SC Supreme Court disbars two lawyers

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On June 24, the South Carolina Supreme Court issued two disciplinary opinions that both resulted in disbarment. Both involved interesting fact patterns, and I invite you to read  them as cautionary tales.

In the Matter of Brooks* involved a lawyer who was sworn in on February 19, 2019. Her application had been based on the Uniform Bar Exam score from Wyoming. One day after her admission, the Office of Bar Admissions learned that the lawyer had knowingly provided false or misleading information in her application.

She failed to disclose information about 2005 and 2014 arrests for driving under the influence (DUI), a resulting license suspension, use of cocaine and marijuana during her release as well as issues with Character and Fitness Boards in bar applications in other jurisdictions.

Bottom line: do not lie or omit facts on bar applications if you seek to practice in other jurisdictions. And advise potential South Carolina lawyers in your life to tell the truth and the whole truth on their applications.

The other case** is interesting only because of an underlying criminal conviction. The lawyer stole about $440,000 from trust accounts and was sentenced to probation. Never having worked in the criminal law arena, this sentence sounds unreasonably lenient to me. The disbarment makes complete sense though.

Bottom line: do not ever touch client funds for your own use!  Don’t borrow client funds, planning to replace them. Remove from your thought processes the idea that client funds are available to you for any reason other than to protect them for your clients.

 

*South Carolina Supreme Court Opinion 27983 (June 24, 2020).

**In The Matter of Collins, South Carolina Supreme Court Opinion 27984 (June 24, 2020).

Is it ethical to buy a competitor’s name as a search engine “keyword”?

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Most South Carolina dirt lawyers don’t do much direct advertising, but some make use of Internet keyword advertising. For that reason, I wanted to make sure you noticed the recently issued Ethics Advisory Opinion 20-01, which you can read here.

South Carolina’s Ethics Advisory Committee was asked the following question:  “May a lawyer bid on and use the names of other lawyers and law firms as a part of a competitive keyword advertising strategy?” In other words, it is ethical for a lawyer to pay an internet search engine to insert his or her ads when a searcher types a competitor’s name into the search engine?

In some search engines, the resulting advertisements appear on the right side of the page. In other search engines, they may appear marked as an “ad” or “sponsored” above the organic search results.

The Committee pointed out that competitive keyword advertising is different from search engine optimization (SEO). SEO is the process of increasing the visibility of a web page by users of a search engine and is directed at optimizing unpaid placement organic results. This opinion addresses only keyword advertising.

The Committee followed the lead of New Jersey, Texas and Wisconsin and opined that a lawyer may purchase an internet competitive advertising keyword that is the name of another lawyer or law firm in order to display a “sponsored” website advertisement.

The Committee stressed that lawyers should be mindful to comply with all advertising rules and should use care to ensure that no derogatory or uncivil message is conveyed. The Committee also pointed out that surreptitious redirection from a competitor’s website to a lawyer’s own website via hyperlink is prohibited under our Rules.

What do you think?

SC lawyers connected to Hardwick receive admonitions

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Nat HardwickIn additional fallout from the Nat Hardwick fiasco in Atlanta, the South Carolina Supreme Court has anonymously admonished two bar members for failing to restrict access to South Carolina-based trust accounts containing client funds and failing to ensure proper monthly reconciliations of those accounts*.

This blog has discussed Nat Hardwick, a name familiar to many South Carolina real estate lawyers three times. He was convicted in 2018 of embezzling more than $25 million from his former companies, including his former law firm, Morris Hardwick Schneider. In February of 2019, he was sentenced to 15 years in prison. His co-conspirator and controller, Asha Maurya, was sentenced to seven years after she cooperated with the government. In May of 2019 Hardwick and Maura were ordered to pay $40 million in restitution.

Nathan E. Hardwick IV, described himself as the face of Morris Hardwick Schneider, an Atlanta residential real estate and foreclosure firm that grew into sixteen states, including South Carolina. The firm once had more than 800 employees and boasted of offices in Charleston, Hilton Head, Columbia and Greenville.

