South Carolina’s Court of Appeals has made it crystal clear that our mechanics’ lien statutes must be strictly construed. In a case* refiled December 2, the Court affirmed the Circuit Court’s award of summary judgment because the lien was filed 91 days after the last work was performed, not 90 days, as the statute requires.
The case involved a kitchen remodel job in Columbia. The contractor was a kitchen designer who was paid not by the hour, but by the difference in the wholesale and retail cost of the products she purchased and installed. In this case, she was hired because she was the only dealer for Crystal Cabinets in the Columbia area.
The homeowner’s quote was slightly less than $50,000 plus about $3,000 for cabinet installation, payable in three installments. The homeowners paid two-thirds of the contract price but refused to pay the final installment because they were dissatisfied with the cabinets. The parties and the manufacturer were unable to come to terms. The contractor’s last work, according to its own pleadings, was performed on August 18, 2015, and the mechanic’s lien was served on November 17, 2015, a difference of 91 days. The Circuit Court granted the homeowner’s motion for summary judgment and awarded attorney’s fees, based on the one-day discrepancy.
On appeal, the contractor argued that the work actually extended beyond August 18, but the Court of Appeals held the contractor was bound by the pleadings. The contractor then argued that an amendment to the pleadings could easily cure the “slight discrepancy” between the date alleged in the lien and the actual date of the last work, but the Court held that this issue could not properly be raised on appeal. The contractor should have requested leave of the lower court to amend its pleadings.
The bottom line is that counting correctly is crucial in mechanics’ lien litigation! Be careful out there, lawyers!
* The Kitchen Planners, LLC v. Friedman, South Carolina Court of Appeals Opinion 5738, Refiled December 2, 2020.
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 2020 because a Rock Hill lawyer was arrested in 2019 after funds allegedly went missing from a residential closing.
That lawyer, Thomas Givens, was suspended by the South Carolina Supreme Court on September 25, 2019. Earlier this month, the 67-year old pled guilty for breach of trust and was sentenced to five years in prison, five years’ probation, and restitution.
The closing took place on July 15, 2019 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.
This time, the economy was good. There are simply no excuses. It is a very sad commentary, and one I hoped not to see again.
I’ve often said that title insurance underwriting is an art and not a science. A lawyer facing a title defect issue might obtain different opinions from different title companies and even from different lawyers employed by a single title company.
During my 28-year career as a lawyer for a title company, I have often joked that I try very hard to agree with myself!
If a lawyer calls to describe a title defect and says, “Claire, this is bad, isn’t it?”, it’s easy for me to agree. The closing attorney is, after all, often the best judge of marketable title in the community. But what if a different lawyer calls weeks later with basically the same facts, and explains why the defect is technically a problem but won’t cause a claim from a practical standpoint? That lawyer may be more familiar with the opposing parties or the history of the property. The underwriting answer may be different. Or what if the second lawyer says, “this is my best client” and asks for a one-time favor? You see where I’m going here. Answers may vary on the same facts, and an underwriting attorney can easily get into trouble with her agents!
I don’t know this lawyer, but he apparently had a successful litigation practice across many decades. In 2013, he was placed on interim suspension when a former associate filed a complaint alleging operational and case management issues, including concerns relating to the mismanagement of his trust account. The lawyer filed a petition for reconsideration, and the suspension was lifted with conditions. Notably the lawyer was prohibited from accessing or controlling the law firm’s trust and operating accounts. An associate was made responsible. (Huh? A senior partner who manages an associate couldn’t touch the trust account, but the associate could?)
Six years later, in 2019, formal charges were filed by the Office of Disciplinary Counsel. There was much discussion in the case about the ODC’s delay and whether that delay was a mitigating factor.
The underlying facts indicate that prior to 2012, the lawyer allowed his staff to routinely disburse funds from the trust account for operating expenses. Disbursements were made before deposits, funds were comingled, and funds were missing. A law firm formed by former associates demanded trust account funds for a particular client, and the funds were not available until this lawyer infused personal funds into the account
There was never a client complaint and, apparently, no client actually lost funds.
But the differing opinions about the appropriate sanction makes this case remarkable. The panel of the Commission on Lawyer Misconduct recommended a suspension of six weeks. In a dissent, Justice Hearn said she would impose a one-year suspension in light of the lawyer’s lengthy, unblemished disciplinary history and the prejudice sustained by the delay of the ODC.
