SC Court of Appeals

No horsing around with HOA disputes

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Real estate practitioners will not be surprised to hear that neighbors in a well-to-do development with a significant set of covenants and shared easements will sometimes disagree (and even litigate) about how those easements ought to apply to their properties. Our Court of Appeals recently had occasion to hear an appeal related to covenants and easements in an equestrian subdivision in Aiken County, in the case of Richard Viviano v. Fulton Jeffers and Braeloch I Association, Inc., Appellate Case No. 2024-000147, Ct. App., Opinion No. 6120, Filed August 20, 2025.

The underlying dispute in the case concerned an established equestrian community near Aiken named Braeloch. Braeloch has extensive pedestrian and riding trails, and when the subdivision was originally planned, one trail extended all the way around the outer boundaries of the subdivision. The recorded covenants included easements encumbering all the lots around the subdivision’s exterior boundary to account for this trail. The trail easement was also shown on the recorded subdivision plat. Later (in 2002) an additional lot was added (Lot 51) and eventually became the center of a dispute involving Lot 51’s owner, the homeowners association, and the owners of two adjacent existing lots. The neighboring lot owners and Lot 51’s owner disagreed about how the riding trail should be adjusted or relocated in light of Lot 51’s addition. Mr. Viviano was one of those neighboring lot owners. The Court of Appeals opinion implies that personalities clashed, and that the neighboring lot owners questioned the motivation and personal friendships of the HOA officers in making decisions about Lot 51 and the trail. Unfortunately, the parties could not agree at this point, and litigation was filed.      

The main issue presented to the Court of Appeals here, which may be less interesting to real estate practitioners, concerned whether a settlement agreement that the parties signed at the conclusion of mediation would be enforceable. (Spoiler alert: The Court of Appeals said, Yes, it is enforceable.) At the trial court level, the parties had mediated the case and reached a written agreement. The agreement was broad and addressed all the issues in dispute between the parties: relocation of the riding path easement, who would pay to make improvements to the path, compensation to the impacted lot owners, that the parties would sign a mutual non-disparagement agreement, etc. It required formal approval by the full HOA of a few items that the HOA representatives agreed to in mediation; the HOA formally voted and approved those after the fact.

As a worthwhile aside, the mediator (retired Judge Thomas Cooper, Jr.) made a lovely allusion to Aristotle (or the movie “Legally Blonde,” depending on your point of view) when he noted in his mediation report that the attorneys and parties had wisely “recogni[zed] . . . that emotion has to give way to reason to resolve difficult disputes.” We can all benefit from remembering that “law is reason, free from passion.”  

Later, several months after mediation, Mr. Viviano seemed to have regretted the agreement and changed his mind. A couple of the details that he asked the court to consider in support of his motion might be of more interest to dirt lawyers.

Viviano’s argument was basically that the 2002 petition to amend the covenants and easements to add Lot 51 was not valid because it did not have the support of the required number of lot owners. Viviano also argued that there was a “smoking gun” email from the owners’ association acknowledging that they did not have enough signatures on the petition to add Lot 51, and he claimed that this email had been deliberately concealed from him. (He argued that he would not have signed the settlement if he had known about it.) The Court of Appeals found this argument meritless. Without getting into the details of whether or not the Lot 51 admission had been completed correctly, the court pointed out that the Lot 51 admission documents were filed in the Aiken County public records, and therefore available to anyone to review. Viviano’s own complaint in the underlying suit had made an allegation of fact that Lot 51 had been admitted with two thirds vote of the HOA members. The court also noted that Viviano had access to the HOA email acknowledging insufficient signatures on the petition, as it had been produced in discovery more than 2 years prior to mediation, so it was not “concealed” from him. The Court of Appeals also cited established caselaw reinforcing the principle that, once the parties have reached a written settlement agreement, the courts are not inclined to entertain arguments by one party who regrets having agreed to the settlement.   

