MV Realty sued by Florida Attorney General

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This blog has previously discussed MV Realty PBC, LLC. South Carolina title examiners report they are discovering “Homeowner Benefit Agreements” or “Exclusive Listing Agreements” filed in the public records as mortgages or memoranda of agreement. The duration of the agreements purport to be forty years, and quick search revealed hundreds of these unusual documents filed in several South Carolina counties. The documents indicate that they create liens against the real estate in question.

The company behind these documents is MV Realty PBC, LLC which appears to be doing business in the Palmetto State as MV Realty of South Carolina, LLC. The company’s website indicates the company will pay a homeowner between $300 and $5,000 in connection with its Homeowner Benefit Program. In return for the payment, the homeowner agrees to use the company’s services as listing agent if the decision is made to sell the property during the term of the agreement. The agreements typically provide that the homeowner may elect to pay an early termination fee to avoid listing the property in question with MV Realty.

In response to numerous underwriting questions on the topic, Chicago Title sent an underwriting memorandum to its agents entitled “Exclusive Listing Agreements”. Chicago Title’s position on the topic was set out in its memorandum as follows: “Pending further guidance, Chicago Title requires that you treat recordings of this kind like any other lien or mortgage. You should obtain a release or satisfaction of the recording as part of the closing or take an exception to the recorded document in your commitments and final policies.”

Googling MV Realty results in a great deal of information. Real estate lawyers should familiarize themselves with this company and its program to advise clients who may question whether the program makes sense from a financial and legal perspective.

In December, Florida’s Attorney General sued the company calling the venture a “deceptive scheme”. The lawsuit seeks an injunction, preventing enforcement of the contracts with consumers, preventing future deceptive and unfair trade practices, and returning funds to consumers.

News sources report that the company is active in 23 states, including South Carolina, and that Attorneys General in several other states are investigating the activities of this company. News sources also report numerous lawsuits against consumers seeking to enforce these contracts. U.S. Senator Sharrod Brown (D-Ohio) has indicated the company could face scrutiny from the Senate Committee on Banking, Housing and Urban Development.

Dirt lawyers, pay attention to this situation. We will certainly see updates.

Second real estate case of the year rejects replacement mortgage doctrine

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SC Supreme Court discards arguments of ALTA and PLTA

Real estate cases can be absent from our Advance Sheets for months, but we have seen two cases already in 2023. In ArrowPoint Federal Credit Union v. Bailey* our Supreme Court was asked to adopt a novel replacement mortgage doctrine, but the Court deflected the question, deferring to the legislature, even though American Land Title Association and Palmetto Land Title Association filed amicus briefs in favor of the doctrine.

This is a real estate mortgage priority dispute between two institutional lenders concerning a residential property in Winnsboro.  Jimmy and Laura Bailey mortgaged their residence at 247 Morninglow Drive to Quicken Loans in the amount of $256,500. The mortgage was recorded on October 20, 2009. One week later, the Baileys closed an equity line of credit with ArrowPoint Federal Credit Union in the amount of $99,500. The second mortgage was recorded on November 4. ArrowPoint had record notice of the Quicken mortgage. On November 23, the Baileys refinanced the Quicken mortgage with Quicken, this time in the amount of $296,000.

In connection with the refinance, the Baileys executed an interesting document entitled “Title Company Client Acknowledgment”, which stated the only outstanding lien on the property was the prior Quicken mortgage. This statement was false. The Court stated that there was no clear explanation as to whether Quicken had the title searched at this point.

The Baileys used $257,459 from the refinance to pay off the first mortgage. On December 15, Quicken released the first mortgage and recorded the refinance mortgage. Quicken assigned the mortgage to U.S. Bank, the petitioner in this case.

(If these facts make you break out into a cold sweat, then you were around doing real estate closings at the break-neck speed we suffered during this time frame.)

The Baileys defaulted on the line of credit, and ArrowPoint filed this action seeking a declaration that its line of credit had priority over the Quicken refinance mortgage. Both lenders moved for summary judgment. U.S. Bank claimed it had priority under the replacement mortgage doctrine. The special referee and Court of Appeals agreed with ArrowPoint, and the Supreme Court affirmed. Both appeals courts concluded that adopting the replacement mortgage doctrine is a question for the General Assembly.

