Malpractice Case Questions Delegation of Responsibility for Title Work

Standard

SC Supreme Court decides client’s informed consent is required.

The South Carolina Supreme Court has ruled that a closing attorney cannot delegate the ultimate responsibility for delivering clear title to a purchaser without the purchaser’s informed consent. Johnson v. Alexander is an attorney malpractice case decided on July 29. This case involved Amber Johnson’s 2006 closing of a home in North Charleston.  Ms. Johnson alleged that her closing attorney, Stanley Alexander, breached his duty of care by failing to discover the house had been sold at a tax sale in 2005.

shutterstock_113463292The title examination had been performed by another attorney, Charles Feeley at the request of Ms. Johnson’s previous attorney, Mario Inglese.  Mr. Alexander purchased the title work from Mr. Inglese and relied on the title examination, which concluded that no back taxes were owed on the property. Ms. Johnson stopped making mortgage payments when she learned she didn’t have title to the property, and the property went to foreclosure.

At trial, Ms. Johnson moved for partial summary judgment as to Mr. Alexander’s liability. At the summary judgment hearing, an affidavit of the Delinquent Tax Collector for Charleston County was proffered to prove the availability of the delinquent tax records during the time when the title would have been examined.  Mr. Feeley’s affidavit indicated he could  not remember the specific title work, but that he always searched titles the same way, and he always checked delinquent taxes for a ten-year period. His notes showed that he found no outstanding taxes. Further, Mr. Feeley attested that the tax sale would not have appeared in the chain of title because the tax sale deed was actually recorded after the closing.

As a side note to abstractors: recent tax sales often do not appear in chains of title because the deeds are not yet recorded. Title examiners should check for payment of taxes for a ten-year period to uncover ad valorem tax delinquencies.

The trial court granted Ms. Johnson’s motion on Mr. Alexander’s liability.  On appeal, the Court of Appeals reversed and remanded, holding the lower court incorrectly focused its inquiry on whether an attorney conducting a title examination should have discovered delinquent taxes from 2003 and 2004 and the tax sale from 2005. Instead, the appellate court held the proper question was whether Mr. Alexander acted reasonably in relying on the title work and reversed and remanded the case for trial.

The Supreme Court reversed and remanded for a determination of damages. Ms. Johnson argued that the Court of Appeals erred in holding the correct inquiry is whether an attorney reasonably relied on another attorney’s work where that work is outsourced. She contended that an attorney should be liable for negligence arising from tasks he delegates unless he has expressly limited the scope of the representation. The Supreme Court agreed.

The Supreme Court said the Court of Appeals erroneously equated delegation of a task with delegation of liability. The opinion, written by Justice Hearn, stated that while Feeley’s negligence was the issue, that does not displace Alexander’s ultimate liability.

The opinion states, “while an attorney may delegate certain tasks to other attorneys or staff, it does not follow that the attorney’s professional decision to do so can change his liability to his client absent that client’s clear, counseled consent.”

The Court cited Rule 1.8(h) of the Rules of Professional Responsibility which indicates a lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.

Notice that the Court makes no distinction between delegating a task to staff and delegating it to another attorney. Mr. Alexander had argued that because Ms. Johnson knew he did not personally examine the title, its accuracy was not within the scope of his representation to her. The Court clearly held that the scope of representation can only be limited through the clear, counseled consent of the client.

Many residential closings are handled in South Carolina by attorneys who have nothing to do with the title examination. This case clearly states that those attorneys should limit the scope of their representation and obtain their clients’ clear, counseled consent. Otherwise, the title work is the ultimate responsibility of the closing attorney regardless of who performs it.

shutterstock_233295964And on a related topic, it is my opinion that any title examination that covers less than a full-search period or is based on a prior title insurance policy should be used only after consultation with the client and obtaining the client’s informed consent.  Many residential and commercial closing attorneys rely heavily on prior title policies for back title, and they may want to tweak their practices after they read this opinion.

Closing attorneys’ files should be papered with those informed consents confirmed in writing!

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