James B. Lees, Jr., Esq.|
Sharon F. Iskra, Esq.
Hunt & Lees
Charleston, West Virginia
Attorneys for Appellant
David P. Cleek, Esq.|
Marilyn T. McClure, Esq.
Shuman, Annand, Bailey,
Wyant & Earles
Charleston, West Virginia
Attorneys for Appellee
2. In determining whether a particular organization is a state agency, we
will review its legislative framework. In particular, we look to see if its powers are
substantially created by the legislature, and whether its governing board's composition is
prescribed by the legislature. Other significant factors are whether the organization can
operate on a statewide basis, whether it is financially dependent on public funds, and whether
it is required to deposit its funds in the state treasury. Syllabus point 1, Blower v. West
Virginia Educ. Broad. Auth., 182 W. Va. 528, 389 S.E.2d 739 (1990).
3. In determining whether a commission or other body or entity created
by the state is in truth and effect a part of the state, all of the features or characteristics must
be considered and consequently each case must rest upon the provisions of the entity's own
creation. Hope Natural Gas Co. v. West Virginia Turnpike Comm'n, 143 W. Va. 913, 928,
105 S.E.2d 630, 639 (1958).
4. The West Virginia Lottery Commission is an agency of the State, and
is entitled to assert sovereign immunity under Article VI, § 35, of the West Virginia
5. The West Virginia Rules of Evidence and the West Virginia Rules of
Civil Procedure allocate significant discretion to the trial court in making evidentiary and
procedural rulings. Thus rulings on the admissibility of evidence and the appropriateness of
a particular sanction for discovery violations are committed to the discretion of the trial court.
Absent a few exceptions, this Court will review evidentiary and procedural rulings of the
circuit court under an abuse of discretion standard. Syllabus point 1, McDougal v.
McCammon, 193 W. Va. 229, 455 S.E.2d 788 (1995).
6. The imposition of sanctions by a circuit court under W. Va. R. Civ. P.
37(b) for the failure of a party to obey the court's order to provide or permit discovery is
within the sound discretion of the court and will not be disturbed upon appeal unless there
has been an abuse of that discretion. Syllabus point 1, Bell v. Inland Mut. Ins. Co., 175
W. Va. 165, 332 S.E.2d 127 (1985).
7. Suits which seek no recovery from state funds, but rather allege that
recovery is sought under and up to the limits of the State's liability insurance coverage, fall
outside the traditional constitutional bar to suits against the State. Syllabus point 2 of
Pittsburgh Elevator Co. v. West Virginia Bd. of Regents, 172 W. Va. 743, 310 S.E.2d 675
8. W. Va. Code, 29-12-5(a) (1986), provides an exception for the State's
constitutional immunity found in Section 35 of Article VI of the West Virginia Constitution.
It requires the State Board of Risk and Insurance Management to purchase or contract for
insurance and requires that such insurance policy 'shall provide that the insurer shall be
barred and estopped from relying upon the constitutional immunity of the State of West
Virginia against claims or suits.' Syllabus point 1, Eggleston v. West Virginia Dept. of
Highways, 189 W. Va. 230, 429 S.E.2d 636 (1993).
9. Where the provisions of an insurance policy contract are clear and
unambiguous they are not subject to judicial construction or interpretation, but full effect will
be given to the plain meaning intended. Syllabus, Keffer v. Prudential Ins. Co., 153 W. Va.
813, 172 S.E.2d 714 (1970).
10. Pursuant to W. Va. R. Civ. P. 8(e)(2), a factual assertion pertaining to one claim set forth in a pleading will not be construed as an admission with respect to an alternative or inconsistent claim in the same pleading.
11. While a court may take judicial notice of the orders of another court pursuant to W. Va. R. Evid. 201, such notice may not be for the truth of the matters asserted in the other litigation, but rather is limited to establishing the fact of such litigation and related filings.
12. 'Collateral estoppel [or issue preclusion] will bar a claim if four
conditions are met: (1) The issue previously decided is identical to the one presented in the
action in question; (2) there is a final adjudication on the merits of the prior action; (3) the
party against whom the doctrine is invoked was a party or in privity with a party to a prior
action; and (4) the party against whom the doctrine is raised had a full and fair opportunity
to litigate the issue in the prior action.' Syllabus Point 1, State v. Miller, 194 W. Va. 3, 459
S.E.2d 114 (1995). Syllabus point 1 of Haba v. The Big Arm Bar and Grill, Inc., 196
W. Va. 129, 468 S.E.2d 915 (1996).
13. Highly placed public officials are not subject to a deposition absent
a showing that the testimony of the official is necessary to prevent injustice to the party
requesting it. Syllabus point 3, State ex rel. Paige v. Canady, 197 W. Va. 154, 475 S.E.2d
14. When determining whether to allow the deposition of a highly placed
public official, the trial court should weigh the necessity to depose or examine an executive
official against, among other factors, (1) the substantiality of the case in which the deposition
is requested; (2) the degree to which the witness has first-hand knowledge or direct
involvement; (3) the probable length of the deposition and the effect on government business
if the official must attend the deposition; and (4) whether less onerous discovery procedures
provide the information sought. Syllabus point 4, State ex rel. Paige v. Canady, 197 W. Va.
