CTIC

A glimpse into the future of residential real estate sales

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Here’s what may happen when iBuyer companies enter our market place

iBuyers

I read an interesting article from Forbes recently by John Wake entitled “The Surprising Way Real Estate Agents are Adapting to ‘iBuyers’ Buying Houses Directly From Sellers.” I invite you to read the article in its entirety here.

The article focuses on residential real estate sales in the Phoenix market which the author calls “ground zero for the iBuyer explosion.” What does he mean by that? Apparently, the largest iBuyer companies, Opendoor, OfferPad and Zillow Offers, either started their operations in Phoenix or concentrate their efforts there. He estimated five to six percent of houses that change hands in that market are sold to iBuyers.

The article focuses, as its title suggests, on how real estate agents are adapting to this disruption in their market. But I find the article instructive to South Carolinians on the topic of how these internet sales are orchestrated and how they might affect sellers in our market when this disruption migrates east to us.

The author says that a homeowner who seeks to sell a house via an internet company must first complete an online form. An offer is typically made within two or three days. If the homeowner accepts the offer, inspectors will be sent to the house and will come back with a list of repairs and estimated costs for the repairs that the buyer requests before the closing.

As in our current process, the seller can agree to make the repairs, to reduce the price of the house to cover the cost of the repairs, or to terminate the contract.

The author suggests that real estate agents commonly complain that iBuyers tend to offer less and to ask for more repairs than traditional buyers. In other words, the seller makes more money in traditional sales involving local real estate agents.

The flip side of that coin is, of course, that closing with one of the iBuyer companies is more convenient than the process in our marketplace. A seller doesn’t have to get the house ready to sell, stage it, keep it clean for showings, or leave home for showings and open houses. The closing date may be more flexible, and there probably will not be contingencies for appraisals and financing.

How are real estate agents in Phoenix adapting? According to Mr. Wake’s article, real estate agents are assisting sellers by obtaining multiple iBuyer offers, analyzing and explaining the offers, discussing the options of accepting one of the iBuyer offers or beginning to market the home in the traditional manner, and coordinating everything with the iBuyer or traditional buyer, including repairs.

In short, real estate agents are attempting to become iBuyer experts in addition to traditional home sale experts.

Real estate lawyers, we need to be ready for this disruption when it hits us. We will want to be able to explain the changes in the market to our clients as well as to educate our real estate agents on how to stay in the game. Let’s keep our eyes and ears open! I’ll help!

FCC Publishes Scam Glossary

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FCC Seal

The Federal Communications Commission recently published a Scam Glossary, which you can access here. The glossary provides a helpful description robocalls, spoofing scams and related consumer fraud.

The FCC tracks these nefarious items through consumer complaints, news reports and notices from other governmental agencies, consumer groups and industry sources.

The glossary includes links to more detailed information posted in the FCC’s Consumer Help Center and trusted external sources.

Here are a few of my least favorite schemes from the glossary:

“Can You Hear Me” Scam: Scammers open by asking a yes-or-no question, such as: “Can you hear me?” or “Is this X?” Their goal is to record you saying “yes” in response. They then may use that recording to authorize charges over the phone.

Flood Insurance Scam: After floods, scammers may target hard hit areas with fake calls about flood insurance to steal private information or money. They may spoof a legitimate flood insurance company to appear more convincing.

Google Listing Scams: Some scammers claim that they can add or remove you or your business from Google searches or similar services. These callers, unaffiliated with Google, seek payment for services they can’t deliver.

Jury Duty Scams: Callers pose as local law enforcement, claiming they have a warrant for your arrest because you missed jury duty. They may instruct you to pay a fine by wiring money or using gift cards.

Porting: A scammer gets your name and phone number, then gathers other identifying information that can be used for identity theft. Pretending to be you, they then contact your mobile provider to report your phone as stolen or lost, and then ask for the number to be “ported” to another provider and device. They can use your number to gain access to your financial accounts and other services with two-factor authentication enabled.