For those real estate practitioners who represent HOAs, this case might be a good opportunity to remind your association clients about the importance of having counsel assist in the process of amending CCRs. Having an attorney guide an association through the complicated formalities of submitting petitions, calling meetings, sending notices, and being sure to obtain the required number of signatures/votes to amend could avoid costly litigation in the long run! For practitioners who review title and handle real estate closings (and prepare title commitments and policies!), this is also a good reminder to be on the lookout for recorded amendments to covenants, and to carefully review those to determine how they affect the title.          

“Mutual” will with third wife fails to defeat fourth wife’s omitted spouse claim

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Early in my career, I practiced briefly in the area of estate planning. I attended week-long seminars and poured over tax laws. I even drafted a few irrevocable trusts for wealthy clients. But I was also representing real estate developers, and, at some point decided that I couldn’t keep up in both areas. So, I dropped estate planning in favor of real estate.

But real estate lawyers need to know enough about estate planning to figure out who gets the real estate at the death of the owner, so the two areas often overlap, and I was often thankful I had a background in estate planning.

I found a recent Court of Appeals case involving an omitted spouse claim by a fourth wife fascinating. Ward v. Ward* involved a mutual will and related documents between Stephen Ward and his third wife, Nancy.

The spouses generally intended that the death of one would cause their assets to “pour over” into a trust controlled by the other. After the death of the surviving spouse, any remaining assets would be disbursed among each spouse’s children and heirs as detailed in their wills and trust documents. Both parties agreed that they would not amend the documents after the death of the first spouse.

Those documents were executed in 2005. Nancy died in 2011. Later that year, Stephen began dating Mary, and they married in 2013. At the time of marriage, Stephen was 69 and Mary was 88. Stephen died in 2016.

After Stephen’s death, his children sought to probate his estate, and Mary filed a petition seeking to have herself declared an omitted spouse.

Several witnesses testified that Stephen’s intent when he executed the estate planning documents was to have those documents enforced as written, and that his estate plan would not be altered by a subsequent marriage.

The Court of Appeals agreed that a testator’s intention, as expressed in his will, governs the construction of the will if it does not conflict with law or public policy. But the Court held that the testator’s intent must fail when it conflicts with the probate codes’ protection of a surviving spouse.

Mary had only to prove that Stephen’s will was executed prior to their marriage and that it did not provide for her. Her claim to an omitted spouse’s share was affirmed.

Justice Geathers dissented, stating that the only evidence in the present case shows that years before he met Mary, Stephen made it clear that he meant to leave a subsequent spouse nothing.

Interesting case! I wonder whether our Supreme Court will have the chance to weigh in.

*South Carolina Court of Appeals Opinion 6073 (July 24, 2024).

This slander of title case tells a good story

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The preacher started his sermon on Sunday by saying: “I love a good story.”  I love a good story, too, and even though this one is about a South Carolina tax sale, not a twin’s stolen blessing from Genesis, it makes for a pretty good tale.

I’ve often said that our courts of appeal will overturn a tax sale on the flimsiest of technicalities. The technicalities in this case are not flimsy, and a claim of slander of title gives us a different slant on the typical tax sale case.

The opinion in Gleason v. Orangeburg County* starts, “This story began with a flawed tax sale, but there were several mistakes for years after.”  It’s not a John Grisham-worthy beginning, but it’s not bad for a South Carolina Court of Appeals case.

Bank of America began foreclosure proceedings in 1998 on property owned by Debra Foxworth. When the foreclosure was finalized, the bank sold the property to Wilton Gleaton. The opinion refers to Wilton Gleaton as “Wilton” because his wife will become a later player in the story. When Wilton bought the property, the 1998 taxes had not been paid.

In a classic tale of the left hand not knowing what the right hand is doing, Orangeburg County began proceedings in March of 1999 to collect the delinquent taxes. The County sent Foxworth notices for failing to pay taxes in March and May, shortly before the foreclosure sale to the bank, but long after the bank began foreclosure proceedings. The County sold the property at a delinquent tax sale to James Fields in February 2000.