154, 475 S.E.2d 154 (1996).
15. The standard enunciated in Syllabus points 3 and 4 of State ex rel. Paige v. Canady, 197 W. Va. 154, 475 S.E.2d 154 (1996), continues to apply in instances where a party seeks to orally depose a former high-ranking government official pursuant to W. Va. R. Civ. P. 30.
The Arnold Agency (Arnold), plaintiff below, appeals the circuit court's
adverse grant of summary judgment with respect to its fraud and breach of contract claims
against defendant/appellee West Virginia Lottery Commission (the Lottery Commission
or Commission). Arnold's claims are predicated upon the Lottery Commission's alleged
failure to award it a $2.8 million advertising and public relations contract.
Arnold contends on appeal that the circuit court erred in (1) determining that the Lottery Commission is an agency of the State and cloaked in sovereign immunity under Article VI, § 35 of the West Virginia Constitution; (2) dismissing its fraud count; (3) permitting the Lottery Commission to assert the absence of insurance coverage after the deadline for filing dispositive motions; (4) concluding that the State's liability insurance policy does not provide coverage with respect to Arnold's breach of contract claim; and (5) granting a protective order prohibiting Arnold from deposing then-Governor Gaston Caperton. While we conclude that the Lottery Commission is immune from suit and that Arnold's fraud claim is therefore barred, we determine that the State's liability insurance potentially provides coverage for the breach of contract claim, thus permitting the present case to proceed to trial.
In the second count of its complaint, Arnold further alleges that the Lottery
Commission fraudulently induced it to compete in the bidding process. It claims that the
Commission's director, Elton Butch Bryan (Bryan), orchestrated a fraudulent scheme
to ensure that Fahlgren Martin would awarded the advertising contract notwithstanding the
results of the formal evaluation process.See footnote 2
Specifically, Arnold alleges that upon Bryan's
instructions, the lottery's deputy director for marketing, Tamara Gunnoe, falsely informed
the members of the Commission that Fahlgren Martin had been chosen by the evaluation
committee to receive the contract. Also, it claims that both Bryan and Gunnoe purposely
misled the State's purchasing department by making false representations and providing a
falsified memorandum regarding the evaluation committee's employment of a numerical
scoring system in purportedly selecting Fahlgren Martin for the contract.
After Arnold filed its initial complaint, the Lottery Commission moved to
dismiss on the ground that the circuit court lacked subject matter jurisdiction based upon the
Commission's sovereign immunity. Arnold had previously submitted interrogatories to the
Commission, which among other things requested information regarding whether there was
insurance coverage for the conduct alleged in the complaint. After having received no
response to these interrogatories, Arnold filed a motion to compel discovery on February 18,
1994. Shortly thereafter, Arnold also amended its complaint to seek damages under and up
to the limits of the State's liability insurance coverage. Both the motion to dismiss and the
motion to compel were the subjects of a March 24, 1994 hearing, after which the circuit court
stayed all pending discovery pending a decision on the Commissions dismissal motion.
Another hearing on the Commission's motion to dismiss was conducted on
September 22, 1994.See footnote 3
The circuit court subsequently issued an order on October 27, 1994,
ruling that while the Lottery Commission was a state agency and thus protected by sovereign
immunity, Arnold could nevertheless proceed with its suit under Pittsburgh Elevator Co. v.
West Virginia Bd. of Regents, 172 W. Va. 743, 310 S.E.2d 675 (1983), to the extent that the
State's insurance policy provides coverage for the conduct alleged. The circuit court also
ordered that all outstanding discovery be answered within thirty days. While depositions and
other discovery were subsequently taken,See footnote 4
the Commission apparently failed to answer
Arnold's interrogatories concerning the existence of insurance coverage.
The Lottery Commission subsequently moved for summary judgment on
October 16, 1995, asserting that (1) it was not liable for the fraudulent, illegal or
unauthorized acts of its officers, agents, or employees; and (2) that Arnold's breach of
contract claim was barred by sovereign immunity. This motion was later supplemented to
include an assertion that the statute of frauds bars the present action. Following a hearing
on August 5, 1996, the circuit court issued an order on August 21, 1996, dismissing Arnold's
fraud claim on the basis that fraud may not be maintained against a state governmental
agency for the acts of its agents as estoppel for such acts does not apply to the State. While
the court refused to dismiss Arnold's breach of contract claim_rejecting the Commission's
statute of frauds argument_ it expressly noted that the issue of whether insurance coverage
is present is not properly before this court and therefore was not considered in the rulings
rendered herein . . . . Consequently, the crucial issue of whether the circuit court had
subject matter jurisdiction over the breach of contract claims was yet unresolved at this time.
