Nat Hardwick ordered to pay $40M in restitution

Standard
Nat Hardwick

Nathan E. Hardwick IV

This blog discussed Nat Hardwick, a name familiar to many South Carolina real estate lawyers, last fall when he was convicted of embezzling more than $25 million from his former companies, including his former law firm, Morris Hardwick Schneider. He was discussed again in February when 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. On May 9, Hardwick and Maurya were ordered to pay $40 million in restitution.

Nathan E. Hardwick IV, 53, 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.

On October 12, Hardwick was convicted in federal court in Atlanta of 21 counts of wire fraud, one count of conspiracy to commit wire fraud, and one count of making false statements to a federally insured financial institution. In federal court, sentencing is typically delayed, and the convicted person is released and allowed to get his affairs in order. In this case, however, Hardwick had been released pending trial on bond. After his conviction, he was described by the U.S. Attorney who prosecuted him as a flight risk and was handcuffed and taken to jail immediately.

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.

Advertisements

Court of Appeals affirms Circuit Court in “nefarious conduct” Awendaw annexation case

Standard

awendaw

In December of last year, this blog discussed a South Carolina Supreme Court case in which the Court called the Town of Awendaw’s annexation attempt “nefarious conduct”.* The case was remanded to the Court of Appeals, which affirmed the Circuit Court’s decision that the annexation attempt was void ab initio.**

The Town of Awendaw’s annexation of a ten-foot wide, 1.25 mile-long parcel of land within beautiful Francis Marion National Forest was challenged by two individuals and the South Carolina Coastal Conservation League.

The sole question before the Supreme Court last year was whether the challengers had standing to contest the annexation in a case where the “100 percent method” of annexation is used, meaning all property owners petition the municipality to have their property annexed.

The case involved three parcels of land serving as links in a chain necessary to satisfy the contiguity requirement of annexation. The first link is the ten-foot strip managed by the United States Forest Service. The second link is owned by the Mt. Nebo AME Church, and the third link is approximately 360 acres of unimproved real estate surrounded by the National Forest on three sides and owned by Defendant EBC, LLC.

In the fall of 2003, the Town sought to annex the ten-foot strip which required a petition signed by the Forest Service. Town representatives sent the Forest Service four letters seeking approval. Through verbal discussions, the Town learned the Forest Service was opposed to annexations because of their impact on the Service’s ability to conduct controlled fire burns. Additionally, the Forest Service indicated any petition would have to come from Washington, D.C., officials, a process that might take several years.

The Town annexed the property anyway in 2004, relying on a 1994 letter from a Forest Service representative, stating it had “no objection” to annexing several strips of property in the same vicinity. However, the Town had previously stated that it realized this letter was unclear.

In 2009, EBC, LLC requested that Awendaw annex its property, and the Town passed an ordinance annexing that property and simultaneously rezoning it as a “planned development” to permit residential and commercial development. In annexing the EBC property, the Town relied on the ten-foot National Forest strip as well as the church property. Without either component, there would be no contiguity and annexation would be impossible.

In November of 2009, the petitioners filed a complaint against the Town and EBC alleging, among other things, that the Town lacked authority to annex the ten-foot strip of National Forest property because the Forest Service never submitted an annexation petition. The Town and EBC moved for partial summary judgment contending the petitioners lacked standing and that the statute of limitations had run.

At trial, a surveyor testified that the 1994 Forest Service letter referred to a different strip of land. The Town’s administrator responded that the Town had used the 1994 letter at least seven times, and that he believed the letter incorporated the property in question. The petitioners testified they were concerned about potential harm caused by developing the property, including damage to unique species of animals. They testified that they were also concerned that the proposed development would threaten the Forest Service’s ability to conduct the controlled burns necessary to maintain the health of the forest.

The trial court found that the petitioners had standing and concluded that the annexations were void because the Town never received the required petition from the Forest Service. The Court of Appeals concluded that the petitioners lacked standing.

In analyzing the standing issue, the South Carolina Supreme Court discussed its prior cases that held “non-statutory parties” (meaning, non-property owners of the annexed properties) lacked standing to challenge a purportedly unauthorized annexation. Those cases, however, were premised on good faith attempts by annexing bodies, according to the Court.

The Supreme Court did not believe the General Assembly intended in establishing the statutory framework for annexation to preclude standing where there is a credible allegation that the annexing body engaged in “deceitful conduct”. The Court held that a party that can demonstrate the annexing body engaged in “nefarious conduct” has standing to challenge the annexation.

The Court also discussed the public importance exception to the standing rule. This exception states that standing may be found when an issue is of such public importance as to require its resolution for future guidance. The Court stated that the petitioners had satisfied the “future guidance” prong of the public importance exception because the Town had used the 1994 letter numerous times and fully intended to use it again.