The County sent three required “Dear Property Owner” letters to give notice of the redemption period. Two of the letters were addressed to Foxworth and the third was addressed to Wilton but mailed to Foxworth’s address.

In an interesting twist, Wilton’s wife, Sara, visited Orangeburg County in January 2001—before the redemption period expired—and went there precisely because she had not received a tax notice in the mail. She paid the 2000 property taxes. That tax bill listed a Charleston address at which neither Sara nor Wilton had ever lived. Sara gave the County her correct address and asked if any other taxes were owed. The County initially told her that no other taxes were due but later informed her the 1999 taxes had not been paid. She paid those taxes the next month, February 2001. In an “asleep at the wheel” move, the County employee did not inform her of the 2000 tax sale to Fields or of the right to redeem the property.

The redemption period expired in February 2001, not long after Sara paid the 2000 property taxes, but before she paid the 1999 taxes. In May 2001, The County issued a tax deed to Fields. The tax deed listed Foxworth as the defaulting taxpayer and “record owner against whom warrant was issued.” The tax deed made no reference to the Gleatons.

The Gleatons paid subsequent taxes as they came due.

In 2006, the County discovered Wilton—the record owner at the time of the 2000 tax sale—had not been noticed. In another interesting twist, the tax collector had Fields convey the property back to Foxworth via quitclaim deed in an effort to “reverse” the tax sale. The Gleatons were not notified about any of this.

In 2007, the Gleatons listed the property for sale. (Dirt lawyers, this is where the facts get “real” for us.) In October 2009, Donnie and Connie Hall contracted to buy the property for $33,000. It’s shocking, I know, but the Halls discovered a title problem! The County’s attorney offered to bring a declaratory judgment on the Hall’s behalf seeking rulings that the tax sale and quitclaim deed were void.

Wilton filed this suit against the County after the Halls backed out of the sale. In December 2014, the master issued an order finding the tax sale was flawed and invalid and the tax deed to Fields was improper. But the master left open the issues of liability and damages and ordered the Gleatons to attempt to sell the property within four months. Wilton died shortly after this order and Sara was substituted as a party. The property did not sell, and the master issued a final order in 2019. He found that the County’s actions were not malicious and “made no publication” that was intended to harm the Gleatons and made no statement that was knowingly false or in reckless disregard of its truth or falsity.

The master found that the only statement slandering Wilton’s title was the quitclaim deed from Fields to Foxworth, and that this deed was done for the purpose of returning the property to the defaulting taxpayer, not for the purpose of damaging Wilton’s title. The master also found that a proper title search would have revealed the 1998 taxes were due and owing at the time of the Gleatons’ purchase.

On appeal, Sara argued:

  1. The tax deed and subsequent deed to Foxworth disparaged the title.
  2. The County knew Wilton owned the property because the deed and mortgage were recorded before the tax deed.
  3. The master erred in failing to find malice because malice, in a slander of title action, includes publications made without legal justification.
  4. The Halls plainly refused to purchase the property because of the cloud on the title.

Citing an earlier case, the Cout of Appeals set out the elements of slander of title as:

  1. The publication
  2. with malice
  3. of a false statement
  4. that is derogatory to plaintiff’s title and
  5. causes special damages
  6. as a result of diminished value of the property in the eyes of third parties.

The Court held the master’s findings that the County’s actions did not result in any publication and did not contain any statement that was knowingly false or made in reckless disregard of the truth were not supported by the evidence. The Court also disagreed with the master’s finding that malice requires an intent to injure. The County’s numerous missteps were at least reckless, according to the Court, stating that the situation should have been resolved in a logical and reasonable manner when the mistakes were discovered.

The case was remanded for the master to consider each element in a slander of title action and the proper standard for malice.

Please note that more than 20 years have passed since this tale of woe began. The County should have discovered and fixed its mistakes when Sara visited in 2001 with the express purpose of paying taxes. And there is no excuse for the County’s continued failure to correct its errors in 2006 when the tax collector discovered Wilton’s ownership of the property.