Trial was set for November 18, 1996. Before this date, however, the Lottery
Commission presented another motion for summary judgment on October 29, 1996, this time
contending that the State's insurance policy does not provide coverage for Arnold's breach
of contract claim. The Commission also at this point proffered a copy of the applicable
policy. On the date of trial, counsel for the Lottery Commission reiterated its position on the
issue of insurance coverage, and, following argument on this issue, the circuit court granted
the Commission's motion for summary judgment. The circuit court subsequently issued an
order dismissing Arnold's suit on March 11, 1998, ruling that no insurance coverage exists
under the applicable insurance policy for the acts complained of . . . by the plaintiff
throughout these proceedings . . . .See footnote 5
The court later entered a more comprehensive Final
Order on May 6, 1998, which supplied a detailed rationale for the court's conclusion
regarding the absence of insurance coverage.
Article VI, § 35 of the West Virginia Constitution peremptorily requires that
[t]he State of West Virginia shall never be made defendant in any court of law or equity
. . . . We have consistently held that this grant of immunity is absolute and . . . cannot be
waived by the legislature or any other instrumentality of the State. Mellon-Stuart Co. v.
Hall, 178 W. Va. 291, 296, 359 S.E.2d 124, 129 (1987); see also Clark v. Dunn, 195 W. Va.
272, 465 S.E.2d 374, 378 (1995). [T]he policy which underlies sovereign immunity is to
prevent the diversion of State monies from legislatively appropriated purposes. Thus, where
monetary relief is sought against the State treasury for which a proper legislative
appropriation has not been made, sovereign immunity raises a bar to suit. Mellon-Stuart,
178 W. Va. at 296, 359 S.E.2d at 129 (citations and footnote omitted).
In this case, Arnold argues that the Lottery Commission is not a state agency,
and therefore may not seek refuge under the constitutional cloak of sovereign immunity. The
primary justification for this position is that the Commission is financially self-sustaining,
and is engage in a proprietary activity intended solely to generate revenue for the State.
As a practical consequence of the expansion of government and the
proliferation of bodies charged with conducting the State's business, we have recognized that
proceedings against boards and commissions, created by the Legislature, as agencies of the
State, are suits against the state within the meaning of Article VI, Section 35, of the
Constitution of West Virginia, even though the State is not named as a party in such
proceedings. Hamill v. Koontz, 134 W. Va. 439, 443, 59 S.E.2d 879, 882 (1950); see also
Hesse v. State Soil Conservation Comm'n, 153 W. Va. 111, 115, 168 S.E.2d 293, 295 (1969)
(constitutional immunity relates not only to the State of West Virginia but extends to an
agency of the state to which it has delegated performance of certain of its duties).
However, not every entity created by the Legislature is entitled to the protection
of sovereign immunity. In Ohio Valley Contractors v. Board of Educ. of Wetzel County, 170
W. Va. 240, 241, 293 S.E.2d 437, 438 (1982), we synthesized our past cases and created a
five-factor test to determine whether an organization is an agency of the State:
Factors to consider are  whether the body functions statewide . . . ;  whether it does the State's work . . . ;  whether it was created by an act of the Legislature . . . ;  whether it is subject to local control . . . ; and  its financial dependence on State coffers . . . .
170 W. Va. at 241, 293 S.E.2d at 438 (citations omitted). The Court later went on to stress,
in an analogous context, the importance of examining an organization's legislative
framework, giving particular attention to whether
its powers are substantially created by the legislature, and
whether its governing board's composition is prescribed by the
legislature. Other significant factors are whether the
organization can operate on a statewide basis, whether it is
financially dependent on public funds, and whether it is required
to deposit its funds in the state treasury.
Syl. pt. 1, in part, Blower v. West Virginia Educ. Broad. Auth., 182 W. Va. 528, 389 S.E.2d
739 (1990). In determining whether a commission or other body or entity created by the
state is in truth and effect a part of the state, all of the features or characteristics must be
considered and consequently each case must rest upon the provisions of the entity's own
creation. Hope Natural Gas Co. v. West Virginia Turnpike Comm'n, 143 W. Va. 913, 928,
105 S.E.2d 630, 639 (1958).
Because this issue results from the circuit court's ruling on summary judgment,
and because it raises issues of law concerning sovereign immunity, our review is de novo.
Syl. pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994) (A circuit court's entry
of summary judgment is reviewed de novo.); Gribben v. Kirk 195 W. Va. 488, 493, 466
S.E.2d 147, 152 (1995) (appellate courts review questions involving principles of sovereign
immunity de novo) (citation omitted).
