Here’s a gift, SC dirt lawyers: Your official recording fee list!

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This blog reported on May 29 that South Carolina Governor McMaster signed House Bill 3243 into law on May 16. This legislation, called the Predictable Recording Fee Act (S.C. Code §8-21-310), will streamline document filing in ROD offices by creating predictable fees for many commonly recorded documents such as deeds and mortgages. The new law will take effect on August 1, 2019. You and your staff will no longer have to count pages for documents to be recorded!

You can read the short but effective statute here.

My friend and colleague, Jennifer Rubin, was instrumental in the creation and passage of this legislation. Jennifer drafted the legislation and spearheaded Palmetto Land Title Association’s efforts to get the bill passed. Since the legislation was enacted, Jennifer has worked with members of South Carolina Court Administration, as well as leaders in ROD offices throughout the state, to draft a uniform recording fee schedule.  Attached is the newly created official recording fee list.

This law should simplify and streamline your practice and result in significant time and money savings for you and your clients.

SC Court of Appeals provides lis pendens primer

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Termination on the merits is required for malicious prosecution claim

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A lis pendens is a handy tool for real estate lawyers. When litigation is brought affecting title to real estate, a lis pendens gives notice to third parties that sales, loans and construction draws should, most likely, come to a screeching halt until the issues affecting title are resolved.

Back in the days when I was in private practice, malicious prosecution claims arose relatively routinely when lis pendens were filed in cases where the title to real estate was not in question. That situation is the subject of a Court of Appeals case from early this year.*

The case involved Somerset Point at Lady’s Island, a subdivision in beautiful Beaufort County. The developer, Coosaw, and River City, one of the construction companies building homes in the subdivision, became involved in a dispute about design and construction standards. River City accused Coosaw of failing to enforce the standards with other builders, and Coosaw, in turn, accused River City of failing to comply with the standards.

River City brought suit in 2011 alleging causes of action for breach of fiduciary duty, breach of contract, and unfair trade practices. Coosaw counterclaimed and crossclaimed against River City for violating the design standards and sought a temporary injunction against continued construction. Coosaw also filed a lis pendens describing one property, Lot 16, in Somerset Point.

River City moved to strike the lis pendens on the ground that title to Lot 16 was not at issue. The master-in-equity agreed and struck the notice of lis pendens. On reconsideration, the master stated, in part, that striking the lis pendens would allow River City’s construction lender to resume providing construction draws and would allow River’s City’s project to be completed. Coosaw appealed but ultimately withdrew the appeal after River City’s sale of Lot 16 rendered the issue moot.

In late 2014, River City filed the lawsuit at issue, alleging causes of action for malicious prosecution and abuse of process based on Coosaw’s filing the lis pendens in the 2011 action. River City argued the cause of action for malicious prosecution was proper because the lis pendens had been terminated in its favor.

The Court of Appeals listed the elements of malicious prosecution to include termination of the proceedings in the plaintiff’s favor. River City argued that a lis pendens is an ancillary proceeding, and termination of an ancillary proceeding will support a malicious prosecution claim. The Court of Appeals held, however, that a lis pendens is not an ancillary proceeding but is simply a notice of the proceeding.

Citing earlier cases, the Court reviewed the law of lis pendens:

  • A lis pendens is a statutory doctrine designed to inform prospective purchasers or encumbrancers that a particular piece of property is subject to litigation.
  • A properly filed lis pendens binds subsequent purchasers or encumbrancers to all proceedings evolving from the litigation.
  • Generally, the filing of a lis pendens places a cloud on title which prevents the owner from freely disposing of the property before the litigation is resolved.
  • The lis pendens mechanism is not designed to aid either side in a dispute between private parties. Rather, the lis pendens is designed to protect third parties by alerting them of pending litigation that may affect title.
  • When no real property is implicated, no lis pendens should be filed.
  • A lis pendens is merely a form of pleading that does not provide any substantive right. It is simply a notice.

The Court held that the termination of a lis pendens to support a malicious prosecution cause of action must be a victory on the merits of the litigation, not a termination based solely on technical or procedural considerations. In the case at hand, the underlying merits remained pending after the termination of the lis pendens. The Court held that the subject action is, therefore, premature.

In short, the Court held that a maliciously filed lis pendens can act as the primary basis for a malicious prosecution claim, provided the plaintiff can establish a favorable termination of the lis pendens reflective of the merits of the underlying action.

*Gecy v. Somerset Point at Lady’s Island Homeowners Association, Inc., South Carolina Court of Appeals Opinion 5622 (January 30, 2019).

Abbeville fraud litigation leads to noteworthy arbitration case

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Supreme Court finds arbitration clause unenforceable against nonsignatories

Abbeville, SC

I found it hard to believe the South Carolina Supreme Court took 21 pages to hold an arbitration provision unenforceable against nonsignatories to the contract, but it did! In an April case involving insurance fraud in Abbeville County, the Supreme Court reversed the Court of Appeals, which had relied on an equitable estoppel theory to bind individual insureds to a contract between an insurance agency and the insurance companies*.

The case arose out of numerous lawsuits brought by individual insureds against an insurance agent, Laura Willis, her broker, their agency and six insurance companies for which their offices sold policies. The suits alleged Willis engaged in fraudulent conduct including forging insurance documents and converting cash payments to her own use, resulting in the insureds having no coverage or reduced coverage. Two of the lawsuits were brought by other insurance agents, alleging Willis engaged in illegal business practices that effectively blocked them from the local market, resulting in a substantial loss of clients and revenue.

The other defendants were alleged to have failed to properly investigate, train and supervise Willis, especially after she was fined, publicly reprimanded and place on probation for dishonesty by the South Carolina Insurance Commission in 2011. Alternatively, Willis was alleged to have acted with express or implied permission of the other defendants.