This story hits close to home. My company was one of the victims of the crimes and one of the parties awarded restitution because it funded the firm’s escrow accounts when the losses were discovered.

The prosecutor described an extravagant lifestyle that Hardwick enjoyed at the expense of others. The case was said to be particularly troubling because the illegal activity was orchestrated by a lawyer who swore an oath to uphold the law and represent his clients with integrity. The U.S. Attorney said he hoped the case sent the message that the FBI and the U.S. Attorney’s office will not tolerate this type of white-collar crime.

According to the evidence, from January 2011 through August 2014, Hardwick stole more than $26 million from his law firm’s accounts, including its trust accounts, to pay his personal debts and expenses. The firm’s audited financial statements showed that the firm’s net income from 2011 through 2013 was approximately $10 million. During that time, according to the evidence, Hardwick took more than $20 million from firm accounts.

Asha Maurya, who managed the firm’s accounting operations, reached an agreement last May with the U.S. Attorney’s office and pled guilty. She was expected to testify at the trial, but was unexpectedly not called as a witness. Her lawyer argued at the restitution hearing that she should be liable for only $900,000, the amount she admitted taking from the firm for her own benefit. She had agreed to pay restitution in that amount as a part of her plea bargain.

During the trial, Hardwick did take the stand in his defense and attempted to blame Maurya with the theft. He said that he trusted her to his detriment, that he was entitled to the funds, and that he was unaware that the funds were wired from trust accounts. Hardwick testified for more than a day and explained that he believed Maurya followed proper law firm procedures.

On the stand, Hardwick, described as the consummate salesman, said that he gave his cellphone number to almost everyone. He said he returned calls and messages within a few hours and instructed his employees to do the same. He apparently believed himself to be a master in marketing and customer service and prided himself in focusing on the firm’s expansion strategy. He hoped to expand to all fifty states and make money through a public stock offering.

With his ill-gotten gains, Hardwick bought expensive property, made a $186,000 deposit for a party on a private island, spent $635,000 to take his golfing friends to attend the British Open in 2014, paid off bookies, alimony obligations, and sent more than $5.9 million to various casinos, all according to trial evidence. Hardwick’s activities lead to the loss of his law license and the bankruptcy of his firm.

Hardwick’s former partners, Mark Wittstadt and his brother, Gerald Wittstadt, were each awarded $6 million in restitution, and Art Morris, a retired member of the firm, was awarded $5 million.  All claim damage to their reputations in addition to substantial monetary losses.

These two South Carolina disciplinary cases began in May of 2014 when SunTrust Bank reported it paid three wires that were presented against insufficient funds on one of the firm’s South Carolina IOLTA accounts, leaving the account overdrawn by more than $65,000. Approximately a month later, the bank reported the same account was overdrawn by more than $18,000. The ODC began its investigation about the same time the law firm and my company began investigating the problems in Atlanta.

In South Carolina, the misappropriations occurred primarily through online transfers between firm trust accounts. More than $9 million in transfers in and out of the South Carolina trust accounts occurred during 2014 alone. As a result of the investigations and the subsequent funding of the shortage by my company, no South Carolinians lost funds.

*In re Anonymous Member of the South Carolina Bar, SC Supreme Court case 27937 (May 27, 2020) and In re Anonymous Member of the South Carolina Bar, SC Supreme Court case 27974 (May 27, 2020).

South Carolina lawyers: We have a new UPL case

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This blog is about dirt, and the facts of the new unauthorized practice of law case do not involve real estate, but who among us doesn’t like to keep up with what our Supreme Court is thinking about UPL, the topic we believe can make us or break us at any moment?

The case, Westbrook v. The Murkin Group, LLC*, was decided March 18 and involved a Florida company that provides debt collection services in exchange for contingency fees. The Murkin Group advertises itself as having “in-house collection specialists”. Under the terms of its agreement with clients, once an account is turned over to Murkin, the client agrees to cease all communication with the debtor and to allow Murkin to be the sole point of contact. The agreement further authorizes Murkin to forward accounts to an attorney designated by Murkin when legal action is required.