Our analysis need go no further than the clear language of Article VI, § 36 of
the West Virginia Constitution.See footnote 6
We have previously indicated that while the Legislature
may not expressly abrogate sovereign immunity, legislative statements regarding whether an
entity is intended to be independent of the State may nevertheless be considered. See Ohio
Valley Contractors, 170 W. Va. at 242, 293 S.E.2d at 439. Constitutional pronouncements
regarding the intended status of a particular agency are obviously of great if not overriding
Article VI, § 36 expressly prohibits the creation of lotteries within our state,
with the exception that the legislature may authorize lotteries which are regulated,
controlled, owned and operated by the State of West Virginia in the manner provided by
general law . . . . (Emphasis added.) The Lottery Commission was created by the
Legislature under such authority. See State Lottery Act, 1985 W. Va. Acts ch. 115 (codified
as amended at W. Va. Code §§ 29-22-1 to -28). As we stated in Syllabus point 1, in part, of
State ex rel. Mountaineer Park v. Polan, 190 W. Va. 276, 438 S.E.2d 308 (1993), [o]nly
those lottery operations which are regulated, controlled, owned and operated by the State of
West Virginia in the manner provided by general laws enacted by the West Virginia
Legislature may be properly conducted in accordance with the exception created under article
VI, section 36 of our Constitution.
The constitutional requirement of Article VI, § 36, which firmly requires that
any lottery be under the aegis of the State, is determinative in the present case. As a
consequence, we hold that the Lottery Commission is an agency of the State, and is entitled
to assert sovereign immunity under W. Va. Const. art. VI, § 35.
The Lottery Commission responds by noting it has asserted sovereign immunity as a jurisdictional bar since the inception of this litigation, and that West Virginia's unique law governing sovereign immunity put counsel in the precarious position of having to assert that the Commission's insurance policy did not provide coverage. In the latter context, it points out that the circuit court's ruling predates our decision in Parkulo v. West Virginia Bd. of Probation and Parole, 199 W. Va. 161, 483 S.E.2d 507 (1997), where we directed that
when a plaintiff pursues recovery under an agency's liability insurance policy,See footnote 7
the text of
the applicable insurance coverages afforded, including any applicable contractual exceptions
or limitations contained in the policies, should be included in the record at an early stage of
the proceedings so that the trial court can readily determine whether, and to what extent,
claims and causes of action pleaded are made subject to litigation in the courts by reason of
W. Va. Code § 29-12-5 and the applicable insurance policy or policies. Parluko, 199
W. Va. at 169-70, 483 S.E.2d at 515-16. The Commission further explains that the failure
to provide timely information regarding insurance coverage was an unintentional oversight,
occasioned, in part, by a grievous event in counsel's personal life.
A trial court's procedural rulings are afforded substantial deference on appeal.
As we stated in Syllabus point 1 of McDougal v. McCammon, 193 W. Va. 229, 455 S.E.2d
The West Virginia Rules of Evidence and the West Virginia Rules of Civil Procedure allocate significant discretion to the trial court in making evidentiary and procedural rulings. Thus rulings on the admissibility of evidence and the appropriateness of a particular sanction for discovery violations are committed to the discretion of the trial court. Absent a few exceptions, this Court will review evidentiary and procedural rulings of the circuit court under an abuse of discretion standard.
The imposition of sanctions by a circuit court under W. Va. R. Civ. P. 37(b) for the failure
of a party to obey the court's order to provide or permit discovery is within the sound
discretion of the court and will not be disturbed upon appeal unless there has been an abuse
of that discretion. Syl. pt. 1, Bell v. Inland Mut. Ins. Co., 175 W. Va. 165, 332 S.E.2d 127,
cert. denied sub nom., Camden Fire Ins. Ass'n v. Justice, 474 U.S. 936, 106 S. Ct. 299, 88
L. Ed. 2d 277 (1985).
Although the Court is troubled by the fact that counsel for the Lottery
Commission failed to provide the sought-after discovery concerning insurance coverage for
such a long period of time, we do not find that the circuit court abused its discretion in
permitting the Commission to bring forward the issue of insurance coverage. We take this
opportunity, however, to stress the importance of the procedural path set in Parluko, and to
admonish that when sovereign immunity is raised as a jurisdictional defense, the parties (and
particularly a defendant governmental agency) have an affirmative obligation to promptly
tender copies of applicable liability insurance policies so that the trial court may make a
timely determination as to the existence of insurance coverage.
Although facially absolute, this Court has carved a narrow exception to
sovereign immunity where a plaintiff merely seeks recovery under the State's liability
insurance coverage. In Syllabus point 2 of Pittsburgh Elevator Co. v. West Virginia Bd. of
Regents, 172 W. Va. 743, 310 S.E.2d 675 (1983), we explained that [s]uits which seek no
recovery from state funds, but rather allege that recovery is sought under and up to the limits
of the State's liability insurance coverage, fall outside the traditional constitutional bar to
suits against the State. The Court subsequently noted in Syllabus point 1 of Eggleston v.