Dirt lawyers are intimately familiar with South Carolina’s race-notice statute (S.C. Code §30-7-10) which prioritizes liens based on notice and the recording date.

The Supreme Court recited that it had recognized the equitable subordination doctrine as an exception to the race-notice statute. The Court noted the right of subrogation is essentially a creation of the court of equity, which allows a person who is secondarily liable for a debt, upon paying the debt, to assume by law the place of the creditor whose debt is paid.  Decades later, the Court declined to recognize the doctrine for a lender that refinanced its own mortgage but failed to discover an intervening mortgage. The Court said in the case at hand that it had previously warned lenders of their duty to search titles!**

The Court noted that the replacement mortgage doctrine is another exception to the race-notice statute, and many jurisdictions either recognize the doctrine or follow its logic. Cases from other jurisdictions were cited, and the Restatement (Third) of Property was quoted. According to the Restatement, the replacement mortgage doctrine provides:

  • If a senior mortgage is released of record and, as a part of the same transaction, is replaced with a new mortgage, the latter mortgage retains the same priority as its predecessor, except
  • To the extent that any change in the terms of the mortgage or the obligation it secures is materially prejudicial to the holder of a junior interest in the real estate, or
  • To the extent that one who is protected by the recording act acquires an interest in the real estate at a time that the senior mortgage is not of record.

The Court said that it was required to respect the authority of the legislature on public policy matters and declined to sit as a “superlegislature” to second-guess the General Assembly’s decisions. The Court differentiated the equitable subrogation doctrine from the replacement mortgage doctrine by saying that the “race” begins with the original mortgage in the equitable subrogation situation, and the intervening lender suffers no loss. Under the replacement mortgage doctrine, on the other hand, the original first mortgage is satisfied of record and replaced with a new mortgage that is recorded after the intervening mortgage.

The Court also criticized the replacement mortgage doctrine because it dilutes the importance of title examinations. Lenders who seek to refinance their own mortgages, as Quicken did in this case, can easily search the title to discover the intervening lien. The last words of the case state, “Finally, we emphasize parties must conduct diligent title searches to protect their interests under the race-notice statute.”

I, for one, will not argue with that final statement. It now appears that if ALTA and PLTA want a replacement mortgage doctrine in South Carolina, they need to approach the legislature.

*South Carolina Supreme Court Opinion 28129, January 11, 2023.

**All the citations are omitted but are set out in detail in the subject case.  

Happy New Year dirt lawyers

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2023’s first real estate case is both humorous and sexy!

If real estate lawyers weren’t easily amused, our profession might live up to the common misconception that it’s boring. But the first South Carolina real estate case of 2023 is both funny and sexy. I’ll explain the funny part shortly. Sadly, the only thing sexy about this case* is that the property is occupied by two strip clubs. But let’s agree to be entertained where we can.

This is a specific performance case involving property in Charleston County. Clarke owned a strip club located at 2015 Pittsburgh Avenue in Charleston. The defendant’s predecessor in title owned a strip club across the street at 2028 Pittsburgh Avenue. The Supreme Court called the property at 2028 Pittsburgh Avenue the subject property, so we will, too. The subject property includes buildings and a parking lot.

In 1999, Clarke entered into a lease which permitted him to share the parking spaces on the subject property with the property owner. The lease contained the following language: “Right of First Refusal: Lessor grants the Lessee the right of first refusal should it wish to sell.”

Before we discuss what the Supreme Court had to say about this language, let me throw in my two cents. Don’t use the terms “lessor” and “lessee” when you draft leases. Use the terms everyone can understand, “landlord” and “tenant”. And please pay attention to prepositions. In this language, which party is “it”?  A drafter of real estate documents cannot be too precise!

Back to the case. I often read cases by starting with the dissent or concurrence. With complicated cases, the minority opinion often explains the holding quickly. This case isn’t complicated, but Justice Few really cut to the chase in his concurrence. And this is the funny part. Justice Few quips, “This instrument says nothing, does nothing, restrains nothing.” (Remember I admit to being easily amused.)

Justice James’ majority opinion goes into more detail.

When Clarke learned that his landlord had conveyed to subject property to Fine Housing for $150,000, he initiated this action for specific performance. Interestingly, the closing attorney failed to raise the lease and the right of first refusal with the purchaser, but Fine Housing admitted it had record notice of both.