A full year into the litigation, three of the insurance companies filed motions to compel arbitration and dismiss the lawsuits. The arbitration clause in question was contained in a 2010 agency contract signed by the insurance companies and the insurance agency. The theory was that the insureds were third-party beneficiaries to the contract or were equitably estopped from asserting their nonparty status. The Circuit Court denied the motion to compel arbitration, but the Court of Appeals reversed and remanded, holding equitable estoppel should be applied to enforce arbitration against the nonsignatories because the individuals sought to benefit from other provisions in the agency agreement.

The Supreme Court stated that while arbitration is viewed favorably by the courts, it is predicated on an agreement to arbitrate because parties are waiving their fundamental right to access to the courts. The Court held that whether the provision is enforceable is a state law question, and that South Carolina has recognized several theories that could bind nonsignatories to arbitration agreements under general principles of contract and agency law, including (1) incorporation by reference, (2) assumption, (3) agency, (4) veil piercing/alter ego, and (5) estoppel.

The estoppel argument is based on a direct benefits theory in South Carolina. Under that theory, a nonsignatory may be compelled to arbitrate where the nonsignatory knowingly exploits the benefits of an agreement containing an arbitration clause and receives benefits flowing directly from the agreement.

In this case, according to the Supreme Court, the plaintiffs did not allege a claim of breach of the contract, and they were not even aware of the existence of the contract until arbitration was sought a year into the litigation. In the Court’s view, the plaintiffs did not knowingly exploit and receive a direct benefit from the agency agreement. The Agreement was purely for the benefit of its parties, outlining their business relationship.

The Court also stated that equitable estoppel is ultimately a theory designed to prevent injustice, and it should be used sparingly. This litigation will continue!

And I’ve reduced the 21-page case to less than 600 words for your reading pleasure. You’re welcome!

Wilson v. Willis, South Carolina Supreme Court Opinion 27879 (April 10, 2019)

South Carolina lawyers: “Reply All” is not always your friend!

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Don’t communicate with represented parties accidentally!

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“Ruh-roh”

There are numerous ways a lawyer can get into trouble with the Supreme Court, but inadvertently communicating with another lawyer’s client can be avoided simply by thinking before hitting “Reply All” in your email system.

Ethics Advisory Opinion 18-04 addressed this concern. The situation posed to the Ethics Advisory Committee was:

Factual Background: Lawyer A sends an email to Lawyer B and copies several people, including Lawyer A’s client. Lawyer A has not previously consented to Lawyer B contacting Lawyer A’s client and does not expressly do so in the email.

Question:  If Lawyer B receives an email from Lawyer A on which Lawyer A’s client is copied, may the lawyer “reply to all” – copying Lawyer A’s client with the response – without the express consent of Lawyer A?”

The Committee discussed Rule 4.2, SCRPC, which provides that in representing a client, a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter unless the lawyer has consent of the other lawyer or is authorized to do so by law or a court order.

The purpose of the rule is to ensure proper functioning of the legal system by protecting a party who is represented by counsel from overreaching by other lawyers. The rule is also aimed at preventing interference in the lawyer-client relationship.

Two previous opinions discussed whether letters can be ethically mailed to opposing parties represented by counsel. Ethics Advisory Opinion 91-02 advised prosecutors to avoid copying criminal defendants on court appearance notifications without the consent of the defense attorney. Similarly, Ethics Advisory Opinion 93-16 advised plaintiffs’ lawyers to avoid copying defendants on settlement offers to defense counsel without the consent of defense counsel.

The Committee opined that copying an opposing party on email is prohibited in the same way sending a letter is prohibited, absent consent of opposing counsel. The question then became whether consent must be express or may be implied. The Restatement (Third) of the Law Governing Lawyers indicates the consent may be implied: “An opposing lawyer may acquiesce, for example, by being present at a meeting and observing the communication. Similarly, consent may be implied rather than express, such as where such direct contact occurs routinely as a matter of custom, unless the opposing lawyer affirmatively protests.”

The North Carolina, Alaska and New York City Bar Committees had previously opined that, while this consent may be implied, the mere fact that an attorney copies a client on an email sent to opposing counsel does not, by itself, constitute implied consent to a response sent to both opposing lawyer and the opposing client. South Carolina’s Committee agreed.

The Committee stated, however, that consent to a “reply all” may sometimes be implied. The Committee indicated that whether the matter is adversarial is an important factor. Additionally consent may be implied if the email is about scheduling under circumstances whether the client’s availability is at issue along with counsels, if email conversations among counsel and sophisticated clients together are the normal course of dealing, or if the lawyer initially cc’d the client expressly invites a “reply all” response.

The Committee cautioned that the practice of copying a client by either “cc” or “bcc” when emailing opposing counsel poses the risk of revealing confidential information. The Committee said that the recipient of an email might not recognize all the names in a group email and might communicate with opposing client’s client inadvertently by using “reply all”.  For these reasons, the Committee said that it is generally unwise to “cc” a client on an email communication to opposing counsel.

The Committee summarized its opinion: “Absent consent of Lawyer A, Lawyer B may not communicate with Lawyer A’s client about the subject of the representation either directly or by copying Lawyer A’s client in an emails sent in response to Lawyer A’s email on which the client was copied. The mere fact that a lawyer copies his own client on an email does not, without more, constitute implied consent to a “reply to all” responsive email.

My advice? Use caution when hitting “reply all” in all circumstances! “Less is more” is a generally good rule to follow in email communications. I have actually heard that one lawyer may set up another lawyer by coping a client in email communications. Don’t be a victim!