 Fiberlink Communications Corporation v. MAGARITY -- 2 of 7 -- its common stock as a "signing bonus" but never delivered the…

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 FIBERLINK COMMUNICATIONS
CORPORATION,
Plaintiff-Appellee,
No. 01-1425 v.
JOHN PATRICK JAMES MAGARITY,
Defendant-Appellant. 
Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Dennis W. Dohnal, Magistrate Judge.
(CA-00-198-3)
Submitted: October 16, 2001
Decided: December 27, 2001
Before WIDENER, WILKINS, and TRAXLER, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
COUNSEL
David G. Shuford, Charles M. Sims, LECLAIR RYAN, P.C., Rich-
mond, Virginia, for Appellant. Douglas M. Garrou, John Gary May-
nard, III, Wendell L. Taylor, HUNTON & WILLIAMS, Richmond,
Virginia, for Appellee.

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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
John Patrick James Magarity appeals the dismissal of his suit
against Fiberlink Communications Corporation on the basis that it
was time-barred under the two-year statute of limitations imposed by
California law. Because the existing record does not support the
application of California law, we vacate the judgment against
Magarity and remand for further proceedings.
I.
Before the rift that gave rise to this litigation, Magarity was affili-
ated with Fiberlink as an employee, an investor, and a member of the
board of directors. He was recruited for these roles by his lifelong
friend, Fiberlink president James Sheward. Magarity never had a writ-
ten contract with Fiberlink, but he and Sheward negotiated an oral
agreement governing his relationship with the company. Magarity and
Sheward finalized this oral agreement while riding in an airplane
together in April 1994.
Magarity began working for Fiberlink in April 1994. He initially
worked in California, where both Sheward and Magarity lived and
worked prior to Magarity’s recruitment. In January 1996, Magarity
moved to Richmond, Virginia, and opened a Fiberlink office there.
After this move, the relationship between Fiberlink and Magarity
deteriorated. Fiberlink fired Magarity on September 3, 1997, and later
removed him from its board of directors.
The disputes that led to Magarity’s discharge also produced this
suit. Fiberlink initiated the litigation by filing a complaint in the East-
ern District of Virginia on March 28, 2000. Four weeks later,
Magarity filed a counterclaim alleging breach of contract. As is rele-
vant here, Magarity alleged that Fiberlink promised him a portion of
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its common stock as a "signing bonus" but never delivered the stock
to him.
At trial before a magistrate judge (by consent of the parties),
Magarity and Sheward offered conflicting evidence regarding the
terms of their agreement. The magistrate judge resolved these con-
flicts in Magarity’s favor, finding as a fact that the agreement
included a provision granting Magarity the right to receive Fiberlink
common stock immediately upon joining the company. (This determi-
nation is not in dispute on appeal.) The magistrate nevertheless dis-
missed Magarity’s claim, holding that it was time-barred under
California law. In so holding, the magistrate judge noted the general
proposition that the forum state, Virginia, "requires that the substan-
tive law of the state in which a contract was made governs issues of
construction and interpretation of the instrument." J.A. 592. The mag-
istrate judge reasoned that this rule applied because Magarity’s claim
"involves an interpretation of what the oral contract consisted of." Id.
Then, the magistrate determined (without explanation) that California
was the "place of contracting," id., and that Magarity’s claim was
therefore subject to California law, including its two-year limitations
period. The magistrate concluded that Magarity’s claim was untimely
because it accrued—and the statute of limitations began to run—on
the day Magarity was terminated:
[I]t is unreasonable to conclude that he should have insti-
tuted formal action against his then-current employer, while
he was being reassured as to the validity of his position. . . .
At the same time, it is appropriate to fix the point for when
the claim accrued as being when Magarity was on notice
that Fiberlink was clearly adverse to him after his unsuc-
cessful efforts up to that point.
Id. at 594. Because Magarity was terminated on September 3, 1997,
the magistrate judge ruled that the two-year statute of limitations
expired before this litigation commenced on March 28, 2000.1
1The magistrate judge stated that the statute of limitations on Magari-
ty’s claim stopped running when Fiberlink filed its suit, not when
Magarity subsequently countersued. This is correct only if Magarity’s
claim relates back to the claims asserted by Fiberlink. See Al-Abood v.
