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938, 944 (1995); see also Arrants, 130 F.3d at 640
("[c]ourts decide whether there is an agreement to arbitrate
according to common law principles of contract law").
D.
The litigants agree that the letter that the Center for
Claims Resolution's Chief Claims Officer, Rooney, forwarded to
the plaintiffs' counsel changed the terms of the Master
Settlement Agreement. It is well established that a written
contract can be modified by an express mutual agreement, which
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may be in writing. Stanley's Cafeteria v. Abramson, 226 Va.
68, 72, 306 S.E.2d 870, 872 (1983).
We have stated that "[c]ontracts between parties are
subject to basic rules of interpretation. Contracts are
construed as written, without adding terms that were not
included by the parties." TM Delmarva Power v. NCP of
Virginia, 263 Va. 116, 119, 557 S.E.2d 199, 200 (2002); accord
Wilson v. Holyfield, 227 Va. 184, 187, 313 S.E.2d 396, 398
(1984). Additionally, it is well established that when the
terms of a contract are clear and unambiguous, a court must
give them their plain meaning. Pocahontas Mining Co. v.
Jewell Ridge Coal Corp., 263 Va. 169, 173, 556 S.E.2d 769, 771
(2002); Golding v. Floyd, 261 Va. 190, 192, 539 S.E.2d 735,
736 (2001); Bridgestone/Firestone v. Prince William Square,
250 Va. 402, 407, 463 S.E.2d 661, 664 (1995); Foods First,
Inc. v. Gables Associates, 244 Va. 180, 182, 418 S.E.2d 888,
889 (1992). We must construe the words as written in the
contract, and we will not make a new contract for the parties.
Bridgestone, 250 Va. at 407, 463 S.E.2d at 664; Berry v.
Klinger, 225 Va. 201, 208, 300 S.E.2d 792, 796 (1983).
Applying these contract principles, we are compelled to
conclude, with positive assurance, that the plaintiffs' claims
are not subject to the arbitration provision in the Master
Settlement Agreement because a legally cognizable dispute does
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not exist. There is no dispute about the terms of the October
16, 2000 letter that modified the Master Settlement Agreement.
There is no dispute that the language contained in the second
paragraph of the October 2000 letter confers upon the
plaintiffs the right to "pursue a remedy in contract against
the [Center for Claims Resolution] members" for any deficiency
in the event the Center for Claims Resolution fails to timely
make any payments required by the Master Settlement Agreement.
There is no dispute that the Center for Claims Resolution
failed to pay the plaintiffs as required by the terms of the
Master Settlement Agreement. Additionally, the October 2000
letter explicitly states that this "remedy in contract on the
release will be the sole legal remedy of each plaintiff who
has executed a release for the full consideration of his
settlement but fails to receive timely payment in full."
The defendants, however, assert that the plaintiffs'
contractual remedies are limited to claims against the
defaulting members of the Center for Claims Resolution and not
"all the members of the Center for Claims Resolution." Thus,
the defendants say that this difference in interpretation
creates a dispute subject to resolution by an arbitrator
pursuant to the terms of the arbitration provision in the
Master Settlement Agreement.
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Contrary to the defendants' assertions, there can be no
legally cognizable dispute regarding the meaning of the clear
and unambiguous language contained in the October 2000 letter.
As we have already stated, we must apply the plain meaning of
the contract language in ascertaining the parties' rights, and
pursuant to the plain meaning of the language used in the
October 2000 modification, the plaintiffs have the right to
"pursue a remedy in contract against the [Center for Claims
Resolution] members for any deficiency." This clear and
unambiguous language does not limit the plaintiffs' contract
remedies to the defaulting Center for Claims Resolution
members. We will not add words to the litigants' contract.
Rather, we must enforce the contract using the express words
that the Center for Claims Resolution chose to employ when
making the written modification to the Master Settlement
Agreement. As we have held:
"It is the function of the court to construe
the contract made by the parties, not to make a
contract for them. The question for the court is
what did the parties agree to as evidenced by their
contract. The guiding light in the construction of
a contract is the intention of the parties as
expressed by them in the words they have used, and
courts are bound to say that the parties intended
what the written instrument plainly declares."
Graphic Arts Mutual Ins. v. C.W. Warthen Co., 240 Va. 457,
460, 397 S.E.2d 876, 878 (1990) (quoting Magann Corp. v.
Electrical Works, 203 Va. 259, 264, 123 S.E.2d 377, 381
13
(1962)). Moreover, a dispute that subjects a party to
arbitration must be real and not imagined. A contrary
conclusion would permit a litigant to assert the existence of
a purported dispute when there is no basis in fact or law to
do so, thereby depriving the opposing litigant of valuable
contractual rights.
Thus, reiterating, we hold that the circuit court did not
err in denying the defendants' request to arbitrate because,
applying the federal law and the Federal Arbitration Act, we
conclude with positive assurance that no legally cognizable
dispute exists that would subject the litigants to arbitration
and, thus, there is nothing for an arbitrator to decide.
IV.
We will affirm the interlocutory order appealed from, and
we will remand this case to the circuit court so that the
plaintiffs may pursue their contract remedies.
Affirmed and remanded.
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