Murrells Inlet commercial neighbors embroiled in litigation

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Our Advance Sheet from August 10 contained two Court of Appeals easement cases involving adjoining commercial properties in Murrells Inlet. This blog will discuss the first of the two cases*. Next week, we’ll take up the second case. A footnote in the first case indicates the parties were heading to trial again immediately after oral arguments. These neighbors are obviously not getting along!

The litigation involves a restaurant property owned by Gulfstream Café, Inc. and an adjoining property containing a marina, a store and a parking lot owned by Palmetto Industrial Development, LLC. Palmetto’s predecessor in title granted four non-exclusive easements in 1986 and 1990 to Gulfstream. The easements allowed for ingress and egress and vehicular parking. It was anticipated that the marina property would use the parking primarily in the daytime and the restaurant property would use the parking primarily in the evening.

The easements included general warranties, the same language that appears in our normal general warranty deeds: “(A) does hereby bind itself and its successors and assigns, to warrant and forever defend, all and singular, the said easement unto (B), its successors and assigns, against itself and its successors and assigns, and all others whomsoever lawfully claiming, or to claim the same or any part thereof.” This language is consistent with South Carolina Code §27-7-10.

The question in this case is whether the easement holder (the grantee) is entitled to attorneys’ fees in connection with litigation against the easement grantor’s successor in title based on the easement. In many deed warranty cases, the grantee sues the grantor when a third party asserts an interest in the real estate. In this case, the only parties are the owners of the adjoining properties.

The relationship between the parties began to sour in 2016 when Palmetto demolished and started to rebuild its building. Gulfstream brought suit for interference with its easement and received a temporary injunction. Palmetto was subsequently held in criminal contempt for willfully violating the injunction.

In 2018, Gulfstream filed a complaint against Palmetto seeking a declaratory judgment based on interference with the easement and a finding that Palmetto breached its warranty.  This case sought attorneys’ fees and costs. Later in 2018, a jury found for Gulfstream on its claim for interference in the 2016 case.

Both parties moved for summary judgment in the 2018 case. Gulfstream argued that the plain language of the warranties provided for Palmetto’s obligation to defend Gulfstream. Palmetto relied on the language of the warranty provision and a 2004 South Carolina Supreme Court case, Black v. Patel**.

In analyzing the arguments, the Court of Appeals began with the proposition that in South Carolina, the authority to award attorneys’ fees can only come from statute or contract. Next, the Court stated that a warranty of title is a contract on the part of the grantor to pay damages in the event of a failure of title. Generally, when a grantor refuses to defend the title against a third party claiming title, the grantee is allowed attorneys’ fees. The general rule for cases in this context, according to the Court, is that only ‘lawful”—that is successful—claims asserted against title justify an award of attorneys’ fees where the grantor fails to defend the title.

A footnote in the Black case set out an exception to the general rule. The grantor would also be responsible for attorneys’ fees where its wrongful act causes the grantee to be in litigation with a third party.

The question in this case became whether the warranty provision in Gulfstream’s easements provide that Gulfstream is entitled to attorneys’ fees from Palmetto. The Court held that the answer is “no” because Gulfstream’s title is not in issued. Palmetto did not dispute the Gulfstream has easements over Palmetto’s property, rather, Palmetto, at worst, has been infringing upon Gulfstream’s rights. Gulfstream’s actual title was not challenged and there is not a third party involved as contemplated in Black.

The Court did not that its decision does not prevent Gulfstream from seeking attorneys’ fees in future contempt actions as a sanction if Palmetto continues to infringe upon Gulfstream’s rights. In other words, the Court seems confident that litigation between these parties will continue.

I’m going to have to go eat seafood in Murrells Inlet to check out these properties!

*The Gulfstream Café’, Inc. v. Palmetto Industrial Development, LLC., South Carolina Court of Appeals Opinion 5935 (August 10, 2022).