El-Shamari, 217 F.3d 225, 234 & n.5 (4th Cir. 2000). That issue has not
been raised on appeal.
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II.
A.
We begin our analysis with a review of applicable rules. When
exercising jurisdiction over claims arising under state law, federal
courts look to the law of the forum state to determine the applicable
statute of limitations. See Ragan v. Merchs. Transfer & Warehouse
Co., 337 U.S. 530, 532 (1949). The federal court should apply the
limitations regime of the forum state so that the outcome of the litiga-
tion will not depend on the choice of forum. See Guar. Trust Co. v.
York, 326 U.S. 99, 110 (1945) ("[I]f a plea of the statute of limitations
would bar recovery in a State court, a federal court ought not to afford
recovery."). Thus, whenever the forum state applies its own limita-
tions period, the same period applies in federal court, even if the
forum state (and, by extension, the federal court) would apply foreign
law to the underlying claim. See Barry v. Donnelly, 781 F.2d 1040,
1042 n.3 (4th Cir. 1986) (noting that claim filed in Eastern District
of Virginia was governed by District of Columbia law but subject to
Virginia statute of limitations).
The forum state here is Virginia, and we therefore must examine
Virginia law. Virginia generally requires the application of its own
statutes of limitations. See Hospelhorn v. Corbin, 19 S.E.2d 72, 73
(Va. 1942). For oral contracts, the limitations period is three years.
See Va. Code Ann. § 8.01-246(4) (Michie 2000).
In some cases, Virginia applies a foreign limitations period in addi-
tion to its own, pursuant to a "borrowing statute." This statute pro-
vides, "No action shall be maintained on any contract which is
governed by the law of another state or country if the right of action
thereon is barred either by the laws of such state or country or of this
Commonwealth." Va. Code Ann. § 8.01-247 (Michie 2000). Thus, if
the contract between Magarity and Fiberlink is "governed by the law
of another state," then Magarity’s claim is subject to the statute of
limitations imposed by that state (as well as § 8.01-264(4)). This rule
lies at the heart of this appeal.
B.
Without citing the borrowing statute, the magistrate judge applied
the California statute of limitations. Magarity contends that this was
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error under Virginia law for two reasons. First, he argues that borrow-
ing principles do not apply because his claim is governed by Virginia
law, not the law of another state. Second, he asserts that even if a for-
eign statute of limitations applies, the record does not support the
selection of California as the appropriate state. We agree with the sec-
ond assertion.
In support of his first argument, Magarity contends that his claim
is not "governed by the law of another state" for purposes of § 8.01-
247 because the claim alleges a breach of contractual obligations and
the breach occurred in Virginia; thus, he asserts, Virginia law con-
trols. We believe this argument misconstrues the statute, however.
While we have not found any Virginia case law interpreting § 8.01-
247, the plain meaning of the statutory language is clear. The statute
refers to the law that governs the "contract," not the law that governs
the claim. The law governing a contract is the law relating to the
validity and interpretation of the contract itself, rather than the law
regarding performance and breach. Thus, even if Virginia law con-
trols the issues presented by Magarity’s claim (a question we do not
decide), the claim is subject to a borrowed statute of limitations if the
validity and interpretation of the underlying contract are governed by
the law of another state.
This conclusion implicates Magarity’s second argument, which
challenges the magistrate judge’s choice of California as the state
from which to borrow a statute of limitations. To determine whether
this ruling was correct, we again turn to Virginia law. In Virginia, the
validity and interpretation of a contract are governed by the law of the
state in which the contract was formed. See Lexie v. State Farm Mut.
Auto. Ins. Co., 469 S.E.2d 61, 63 (Va. 1996). It is therefore necessary
to determine where the contract between Magarity and Fiberlink was
formed.
Unfortunately, it is impossible to make that determination based on
the existing record. It is undisputed that the contract at issue here was
executed on an airplane, but there is no evidence in the record indicat-
ing where the airplane was at the time (or even where the flight origi-
nated and landed). Consequently, we must vacate the magistrate
judge’s decision to apply California law.