In 2017, Wando River Grill became dissatisfied with its linen supplier, Cintas, and suspended its services. Cintas claimed the suspension constituted a breach of contract and invoked a liquidated damages provision in the contract, seeking more than $8,000 in damages. Cintas hired Murkin to collect the debt.  A South Carolina licensed attorney represented the restaurant in the dispute.

Murkin sent a demand letter, and the parties began to communicate about the dispute via email. Murkin claimed Cintas would waive its damages claim if the restaurant paid a “one-time processing fee for reinstatement”. Murkin prepared and sent the reinstatement agreement to the restaurant with signature lines for the restaurant and “The Murkin Group, on behalf of Cintas Corporation – Charleston, SC.”

The restaurant sent the proposed reinstatement agreement to the Petitioner, its lawyer, Edward Westbrook. Westbrook contacted Murkin and asked to discuss the matter directly with Murkin’s South Carolina counsel. The response was, “Whether or not this gets forwarded to local counsel is a decision which out office will make, with our client, when we feel it appropriate.”

(I can only imagine how that comment was received!)

The dispute continued, and Westbrook emailed Murkin asking for the South Carolina Bar numbers of several Murkin employees. Westbrook then filed a declaratory judgment action pursuant to our Supreme Court’s request that individuals who become aware of UPL bring a declaratory judgment action in the Court’s original jurisdiction.

The Court referred the matter to a special referee who filed a report recommending that the Court find Murkin’s actions constituted UPL.

The Supreme Court held that Murkin engaged in UPL when it interpreted Cintas’ client agreement and gave legal opinions as to what damages were recoverable. It also engaged in UPL when it sought to negotiate the contract dispute and advised Cintas on settlement.

While Murkin characterized its actions as “debt collection”, the Court stated that the true nature of the underlying matter is a contract dispute. The Court enjoined Murkin from engaging in any further such conduct.

 

*South Carolina Supreme Court Opinion 27952 (March 18, 2020).

Dirt lawyers: help guard against elder abuse!

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My company recently sent out a memorandum about elder abuse in the financial and real estate industries that made some interesting points.

My father died last September and, although he was as sharp as a tack until the end, he had difficulty hearing and his reactions had slowed. As a result, my brother and I had to carefully and repeatedly (and loudly!) explain to him every move we were making with regard to his care and finances. If he had needed to enter into any type of real estate transaction in the last months of his life, the real estate lawyer should have had antennae up!

Elderly persons should be treasured, not abused! And, as real estate lawyers, we may be in a particular position to guard against abuses.

Elder abuse often happens at the hands of family members or “friends” who, because of the vulnerabilities associated with age, such as mental impairment, are able to employ methods such as theft, fraud, forgery, extortion and the wrongful use of powers of attorney to separate an elderly person from property or funds.

Reflect upon the numbers of stories you have heard in your community about elderly persons falling prey to telephone scams. Those same individuals would not have succumbed in their prime. Even with all mental facilities in place, they don’t hear as well, they don’t keep up with changes in technology, and they are unable to keep up with fraud trends we all hear about every day.

Here are some signs of elder financial abuse that you may be able to detect in your office:

  • Sudden changes in an elderly person’s estate planning documents;
  • Changes made in the title to properties in favor of a “friend;”
  • Home health aide, housekeeper or other person is added to the accounts of an elderly person or is receiving an assignment of proceeds;
  • Family members or trusted “friend” discourages or interferes with direct communications with an elderly person involved in a transaction;
  • The older person seems unable to comprehend the financial implications of the transaction;
  • The older person signs documents without seemingly knowing or understanding what is being signed;
  • A power of attorney is involved. I’ve told this story many times, but we had a wonderful claims attorney with our company who routinely called powers of attorney “instruments of the devil”. Powers of attorney are extremely useful tools in our world, but we should always exercise caution when they are used, especially when an elderly person is involved;
  • Anyone seems to be forcing the elderly person to act;
  • Numerous unpaid bills may be a clue that someone is diverting the money designated for the daily living of the elderly person;
  • Promises of lifelong care in exchange for property;
  • The elderly person complains that he or she used to have money but doesn’t understand why the money is no longer available;
  • The caregiver is evasive about the specifics of the transaction in the presence of the elderly person;
  • The elderly person seems fearful or reticent to speak in front of a family member, friend, loan officer, real estate agent or anyone involved in the transaction.
  • The accompanying family member or caregiver attempts to prevent the elderly person from interacting with others.
  • The elderly person and the family member or caregiver give conflicting accounts of the transaction, the expenditures or the financial need.
  • The elderly person appears disheveled or without proper care even though he or she has adequate financial resources.

Be mindful of these common-sense suggestions when any of your real estate transactions involve elderly persons. Think of them as you would want someone to think of your parents or aunts and uncles. Be careful to protect their interests. Proceed with caution!

Elders may also be the victims of predatory lending. Elders who own their homes and have built up equity over time become targets of predatory loan originators who pressure them in to high-interest loans that they may not be able to repay. Older homeowners are often persuaded to borrow money through home equity loans for home repairs, debt consolidation or to pay health care costs. These loans may be sold as “miracle financial cures” and are often packed with excessive fees, costly mortgage insurance and balloon payments.

Always discuss transactions directly with your elderly clients. Ask them pointed questions to make sure they understand the transaction.

And, as always, employ your instincts and your common sense.

HOA seeks to oust orphan from age-restricted neighborhood

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Image from KOLD.com (News 13), Tucson, Arizona

 

A fifteen year-old California lad lost both of his parents last year. Collin Claybaugh’s mother, Bonnie, died in the hospital from a long-term illness. And his father, Clay, took his own life two weeks later.

What do good able-bodied grandparents do in this situation besides grieve the loss of their children? They take in their grandson, of course. That’s what Randy and Melodie Passmore did. The Passmores are both in their 70’s and live on a small pension plus social security. They own their home in The Gardens at Willow Creek, a 55-plus community in Prescott, Arizona.

The age restriction apparently has a limited exception for residents who are 19 years of age and older. But a 15-year old boy is definitely not allowed by the rules.

The Passmores received a letter from the homeowners’ association advising them that Collin must move out. The letter said that the board must balance the interests of all parties involved, not just the Passmores. The HOA board said they are concerned that if they fail to enforce the age restriction, they could endanger the ability for the development to remain an age-restricted community.

The Passmores’ only alternative is to sell their home and move, which they believe will be difficult considering their age and financial position. They do not have funds to mount a legal battle.

My husband and I would love to downsize at this point in our lives, and we would be interested in living in a community where the exterior and grounds are maintained by someone else. But this story convinces me to stay clear of age-restricted communities.

How do you think this story would play out from a legal standpoint in South Carolina?

Representing a subcontractor and a homeowner against the contractor. Is it ethical?

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Please take a look at South Carolina Bar Ethics Advisory Opinion 19-05 here. This blog rarely touches litigation, primarily because the litigation knowledge of this blogger would fit easily on the head of a pin. But this EAO does affect real estate, and I can envision dirt lawyers getting themselves into this ethical conundrum, so here goes.

The facts are simple:  The attorney represents a subcontractor against a contractor regarding payment for work performed on a new home. The time for filing a mechanics’ lien has run, and the contractor has been paid in full. The homeowners want to retain the attorney to represent them to sue the contractor for breach of contract and negligently performed construction work. The homeowners’ claims do not appear to involve the work of the subcontractor.

The attorney is concerned that the contractor may not have sufficient assets to satisfy judgments of both parties.

So, the question becomes whether the attorney may ethically represent both parties.