West Virginia Dept. of Highways, 189 W. Va. 230, 429 S.E.2d 636 (1993):
W. Va. Code, 29-12-5(a) (1986), provides an exception for the State's constitutional immunity found in Section 35 of Article VI of the West Virginia Constitution. It requires the State Board of Risk and Insurance Management to purchase or contract for insurance and requires that such insurance policy shall provide that the insurer shall be barred and estopped from relying upon the constitutional immunity of the State of West Virginia against claims or suits.
We undertake review of the relevant contract language in order to determine whether
Pittsburgh Elevator permits recovery in the present case.
1. Comprehensive General Liability Coverage. As with any written
contract, our initial task in interpreting the provisions of an insurance policy is to determine
whether the language of the instrument is so unequivocal as to leave no doubt concerning the
meaning intended by the parties. Thus, [w]here the provisions of an insurance policy
contract are clear and unambiguous they are not subject to judicial construction or
interpretation, but full effect will be given to the plain meaning intended. Syllabus, Keffer
v. Prudential Ins. Co., 153 W. VA.. 813, 172 S.E.2d 714 (1970); see also Syl. pt. 2, Louk
v. Isuzu Motors, Inc., 198 W. Va. 250, 479 S.E.2d 911 (1996); Syl. pt. 1, Russell v. State
Auto. Mut. Ins. Co., 188 W. Va. 81, 422 S.E.2d 803 (1992).
The CGL section of the State's liability insurance policy provides, in pertinent part, that
[t]he Company will pay on behalf of the insured all sums which the Insured shall become legally obligated to pay as damages because of Bodily Injury and Property Damage to which this insurance applies, caused by an Occurrence . . . .
(Emphasis added.)See footnote 9
The exclusions portion of the CGL section states, inter alia, that such
coverage does not apply to liability assumed by the Insured under any contract or agreement
except an Incidental Contract . . . . An endorsement to the CGL section defines an
Incidental Contract as any written contract or agreement relating to the conduct of the
Named Insured's business.See footnote 10
Arnold emphasizes the fact that the circuit court, in its final order of May 6,
1998, concluded that the advertising contract at issue was an incidental contract as defined
by the policy. As the Lottery Commission points out, however, this fact is unavailing since
the coverage provided by the CGL section extends only to claims of bodily injury and
property damage. Arnold has never alleged such damages. Consequently, under the clear
language of the CGL section of State's insurance policy, there is no coverage for the breach
of contract claim.
2. Wrongful Acts Liability Coverage. Arnold also argues that its breach of
contract claim is potentially covered by the WAL section of the State's liability insurance
policy. The WAL section of the policy provides coverage for, among other things, losses
occasioned by Wrongful Acts committed by the Lottery Commission and its employees.
The policy defines Wrongful Acts as
any actual or alleged error or misstatement or act or omission or neglect or breach of duty including malfeasance, misfeasance, and nonfeasance by the Insureds in the discharge of their duties to the Named Insured, individually or collectively, or any matter claimed against them solely by reason of their being or having been Insureds.See footnote 11 11
(Footnote added.) An exception to this coverage provides:
The Company shall not be liable to make any payment in connection with any claim made against the Insureds:
. . . .
3. Brought about or contributed to by fraud or dishonesty
of any Insured; however, notwithstanding the foregoing, the
Insureds shall be protected under the terms of this coverage part
as to any claims upon which suit may be brought against them
by reason of any alleged fraud or dishonesty on the part of any
Insureds, unless a judgement or other final adjudication thereof
adverse to such Insureds shall establish that acts of active or
deliberate dishonesty or fraud committed by such Insureds were
material to the cause of action so adjudicated.
. . . .
The clear language of the policy prohibits application of the exclusion except where there has
been a formal adjudication of material fraud on the part of the Lottery Commission, or its
officers or employees.
The Lottery Commission apparently does not contest the circuit court's conclusion that, absent application of this exclusion for acts involving fraud or dishonesty, Arnold's claim for breach of contract would be covered under the policy.See footnote 12 12 Consequently, our focus is on whether the circuit court properly applied the exclusion to bar coverage.See footnote 13 13
Arnold asserts that there was no evidentiary or other basis upon which to adjudicate the
existence of fraud relative to the Lottery Commission's alleged breach of contract.
The Lottery Commission argues in reply that the circuit court's conclusion with
respect to WAL coverage is supported by the allegations of fraud contained in Arnold's
amended complaint. We find no merit in this assertion. Under W. Va. R. Civ. P. 8(e)(2):
A party may set forth two or more statements of a claim or defense alternately or hypothetically, either in one count or defense or in separate counts or defenses. When two or more statements are made in the alternative and one of them if made independently would be sufficient, the pleading is not made insufficient by the insufficiency of one or more of the alternative statements. A party may also state as many separate claims or defenses as the party has regardless of consistency and whether based on legal or on equitable grounds or on both. All statements shall be made subject to the obligations set forth in Rule 11.