In an opinion authored by Chief Justice Beatty, the majority disbarred the lawyer and chastised the ODC for its delay. The majority said that the delay was not prejudicial because the lawyer was allowed to practice law in the interim. An interesting added fact is that $21.5 million passed through the trust account since 2013.
In a concurring opinion, Justice Few said the case had nothing to do with Rule 417, the financial recordkeeping rule. Rather, he stated this lawyer stole client money from his trust account. Justice Few also said the delay of the ODC was the failure of the Court to supervise the professionals the Court employs.
So try to wrap your legal, logical brains around this. The panel recommended a six-week suspension and Justice Hearn recommended a one-year suspension on facts where Justice Few said the lawyer stole money from clients.
Apparently attorney discipline, like title insurance underwriting, is an art and not a science!
* In the Matter of Wern, South Carolina Supreme Court Opinion 27998 (October 7, 2020)
South Carolina licensed lawyers have been nudged by our Supreme Court to provide assistance with our greatest responsibility as citizens: voting! See the attached Order of the Court granting CLE credit to lawyers who work the polls on November 3.
There are, of course, guidelines. You must work the entire day, for example, and you can’t get paid. Pay attention to the details if you seek the credit.
What a great way for lawyers to demonstrate we are leaders in our communities! And in this problematic political environment, the more clear-headed, logical, calm lawyers who can be present, the better!
In other election news, the United States Supreme Court held on Monday that South Carolina mail-in ballots must be witnessed. Help get that word out to your family, friends and clients.
We don’t often see current land-transaction dispute cases among South Carolina’s appellate court decisions, but the Court of Appeals handed down an opinion on September 16 that covers the gamut of equitable issues. Not uncommon, though, is that the facts in this equitable case involving real estate, like most, are quite interesting.
The use of the property in the case, Shirey v. Bishop*, is interesting in itself. Mr. and Mrs. Bishop operated a grave digging and burial vault business on the property for more than 30 years. Mr. Bishop died in 2010, leaving his wife to run the business by herself. Mrs. Bishop suffered from depression and anxiety and ultimately determined that she did not want to continue operating the business.
In 2012, Mrs. Bishop entered into a contract to sell the property to her niece, Cassandra Robinson. Although the bank wasn’t consulted, Robinson agreed to assume the mortgage and make the monthly payments until the mortgage was satisfied.
In 2014, however, Mrs. Bishop approached Shirey about purchasing the property, and a contract was signed in 2015 to sell the property to Shirey for $125,000. (Apparently Robinson was late on many mortgage payments.) The closing was to occur between August 3 and August 12, 2015. Time was stated to be of the essence.
On August 12, 2015, Shirey attempted to close by tendering funds to his attorney. After it became apparent that Mrs. Bishop was not going to appear, Shirey’s attorney called Bishop to ask if the closing period could be extended to August 13. Bishop agreed.
On August 13, Shirey arrived at his attorney’s office, but Bishop again failed to appear. Bishop’s doctor sent a note to Shirey’s attorney asking that Bishop be excused from the closing. (I’ve never seen a doctor’s excuse for a closing!) However, that afternoon, Bishop entered into a second contract with Robinson. This contract added a provision that Bishop would indemnify Robinson against “any and all issues of illegality or fraud concerning the transaction.” Bishop executed a deed conveying the property to Robinson, and Robinson recorded the deed the same day.
This lawsuit followed. The special referee ordered specific performance in favor of Shirey and further determined that Shirey was a bona fide purchaser who took free of any interest of Robinson, that Robinson and Bishop were in a confidential relationship, that the phone call from Shirey’s attorney to Bishop was tantamount to an extension of the contract, and that Bishop’s entering into the 2015 contract with Robinson demonstrated an intention to hold Robinson in default of the 2012 contract.
The Court of Appeals affirmed and made the following points:
Bishop and Robinson waived their statute of frauds argument by failing to plead it or argue it in the lower court.
Robinson was not entitled to the property under the 2012 contract because the 2015 contract held her in default.
The equities in the situation favored Shirey.
Bishop and Robinson were in a confidential relationship, not only because of their familial relationship, which is not sufficient standing alone, but because the facts indicated Bishop trusted Robinson and failed to seek legal advice. Additionally, Robinson drafted her second contract, and Bishop testified she didn’t understand what she was signing.
Shirey partially performed by tendering funds.
Shirey was a bona fide purchaser because he did not have notice of Robinson’s claim at the time he attempted to close. The Court held he had the “best right to” the title to the property.