*South Carolina Court of Appeals Opinion 6003 (July 26, 2023)

SC Court of Appeals provides lis pendens primer

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Termination on the merits is required for malicious prosecution claim

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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).

Court of Appeals decides interesting estate case

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

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

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

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

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

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

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

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

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

 

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

**Citations omitted.

SC Court of Appeals takes a deep dive into developer duty case

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Was I’On Village’s developer obligated to convey specific amenities to the HOA?

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Photo courtesy of Iioncommunity.com

This case was called “convoluted” by our Court of Appeals, and I couldn’t agree more with that characterization! The February 27 decision involved I’On Village in Mt. Pleasant. * The community, founded in 1995, was named for the first mayor of the Town of Sullivan’s Island, Jacob Bond I’On and is a mixed use “new urbanist development”, meaning it consists of charming walkable neighborhoods containing a wide range of housing and job types.

At the heart of the case is the developer’s alleged promise to convey certain amenities in a residential community to the homeowners’ association. Specifically, homeowners allege the developers promised to convey a community dock and creekside park on a lot containing a boat ramp to the owners’ association but instead sold those amenities to a third party. The developers alleged that they promised to convey and did convey a “generic” community dock and creekside park to the association, but not the specific ones located on the boat ramp lot.

This blog will attempt to stay out of the weeds of this 27-page case in an effort to point out only those decisions of the Court that may be of interest to real estate practitioners.

Does a developer have a fiduciary relationship with the homeowners’ association and its members requiring it to convey common areas?

The Court’s answer is “yes”, but the duties of the developer should be determined by a careful reading of the restrictive covenants.

The developer had argued that the “business judgment” rule would control, and that absent a showing of bad faith, dishonesty or incompetence, the judgment of the developer should not be set aside in a judicial action. The Court rejected the argument that the business judgment rule precludes the existence of a fiduciary relationship. Citing an earlier case, the Court stated that the business judgment rule is compatible with the good faith requirement for fiduciaries.

The Court said a confidential or fiduciary relationship exists when one reposes a special confidence in another, so that the latter, in equity and good conscience, is bound to act in good faith with due regard to the interests of the one imposing the confidence.  Citing a second case, the Court said anyone acting in a fiduciary relationship shall not be permitted to make use of that relationship to benefit his own personal interests, specifically, a developer in control of an owners’ association may not make decisions that benefit the developer’s own interest at the expense of the association and its members.

However, the Court held, South Carolina precedent does not impose on developers a generic fiduciary duty to convey title to a subdivision’s common areas to the owners’ association in every case. Rather, the restrictive covenants of the subdivision controls. The Court decided that the record in the case did not support the duty of the developers to convey to the association the specific amenities demanded.

Does the after-acquired property doctrine apply to a recreational easement in South Carolina?

The Court’s answer is “no”.

In February of 2000, the developer conveyed to the owners’ association a “Recreational Easement and Agreement to Share Costs”. Curiously, the developer did not obtain title to the property in question until six months later. At trial, the circuit court issued an order declaring the document invalid and void ab initio.

The developer argued on appeal that the after-acquired property doctrine would have acted to ratify the easement when title was obtained, but the Court of Appeals, finding no South Carolina authority for the proposition that this doctrine applies to the grant of an easement, declined to apply the doctrine to the recreational easement in question.

 May a derivative action be filed by property owners when a developer-controlled owners’ association fails to protect the interests of the owners?

The Court’s answer is “maybe”, but only if the complaint properly outlines the efforts made by the owners to obtain the action sought from the board of directors of the association and the reasons for failure to obtain the action or for not making the effort. The pleadings in this case did not satisfy the “demand requirement” to the Court’s satisfaction nor did they allege facts indicating a demand on the board of directors would have been futile. So the Court rejected the derivative action.