The case was remanded to the Court of Appeals to address the Towns’ remaining arguments. The Court of Appeals, apparently noting the Supreme Court’s strong language and robust opinions, reversed course and affirmed the lower court’s ruling that the annexation was void.

 

*Vicary v. Town of Awendaw, South Carolina Supreme Court Opinion No. 27855 (December 19, 2018).

**South Carolina Court of Appeals Opinion No. 5645 (May 1, 2019).

SC Supreme Court “debars” two lawyers for UPL violations

Standard

Mortgage modification practices get out-of-state lawyers in trouble

red card - suit

On April 24th, two out-of-state lawyers were debarred by the South Carolina Supreme Court.* If the word “debar” isn’t familiar to you, don’t feel alone. Miriam-Webster indicates the definition of the word, used in a legal sense is, “to bar from having or doing something.” Our Supreme Court uses the word to mean to preclude a lawyer from another state from practicing law or seeking any form of admission to practice law in South Carolina, including pro hac vici admission, without first obtaining an order of the Supreme Court.

What did these two lawyers do to cause the wrath of our Court? They were both involved in mortgage modification schemes in multiple states. Naderi was licensed in California and provided legal services operation as the Pacific National Law Center (PNLC).

Ochoa was previously licensed in Florida but was disbarred in 2018 for misconduct involving lack of competence, failure to keep clients’ property safe, and conduct involving dishonest, fraud, deceit, or misrepresentation. He operated a solo practice and entered into an agreement with a non-attorney owned company (NVA) to market his legal services on the internet. Through NVA’s advertisements, he specifically targeted South Carolina residents seeking to negotiate modifications of their home loans.

Let’s look at just one example of the activities of these lawyers from the Naderi case. The Court refers to this scenario as “The J. H. Matter.” In December of 2013, Naderi was hired by J.H. a South Carolina resident, homeowner and veteran, to assist him in negotiating a modification of his home loan. Individuals from PNLC assured J.H. that the firm could get his loan modified and decrease his mortgage payments by securing both a balance reduction and a lower interest rate. J.H. was promised that the firm would work diligently and return his telephone calls within 48 hours.

J.H. signed several forms provided by PNLC staff members, including an “Attorney Client Retainer Agreement” and a “Third Party Authorization and Release Form”. The release form permitted the lender to discuss the loan with PNLC. Naderi was specifically named as the individual permitted to discuss the loan on behalf of J.H., but, interestingly, the form listed Naderi’s title as “Paralegal”.

The retainer agreement provided that, in exchange for $2,995, PNLC would provide “legal services” including “representation…for negotiation and resolution of disputes with current lender(s) regarding the subject real property and mortgage loan(s).” But litigation services were excluded from the scope of representation.

The agreement also provided that the fees were not conditioned on the outcome of the case and restricted J.H.’s ability to cancel the agreement and seek a refund after five days. Disputes arising after five days were to be handled by the guidelines and standards adopted by the California Bar.

In January, February and March of 2014, J.H. made payments totaling $2,995 via counter deposits into PNLC’s bank account. PNLC staff members told J.H. not to worry, that the law firm would secure the loan modification, and his lender would not take his home. Shortly after making his last payment, J.H. began experiencing difficulties reaching anyone at PNLC. PNLC never obtained a loan modification or offered J.H. any other solutions.

J.H. received notice of a foreclosure hearing, but he was unable to reach anyone at PNLC. J.H. appeared by himself and eventually hired another lawyer to file bankruptcy.

J.H. testified that he was unaware of any contact PNLC made with his lender. He believed he had been scammed and thought the wrongdoer should be in jail or disbarred.

Other matters were similarly described in both cases. It sounds as if the services were to collect fees only, and not to, in fact, perform legal work. The fact that these schemes cause delays when homeowners are in trouble with their loans make them particularly egregious. Dirt lawyers who are legitimately licensed by the South Carolina Supreme Court should be aware of these schemes and should be in a position to advise clients to avoid them with a vengeance!

 

* In the Matter of Naderi, South Carolina Supreme Court Opinion 27881 (April 24, 2019); In the Matter of Ochoa, South Carolina Supreme Court Opinion 27881, (April 24, 2019).

Court of Appeals decides interesting estate case

Standard

From a “dirt” point of view, it seems cases where I am able to agree with the South Carolina Court of Appeals are few and far between these days. But an estate case was handed down on April 3 that should make perfect sense to all dirt lawyers*.

last will and testament

The case involved the will of William Paradeses who lived in Richland County and died in early 2016. The will, which was executed in 2008, was discovered in the home of the deceased shortly after his death.

