When I first looked at the Supreme Court of Appeals of West Virginia’s decision in Timberline Four Seasons Resort Management Co. v. Herlan, 679 S.E.2d 329 (W. Va. 2009), which was issued at the end of the January Term, I did not realize its holding was quite so limited. But the facts are interesting and its discussion of an agency relationship is informative.

Timberline Four Seasons, a resort in eastern West Virginia, hired Pat Herlan as a real estate broker in 1991. Even though Herlan was employed until 2007, there was a written employment contract between the parties only from 1994 to 1996. In 2000, Herlan incorporated Timberline Resort Realty, Inc. and Timberline Realty, Inc.

Timberline Four Seasons claimed that Herlan was paid for the brokerage services she provided, while she claimed that her salary was for promotional work for the resort and for serving as a liaison between the resort and independent real estate developers. She asserted that she could not have been a broker for the resort, as she was neither an owner or officer, and that the resort itself could not have engaged in the real estate brokerage because it did not have a licensed broker as an owner or officer.

For whatever reason, in 2007, the resort asked Herlan to vacate her office. When she left, she took certain business records with her and also hired a computer technician to remove and delete some information from the computer in her former office and install it on the computer in her new location, at a cost of $25,000. She also took her former telephone numbers with her.

The resort and another plaintiff, Long Run Realty (whose role is not described) sought an injunction against Herlan and her businesses, which the circuit court denied on the grounds that Timberline Resort Realty was not owned or controlled by the resort and thus was not an agent under the resort’s control as to the real estate brokerage functions performed by Herlan.

Timberline Four Seasons and Long Run alleged that the circuit court erred in not finding that an agency relationship existed between them and Herlan or her brokerage businesses and in not ordering Herlan to return certain business records and telephone numbers to the resort, as required by West Virginia Code § 30-40-12 (which specifies qualification for a broker’s license).

For the purpose of determining whether an agency relationship existed, the Supreme Court relied on Paxton v. Crabtree, 400 S.E.2d 245 (W.Va. 1990), which sets forth four factors to consider: the selection and engagement of the servant; the  payment of compensation; the power of dismissal; and the power of control. The Court found that the first three criteria were easily satisfied, while the fourth, the power of control, required some analysis. 

Even though there had not been a written contract between the resort and Herlan since 1996, the Court found that "[p]roof of an express contract of agency is not essential to the establishment of the relation[,]" and found that it could infer that an agency relationship existed between the parties.

The Court also found that the circuit court’s order "failed to analyze and all but ignored several other key facts demonstrating that Timberline Four Seasons actually maintained some level of control over Timberline Resort Realty and Pat Herlan."

For example, the Court focused on the resort’s control over the operating checking account and its financial control over Herlan’s real estate brokerages. The resort also paid taxes for the real estate operation, employed the individuals who worked for Herlan’s real estate brokerage, and maintained control over the brokerage’s payroll.

But the Court found that "the most compelling piece of evidence of an existing agency relationship is a business sign that remained hanging on the wall of the Timberline Four Seasons lodge stating, ‘Timberline Resort Realty A division of Timberline Four Seasons Resort.’" (Emphasis in original.) Herlan testified that the sign had been present for four or five years and was hanging on the wall during the trial before the circuit court in 2007.

Accordingly, the Court concluded that the real estate division was not independent of, but was a division of, the resort, and that the circuit court abused its discretion in failing to award injunctive relief to the resort.

As for Herlan’s retention of business records and telephone numbers, the Court rejected Herlan’s argument that she could not return the documents because neither the resort nor anyone on its board of directors had a real estate broker’s license. The Court found that Herlan, as the resort’s agent, owed it a duty of loyalty, which she breached by taking and retaining the documents.

Likewise, the Court found that Herlan’s retention of telephone numbers that were advertised as the resort’s contact number (and printed on 400,000 brochures) was also a violation of her duty of loyalty to the resort. The Court reasoned that "the telephone numbers were registered and utilized by Ms. Herlan as a function of her agency and employment with [the resort] …."

I attribute the decision’s narrowness to the Court’s fact-specific analysis. But as the opinion makes clear, once the Court concluded that an agency relationship existed, Herlan was going to have a very hard time justifying her actions in taking and retaining the records and telephone numbers.