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On remand, the magistrate judge may be able to determine where
the airplane was at the time the contract was formed. If the plane was
flying over California, then Virginia law would presumably require
the application of the California statute of limitations. If its location
cannot be established, however, then the appropriate course under
Virginia law is unclear.2 In that event, it will likely be necessary for
the magistrate judge to certify questions of law to the Virginia
Supreme Court.3
III.
There remains one additional question for our consideration. Fiber-
link argues that even if we find California law inapplicable, the dis-
missal of Magarity’s claim may be upheld on the alternative basis that
the claim was time-barred under Virginia law. We conclude that this
argument raises an issue that should be addressed by the magistrate
judge (instead of or in addition to the issue discussed in the preceding
section).
2While it is probably not uncommon for contracts to be formed on air-
planes, ships, or other conveyances in unknown locations, we have found
only one case involving this scenario. See Lewis v. Atlas Corp., 158 F.2d
599, 601 (3d Cir. 1946). That court held that Illinois law governed the
contract because, with the exception of the signing of documents on an
airplane, all acts related to the contract occurred in Illinois. Under this
rule, California law would govern the contract between Magarity and
Fiberlink. We have no indication that Virginia would adopt this rule,
however. Cf. Jones v. R.S. Jones & Assocs., 431 S.E.2d 33, 34 (Va.
1993) (noting that Virginia has rejected application of the "most signifi-
cant relationship" test to tort claims).
3Virginia law authorizes certification of questions to the Virginia
Supreme Court by "the Supreme Court of the United States, a United
States court of appeals for any circuit, a United States district court, or
the highest appellate court of any state or the District of Columbia." Va.
Sup. Ct. R. 5:42(a). We anticipate that questions from a magistrate judge
exercising jurisdiction with consent of the parties will be regarded as
questions from "a United States district court." Cf. Chelette v. Harris,
229 F.3d 684, 686 (8th Cir. 2000) (holding that magistrate judges exer-
cising jurisdiction by consent have power to certify questions for imme-
diate appeal pursuant to 28 U.S.C.A. § 1292(b) (West 1993)), cert.
denied, 531 U.S. 1156 (2001).
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At the core of Fiberlink’s argument is a challenge to the determina-
tion by the magistrate judge that Magarity’s claim did not accrue until
the day he was terminated. In support of this determination, the court
relied on Zukowski v. Dunton, 650 F.2d 30 (4th Cir. 1981). This reli-
ance was misplaced, however. Zukowski rejected the application of a
statute of limitations under circumstances similar to those here, but
this decision was based on equitable principles, not a determination
of when the claim accrued. See id. at 35. Furthermore, Zukowski
applied the equitable doctrine of Maryland, not Virginia.
Under Virginia law, the statute of limitations on payment obliga-
tions begins to run the moment payment is due. See Investor Assocs.
v. Copeland, 546 S.E.2d 431, 436 (Va. 2001). Payment of Magarity’s
signing bonus was due as soon as he began working for Fiberlink in
April 1994. Thus, the limitations clock began to run in April 1994,
not in September 1997.
The limitations clock may have been paused for some period, how-
ever, or Fiberlink may be estopped from asserting a statute of limita-
tions defense. See Jenkins v. Ford Motor Co., 498 S.E.2d 445, 449
(Va. Ct. App. 1998) (discussing equitable constraints on application
of statute of limitations). Magarity has asserted that equitable princi-
ples apply, and, indeed, the magistrate judge applied such principles
in reaching its (erroneous) determination that the limitations period
began when Magarity was terminated. For these reasons, and in light
of the fact-specific and discretionary nature of equitable tolling and
estoppel, we will not consider the application of these doctrines in the
first instance. Instead, we will allow the magistrate judge to determine
when Magarity’s claim accrued and whether he may benefit from
equitable considerations.
IV.
For the reasons stated above, we vacate the decision of the magis-
trate judge and remand for further proceedings. On remand, the mag-
istrate judge should (a) attempt to determine what foreign statute of
limitations applies under § 8.01-247 of the Virginia Code and whether
that statute bars Magarity’s claim or (b) consider whether Magarity’s
claim is barred under the Virginia statute of limitations.
VACATED AND REMANDED
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