The Ethics Advisory Committee provides the framework for consideration, but leaves the difficult analysis to the attorney.

The short answer is: The attorney may represent both parties provided the attorney analyses the prospective representation under Rule 1.7, SCRPC, and then considers whether the “material limitation” conflicts section in section (a)(2) may apply.

The attorney must also evaluate the risk of future availability of assets and should engage in a course of ongoing assessment for conflicts, particularly those that may arise if the claims are reduced to judgments and the clients dispute their recovery amounts relative to each other.

Rule 1.7 provides:

  • Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a current conflict of interest. A current conflict of interest exists if:
  • The representation of one client will be directly adverse to another client; or (2) there is significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third party or by a personal interest of the lawyer.
  • Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
  • the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
  • the representation is not prohibited by law;
  • the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
  • each affected client gives informed consent, confirmed in writing.

 

 

(I added the emphasis.)

The material limitation of (a)(2) is the primary concern. Given the attorney’s concern about the sufficiency of the assets of the contractor to satisfy judgments, the attorney must evaluate whether that potential risk may materially limit his ability to represent either party.

The Committee eliminated (b)(2) and (b)(3) from consideration based on comments to the rule.

The analysis boils down to (b)(1) and (b)(4): the attorney’s assessment of whether he can provide competent and diligent representation to both parties and whether they consent to the representation after being informed of the benefits and risks of joint representation, particularly of the possibility of inadequate assets and the possibility of needing new counsel should they dispute recovery between themselves.

What do you think? Would you do it?

Holy Statute of Frauds

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Can text messages create binding real estate contracts?

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South Carolina real estate practitioners, do you remember that old case from law school where a contract was created on a napkin?  That case made me imagine drunken parties in a bar passing a napkin back and forth as drinks came quicker and caution evaporated.

That simple case is seen in a new light, however, as courts across the country struggle to apply the ancient statute of frauds to the evolving world of electronic communications. Telegrams, faxes and emails have all been found to satisfy the statute of frauds in some situations.

We haven’t seen a South Carolina case on the topic of text messages and binding contracts, but The Southern District of New York and a Massachusetts Land Court recently found that text messages may be sufficient to serve as evidence of the existence of binding agreements between negotiating parties.

In the New York case, the plaintiff real estate broker relied on a series of text messages to show the existence of a binding fee agreement. The court held that the text messages satisfied the writing requirement of the statute of frauds but failed to satisfy the signature requirement.

The Massachusetts court, on the other hand, found that a series of text messages did satisfy the signature requirement of the statute of frauds because a signature of a sort was included within multiple text messages between the parties. Some of the texts contained typed names of the parties beneath the substantive messages.

Real estate practitioners should caution their clients in the use of texts and other non-traditional means of communicating. Advise clients to refrain from typing their names under text messages. Better yet, advise clients to include disclaimers to the effect that no agreement involving the subject matter is final until wet signatures are applied to a physical document.

And even better than that, caution clients that texting and negotiating real estate contracts may be almost as dangerous as texting and driving.

While text messaging can’t be surpassed, at least in 2019, when it comes to speed and efficiency, a new and different level of caution may be needed when engaging in negotiations through such seemingly informal means of communicating.

Rock Hill residential real estate lawyer arrested

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Thankfully, it has been ten years or more since we’ve heard word “defalcation” used in connection with a South Carolina real estate lawyer. Sadly, we have to use that word in 2019 because a Rock Hill lawyer was arrested on September 13 after funds allegedly went missing from a residential closing. That lawyer, Thomas Givens, was suspended by the South Carolina Supreme Court on September 25.

The closing took place on July 15, but the $166,000 mortgage payoff was never made. Two months later, Givens was arrested and charged with breach of trust over $10,000. The arrest warrant reads that Givens failed to make the mortgage payoff and does not have the funds.

We usually do not experience defalcations when the economy is good. With the economic downturn that began in 2007, we learned the difficult lesson that attorneys who are prone to dip into their trust accounts often manage to keep the balls in the air as long as closings continue to occur. They typically steal from one closing to fund another. They rob Peter to pay Paul.