Smishing: Short for “SMS phishing”, smishing often involves text messages claiming to be from your bank or another company. The message displays a phone number to call or a link to click, giving scammers the chance to trick you out of money or personal information.

Wangiri/One Ring Scam: When your phone rings only once, late at night, you may be tempted to call back. But the call may be from a foreign country with an area code the looks deceptively like it’s in the U.S. If you dial back, international calling fees may wind up on your bill. Such cons are known by the Japanese term “Wangiri”.

Check out this useful list, share it with your office and your family members. And be careful out there!

Seabrook Island drainage dispute leads to interesting case

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Owners’ association could not act unilaterally to terminate an easement

Seabrook Island map

The South Carolina Court of Appeals reversed an easement decision from the Charleston County Circuit Court last week and remanded the case for a new trial on compensatory and punitive damages in a controversy surrounding a drainage easement on Seabrook Island.*

The case involved a dispute between two couples, the Ralphs and the McLaughlins, who owned residential lots on Seabrook Island. In 1984, developer E.M. Seabrook, Jr. recorded a plat depicting blocks 32 and 33 of Seabook Island. To alleviate draining issues concerning several lots in block 32, the plat reflected a 20-foot drainage easement running between lots 21 and 22 and depicted a no-build area across the back of the lots.

The Ralphs bought lot 23 in 1997. The McLaughlins’ predecessors bought Lot 22 a year or so later and, in 2002, approached the Seabrook Island Property Owners Association (SIPOA) about eliminating the easement and no-build area on their lot. The SIPOA agreed and prepared a new plat entitled “Plat Showing Abandonment of an Existing 20’ Drainage Easement, Lot 22, Block 32”. The plat also indicated the no-build area was to be abandoned.

The McLaughlins bought Lot 22 later in 2002. In 2006, they approached SIPOA’s Architectural Review Board about building a house. The plans were approved with several stipulations, including the requirement that the McLaughlins assume the responsibility for the underground drainage line and the abandoned draining easement.

Over the course of the next year the McLaughlins sought financing for their construction. At some point, they received a call from the chair of the SIPOA legal committee indicating there were issues concerning the drainage pipe. A meeting was scheduled for the owners of lots 21 – 28 to discuss the easement, and several neighbors objected to the removal of the pipe because of the potential adverse effects on drainage.

The neighbors continued to express concerns, and on October 22, 2008, SIPOA sent a letter rescinding the resolution abandoning the easement. In December, the McLaughlins emailed the neighboring property owners asserting that there was no easement on their property, stating they had been patient with SIPOA, and they would begin constructing their home. They then authorized their contractor to remove the pipe. They built part of their home over the no-build area and the area formerly containing the pipe.

In 2011, the Ralphs filed a complaint seeking actual and punitive damages alleging the McLaughlins caused flooding and poor drainage on the Ralphs’ property. The McLaughlins filed an answer and a third-party complaint against SIPOA alleging reliance on representations. The McLaughlin’s case centered on the theory that they had justifiably relied on SIPOA and the purported abandonment of the easement in removing the pipe.

The circuit court granted SIPOA’s motion for summary judgment, finding there was no evidence to show SIPOA had made any promises to the McLaughlins and, as a matter of law, the McLaughlins could not have reasonably relied on SIPOA. The circuit court also directed a verdict in favor of the defendants on punitive damages because, he said, Mr. McLaughlin believed he had the right to remove the pipe.  At trial, the jury awarded the Ralphs $1,000 in damages for trespass.

The Ralphs argued on appeal that the circuit court failed to apply the findings of fact and conclusions of law in the grant of summary judgment to the SIPOA as the law of the case. The Court of Appeals agreed stating that since the defense was significantly based on the theory that the McLaughlins reasonably relied on SIPOA, the finding that this reliance wasn’t reasonable in the summary judgment motion should have applied to the controversy between the Ralphs and the McLaughlins.

The Court of Appeals also held that the directed verdict as to punitive damages was inappropriate because there was more than one reasonable inference that could be drawn from the evidence that the McLaughlins acted with reckless regard for the property rights of the Ralphs.