The trial court ruled the right of first refusal is enforceable as to the entire property and ordered Fine Housing to convey title to Clarke upon his payment of $350,000. There is no explanation for this figure. Appraisals must have been involved. The Court of Appeals reversed, holding the right of first refusal is an unreasonable restraint on alienation and is therefore unenforceable.

The Supreme Court affirmed, stating that whether a right of first refusal is enforceable turns on whether the right unreasonably restrains alienation. The Court agreed with The Restatement (Third) of Property: Servitudes §3.4 and held that the factors to be considered include: (1) the legitimacy of the purpose of the right; (2) the price at which the right may be exercised; and (3) the procedures for exercising the right. The Court further held that these factors are not exclusive, and in this case, agreed to address another point raised by Fine Housing—the lack of clarity as to what real property the right encumbers.

Clarke argued that the lease provides the right applies to all the property, the price should be determined by the seller, and South Carolina law requires that the right should be exercised within a reasonable time.

Fine Housing argued that the lease merely identifies the location of the leased parking spaces, and the remaining language does not provide the clarity needed to identify the property intended to be encumbered by the right. The Supreme Court agreed, holding that the uncertainty as to what property is encumbered supports the conclusion that the right is an unreasonable restraint on alienation.

The Court also agreed with Fine Housing that the failure of the right to determine a price and the procedures for its exercise also created an unreasonable restraint on alienation.

The bottom line is that the Court held the language to be so imprecise as to be unenforceable. While real estate lawyers are always interested in obtaining the best deal for clients, the second most important aim of drafting real estate documents should be clarity.

Always keep in mind how Justice Few dismissed the language that says nothing, does nothing and restrains nothing! You never want language you draft to be dismissed so easily!

*Clarke v. Fine Housing, Inc., South Carolina Supreme Court Opinion 28126 (January 4, 2023)

Fifth Circuit addresses short-term rental challenge

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This blog has previously discussed challenges by various cities, including cities in South Carolina, to short-term rentals in residential areas.

Vrbo and Airbnb are two go-to websites to find interesting short-term rentals in vacation locations. Sometimes a cabin or house seems much more appropriate and fun than a hotel room for a family get-away. Having a kitchen and room for dining is often a plus.

Arguments against such rentals often focus on noise and parking problems in otherwise quiet residential subdivisions.

Rules vary greatly in the cabins and houses we’ve rented, but a common theme seems to be that parties are not allowed. I’ve also seen limits on the number of cars that can be accommodated and, of course, the number of people permitted. Pets may or may not be allowed.

The Fifth Circuit Court of Appeals recently addressed such a challenge in Hignell-Stark v. City of New Orleans, 46 F. 4th 317 (August 22, 2022). Thanks to Professor Dale Whitman of the University of Missouri at Kansas City Law School via the Dirt Listserv for information on this case.

An ordinance in the City of New Orleans required an owner to be a resident of the city to obtain a license to become a landlord allowing short-term rentals. When the plaintiffs challenged this ordinance using a “takings” theory, the Fifth Circuit held that theory to be inapplicable because permission to make short-term rentals of a residential unit is not a property interest. It is instead, according to the Court, a privilege.

The plaintiffs also argued that the ordinance was an undue burden on interstate commerce, and the Court agreed, stating that an ordinance that discriminates against interstate commerce is per se invalid unless there are no available alternative methods for enforcing the city’s legitimate policy goals. The ordinance in question was a blanket prohibition against out-of-state property owners’ participation in the short-term rental market. The Court pointed out that the ordinance doesn’t just make it more difficult for non-residents to compete in the market for short-term rentals in residential neighborhoods; it forbids them from participating altogether.

The Court pointed to alternative methods for achieving the city’s legitimate goals of preventing nuisances, promoting affordable housing, and protecting neighborhoods’ residential character. More aggressive enforcement of nuisance laws, increased penalties for nuisance violations, increased taxes on short-term rentals, requiring an operator remain on the property during night hours, and capping the number of short-term rentals licenses in particular zoning district might be alternatives.

The ordinance was held unconstitutional and void because the city’s objectives could be addressed in other ways that did not burden interstate commerce.

What do you think? Would you be comfortable with short-term rentals in your neighborhood?

