Harlow v. E. Elec., LLC

858 S.E.2d 445

Michael D. HARLOW, Plaintiff Below, Petitioner

v.EASTERN ELECTRIC, LLC, Defendant Below, Respondent

No. 19-0643

Supreme Court of Appeals of West Virginia.

Submitted: January 12, 2021

Filed: March 15, 2021

M. Shane Harvey, Esq., Jackson Kelly, PLLC, Charleston, West Virginia, Counsel for Petitioner.

John R. Hoblitzell, Esq., John D. Hoblitzell III, Esq., Victoria L. Wilson, Esq., Kay Casto & Chaney, PLLC, Charleston, West Virginia, Counsel for Respondent.

Armstead, Justice:

Petitioner, Michael D. Harlow, was once one of three members of Respondent, Eastern Electric, LLC ("Eastern"). During such association, Eastern lost nearly $400,000 in a prevailing wage case. Following this loss, Mr. Harlow dissociated from Eastern, and Eastern tendered a timely offer to purchase his interest. Mr. Harlow rejected Eastern's offer, and when negotiations failed, Mr. Harlow sued Eastern to enforce his statutory right to receive "fair value" for his interest. W. Va. Code § 31B-7-701(a) (1996). After discovery, the parties agreed on the value of Mr. Harlow's interest, but the process of reaching settlement left each side convinced that the other had behaved in bad faith. Both sides moved to recover their reasonable attorney fees and expenses pursuant to W. Va. Code § 31B-7-702(d) (1996). After a bench trial, the circuit court denied both motions. Mr. Harlow filed this appeal.

Based on the record before us, the arguments of the parties, and the applicable law, we find that the circuit court acted within its discretion in denying Mr. Harlow's motion for attorney fees and expenses; therefore, we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Eastern is a West Virginia limited liability company organized in 2000.¹ During relevant times, Eastern provided electrical contracting, electrical engineering, and safety monitoring services. As an electrician, Mr. Harlow focused on the electrical contracting side of the business. The other members focused on engineering and safety monitoring.

In 2011, former employees sued Eastern, alleging that Eastern unlawfully failed to pay prevailing wage for work performed for the State of West Virginia (the "Prevailing Wage Case"). Eastern argued that it relied on representations from the West Virginia Department of Administration in making its decision regarding payment of minimum wage, but a jury found for the plaintiffs and awarded substantial damages in or about February or March 2017. After accounting for interest, payroll taxes, and attorney fees, Eastern valued the judgment at $389,474.

In March 2017, Mr. Harlow advised Eastern's other members, by letter from his attorney, that he wished to dissociate from Eastern as of April 14, 2017 (the "Dissociation Date"). The letter acknowledged the existence of "several factors that will make a payment for his share difficult at this time" and advised that Mr. Harlow was "willing to delay the valuation of his interest until the [Prevailing Wage Case] is resolved[.]" At the time, Eastern was considering whether to appeal its loss in the Prevailing Wage Case. It chose, instead, to file a claim against the Department of Administration in the West Virginia Court of Claims (the "Court of Claims Case").²

With the March 2017 letter, Mr. Harlow's counsel enclosed a proposed dissociation agreement, and counsel for the parties attempted to reach agreement on the terms of his departure. These efforts failed, and on May 12, 2017, counsel for Eastern served Mr. Harlow's counsel with a timely purchase offer pursuant to W. Va. Code § 31B-7-701(b).³ Eastern offered to purchase Mr. Harlow's interest for either $45,500 (paid in four equal installments) or one-third of the gross proceeds recovered from the Court of Claims Case. In support of Eastern's offer—and as required by the statute—Eastern's counsel enclosed: (a) an explanation of estimated valuation, (b) a "recast" balance sheet, (c) a "QuickBooks" balance sheet, and (d) a profit and loss statement.⁴

Mr. Harlow rejected Eastern's offer, arguing that it undervalued the company's assets and that he was entitled to a share of any net recovery in the Court of Claims Case. He denied, however, that he had any responsibility to reimburse Eastern if the amount recovered in the Court of Claims Case was less than the cost of pursuing the claim. Litigation costs, he argued, were a company expense that he had funded through his efforts as a member. He further contended that his wife, attorney Martha Harlow, had "devoted substantial time during the [Prevailing Wage Case] to the Company's affairs" without compensation. He felt "sure that his contributions to the Company, and the contributions of his spouse, during the litigation" were greater than his share of any potential loss Eastern might suffer in the Court of Claims Case.