The will contained a strikeout of Item IV(2), which originally provided for a $50,000 bequest to Fay Greeson, the respondent in this case. Next to the deletion was a handwritten note: “Omit #2 W.D. Paradeses.”  The will also contained a handwritten addition to Item IV(1), which placed a condition on Paradeses’ bequest of his interest in the Saluda Investment Company. That notation stated: “A.D. and J.D. Paradeses will have control until it is sold and no one else.” There were no witnesses to either of these changes. A.D. and J.D. Paradeses agreed to comply with the Testator’s second notation.

Georganna Paradeses, the personal representative, filed a petition for a declaratory judgment seeking an order from the probate court declaring the rights of the parties and the effect of the notations. Faye Greeson filed an answer denying the deletion of her bequest was made by the testator and asserting the deletion failed because of improper attestation. The remaining family answered and alleged the testator made the notations with the intent to change his will.

The probate court found that the addition and deletion were consistent with a codicil and required proper execution. The probate court therefore held that the bequest of $50,000 to Faye Greeson remained valid. The remaining notation on the will was not in dispute.

The Court of Appeals relied on South Carolina Code §62-2-502, which states that a will may be freely modified or revoked by a mentally competent testator until death, and §62-2-506(a), which states that a will may be revoked by executing a subsequent will or by burning, tearing, canceling, obliterating or destroying the document with the intent to revoke it.

The appellants argued that the deletion in the will amounted to a partial revocation, which should have been allowed by §62-2-506(a) despite the absence of witnesses. They cited a 1912 South Carolina Supreme Court case** which held a strikeout in a will amounted to a revocation of the stricken provision.

The Court of Appeals, however, relied on another South Carolina Supreme Court case** that decided changes to a will with both an addition and a deletion were more akin to a codicil, which requires the normal formalities of the execution of a will. The testator’s notes in the case at hand were held by the Court of Appeals to amount to a codicil, and the bequest to Faye Greeson stood.

Dirt lawyers like certainty, and, for that reason, we like this case!

 

*In the Matter of Paradeses, South Carolina Court of Appeals Opinion 5635 (April 3, 2019)

**Citations omitted.

Tax lien legislation signed by Governor McMaster

Standard

Tax liens will no longer be filed locally when the system is implemented

tax-lien.jpgSouth Carolina Governor Henry McMaster signed tax lien legislation on March 28 that may change the way titles are examined.

The legislation, an amendment to South Carolina Code §12-54-122, is intended to allow the Department of Revenue (DOR) to implement a statewide system of filing and indexing tax liens centrally, that is, “accessible to the public over the internet or through other means”. Once the new system in in place, the clerks of court and registers of deeds will be relieved of their statutory obligation to maintain newly filed tax liens.

The stated effective date of the legislation is July 1, 2019, but nothing in the legislation sets a deadline for the DOR to act, and, in fact, the statute indicates the DOR “may” implement a statewide system.

The new law states that it is not to be construed as extending the effectiveness of a tax lien beyond ten years from the filing date, as set out in South Carolina Code §12-54-120.

When the new system is implemented, the law requires a notice to be posted in each county where liens are generally filed providing instructions on how to access the DOR’s tax lien database.

ALTA’s Board approves revision to Best Practices

Standard

Change would require ALTA ID

alta registry

The Board of Governors of American Land Title Association approved a motion on February 21 to revise the Title Insurance & Settlement Company Best Practices to include a requirement for companies to be listed in the ALTA Registry. The amendment is under a 30-day review period ending April 12. Comments may be sent to bestpractices@alta.org.

The proposed amendment to Pillar 1 of Best Practices includes the following requirement:

  • “Establish and maintain a unique ALTA Registry Universal ID (ALTA ID) using the ALTA Registry platform for each settlement office location (subject to those business entity types supported by the ALTA Registry).

ALTA, the national trade association of the land title insurance industry, formally launched the national ALTA Registry in 2017, allowing title insurance agents and settlement companies to communicate with underwriters to confirm their company name and contact information.

Using the ALTA Registry, lenders and their vendors are able to identify title agents, title underwriters and other participants in the closing process and communicate in a timely and consistent manner throughout the mortgage transaction.

Because there has been no unique ID number used across the industry to help match provider records in different databases, communication has often been difficult and costly for the title industry and its customers. This is especially important with new regulations driving vendor oversight requirements and the need for collaboration.

The ALTA Registry is a free, searchable online database of underwriter-confirmed title agent companies and underwriter direct offices. The registered information includes the title agent’s legal entity name, location and contact information. ALTA offers a unique 7-digit identifier, the ALTA ID, which is automatically assigned to each new database record as a permanent ID number and is never changed, reassigned or reused. ALTA ID numbers are available free of charge to title agents and real estate attorneys.