Renaissance Tower condo owners file federal lawsuit

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Renaissance Tower (left), Myrtle Beach, SC

This blog previously discussed the evacuation of Renaissance Tower condominium project in Myrtle Beach on October 7 because the building was deemed unsafe. The concern was reported to be the structural foundation of the 22-story building which is located just north of Ocean Lakes Campground.

The Sun News reported on October 14 that Horry County Code Enforcement posted a sign outside the resort that the building is unsafe, and occupancy has been prohibited. The paper also reported that residents received an evacuation letter from the management company stating that the steel frame within the foundation is in substantially worse condition than previously believed. The damage was apparently discovered during a repair project that had just begun.

A proposed federal class action lawsuit has now been filed by condo owners alleging the board of directors of the homeowners’ association and the management company of the project knew for years about steadily worsening damage to structural steel components supporting the building but failed to further inspect and repair the damage. These failures allowed the damage to worsen, according to the 34-page complaint.

The complaint further alleges that the building management company had known since 2016 that the foundation of the building was corroding. In 2016, an engineer was hired to perform an inspection and reported that the foundation was in “bad shape” and needed to be repaired or replaced. The complaint alleges that no repairs were made in response to this report.

After the collapse of the Champlain Towers South building in Surfside, Florida in June of 2021, according to the complaint, the HOA board asked the engineer to return and present repair options. The engineer determined that the conditions had worsened. On October 7 of this year, contractors determined that the steel was so corroded that the building was not structurally sound. Thus, the evacuation was ordered.

The complaint alleges that despite being left homeless, stuck paying for temporary housing, or deprived of income from a tenant, Renaissance owners now face more than $2 million assessment for repairs to the building’s structural steel as well as an unknown additional assessment for temporary shoring to make the building safe.

Like the Surfside, Florida building that collapsed, the Renaissance tower is an ocean-front project that is structurally supported by steel and concrete. The building remains unoccupied. The complaint alleges that some owners are homeless, and others are living in tents. Sales of units have also been stalled.

I would not be surprised to see additional inspections and lawsuits involving ocean-front projects.

Congressional method for funding CFPB held unconstitutional

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A three-judge panel of the United States Fifth Circuit Court of Appeals ruled on October 19 that the Consumer Financial Protection Bureau’s funding structure is unconstitutional. *

Rather than receiving its funding through periodic Congressional appropriations, the CFPB is funded directly from the Federal Reserve, which is funded through bank assessments. This funding method was intended to remove some congressional influence on the bureau.

Most federal agencies receive annual appropriations from Congress that are determined each year through legislative negotiations. Many agencies have separate funding sources like fees and assessments collected from the entities they regulate. The arrangement, like CFPB’s, which provides for a continuous funding source, is common among financial regulatory agencies like the Federal Reserve, the FDIC, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency.

Many commentators have suggested that this opinion will not stand because nothing in the Constitution prevents Congress from funding agencies in a variety of ways. The case is expected to be appealed to the full Fifth Circuit and after that to the Supreme Court. But while this holding stands, it renders all CFPB actions from its inception vulnerable to challenge.

*Community Financial Services Association of America, Ltd. v. CFPB

Failure to search title leads to disastrous result

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Fourth Circuit unpublished opinion weighs in on SC tax sale issue

South Carolina appellate courts will overturn tax sales on the flimsiest of technicalities. In a recent unpublished opinion of the Fourth Circuit Court of Appeals, a tax sale was not overturned, but the result was almost the same for the tax sale purchaser who failed to search the title.

Remember that an unpublished opinion has no precedential value, but this case is particularly interesting to South Carolina dirt lawyers who understand the necessity of searching titles. Thanks to my friend and real estate litigator extraordinaire Jim Koutrakos who sent this case to me.

Guardian Tax SC, LLC v. Day* involved a Charleston County tax sale. Ralph and Virginia Day bought property in Charleston in 1991. In 2006, the Days mortgaged the property to Bank of New York Mellon. Between 2005 and 2007, the Days failed to pay their federal income taxes, and beginning in 2010, they failed to pay -county taxes.

In 2016, the Day’s title was subject to three interests: (1) the county tax lien; (2) the mortgage; and (3) the federal tax lien. By operation of law (S.C. Code §12-49-10), the county tax lien took priority. The mortgage had a higher priority than the federal tax lien because it was recorded first. Charleston County sold the property to Guardian through a tax sale that year.