This rule gives parties considerable latitude in framing their pleadings,See footnote 14
permits claims or defenses to be pled alternatively or hypothetically regardless of
A party is normally permitted to make inconsistent factual allegations in its
pleadings. See generally 5 Charles A. Wright & Arthur R. Miller, Federal Practice and
Procedure § 1283, at 533 (2d ed. 1990). As the Ninth Circuit stated: Clearly, a policy
which permits one claim to be invoked as an admission against an alternative or inconsistent
claim would significantly restrict, if not eliminate, the freedom to plead inconsistent claims
provided by Rule 8(e)(2). Molsbergen v. United States, 757 F.2d 1016, 1018-19 (9th Cir.),
cert. denied, 473 U.S. 943, 106 S. Ct. 30, 87 L. Ed. 2d 706 (1985). Thus, a factual assertion
pertaining to one claim set forth in a pleading will not be construed as an admission with
respect to an alternative or inconsistent claim in the same pleading. See Henry v. Daytop
Village, Inc., 42 F.3d 89, 95 (2d Cir. 1994); Molsbergen, 757 F.2d at 1019 (In light of the
liberal pleading policy embodied in Rule 8(e)(2), . . . a pleading should not be construed as
an admission against another alternative or inconsistent pleading . . . .).
Our review of Arnold's amended complaint indicates that count two, which
sets forth a cause of action grounded in fraud, is pled in the hypothetical_i.e., it was pled
based upon additional alleged facts pertaining exclusively to the claim of fraud.
Significantly, the allegations of fraudulent conduct are predicated upon information and
belief, and none of the essential facts upon which Arnold predicates its claim are asserted to
be within the personal knowledge of any of its principals or employees. The allegation can't
sensibly be called an 'admission'; it is a characterization of (or perhaps just a speculation
about) what evidence unknown to the pleader may show. Moriarty v. Larry G. Lewis
Funeral Dir. Ltd., 150 F.3d 773, 778 (7th Cir. 1998). Arnold is therefore not bound by the
factual allegations contained in its fraud count, and the two counts of the amended complaint
should have been examined independently. Put in words relevant to the issue of whether
coverage is afforded by the WAL section of the State's insurance policy, the allegations of
Arnold's fraud claim do not provide an evidentiary basis upon which to adjudicate the issue
of whether fraud or dishonesty materially contributed to the alleged breach of contract.
Consequently, the circuit court's reliance upon Arnold's allegations of fraud was error.
The Lottery Commission also contends that the circuit court implicitly took
judicial notice of the fact that its director, Elton Butch Bryan, was convicted in federal
court of (among other things) mail fraud under 18 U.S.C. §§ 1341, 1346 (1994). In
proceedings below, the Lottery Commission submitted copies of the indictment and final
judgment pertaining to this criminal conviction.
It was certainly within the circuit court's prerogative to use these records for
the purpose of ascertaining that Bryant had, in fact, been convicted of mail fraud. Under
W. Va. R. Evid. 201, a court is permitted to take judicial notice of adjudicative facts that
cannot reasonably be questioned in light of information provided by a party litigant.
However, while a court may take judicial notice of the orders of another court, such notice
is 'not for the truth of the matters asserted in the other litigation, but rather to establish the
fact of such litigation and related filings.' Liberty Mut. Ins. Co. v. Rotches Pork Packers,
Inc., 969 F.2d 1384, 1388 (2d Cir. 1992) (citation omitted). See also United State v. Jones,
29 F.3d 1549, 1553 (11th Cir. 1994) (a court may take judicial notice of another court's
order only for the limited purpose of recognizing the 'judicial act' that the order represents
or the subject matter of the litigation). As one treatise explains, [i]f it were possible for a
court to take judicial notice of a fact because it has been found to be true in some other
action, the doctrine of collateral estoppel would be superfluous. 21 Charles A. Wright &
Kenneth W. Graham, Jr., Federal Practice and Procedure § 5106, at 247 (2d ed. Supp.
Where the circuit court also erred in this case, was in using these records to
find that the Lottery Commission was collaterally estopped on the issue of fraud, based upon
Bryant's criminal conviction. In Syllabus point 1 of Haba v. The Big Arm Bar and Grill,
Inc., 196 W. Va. 129, 468 S.E.2d 915 (1996), we stated:
'Collateral estoppel [or issue preclusion] will bar a claim if four conditions are met: (1) The issue previously decided is identical to the one presented in the action in question; (2) there is a final adjudication on the merits of the prior action; (3) the party against whom the doctrine is invoked was a party or in privity with a party to a prior action; and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action.' Syllabus Point 1, State v. Miller, 194 W. Va. 3, 459 S.E.2d 114 (1995).