**357 S.C. 466, 594 S.E.2d 162 (2004).

SC Supreme Court probate case is real estate adjacent

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Interest in marital property vests when marital litigation is filed

Real estate lawyers, consider these fact patterns:

  • James Franklin owns 200 acres of property under contract with your developer client. Your client intends to use the property to develop a residential subdivision. Your title examination reveals Franklin’s wife recently filed a petition for divorce. Can your closing proceed without involving Franklin’s wife?
  • Let’s make the facts more difficult.  A divorce has been filed, but your title examination misses it.
  • Finally, let’s make the facts even more difficult. A divorce has been filed, your title examination misses it, and Mrs. Franklin dies before your closing.

Seels v. Smalls* answers these questions. And the involvement of Mrs. Franklin or her personal representative is required for your closing in each instance. In fact, the involvement of the family court and probate court may also be required.

In this South Carolina Supreme Court case, Olivia Seels Smalls and Joe Truman Smalls had been married for more than thirty years, living in Goose Creek, and accumulating significant assets. Mrs. Smalls filed marital litigation on July 2, 2014 and died unexpectantly on December 17, 2015. Mrs. Smalls’ brother, Randall Seels, was appointed personal representative. He moved to be substituted as plaintiff in the family court case. Mr. Smalls sought dismissal of the action, arguing the entire matter had abated upon the wife’s death.

It took our Supreme Court thirteen pages to ruminate over what I thought was settled law in South Carolina. The personal representative was entitled to the wife’s interest in the marital property. One paragraph from page 46 summarizes the holding:

“In summary, section 63-3-530, governing the family court’s subject matter jurisdiction, provides in subsection (A)(2) that the family court has ‘exclusive jurisdiction’ to settle all legal and equitable rights regarding marital property, importantly in section 20-3-610, the General Assemble has confirmed that each spouse has a ‘vested special equity and ownership right in the marital property’ that is subject to apportionment by the family court at the time marital litigation is filed. Further, the definition of ‘marital property’ in subsection 20-3-630(A) provides ‘marital property’ is all property acquired or owned by the parties as of the date marital litigation is filed, regardless of how it is titled, so marital property essentially springs into existence as a legally defined concept at that moment in time.”

The bottom line, dirt lawyers, is that marital litigation involving your seller should stop you in your tracks. Don’t close until you carefully examine the family court implications. And, if your client’s spouse has died, you will also need to deal with probate court implications. If you have concerns, call your friendly title insurance company underwriter for assistance.

This blog often ends with these words, and today is no exception. Be careful out there!

*South Carolina Supreme Court Opinion 28103 (August 3, 2022).

Chicago Title identifies earnest money fraud scheme

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Chicago Title’s South Carolina state office sent a memorandum to its agents on July 26, entitled “Checks Drawn on Foreign Banks.”  I wanted to share this valuable information with all South Carolina practitioners even though this particular fraud scheme has not been reported in any South Carolina transactions. Knowledge is power! Let’s stop this scheme at our borders.

The memo points to buyers who tender counterfeit cashier’s checks from Canadian banks as earnest money deposits. The fraudster quickly backs out of the transaction and requests a refund. Because foreign checks can take more than thirty days to process, the refund requests are made before the checks can be negotiated.

The scheme has been used in at least nine Midwestern states. The common facts are:

  • The offer to purchase provides for an all-cash transaction.
  • The selling broker has never met the buyer.
  • The buyer has not physically viewed the property.
  • The buyer is located outside the United States.
  • The initial deposit exceeds the required earnest money deposit.
  • The deposit is in the form of a check drawn on a Canadian bank.
  • The buyer requests that the funds be returned by a wire to their account.

Chicago Title advises that its agents should not accept foreign checks at all. Instead, agents are advised to insist on wired funds. This is great advice which will assist you in working within our ethics rules and in protecting your trust accounts. You don’t want to be in the position of having to replace lost funds! Be careful out there!