The County did not notify the bank or the United States of the tax sale, but it did publish notice in a local newspaper. Guardian’s purchase of the property satisfied the County lien and generated approximately $1.6 million in excess proceeds. The Days owed approximately $3.5 million to the bank and their federal tax liabilities totaled approximately $2.9 million.

After the tax sale, the County searched the title and notified the Days and the bank of their one-year statutory redemption period. The County did not notify the United States nor inform Guardian of the notices it sent to the Days and the bank. Neither the Days nor the bank redeemed the property. At some point after the expiration of the period of redemption, Guardian searched the title and discovered for the first time the interests of the bank and the United States. Guardian filed a quiet title action which was removed to federal court by the United States.

Guardian, the bank, and the United States filed competing motions for summary judgment. Guardian and the bank argued over the excess proceeds, and Guardian argued that the federal tax lien was extinguished by the tax sale or, alternatively, the United States should be awarded a 120 day right of redemption.

The district court agreed with the bank that it was entitled to the proceeds and agreed with the United States that its lien was valid and that a right of redemption was not appropriate. The Court of Appeals affirmed, holding that the tax sale was nonjudicial and that the United States’ lien survived the tax sale because it did not receive the required notice. Further, because of the lack of notice, the redemption period never began to run.

Both courts rejected Guardian’s argument that the federal lien should be extinguished because of South Carolina equitable principles because federal law governs the enforcement of federal tax liens. The Court of Appeals quoted the District Court’s jab that there is “nothing inequitable about the outcome” because Guardian could have avoided the result by engaging in due diligence prior to the tax sale by searching the title, a “minimal burden.”

*United States District Court of Appeals for the Fourth Circuit Unpublished Opinion No. 21-1411 (August 23, 2022)

SC Supreme Court issues one more opinion on the Episcopal church controversy

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….despite the fact that the same Court declared “this case is over” in April

This is the fifth blog about the controversy surrounding the Episcopal Church and its properties in South Carolina. The subject of this post is the case the South Carolina Supreme Court decided on August 17* which follows an opinion in April** that declared definitively “this case is over”. It seems the Court found a reason to disagree with itself. And, once again, the Court declares that there will be no remand and that the case is over.

Church schisms are difficult in many ways, and the real estate issues are particularly thorny. This dispute began in 2010 when the Lower Diocese of South Carolina, after doctrinal disputes, dissociated from the National Episcopal Church. The parties have been involved in extensive litigation in state and federal courts for the years that have followed the dissociation. As dirt lawyers, we don’t have to figure out the doctrinal issues, but we do have to be concerned with the real estate issues.

As I said in April, my best advice to practicing real estate lawyers is to call your friendly and intelligent title insurance underwriter if you are asked to close any transaction involving Episcopal church property. In fact, call your underwriter when you deal with any church real estate transaction. They will stay current on the real estate issues involving churches.

The current controversy involves whether the parishes adopted the national church’s “Dennis Cannon”. This church law provides that all real and personal property owned by a parish is held in trust for the national church. The actions taken by each church with respect to the Dennis Cannon have been examined ad nauseum by our Court.

In April, the Court ruled that 14 of the 29 churches would be returned to the national body. The opinion re-filed in August ruled that six more churches are allowed to keep their properties. After this decision, 21 parishes will remain with the local entity and eight will be returned to the national entity.

Without belaboring the analysis, the following parishes will maintain their properties according to the April opinion. The statuses of these congregations do not change with the August opinion:

  • Trinity Episcopal Church, Pinopolis
  • The Protestant Episcopal Church of the Parish of Saint Philip, Charleston
  • The Protestant Episcopal Church of the Parish of Saint Michael, Charleston
  • Church of the Cross, inc. and Church of the Cross Declaration of Trust, Bluffton
  • The Church of the Epiphany, Eautawville
  • The Vestry and Church Warden of the Episcopal Church of the Parish of St. Helena, Beaufort
  • Christ St. Paul’s Episcopal Church, Conway
  • The Church of the Resurrection, Surfside
  • The Church of St. Luke and St. Paul, Radcliffeboro
  • The Vestry and Church Wardens of St. Paul’s Church, Summerville
  • Trinity Episcopal Church, Edisto Island
  • St.Paul’s Episcopal Church of Bennettsville, Inc.
  • All Saints Protestant Episcopal Church, Inc. Florence
  • The Church of Our Savior of the Diocese of South Carolina, John’s Island
  • The Church of the Redeemer, Orangeburg