Putting aside the more difficult and complex question of whether the Lottery Commission,
(as a nonparty to the earlier criminal proceeding) can be deemed to be in privity with Bryan,
it is clear that the issue adjudicated in federal criminal proceedings is not identical to the
issue of fraud raised in the present case. For collateral estoppel or issue preclusion to attach
under these circumstances, a clear showing must be made that common issues were in fact
resolved by the criminal judgment.
Under the federal mail-fraud statute, 18 U.S.C. § 1341,See footnote 15
the government is not
required to prove that someone was actually defrauded or suffered loss; rather, it is sufficient
to prove that the defendant knowingly devised a scheme to defraud, and used the mails in
furtherance of such scheme. See McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904
F.2d 786, 791 (1st Cir. 1990) (the scope of fraud under these statutes is broader than
common law fraud, and that no misrepresentation of fact is required in order to establish a
scheme to defraud); United States v. King, 860 F.2d 54, 55 (2d Cir. 1988) ([T]he validity
of a mail fraud conviction does not hinge upon a showing of actual loss by the intended
victim. . . . It is enough that [defendant] knowingly devised a scheme to defraud and caused
the use of the mails in furtherance of the scheme.). Thus, because Bryant's mail-fraud
conviction did not involve adjudication of the issue of whether Bryant's deceptive conduct
was material to the alleged breach of contract, it has no preclusive effect in current
proceedings. We therefore reverse the circuit court with respect to its ruling on the existence
of insurance coverage for Arnold's breach of contract claim.See footnote 16
After Arnold gave notice of a deposition scheduled for May 22, 1995, Governor Caperton moved for a protective order under W. Va. R. Civ. P. 26(c) to prohibit the taking of his deposition, asserting, inter alia, that Arnold had failed to demonstrate either the relevance or necessity of his testimony. Arnold responded by presenting evidence indicating that (1) Governor Caperton had previously promised one of the principals of Fahlgren Martin that state advertising contracts would be forthcoming in exchange for campaign support; and (2) the Governor had in fact exerted influence or control over DirectorBryan's conduct in awarding the contact in question to Fahlgren Martin.See footnote 17 17 The circuit court subsequently granted the Governor's motion by an order entered May 26, 1995.See footnote 18 18
Although the circuit court's ruling on this issue predated our decision in State ex rel. Paige v. Canady, 197 W. Va. 154, 475 S.E.2d 154 (1996), it applied a substantially equivalent standard. We held in Syllabus point 3 of Paige: Highly placed public officials are not subject to a deposition absent a showing that the testimony of the official is necessary to prevent injustice to the party requesting it. The Court went on to expound the following balancing test:
When determining whether to allow the deposition of a highly placed public official, the trial court should weigh the necessity to depose or examine an executive official against, among other factors, (1) the substantiality of the case in which the deposition is requested; (2) the degree to which the witness has first-hand knowledge or direct involvement; (3) the probable length of the deposition and the effect on government business if the official must attend the deposition; and (4) whether less onerous discovery procedures provide the information sought.
Paige, Syl. pt. 4. The burden is upon the proponent of the deposition to show the necessity
of taking an oral deposition of a highly-placed government official. Id., Syl. pt. 5.
The posture of this issue has changed significantly since the circuit court made
its initial ruling: Governor Caperton is no longer a high-ranking state official. The Court
must therefore determine whether the issue that Arnold raises is now moot based upon the
Governor Caperton's current status as private citizen. See Syl. pt. 1, Swartz v. Public Serv.
Comm'n, 136 W. Va. 782, 68 S.E.2d 493 (1952) ('Moot questions or abstract propositions,
the decision of which would avail nothing in the determination of controverted rights of
persons or of property, are not properly cognizable by a court.' State ex rel. Lilly v. Carter,
63 W. Va. 684, point 1, Syllabus, 60 SE 873 [(1908)].).
We have found only one case that specifically addresses the issue of whether a former high-ranking government official may assert his or her previous position as a basis for avoiding an oral deposition. In Sanstrom v. Rosa, 1996 WL 469589 (S.D.N.Y. Aug. 16, 1996), the former governor of New York, Mario Cuomo, attempted to avoid deposition, asserting that his former status as a high-ranking official shielded him from such discovery. The district court rejected this argument, stating that because Mr. Cuomo is no longer governor, he cannot claim this privilege. Id. at *5 (citation omitted). The stance taken by the court in Sanstrom is in accord with the primary purpose of the rule disfavoring oral deposition of senior officials, which is to endow such officers with the freedom to perform their tasks without the constant interference of the discovery process. Warzon v. Drew, 155 F.R.D. 183, 185 (E.D. Wis. 1994) (citing, inter alia, In re United States, 985 F.2d 510, 512 (11th Cir.), cert denied sub nom. Faloon v. United States, 510 U.S. 989, 114 S. Ct. 545, 126 L. Ed. 2d 447 (1993)). If the head of a government agency were subject to having his [or her] deposition taken concerning any litigation affecting [the] agency . . . , we would find that the heads of governmental departments and members of the President's cabinet would be spending their time giving depositions and would have no opportunity to perform their functions. Capitol Vending Co. v. Baker, 36 F.R.D. 45, 46 (D.D.C. 1964).