Significantly for dirt lawyers, the Court of Appeals held that the SIPOA could not have unilaterally abandoned the drainage easement because every lot owner had an ownership interest in the easement as a result of the plat that originally established the easement and the deeds in the respective chains of title that incorporated the plat by reference. The Court made the point that while it is well settled law that an owner of an easement may abandon the easement, it is also well settled that only easement owners are authorized to take such action.

Since the Ralphs had established an ownership interest in the easement as a matter of law, the Ralphs were entitled to enforce the easement, and the case was sent back to the lower court for a determination of damages by the jury.

* Ralph v. McLaughlin, Court of Appeals Opinion 5681 (August 21, 2019)

Amazon-Realogy partnership is making news in the housing market

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New home buying program not yet available in South Carolina

Amazon Turnkey smaller

According to several news sources, Amazon announced in late July that it will partner with residential real estate services company Realogy Holdings Corp. to launch a new home-buying program called TurnKey.

A TurnKey portal will be available through Amazon’s gigantic retail platform, Amazon.com. Potential home buyers who use that portal will be matched with real estate agents from one of Realogy’s brands like Coldwell Banker, Century 21 and Sotheby’s. Realogy is purportedly the largest residential real estate brokerage company in the country.

Potential buyers will go to Amazon.com/TurnKey and answer four questions about who they are and where they live. They will next get a phone call from a Realogy representative who will attempt to determine what sort of home they are seeking and how serious they are about buying. Information about the best prospects will be sent to Realogy real estate agents.

Home buyers who close with Realogy agents will receive up to $5,000 in products and services. Coupons for $450 – $1,500 in Amazon Home Services like unpacking, cleaning and furniture assembly will be available in addition to between $500 and $3,500 in smart-home products. Purchase of a $700,000 house will be required to receive the top credit.

The two giant companies are interested in finding out whether home buyers will look for new homes in the same place where they already shop for everything else. The credits for products and services will give Amazon a new way to market things it already sells, such as handyman services and smart-home gadgets like Alexa-powered speakers, doorbells and security cameras. The new lead-generating program will seek to help Realogy recruit and retain agents and increase market share.

The new program is starting in 15 markets, including Atlanta, Chicago, Seattle and San Francisco. We’ll have to wait to see how quickly it moves to South Carolina.

ProPublica publishes interesting heirs’ property story

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Check out the July 15, 2019 story by Lizzie Presser

NC oceanfront property

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.

South Carolina Supreme Court abolishes common law marriage

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Maybe we’ll get a “Big Chill” sequel

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“The Big Chill” is one of my husband’s favorite movies, in fact, it’s up there with “Braveheart” and “Casablanca”. Several years ago, we celebrated a milestone birthday by inviting two couples who were friends from law school to the mountains for a “Big Chill Weekend” of eating great food, playing great music* and reminiscing about the old days. We did agree to eliminate drugs and spouse swapping from the Big Chill agenda.

Last week, the South Carolina Supreme Court abolished common law marriage in South Carolina.** This rule will be prospective only. Parties may no longer enter into a valid marriage in South Carolina without a license.

Hang on. I will explain how the movie and common law marriage in South Carolina connect for those too young to remember the news. (And the connection has nothing to do with our Big Chill weekend.)

When the movie was being filmed in the winter of 1982-83 in Beaufort, actor William Hurt was living with Sandra Jennings, a former dancer in the New York City Ballet. Ms. Jennings became pregnant with Mr. Hurt’s son, Alexander Devon Hurt, who was born in 1983. The couple lived together in New York and on the road from 1981 – 1984.

When the couple split, Ms. Jennings brought suit in New York claiming a share of Mr. Hurt’s substantial assets, based on the theory that they had established a common law marriage during the few months they lived in South Carolina. She sought a divorce. Child support was not an issue because Mr. Hurt was paying $65,000 per year to support the couple’s son. Common law marriages hadn’t been recognized in New York since 1933, so the claim was based on South Carolina law and the short time the couple lived together in Beaufort.