Like a game of musical chairs, when the music (and closings) stop, bad actor attorneys no longer have closings to provide funds for prior transgressions, and the thefts come to light.

It is a very sad commentary, and one I hoped not to see again.

ProPublica publishes interesting heirs’ property story

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Check out the July 15, 2019 story by Lizzie Presser

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Image courtesy of ProPublica.org

Several of our staff members stay well informed about current events, and Cris Hudson, our IT professional, is no exception. Cris pointed me to this story published by ProPublica on July 15 entitled “Their Family Bought Land One Generation After Slavery”. The subtitle is “The Reels Brothers Spent Eight Years in Jail for Refusing to Leave it.” Cris told me I should blog about this story, so here goes.

ProPublica calls itself a “nonprofit newsroom that investigates abuses of power”. The story is about brothers, Melvin Davis and Licurtis Reels, who lived in Carteret County, on the central coast of North Carolina, on land they considered to be owned by dozens of their family members. The property consists of 65 marshy acres. Melvin Reels ran a club on the property and lived in an apartment above the club. He also had established a career shrimping in the river that bordered the land. Licurtis had spent years building a house near the river’s edge, just steps from his mother’s house.

Mr. Davis’ and Mr. Reels’ great grandfather, Mitchell Reels, bought the land just one generation removed from slavery. The land was said to contain the only beach in the county that welcomed black families. Mitchell didn’t trust the courts and didn’t leave a will, so, when he died in 1970, the property became heirs’ property.

In 2011, the brothers appeared before a judge to argue that they owned the waterfront portion of their property, which had purportedly been sold, without their knowledge or consent, to a developer. They were not allowed to argue their case that day. Instead, the judge sent them to jail for civil contempt. They were never charged with a crime nor given a jury trial, but they spent the next eight years fighting their case from jail.

As any practitioner who has handled quiet title suits for heirs’ property can attest, the suits can be expensive and complex. Nonprofit organizations, like The Center for Heirs’ Property Preservation, in South Carolina, assist in litigating these matters.

The story quotes Josh Walden of the Center who said that organization has worked to clear more than 200 titles in South Carolina the past decade, protecting land valued at nearly $14 million. Mr. Walden told the reporter that the center has mapped out a hundred thousand acres of heirs’ property in South Carolina and is careful to protect the maps from potential developers.

Back to the North Carolina story, a great uncle of Mitchell and Licurtis apparently obtained the waterfront property through an adverse possession action and began sending trespass notices to the brothers in 1982. The brothers could not believe the adverse possession action could have been “legal” since they had lived on the land their entire lives. Soon afterward, the great uncle sold the waterfront portion of the land to developers.

The family members knew that if the waterfront was developed, the tax values of their adjacent properties would skyrocket, and they would have difficulty paying the taxes and maintaining their properties. Tax sales have historically been the cause of the loss of many heirs’ properties.

(I got confused in one part of the story when the author talked about “nearby” Hilton Head. We drove from Hilton Head to Outer Banks once, and I promise you, the two locations are not “nearby”. We could have driven to Disney World in the same time frame.)

Like tax sales, partition actions have been a tool used to separate heirs from their properties. A developer can buy the share of one heir and then force a partition of the entire property. While South Carolina has passed partition legislation to protect against this danger, North Carolina has held out against this reform, according to the story.

The brothers continued to rot in jail after the judge indicated there was no time limit on civil conspiracy, and that the brothers had to move their houses from the properties to be released. The brothers refused and were locked in a hopeless clash with the law, according to the story.

Eight years later, the brothers appeared before a judge who agreed to release them but warned them that if they returned to their homes, they would return to jail. They have still not been able to return to the waterfront property.

I invite you to read the entire story for a history of heirs’ property in the South. It is indeed a sad tale of greed and legal wrangling to remove properties from heirs. The Reels’ story is just one example.