Shirey was entitled to attorney’s fees because he prevailed under his contract, which provided for the award of attorney’s fees to the successful party.
All these issues are discussed in detail, and I recommend this case to any lawyer who seeks a refresher on equitable questions involving real estate under South Carolina law.
*South Carolina Court of Appeals Opinion 5718 (September 16, 2020).
A case* from the South Carolina Court of Appeals on August 26 concerns South Carolina Code Section 12-17-3135 which allows a 25% property tax exemption when there is an “Assessable Transfer of Interest” of real estate. The issue was one of timing, whether a property owner must claim this exemption during the first year of eligibility.
The Administrative Law Judge had consolidated two cases. In both cases, the property owner had purchased property during the closing months of 2012. Neither taxpayer claimed the ATI Exemption in 2013, but both claimed it in January of 2014. The Dorchester County Assessor denied the requests, but the ALJ decided the exemptions had been timely claimed.
The statutory language in question provides that the county assessor must be notified before January 31 for the tax year for which the owner first claims eligibility. The taxpayers argued that the plain meaning of this language allows them to choose when to claim the exemption. The Assessor argued that the exemption must be claimed by January 31 of the year following the transfers.
The Court looked at taxation of real property as a whole and held that the legislature intended that all purchasers would have a meaningful opportunity to claim the exemption. Under the Assessor’s interpretation, there would be a much less meaningful opportunity for taxpayers who purchase property later in the calendar year.
The Court also stated that the ATI Exemption is not allowed to override the appraised value set in the statutorily required five-year reassessment scheme, so there would be a built-in time limit for claiming the exemption.
*Fairfield Waverly, LLC v. Dorchester County Assessor, Opinion 5769 (August 26, 2020)
Like me, many of my real estate practitioner friends are retirement age. Before COVID-19 prevented travel, I often visited our law firms across South Carolina and at some point became acutely aware of our aging population. Real estate must not be as fascinating to young folks as it is to me and many other lawyers my age. I announced last week that I will retire next February. For corporate employees like me, the retirement process is easy. Let me restate that. Once the extremely difficult mental threshold is crossed, the paperwork is easy.
Retirement from a law firm is much more difficult both in the decision-making process and the paperwork! The old not-so-funny joke is that lawyers don’t retire; they die at their desks. Don’t do that!
My office encourages our real estate lawyers to seriously consider succession planning at least five years before they plan to step away from their offices. For sole practitioners, no succession planning means the value built over a lifetime of work vanishes the moment of death or disability. Lawyers who practice in firms can also lose their sweat equity if they don’t have the foresight to plan.
We encourage sole practitioners to consider hiring younger lawyers to train up to take over their practices. We also encourage lawyers to identify other lawyers who may be interested in purchasing their practices or merging practices. Conversely, we encourage younger lawyers who seek to grow their practices to reach out to lawyers nearing retirement age to explore purchasing or merging practices.
Several years ago, I contacted my friend Bill Higgins, a practitioner here in Columbia who has worked extensively with ethics and business entity issues, and asked him to develop a practice area that includes succession planning for lawyers. Bill has done that, and if you need legal advice in this regard, I highly recommend Bill as an excellent source.
If you want information about the firms who practice real estate and who might be open to discussing the issues of merging or purchasing practices, reach out to your title insurance company. We are singularly positioned to know what’s going on in the market place and we might be able to point you in the direction of a lawyer or firm that may want to discuss these issues.
The reason this topic came to my mind now is that the Ethics Advisory Committee issued new EAO 20-03 that touches on the issue of succession planning. The question in this opinion is a little complicated. “A, B, C & D, P.A.” is the name of an existing law firm. Lawyer A is already retired. Lawyer B is the 100% equity owner of the firm, and now seeks to retire. Lawyers C and D are non-equity members who have each practiced with the firm more than ten years. Lawyer C plans to practice with another firm.
Lawyer D seeks to purchase most of the assets of the firm and to operate a new firm called “A, B & D, P.A.” in the same location, using the same phone number and website and retaining two or more of the employees. Lawyer D seeks to continue to represent Lawyer B’s current clients in ongoing and future matters if the clients elect to retain the new firm’s services via formal substitution of counsel agreements. The question became whether Lawyer D may ethically utilize the names of retired lawyers A and B in the name of the new law firm.
Analyzing Rules of Professional Responsibility 7.1 and 7.5 and prior Ethics Advisory Opinions 79-06 and 75-01, the Committee opined that Lawyer D may use the names Lawyers A and B in the new firm name. The Rules have changed since the prior opinions, and the Committee sought to provide us with this updated analysis. The Committee assumed Lawyer D had the legal right to use the names of the two retired partners.