In October 2017, Mr. Harlow advised Eastern that he had retained an expert to value his interest and approximately one month later the parties entered into an agreement to toll Mr. Harlow's statutory deadline to sue.⁵ The tolling agreement, which purported to extend the deadline to February 2018, also required Eastern to cooperate with the expert's information requests "in good faith" and within five business days.

Mr. Harlow's expert issued his first information request in October 2017, before the tolling agreement was signed. A supplemental request was issued in November 2017. Eastern responded to the first request in December 2017, but response to the supplemental request was delayed until February 2018, largely, it seems, due to a change in representation.⁶

Meanwhile, Mr. Harlow sued Eastern in the Circuit Court of Nicholas County in December 2017. Mr. Harlow refrained from serving Eastern, however, until February 2018, when Eastern's new counsel agreed to accept service. Eastern answered the complaint, and the case was referred to the Business Court Division.⁷ A scheduling order was issued in May 2018. According to the scheduling order, Mr. Harlow was to provide "all discovery concerning the fair market value of the distributional interest including all expert opinions" in August 2018; Eastern's discovery and expert opinions were due in November 2018.

Mr. Harlow served his first formal discovery requests in June 2018, and subsequent discussion between counsel revealed a key point of contention between the parties: whether Eastern had fully disclosed its accounts receivable as of the Dissociation Date. Mr. Harlow believed that Eastern had not, and in July 2018, he served three of Eastern's customers with subpoenas.

Eastern moved to quash the subpoenas, but one customer responded before Eastern filed its motion. This customer disclosed a $95,152 invoice from Eastern dated April 18, 2017. The invoice—which was signed four days after the Dissociation Date—certified that the amount due was for completed work, yet it also indicated that it was for the period ending on April 30, 2017. Mr. Harlow's valuation expert assumed that the entire amount of the invoice was for work performed before the Dissociation Date and, after making further estimated adjustments for other customers, increased Eastern's accounts receivable, as of the Dissociation Date, by $137,428. Based on these and other adjustments, Mr. Harlow's August 2018 expert report valued his one-third interest at $120,000.⁸

In September 2018, after serving Eastern with his expert opinion, Mr. Harlow's attorney sent Eastern's attorney a long letter objecting to Eastern's discovery responses.⁹ However, later that month, when the circuit court heard Eastern's motion to quash, the circuit court objected to Mr. Harlow's decision to issue his expert report before completing discovery. According to the court, "[i]f the Plaintiff needed the subpoenaed information so much, then Plaintiff should have sought relief from the Scheduling Order[.]" Nevertheless, the parties were able to stipulate that documents relating to work performed up to the Dissociation Date would be produced under the subpoenas. Certain other requested information, however, was deemed "not relevant[,]" and Mr. Harlow's subpoenas were quashed to the extent they sought such information.¹⁰

Eastern supplemented its discovery responses a second time in October 2018, providing payroll summaries, timesheets, and other documents for the period immediately prior to the Dissociation Date. In November 2018, Eastern's expert completed his valuation report, which valued Mr. Harlow's one-third interest at $69,814.¹¹ Eastern's expert explained that this lower value was due, in part, to different conclusions about Eastern's accounts receivable and to the opposing expert's failure to account for accrued expenses.

After changing attorneys, Mr. Harlow renewed his discovery efforts in December 2018, filing a motion to compel discovery and serving a new round of subpoenas. He also sought to add three new parties.¹² Eastern opposed these efforts and further supplemented its discovery responses. Following a hearing in February 2019, the circuit court quashed the subpoenas and denied Mr. Harlow's request to add new parties. The circuit court did, however, grant a portion of the motion to compel discovery, ordering Eastern to permit Mr. Harlow, his attorney, and his expert to inspect Eastern's records for two prominent customers.

During the February 2019 hearing, the circuit court advised that Mrs. Harlow could not attend the records inspection unless she filed a notice of appearance as counsel for her husband. Mrs. Harlow subsequently filed a notice of appearance in March 2019, and Eastern moved to disqualify and enjoin her from providing assistance to Mr. Harlow or his attorney based on her work for Eastern during the Prevailing Wage Case.¹³ In response to the motion, Mrs. Harlow filed a lengthy declaration describing the extent of her involvement in both cases. After a hearing, the circuit court found a conflict of interest and disqualified Mrs. Harlow from appearing as counsel in the matter, noting Mr. Harlow's...