Zinn v. CFI Sales & Mktg., Ltd.

• Decision Date: 25 November 2015
• Docket Number: No. 5364.,Appellate Case No. 2012–213193.,5364.
• Citation: 415 S.C. 93,780 S.E.2d 611
• Court: South Carolina Court of Appeals
• Parties: Timothy A. ZINN, Robert Adams, Laura Arrington, Stephen C. Black, Bradley Kirk Bray, Mark D'Amico, Thomas A. DeVitis, Rodney Eddie Haynes, Jimmy Kelly, Whitney Renee Knox, Lynn C. Lanpher, Holly Levasseur, John Martin Loughlin, Joe Maranville, Khalif Middleton, Chelcie Ozentine, Judith A. Parker, Matthew W. Reed, Cynthia G. Reilly, Gerald Ryba, Sherry Singleton, Steven G. Thoni, Stratton Vitikos, Michael H. Willis, Michael J. Zanardo, Respondents/Appellants, v. CFI SALES & MARKETING, LTD, d/b/a Westgate Resorts, Appellant/Respondent.

415 S.C. 93

780 S.E.2d 611

Timothy A. ZINN, Robert Adams, Laura Arrington, Stephen C. Black, Bradley Kirk Bray, Mark D'Amico, Thomas A. DeVitis, Rodney Eddie Haynes, Jimmy Kelly, Whitney Renee Knox, Lynn C. Lanpher, Holly Levasseur, John Martin Loughlin, Joe Maranville, Khalif Middleton, Chelcie Ozentine, Judith A. Parker, Matthew W. Reed, Cynthia G. Reilly, Gerald Ryba, Sherry Singleton, Steven G. Thoni, Stratton Vitikos, Michael H. Willis, Michael J. Zanardo, Respondents/Appellants,

v.CFI SALES & MARKETING, LTD, d/b/a Westgate Resorts, Appellant/Respondent.

Appellate Case No. 2012–213193.

No. 5364.

Court of Appeals of South Carolina.

Heard March 17, 2015.

Decided Nov. 25, 2015.

R. Hawthorne Barrett, of Columbia, and John S. Wilkerson, of Charleston, both of Turner, Padget, Graham & Laney, P.A., for appellant/respondent.

David J. Canty, of Myrtle Beach, and Gene M. Connell, Jr., of Surfside Beach, both for respondent/appellant.

McDONALD, J.

In this wage dispute action, Appellant/Respondent CFI Sales & Marketing, Ltd., d/b/a Westgate Resorts (CFI), appeals the circuit court's post-trial ruling that the reserve and charge back components of CFI's employment contracts with Respondents/Appellants (the Zinn Plaintiffs)¹ VIOLATED THE SOUTH Carolina paymenT of wAges act.² ON CROSS-appeal, the Zinn Plaintiffs argue the circuit court erred in (1) directing a verdict against Lynn Lanpher, Khalif Middleton, Sherry Singleton, Steven Thoni, and Michael Wills; (2) allowing the jury to consider terms of the employment contract that the circuit court subsequently determined to be illicit; (3) directing a verdict on their causes of action for breach of contract accompanied by a fraudulent act; and (4) limiting the amount of attorney's fees awarded. We affirm in part, reverse in part, and remand.

FACTS/PROCEDURAL BACKGROUND

CFI is a timeshare developer of several resorts, including the Westgate Myrtle Beach Oceanfront Resort. The Zinn Plaintiffs worked for CFI as sales representatives (Sales Representatives) in the early-to-mid 2000s. The Zinn Plaintiffs' employment contracts with CFI addressed, among other things, their compensation both during their employment and after their respective discharges from CFI. The present case (the Zinn action) is the second lawsuit involving several former Sales Representatives' allegations of unpaid wages against CFI. All plaintiffs in the Zinn action were also parties in the case of Judith A. Parker, Caroline Jordan, Christopher J. DeCaro, and Charles S. Walker, Jr., individually and on behalf of others similarly situated v. CFI Sales & Marketing, Ltd. d/b/a Westgate Resorts³ (the Parker action).

The Parker Action

On September 4, 2007, Judith A. Parker, Caroline Jordan, Christopher J. DeCaro, and Charles S. Walker, Jr. (the Parker Plaintiffs) filed a civil action against CFI, seeking class certification and setting forth causes of action for recovery of the following: (1) "wages, penalties, and attorney's fees," (2) breach of contract, and (3) breach of contract accompanied by a fraudulent act. The Parker Plaintiffs also sought an accounting and a declaratory judgment "finding CFI's practices regarding payment of wages to be in degradation of statutory laws." Among other allegations, the Parker Plaintiffs claimed that the reserve account and charge back provisions of the CFI employment contracts violated the South Carolina Payment of Wages Act (Wages Act) in several respects, including the timing for final payments made after a Sales Representative had been discharged from employment. See S.C.Code Ann. §§ 41–10–10 to –110 (Supp.2014). The Honorable J. Michael Baxley certified a class consisting of former CFI Sales Representatives who previously worked in Myrtle Beach and had reserve accounts during the relevant period established by the court.

