Timberline Four Seasons Resort Management Co. v. Herlan

Citations: 679 S.E.2d 329; 223 W. Va. 730; 2009 W. Va. LEXIS 57Docket: 34151

Court: West Virginia Supreme Court; June 9, 2009; West Virginia; State Supreme Court

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Timberline Four Seasons Resort Management Co. Inc. and Long Run Realty, Inc. (Appellants) appeal a July 9, 2007, Circuit Court ruling denying their request for injunctive relief against Pat J. Herlan and her companies, Timberline Realty, Inc. and Timberline Resort Realty, Inc. (Appellees). Appellants argue the circuit court erred by not recognizing an agency relationship between them and Herlan, misapplying West Virginia Code § 30-40-12, and failing to order the return of essential business records and phone numbers taken by Herlan upon her departure from Appellants' property.

Factual background reveals that Timberline Four Seasons is a family-owned resort that employed Herlan since 1991, without a written employment contract after 1996. Herlan incorporated her businesses in 2000 and claims her salary was for promotional work, not brokerage services. Appellees contend that Timberline Resort Realty operated independently and that Herlan and her partner were not licensed brokers for Timberline Four Seasons. Following Herlan's termination in early 2007, she removed critical business records and hired a technician to delete data from Timberline's computers, incurring substantial costs. The Supreme Court of Appeals of West Virginia ultimately reversed and remanded the lower court's decision.

Ms. Herlan relocated tangible and electronic records, including telephone numbers, but left behind computer hardware, a server, accounting records, and blank software, which Timberline Four Seasons owns. Following her departure, the Appellants filed a Petition for Injunctive Relief in the Circuit Court of Tucker County on June 24, 2007. The Appellees responded on July 3, 2007, and a trial ensued, resulting in the circuit court's Findings of Fact and Conclusions of Law issued on July 6, 2007, which denied the petition. The court concluded that Timberline Resort Realty was not owned or controlled by Timberline Four Seasons and was not an agent under its exclusive control regarding real estate functions performed by Ms. Herlan. Appellants moved for a new trial on July 18, 2007, but the court denied this motion on July 31, 2007, prompting the Appellants to file a Petition for Appeal.

The standard of review indicates that injunctive relief is discretionary unless mandated by statute, and challenges to the circuit court’s Findings of Fact and Conclusions of Law undergo a two-pronged deferential review, where the final order is assessed for abuse of discretion and factual findings for clear error. The Appellants argue that the circuit court incorrectly determined there was no agency relationship with Ms. Herlan or her brokerage entities and misapplied W. Va. Code 30-40-12 by not ordering the return of essential business records and telephone numbers taken by Ms. Herlan. The core issue is the classification of the business relationship, with Appellants claiming an agency relationship existed and Appellees contending that Ms. Herlan’s brokerage was separate from Timberline Four Seasons, and that her compensation was for promotional work, not brokerage services, which aligns with West Virginia law.

An agent is defined as a representative of a principal in business or contractual relations, whereas a servant or employee provides services without creating contractual obligations. The existence of an agency relationship is assessed through four factors concerning a master-servant relationship for respondeat superior: selection and engagement of the servant, payment of compensation, power of dismissal, and power of control, with the latter being decisive. In the case of Timberline Four Seasons and Ms. Herlan, the court found the first three factors were satisfied—Timberline selected and employed Ms. Herlan since 1991, compensated her, and had the power to terminate her employment in 2007.

However, the court's determination of the power of control was contentious. The circuit court ruled against the Appellants, citing that Ms. Herlan's employment contract had expired without a new agreement, suggesting a lack of express agency. It also noted Timberline did not grant exclusive real estate listings to Ms. Herlan, did not receive commissions, and had no authority over her separate accounts or ownership in trust accounts. The court concluded that Timberline Resort Realty was neither owned nor controlled by Timberline Four Seasons, thus denying the existence of an agency relationship regarding real estate functions performed by Ms. Herlan. The Appellants contested this finding, arguing that evidence indicated some degree of control by Timberline over Ms. Herlan's performance.

The circuit court's order inadequately addressed critical facts indicating that Timberline Four Seasons exerted control over Timberline Resort Realty and Pat Herlan. Key evidence included testimony from Tom Blanzy, general manager of Timberline Four Seasons, revealing that he regularly conferred with Ms. Herlan and co-signed the operating account for the real estate division, indicating oversight of financial matters. Ms. Herlan confirmed that all operational expenses were managed through a joint account, with profits transferred to the resort for tax payments. Additional evidence showed that Timberline Four Seasons was responsible for paying taxes for the real estate operation and for its employees, as testified by Dr. Reichle, president of Timberline Four Seasons. Ms. Herlan also acknowledged that payroll arrangements were made with the resort to enable oversight of the real estate office's finances. Despite her claims of separation from Timberline Four Seasons, evidence was presented to contradict her statements, including a 2005 grant application she signed, which described Timberline Resort Realty as a "vacation home rental arm of Timberline Four Seasons Resort," contradicting her assertion of independence as of 2000.