While we discern a marked difference between current and former government officials in terms of the likely frequency and onerousness of discovery requests, we see no reason to discard entirely the analytical framework outlined in Paige. Former high-ranking government administrators, whose past official conduct may potentially implicate them in a significant number of related legal actions, have a legitimate interest in avoiding unnecessary entanglements in civil litigation. That interest obviously survives leaving office. Thus, we hold that the standard enunciated in Paige continues to apply in instances where a party seeks to orally depose a former high-ranking government official pursuant to W. Va. R. Civ. P. 30. Given the continued applicability of this standard, the present issue is not rendered moot.
The unfolding of the crucial issue regarding whether the alleged breach of
contract was a consequence of fraud leaves no question but that evidence demonstrating
Governor Caperton's involvement in such a scheme would be highly relevant to a
determination of whether Arnold has a jurisdictional basis for recovery. The fact remains,
however, that the circuit court specifically directed Arnold to resort to less intrusive means
of obtaining the sought-after initial discovery.
In Paige, the Court stressed that the deposition proponents in that case had
failed to show that they could not obtain the information they seek through less onerous
discovery procedures, such as written interrogatories. 197 W. Va. at 162, 475 S.E.2d at 162.
The United States District Court for the District of Columbia recently made a similar
observation, noting that the submission of interrogatories by the plaintiffs is the appropriate
manner in which to initially proceed to determine whether these [high-ranking government
officials] have any [relevant] knowledge . . . . Alexander v. FBI, 186 F.R.D. 1, 5 (D.D.C.
1998) (citations omitted, emphasis in original). Because of the availability of less
burdensome means of initial discovery in the present case, we see no reason to conclude that
the circuit court abused its discretion in entering the protective order.See footnote 19
The legislature shall have no power to authorize lotteries
or gift enterprises for any purpose, and shall pass laws to
prohibit the sale of lottery or gift enterprise tickets in this State;
except that the legislature may authorize lotteries which are
regulated, controlled, owned and operated by the State of West
Virginia in the manner provided by general law, either
separately by this State or jointly or in cooperation with one or
more other states and may authorize state-regulated bingo games
and raffles for the purpose of raising money by charitable or
public service organizations or by the State Fair of West
Virginia for charitable or public service purposes: Provided,
that each county may disapprove the holding of bingo games
and raffles within that county at a regular, primary or special
election but once having disapproved such activity, may
thereafter authorize the holding of bingo games and raffles, by
majority vote at a regular, primary or special election held not
sooner than five years after the election resulting in disapproval;
that all proceeds from the bingo games and raffles be used for
the purpose of supporting charitable or public service purposes;
and that the legislature shall provide a means of regulating the
bingo games and raffles so as to ensure that only charitable or
public service purposes are served by the conducting of the
bingo games and raffles.
Prior to the ratification of an amendment to Article VI, § 36 on November 6, 1984, the Legislature was expressly prohibited from authorizing lotteries in any form.
pursuant to this Court's interpretation and understanding of the claims made by the plaintiff in its case since the inception of this
lawsuit through a review of the file and the argument on various issues before this Court, the action of Butch Elton Bryan and others were factual predicates to this claim [of breach of contract] and bring into play this exclusion of [the] wrongful act liability [insurance] policy.
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than five years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
The deputy director of the Lottery Commission, Tamara Gunnoe, also testified that after it was determined that Arnold had received the highest numerical score in the bidding process, she was told by Director Bryan that he had met with the governor and we were going to have to give the contract to [Fahlgren Martin]. Attempts to depose Bryan apparently resulted in his assertion of the Fifth Amendment privilege against self- incrimination.
1) Plaintiff has failed to meet its burden of proving both the factual and legal necessity and relevance of deposing Governor Caperton; 2) the Court is not satisfied that Governor Caperton's deposition is necessary or relevant to defeat any affirmative defenses asserted by or on behalf of the Defendant; 3) Plaintiff has not exhausted all of the less intrusive methods and means available to secure testimony regarding the issue on which Plaintiff seeks to depose Governor Caperton; and 4) granting the motion works no prejudice to Plaintiff because no scheduling order has yet been entered and the Court has granted leave to the Plaintiff to renew its Notice of Deposition of Governor Caperton at a later date if Plaintiff has otherwise exhausted all available options for securing the information and the Court is convinced of the factual and legal necessity and relevance of said discovery.