Ms. Jennings was not successful in the law suit, but litigation is very expensive and the story got lots of mileage in South Carolina. The standing line was that actors had to be careful in this state! Maybe the cast can finally return for a sequel.

The Supreme Court stated that the time has come to join the overwhelming national trend, despite our legislature’s failure, to abolish common law marriage. The court said, “The paternalistic motivations underlying common-law marriage no longer outweigh the offenses to public policy the doctrine engenders.”  I know some other outdated ideas I’d like to see abolished in South Carolina.

* Favorite lines from the movie which demonstrate, in part, why it’s a favorite: Michael:  “Harold, don’t you have any other music, you know, from this century?” Harold: “There is no other music, not in my house.”  There is no other music in the Manning house either.

Favorite movie trivia: The dead guy, the corpse being dressed for his funeral in the opening scenes, was played by none other than Kevin Costner. There were plans to have flash-back scenes to the characters’ college antics, but those scenes were later eliminated.

** Stone v. Thompson, South Carolina Supreme Court Opinion 27908 (July 24, 2019).

Dave Whitener’s “Palmetto Logs”

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SC palmetto state

Two weeks ago, this blog paid tribute to the late, great Dave Whitener, a giant among real estate legal professionals in South Carolina. As suggested in that blog about Dave’s “Top Ten You Betters”, I also wanted to share with you Dave’s “Palmetto Logs”.

Several years before his death, Dave was asked to address the American Bar Association. The issue was whether a successful defense might be mounted if a federal agency attacked the rights now existing in South Carolina for lawyers, and only lawyers, to close real estate transactions. In that talk, Dave cited ten areas of defense that he called the Palmetto Logs. For non-South Carolinians, the palmetto log has traditionally been a symbol of protection for South Carolinians in time of war. South Carolina is nicknamed “The Palmetto State”.

Here are Dave’s suggested protections against an attack from outside our state for closings performed by licensed South Carolina attorneys:

Caselaw

  1. State v. Buyers Service, 292 S.C. 426, 357 S.E.2d 15 (1987). In this case, the South Carolina Supreme Court defined the practice of law in a residential real estate closing to include: certification of the title; preparation of the deed and loan closing documents, closing the transaction and overseeing recording.
  2. Doe v. Condon, 351 S.C. 158, 568 S.E.2d 356 (2002). In this case, the South Carolina Supreme Court reiterated and confirmed that the four protected areas set out in Buyer’s Service would also apply to residential refinances.
  3. Doe v. McMaster, 355 S.C. 306, 585 S.E.2d 773 (2003). In 2003, the South Carolina Supreme Court again reiterated its holding in Buyer’s Service.

Statutes and South Carolina Constitution

  1. C. Code §40-5-310 makes it a felony for an individual to participate in the unauthorized practice of law.
  2. C. Code §40-5-320 makes it a misdemeanor for a corporation or other entity to participate in the unauthorized practice of law.
  3. C. Code §37-10-102 gives a borrower the absolute right to choose the closing attorney in a residential loan closing. The statute provides for a $7,500 penalty if the disclosure is not given.
  4. South Carolina’s Constitution gives the S.C. Supreme Court the exclusive right to define the practice of law within South Carolina

Practical Considerations

  1. The low cost attributable to attorneys’ fees for residential closings in South Carolina. Dave believed the low cost would present a major difficulty if a federal agency argues that South Carolina’s practice is anti-competitive or increased prices.
  2. Major job losses would possibly result from the outsourcing of jobs to closing centers outside of South Carolina
  3. Major risks would be raised in turning over the duties now performed by experienced lawyers to unregulated and inexperienced lay persons.

I’m not sure whether Dave would say differently if he were here to analyze this topic for us today. I fear that the retirement of Chief Justice Jean Toal may have resulted in the loss of the South Carolina lawyer’s strongest advocate in the South Carolina Supreme Court. So far, the Palmetto Logs are holding strong, but some more recent cases from our Supreme Court give me some concern on this topic.