CFI compensated its Sales Representatives on a commission basis for each sale of a timeshare interest. The commission due to each Sales Representative was paid within a prescribed period after each sale, less a contractually agreed upon percentage of such commission allocated to a "reserve account." Such commissions—less the amount allocated to the reserve account—were paid to the Sales Representatives shortly after the sale even though the timeshare purchaser paid only a small percentage of the total purchase price at closing, often financing as much as 95% of the purchase price through a note and mortgage (collectively, Note and Mortgage) held by the seller.

Each Sales Representative contractually agreed to fund the reserve account with 10% of the commissions earned. This was designed to provide a measure of protection to CFI against defaults by timeshare purchasers on the Notes and Mortgages. The Sales Representatives agreed that the reserve portion of his or her commissions would be retained in the reserve account until the timeshare purchaser made six timely, consecutive monthly payments on the Note and Mortgage. The maximum amount of the reserve under the employment contracts was $3,500. However, the maximum reserve amount was subsequently increased to $7,000. CFI was unable to confirm whether the Sales Representatives received advance written notice of this increase in the reserve limit.⁴

If and when a timeshare purchaser made six timely, consecutive monthly payments on the Note and Mortgage, the reserve was "released" as to that sale. However, if a timeshare purchaser upgraded or downgraded their timeshare before making six timely, consecutive monthly payments, the account would show that a final payment had not been made, and the Sales Representative would not receive a commission from that sale. CFI explained that should a timeshare purchaser default, the amount of the commission already paid to the Sales Representative was charged against the balance of the reserve, which is commonly referred to as a "charge back." Each such defaulted sale resulted in a charge back until the reserve balance was exhausted. This allowed CFI to recover a portion of the commissions paid to Sales Representatives for sales on which CFI did not receive payment of the purchase price. However, pursuant to Exhibit A of CFI's employment contract:

VI. CHARGEBACK ON CANCELED DEALS

A. During the term that Employee is engaged by Employer, no sales originated by Employee for which Employee has been paid a commission will be subject to charge back except as otherwise set forth herein.

B. In the event Employee is no longer engaged by Employer ... Employee shall be charged back for all sales upon which commissions have been paid in the event the purchaser(s) has/have not made six (6) timely and consecutive monthly payments as well as the ten percent (10%) minimum down payment.

Timeshare sales were evaluated based on the timeliness and frequency of the payments on the Note and Mortgage, and the reserve account appropriately reconciled. CFI's commission supervisor, Connie Sharp, testified that when a Sales Representative separated from CFI, 100% of their commissions went to fund the reserve account and was not "released" without a written demand after termination of the employment.

Q: To your knowledge[,] have any of the Plaintiffs ever been given written notice that when they separate from the payroll 100 percent of their commissions would go into the reserve rather than the 10 percent that's set forth in the contract?

A: Not that I know of.

...

Q: And prior to that date, I believe it was in April of '09[,] if a salesman for any reason failed to make that demand then [CFI] kept his commissions; correct?

A: We—when they notified us[,] then we would do the research but if they didn't[,] then we would [not].

Q: So, if a salesman was fired one day in October and he was hit by a bus crossing the street as he left the resort[,] then no request would ever be made; correct?

A: Right.

This practice was not mentioned in the CFI employment contract. Conversely, the contract did provide that once an employee was no longer engaged by CFI, "the funds remaining in the reserve account will be reimbursed to the [e]mployee only after the [e]mployer has determined that six (6) consecutive and timely monthly payments have been made on each sale made by [e]mployee for which [e]mployee has been paid a commission."

Sharp further testified that Sales Representative positions are "seasonal," meaning that Sale Representatives are hired in the spring and laid off in the fall.

On January 11, 2010, the parties to the Parker action reached an agreement as set forth in a memorandum of understanding (the MOU). By order dated January 29, 2010, Judge Baxley approved the class settlement and incorporated the MOU into the final judgment (the Parker Order).⁵ The MOU contained the following provisions:

2. Stipulated Judgment. As payment for and satisfaction of all claims made or asserted by the Class Claimants or which could or should have been made or asserted by the Class Claimant[s] for any and all matters occurring or arising during the Class Period in connections [sic] with commission reserves alleged to be due to Class Claimants and owed by CFI, including all claims for enhanced (double or treble) or punitive damages and pre-judgment interest and all claims for future payments of commission reserves, and inclusive of attorneys' fees and recoverable litigation costs (for which there shall be no separate award or recovery), a stipulated judgment shall be entered, [on] behalf of all Class Claimants (other than those who have opted-out) and Class Counsel (to the extent of their entitlement to payment of attorneys' fees and reimbursement of litigation costs) and against CFI in the amount of Six Hundred Fifty Thousand ($650,000) Dollars.

....There shall be no further reconciliation or payment of reserves following the entry of the Stipulated Judgment. This Settlement shall not dispose of the claims for unpaid wages (not commission reserves) set forth in the matter styled Timothy Zinn et al. v. CFI Sales & Marketing, Ltd., Civil Action No.

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