In Opinion 02-19, the Committee opined that a law firm may continue to use the name of a deceased or retired partner if the new law firm is a “bona fide successor” to the prior firm. The question for the current opinion became what constitutes a bona fide successor, and the Committee stated that Lawyer D will be a part of the continuing line of succession of the firm and may use the names.
The Committee encouraged Lawyer D to review the comments to Rule 7.5 and EAO 05-19. The Committee also suggested that Attorney B remain at the firm for a time after the purchase to increase the “bona fides” of the firm name since both lawyers will work under the new name and therefore provide a continuing succession in the firm’s identity. Additionally, Lawyer D was encouraged to take care to avoid misleading the public by using asterisks or some other means to show that Lawyers A and B are retired.
This brief discussion is an example of how complicated succession planning can become. I encourage you to start early!
A North Carolina title agent was sentenced this month for selling fake title insurance policies. Ginger Lynn Cunningham owned Blue Ridge Title Company, a title insurance agency located in Buncombe County, North Carolina.
The title insurance company that had done business with Cunningham had canceled the agency in March of 2016, but Cunningham continued through October of 2017 to represent herself as being a title insurance agent. During this time, she purportedly sold falsified title insurance policies, retaining 100% of the premium.
The court records reflect that at least 973 counterfeit title insurance policies were sold to the tune of around $400,000 in bogus premiums. Cunningham pleaded guilty to wire fraud on October 28, 2019.
Cunningham was sentenced to fourteen months in prison and three years of court supervision. She was also ordered to pay restitution.
I would love to say this is a novel case and that these facts don’t make my skin crawl, but former attorney, Brian Davis, was disbarred in South Carolina in 2015 for the same activity.*
By way of background, the vast majority of real estate lawyers in South Carolina are also licensed as title insurance company agents. In other parts of the country, lenders receive title insurance documents directly from title companies’ direct operations. In South Carolina, title companies run agency operations, supporting their networks of agents, almost all of whom are South Carolina licensed attorneys.
Lenders require closing protection letters for closings involving agents. Stated simply, these letters inform lenders that the insurer may be responsible in the event a closing is handled improperly by the closing attorney.
Title insurance company agents also produce title insurance policies and commitments, following the guidelines of their insurance underwriters, and using software programs designed to support the production of these documents.
Some closing attorneys are not agents but instead act as approved attorneys for title insurance companies. Approved attorneys can obtain closing protection letters from their title companies, but they are not able to issue their own title insurance documents. Instead, they certify title to a title insurance company or to a title company’s agent.
If an attorney cannot provide lenders with closing protection letters, that attorney generally cannot close mortgage loans in South Carolina.
In 2007, Mr. Davis was canceled as an agent by his title insurance company**. After that cancellation, he was able to legitimately obtain title insurance commitments and policies through an agent. In 2011, however, Mr. Davis was canceled as an approved attorney. He didn’t let that fact stop him though. He began to fraudulently produce title insurance documents, making it appear that the title insurance company was issuing closing protection letters, commitments and policies for his closings. He also collected funds designated as title insurance premiums, but he never paid those premiums to the title insurance company. He continued to handle closings using fraudulent title insurance documents until his actions were discovered and he was suspended from the practice of law by the South Carolina Supreme Court in 2013. In 2015, Mr. Davis was disbarred.
I supposed I should close by saying don’t do this! Please!
* In the Matter of Davis, S.C. Supreme Court Opinion 27480 (January 21, 2015)
** In the interest of full disclosure, I work for that company.
This HousingWire article really caught my attention this morning. South Carolina is one of only three states without an online notarization option.
Efforts have been in progress to pass Remote Online Notarization (RON) legislation here for a couple of years, but the Council of the Bar’s Real Estate Section opposed the legislation on the theory that RON would challenge the control South Carolina licensed lawyers currently enjoy. Many other lawyers disagree with that position, but the legislation stalled.
Other states have used a variety of permanent and temporary solutions to allow for remote online notarization during the COVID-19 crisis. But, at this moment, California, Oregon and South Carolina are the only states with no solution.
What’s your opinion, South Carolina real estate lawyers? Would RON be a good solution to facilitate closings in South Carolina or would it erode your control? The legislation is likely going to be discussed in the next legislative session. Your opinion matters!
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.