In any event, I am continually thankful for Dave Whitener and his influence, mentorship and friendship to South Carolina dirt lawyers!

Here’s a gift, SC dirt lawyers: Your official recording fee list!

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calculator house

This blog reported on May 29 that South Carolina Governor McMaster signed House Bill 3243 into law on May 16. This legislation, called the Predictable Recording Fee Act (S.C. Code §8-21-310), will streamline document filing in ROD offices by creating predictable fees for many commonly recorded documents such as deeds and mortgages. The new law will take effect on August 1, 2019. You and your staff will no longer have to count pages for documents to be recorded!

You can read the short but effective statute here.

My friend and colleague, Jennifer Rubin, was instrumental in the creation and passage of this legislation. Jennifer drafted the legislation and spearheaded Palmetto Land Title Association’s efforts to get the bill passed. Since the legislation was enacted, Jennifer has worked with members of South Carolina Court Administration, as well as leaders in ROD offices throughout the state, to draft a uniform recording fee schedule.  Attached is the newly created official recording fee list.

This law should simplify and streamline your practice and result in significant time and money savings for you and your clients.

SC Court of Appeals provides lis pendens primer

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Termination on the merits is required for malicious prosecution claim

gavel house

A lis pendens is a handy tool for real estate lawyers. When litigation is brought affecting title to real estate, a lis pendens gives notice to third parties that sales, loans and construction draws should, most likely, come to a screeching halt until the issues affecting title are resolved.

Back in the days when I was in private practice, malicious prosecution claims arose relatively routinely when lis pendens were filed in cases where the title to real estate was not in question. That situation is the subject of a Court of Appeals case from early this year.*

The case involved Somerset Point at Lady’s Island, a subdivision in beautiful Beaufort County. The developer, Coosaw, and River City, one of the construction companies building homes in the subdivision, became involved in a dispute about design and construction standards. River City accused Coosaw of failing to enforce the standards with other builders, and Coosaw, in turn, accused River City of failing to comply with the standards.

River City brought suit in 2011 alleging causes of action for breach of fiduciary duty, breach of contract, and unfair trade practices. Coosaw counterclaimed and crossclaimed against River City for violating the design standards and sought a temporary injunction against continued construction. Coosaw also filed a lis pendens describing one property, Lot 16, in Somerset Point.

River City moved to strike the lis pendens on the ground that title to Lot 16 was not at issue. The master-in-equity agreed and struck the notice of lis pendens. On reconsideration, the master stated, in part, that striking the lis pendens would allow River City’s construction lender to resume providing construction draws and would allow River’s City’s project to be completed. Coosaw appealed but ultimately withdrew the appeal after River City’s sale of Lot 16 rendered the issue moot.

In late 2014, River City filed the lawsuit at issue, alleging causes of action for malicious prosecution and abuse of process based on Coosaw’s filing the lis pendens in the 2011 action. River City argued the cause of action for malicious prosecution was proper because the lis pendens had been terminated in its favor.

The Court of Appeals listed the elements of malicious prosecution to include termination of the proceedings in the plaintiff’s favor. River City argued that a lis pendens is an ancillary proceeding, and termination of an ancillary proceeding will support a malicious prosecution claim. The Court of Appeals held, however, that a lis pendens is not an ancillary proceeding but is simply a notice of the proceeding.

Citing earlier cases, the Court reviewed the law of lis pendens:

  • A lis pendens is a statutory doctrine designed to inform prospective purchasers or encumbrancers that a particular piece of property is subject to litigation.
  • A properly filed lis pendens binds subsequent purchasers or encumbrancers to all proceedings evolving from the litigation.
  • Generally, the filing of a lis pendens places a cloud on title which prevents the owner from freely disposing of the property before the litigation is resolved.
  • The lis pendens mechanism is not designed to aid either side in a dispute between private parties. Rather, the lis pendens is designed to protect third parties by alerting them of pending litigation that may affect title.
  • When no real property is implicated, no lis pendens should be filed.
  • A lis pendens is merely a form of pleading that does not provide any substantive right. It is simply a notice.