Ms. Herlan testified that she was unaware of the contents of a grant application she signed, indicating she only relied on her secretary. Evidence of an agency relationship between Ms. Herlan and Timberline Four Seasons was supported by a business sign stating "Timberline Resort Realty A division of Timberline Four Seasons Resort," which had been displayed for four to five years, including during the trial. This sign, along with other evidence, demonstrated that Timberline Four Seasons maintained control over Ms. Herlan's operations, implying that the real estate division did not function independently. The court's failure to consider this evidence and to provide injunctive relief to Timberline Four Seasons was deemed an abuse of discretion.

Additionally, Appellants argued that Ms. Herlan, as an agent, had a duty of loyalty that prohibited her from self-dealing, specifically regarding her removal of essential business records upon leaving the Roundhouse. In contrast, Appellees claimed that the West Virginia Real Estate License Act barred her from returning the records since neither Timberline Four Seasons nor its board held a broker's license. However, the court found Appellees' argument insufficient, emphasizing that an agent owes a fundamental duty of loyalty and must act in good faith, which includes not using the principal's property for personal gain. The statute in question did not explicitly restrict Appellants' access to the brokerage records, and a replacement for Ms. Herlan had already been hired by the time of the trial.

Tom Blanzy, General Manager of Long Run Realty, confirmed the existence of a brokerage agreement with Kim Landis for sales and rental services. The records in question were primarily obtained through Pat Herlan's agency relationship with Timberline Four Seasons. It was determined that Herlan had a legal duty of loyalty to Timberline, which included the obligation to leave business records and materials at the Roundhouse upon her departure. Herlan's retention of these records was deemed unjustified, as she could not engage in self-dealing to the detriment of her principal, Timberline.

The case also involved a dispute over telephone numbers registered in Herlan's name but used for Timberline's business. Although registered by Herlan when hired in 1991, it was argued that she could not benefit personally from these numbers, given they were used in her capacity as an agent. The court found that, despite a lack of specific precedent in West Virginia, an agent should not retain a principal's telephone number after the agency relationship ends. Consequently, the court directed that the telephone numbers be returned to Timberline for future business use.

The Circuit Court of Tucker County's July 9, 2007 order was reversed, and the court mandated that Appellees return all relevant business records and the telephone numbers to Appellants, granting injunctive relief. Timberline Four Seasons, a West Virginia corporation operating as a resort, and Long Run Realty, its subsidiary, emphasized the importance of their real estate division for financial viability. Herlan, as a real estate broker and operator of Timberline Resort Realty and Timberline Realty, was implicated in the agency relationship and its obligations.

Responsibilities include conducting all broker functions as mandated by West Virginia law, providing timely monthly financial reports to the Owners, managing community relations related to realty activities, and maintaining customer relations to ensure a service-oriented business. Appellants claim Ms. Herlan established Timberline Realty, Inc. and Timberline Resort Realty, Inc. without notifying Timberline Four Seasons, alleging she previously operated under those names as "doing business as" (d/b/a) entities, causing no public change upon incorporation. Appellees counter that the real estate brokerage had been functioning for years as a sole proprietorship before transitioning to a general partnership in 2000, with Herlan as broker and Murray Dearborn as associate broker. Appellees assert that Herlan's income was personally reported on W-2 forms, not paid to the partnership, and that Dearborn did not receive a W-2. 

The Roundhouse serves as Timberline Four Seasons' real estate headquarters, where Herlan performed her duties. There is a dispute regarding whether Herlan rented the Roundhouse or if it was provided by Timberline Four Seasons, with no written rental contract present. A termination letter dated January 3, 2007, from Timberline Four Seasons demanded Herlan transfer her brokerage business and records to a new brokerage owned by Timberline Four Seasons; Appellees argue this demand was unauthorized, leading Herlan to relocate her brokerage. The records included customer agreements and trust accounts, while Appellants claim that the list of customers left by Herlan was largely ineffective. Ms. Herlan removed a data-rich Property Plus software but claims to have provided a new version for the incoming brokerage at a $19,750 cost. Upon starting her brokerage at the Roundhouse, Herlan had to reactivate the telephone service, which had been discontinued due to unpaid bills, and asserts that this account remained in her name until it was later transferred to Timberline Resort Realty. It is noted that clerical staff employed by Timberline Four Seasons remained after Herlan and Dearborn vacated the Roundhouse. Additionally, control dynamics may be inferred from a 1995-96 employment contract that suggests Herlan continued her role without formal reappointment after the contract expired.

Appellees argue that Ms. Herlan was compensated solely for her promotional activities, not for brokerage services, despite the existence of contracts at the time of her termination in 2007. Although no written agreement was in effect during her termination, the contract language suggests an agency relationship between the parties. Prior to 2002, West Virginia law prohibited unlicensed individuals from acting as real estate brokers or salesmen. Specifically, West Virginia Code § 47-12-1 required licensure for such activities, and § 47-12-4 mandated that all individuals actively engaged in real estate within a partnership or corporation hold a broker's license. The ruling here is contingent on the unique facts of the case, and while evidence supports the existence of an agency relationship, it refrains from determining the legality of this relationship under W. Va. Code § 30-40-12. The court emphasizes that the interpretation of statutory law should not obstruct the Appellants' access to relevant records, while also clarifying that this opinion does not endorse the ongoing establishment of similar brokerage arrangements.