ALTA’s Best Practices is designed to assist lenders in managing third-party vendors. Pillar 1 requires title companies (closing attorneys in South Carolina) to maintain licenses for doing business in the title industry. This includes the license required by the South Carolina Department of Insurance and the ALTA policy forms license. The registry helps lenders determine they are working with legitimate title providers.

The Power of a System

Standard

How to build the law practice of your dreams

power of a systemReaders of this blog know it includes a random book report from time to time, and this is one of those times. I read John H. Fisher’s The Power of a System; How to Build the Injury Law Practice of Your Dreams last summer and I have bought it for more than one real estate practitioner. Today, I recommend it as excellent reading for the readers of this blog.

At the beginning of his medical malpractice firm, Fisher wished for a step-by-step manual for running a profitable practice because, like the rest of us, he was not taught strategic planning, goal setting, business metrics, managing employees, managing clients and marketing in law school.

The author has developed that manual for a personal injury law firm, not just technical systems for running a business, but also the managerial and entrepreneurial principles to keep a constant stream of new cases and clients coming down the pipe.

The three parts of the book, The Technician, The Manager and the Entrepreneur, are based on Michael E. Gerber’s classic book, The E-Myth Revisited, another favorite of mine for law firm management. Gerber’s message is that every lawyer should set aside time each day to work on the business through strategic thinking instead of only spending time working in the business through technical legal work. Fisher’s book provides systems for all three roles the law firm owner must play.

Mr. Fisher provides us with a glimpse into his daily work life through his office rules. Those rules are based on the theory that staff members should handle every aspect of a practice that don’t absolutely have to be handled by the attorney. In the residential real estate practice, the functions the attorney must handle would include the closing, the second review of title, and the resolution of legal issues that arise in connection with conflicts, title and closing. Rules in a residential practice would be in writing and would make it clear that staff members are responsible for keeping attorney time free to touch those matters that only the attorney can handle.

The author’s rules deal with dress code, internet use, cell phone use, personal errands and timeliness, how to avoid interruptions and completing assignments. He has “scripts” in place for handling telephone calls, and insists on answering the phone with a smile. My favorite is his “no-gossip rule”. His rules are robust and demanding. But putting those guidelines in practice and enforcing them would ease day-to-day conflicts and stresses that arise among staff members.

This law firm outsources manual tasks by using companies such as Elance.com (now Upwork.com), Your Man in India (YMII) and Brickwork. The author believes that outsourcing has allowed his business to become a 24 hour/day law firm.

Fisher’s emphasizes treating new clients with “shock and awe” to demonstrate that he “shows up like no one else”. His package includes his book The Seven Deadly Mistakes of Malpractice Victims. Each book is personalized and signed, for example, “Dear Mary”. The package also includes audio informational CDs and a binder of office policies including a “Client Bill of Rights”. Each client should understand communicating with his or her lawyer from the outset of the relationship.

Mr. Fisher believes in setting goals and measuring everything. Measuring law suit time frames reduces costs and increases profitability. Real estate lawyers should set goals and measure time frames for closings. By measuring time frames for title work, surveys, termite letters, receipt of closing numbers, receipt of lender closing packages, commitment preparation, closing document preparation, recording, disbursement, satisfactions and distributing final documents, a real estate practitioner would ascertain where systems are routinely bogged down and would be able to work toward fixing those pressure points.

The author believes in marketing to the “ideal client”. While I usually have to translate books like this for real estate practices, Mr. Fisher did the translation for me in this regard. This is his paraphrased message to us:

If you are a real estate lawyer, are your ideal clients the homeowners buying a new house? No! The homeowners will use your services one time for a fee of $750, and you will likely never hear from them again until they buy another home. You will be broke by the time the homeowners need you again. The ideal client for a real estate lawyer is the real estate agent who refers a steady stream of new homeowners. The goal is not to make money on a single transaction. Rather, the goal is to develop relationships with your ideal client that will generate new clients and a steady stream of income for the rest of your career. The lifetime value of your ideal client is far greater than the value of a single transaction.

The book outlines three simple marketing rules that the author says will place a lawyer ahead of 98 percent of the competition:

  1. An informational-powerhouse website that provides killer content on a daily basis;
  2. A monthly newsletter targeted to the ideal client; and
  3. Regular seminars and workshops that provide valuable content to the ideal client.

He gives details on producing the monthly newsletter and establishing regular event marketing in the form of seminars and workshops.

We could all use an entire school-year class in law office management including each aspect of the work Mr. Fisher emphasizes. Since that class doesn’t seem to exist, I will do my best to obtain and communicate the information dirt lawyers need in this regard. As a favorite political pundit routinely says, “watch this space.”