The Court held that the termination of a lis pendens to support a malicious prosecution cause of action must be a victory on the merits of the litigation, not a termination based solely on technical or procedural considerations. In the case at hand, the underlying merits remained pending after the termination of the lis pendens. The Court held that the subject action is, therefore, premature.

In short, the Court held that a maliciously filed lis pendens can act as the primary basis for a malicious prosecution claim, provided the plaintiff can establish a favorable termination of the lis pendens reflective of the merits of the underlying action.

*Gecy v. Somerset Point at Lady’s Island Homeowners Association, Inc., South Carolina Court of Appeals Opinion 5622 (January 30, 2019).

Abbeville fraud litigation leads to noteworthy arbitration case

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Supreme Court finds arbitration clause unenforceable against nonsignatories

Abbeville, SC

I found it hard to believe the South Carolina Supreme Court took 21 pages to hold an arbitration provision unenforceable against nonsignatories to the contract, but it did! In an April case involving insurance fraud in Abbeville County, the Supreme Court reversed the Court of Appeals, which had relied on an equitable estoppel theory to bind individual insureds to a contract between an insurance agency and the insurance companies*.

The case arose out of numerous lawsuits brought by individual insureds against an insurance agent, Laura Willis, her broker, their agency and six insurance companies for which their offices sold policies. The suits alleged Willis engaged in fraudulent conduct including forging insurance documents and converting cash payments to her own use, resulting in the insureds having no coverage or reduced coverage. Two of the lawsuits were brought by other insurance agents, alleging Willis engaged in illegal business practices that effectively blocked them from the local market, resulting in a substantial loss of clients and revenue.

The other defendants were alleged to have failed to properly investigate, train and supervise Willis, especially after she was fined, publicly reprimanded and place on probation for dishonesty by the South Carolina Insurance Commission in 2011. Alternatively, Willis was alleged to have acted with express or implied permission of the other defendants.

A full year into the litigation, three of the insurance companies filed motions to compel arbitration and dismiss the lawsuits. The arbitration clause in question was contained in a 2010 agency contract signed by the insurance companies and the insurance agency. The theory was that the insureds were third-party beneficiaries to the contract or were equitably estopped from asserting their nonparty status. The Circuit Court denied the motion to compel arbitration, but the Court of Appeals reversed and remanded, holding equitable estoppel should be applied to enforce arbitration against the nonsignatories because the individuals sought to benefit from other provisions in the agency agreement.

The Supreme Court stated that while arbitration is viewed favorably by the courts, it is predicated on an agreement to arbitrate because parties are waiving their fundamental right to access to the courts. The Court held that whether the provision is enforceable is a state law question, and that South Carolina has recognized several theories that could bind nonsignatories to arbitration agreements under general principles of contract and agency law, including (1) incorporation by reference, (2) assumption, (3) agency, (4) veil piercing/alter ego, and (5) estoppel.

The estoppel argument is based on a direct benefits theory in South Carolina. Under that theory, a nonsignatory may be compelled to arbitrate where the nonsignatory knowingly exploits the benefits of an agreement containing an arbitration clause and receives benefits flowing directly from the agreement.

In this case, according to the Supreme Court, the plaintiffs did not allege a claim of breach of the contract, and they were not even aware of the existence of the contract until arbitration was sought a year into the litigation. In the Court’s view, the plaintiffs did not knowingly exploit and receive a direct benefit from the agency agreement. The Agreement was purely for the benefit of its parties, outlining their business relationship.

The Court also stated that equitable estoppel is ultimately a theory designed to prevent injustice, and it should be used sparingly. This litigation will continue!

And I’ve reduced the 21-page case to less than 600 words for your reading pleasure. You’re welcome!

* Wilson v. Willis, South Carolina Supreme Court Opinion 27879 (April 10, 2019)