The following churches were ordered returned to the National Church by the April opinion but allowed to maintain their properties by the August opinion:

  • The Church of the Good Shepherd, Charleston
  • St. Bartholomew’s Episcopal Church, Hartsville
  • The Vestry and Church Wardens of the Episcopal Church of the Parish of St. John, John’s Island
  • St. David’s Church, Cheraw
  • The Vestry and Church Wardens of the Parish of St. Matthew, St. Matthews, Fort Motte
  • Holy Trinity Episcopal Church, Charleston
  • Vestry and Church Wardens of the Episcopal Church of the Parish of Christ Church, Mount Pleasant
  • St. James Church, James Island

The properties of the following parishes are held in trust for the National Church, according to both opinions.

  • The Church of the Holy Comforter, Sumter
  • The Vestry and Church Wardens of St. Jude’s Church of Walterboro
  • Saint Luke’s Church, Hilton Head
  • The Vestries and Church Wardens of the Parish of St. Andrew (Old St. Andrew’s, Charleston)
  • The Church of the holy Cross, Spartanburg
  • Trinity Church of Myrtle Beach

We may see more church schism opinions in South Carolina and elsewhere. Stay in touch with your friendly title insurance company underwriter!

*The Episcopal Church in the Diocese of South Carolina v. The Episcopal Church, South Carolina Supreme Court Opinion No. 28095 (Re-filed August 17, 2022)

**The Episcopal church in the Diocese of South Carolina v. The Episcopal Church, South Carolina Supreme Court Opinion NO. 28095 (April 20, 2022).

Easements don’t typically lead to criminal contempt charges

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These horrible commercial neighbors have fought (and litigated) for years!

Our Advance Sheet from August 10 contained two Court of Appeals easement cases involving adjoining commercial properties in Murrells Inlet. Last week’s blog discussed the first of the two cases, which involved an award of attorneys’ fees*. This 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.

This case actually involves a criminal contempt finding in the Circuit Court for parking a golf cart in front of the easement holder’s delivery gate! The golf cart was parked there on multiple occasions in a normal parking spot. But Gulfstream couldn’t orchestrate efficient deliveries while the golf cart blocked its delivery gate. The parties are obviously horrible neighbors.

The second case reveals an interesting fact. The property owner of the burdened property intended to demolish its building and rebuild a larger building on stilts and extending over the parking lot. The owner of the easement was having none of that!

In 2017, the Circuit Court found criminal contempt and ordered a fine of $3,000 or thirty days in jail. In 2018, the parties proceeded to trial, and a jury awarded Gulfstream $1,000 for interference with the easement. The Circuit Court entered a permanent injunction: “(Appellants) are enjoined from preventing (Gulfstream) from enjoying the right(s) granted to it in the recorded nonexclusive joint easement. (Appellants) are restrained and may not expand the outside boundaries of any new building beyond those previously used. The (c)ourt is specifically not talking about height, only the outside boundaries.”

The parties fought on, seeking to clarify the easement, and seeking another criminal contempt finding. The Court amended the injunction for clarification. The Appellants moved again to clarify the injunction and argued that an injunction should not have been granted because the jury awarded monetary relief. Other arguments related to the building’s construction and that the injunction enlarged the easement. The Circuit Court denied the motions and issued a finding that the Appellants “engaged in criminal contempt of court by deliberate and intentional acts by placement of a golf cart which interfered with the proper use of the non-exclusive easement in this matter and was in direct violation of the (c)ourt’s previous order.” Appellants were fined $5,000.

Skipping a little of the very long procedural history, let’s move on to the appeal. To make a very long story shorter, the Court of Appeals held that the Circuit Court did not abuse its discretion in finding Appellants in criminal contempt. You should read these two entertaining cases. Real estate lawyers don’t often have the pleasure of being entertained by published opinions!

*The Gulfstream Café, Inc. v. Palmetto Industrial Development, LLC, South Carolina Court of Appeals Opinion 5935 (August 20, 2022).

** The Gulfstream Café, Inc., vs Lawhon, South Carolina Court of Appeals Opinion 5936 (August 20, 2022).

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).