Litigators may find fascinating long discussions about statutes of limitations in various causes of action, abuse of process, amalgamation of parties and awards of attorney’s fees, but I’m opting to spare dirt lawyers any discussion of those issues. Read the case if you find those issues captivating. This litigation is not over as the Court of Appeals remanded the case for consideration of several issues by the trial court. My guess is that we will probably visit this case again.

 *  Walbeck v. The I’On Company, LLC, South Carolina Court of Appeals Opinion 5588 (February 27, 2019)

Statute of Elizabeth case provides important reminders

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Conveyance to an LLC is set aside

A recent South Carolina Court of Appeals case* affirmed a Circuit Court order that set aside a conveyance under the Statute of Elizabeth. This is yet another tale of woe from the economic downturn.

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Kenneth Clifton was a successful real estate developer who commonly purchased investment property in his own name. When he developed property, he transferred his interest to a limited liability company (LLC). He organized more than forty LLCs during his career.

In 1993, Clifton and Linda Whiteman purchased approximately 370 acres in Laurens County in their individual names as tenants in common.

Clifton routinely borrowed money from lenders to finance his developments. At issue in this case were three loans from First Citizens Bank totaling around $4 million. These loans were renewed over the years as Clifton made progress payments.

When the real estate market slowed in 2008, Clifton sought additional extensions for two of the loans. First Citizens asked for a personal financial statement. Clifton’s financial statement claimed a net worth of $50 million with real estate comprising over $48 million. The subject 370 acres in Laurens was included. The statement stated Clifton owned a 50% unencumbered interest valued at approximately $1.5 million. Relying on this financial statement, First Citizens renewed the loans to mature in 2009.

Later in 2008, Clifton requested an extension on the third loan. Just prior to receiving the extension, Clifton and Whiteman transferred their interests in the property to Park at Durbin Creek, LLC (PDC). Clifton testified that he and Whiteman chose to transfer this property to PDC over Whiteman’s concern about personal liability because the property was being leased to third parties for recreational hunting purposes. All three loans were extended to mature in 2009.

Clifton failed to make payments, to provide a business plan or to secure additional collateral. First Citizens initiated foreclosure proceedings in February of 2009 and eventually secured a deficiency judgment of $745,000 against him.

During the foreclosure proceedings, Clifton and his daughters entered into an assignment agreement resulting in a transfer by Clifton in PDC to Streamline, an LLC that was nonexistent on the date of the transfer but whose members, upon creation, were Clifton’s daughters and ex-wife.

In 2010, First Citizens initiated supplemental proceedings, but by this time, Clifton had no remaining assets. First Citizens began this case under the Statute of Elizabeth (S.C. Code §27-23-10), alleging causes of action for fraudulent conveyance, civil conspiracy and partition.

court money 2The Circuit Court found sufficient “badges of fraud” to infer Clifton possessed fraudulent intent when he transferred his 50% interest in the property to PDC.

This is the first valuable reminder from this case:  The conveyance to Streamline was held void ab initio because Streamline did not exist at the time of the conveyance. (Dirt lawyers, make sure your entities are properly created before you assist your clients in making conveyances to them!)

A second valuable reminder involves requirements concerning transfers of interests in member-managed LLCs like PDC. When Clifton attempted to transfer his interest in PDC to a separate LLC, he failed to obtain Whiteman’s consent. Section 33-44-404 (c)(7) of the South Carolina code states that, in a member-managed LLC, the admission of a new member requires the consent of all members. The lack of consent in this case would have invalided the transfer to streamline even if the transfer to PDC had been held valid. (Dirt lawyers, make sure you follow statutory procedures when dealing with transfers of interests in entities.)

The case then sets out a simple South Carolina primer on the Statute of Elizabeth. The statute provides:

Every gift, grant, alienation, bargain, transfer and conveyance of lands…for any intent or purpose to delay, hinder, or defraud creditors and others of their just and lawful actions, suits, debts, accounts, damages, penalties, and forfeitures must be deemed and taken…to be clearly and utterly void.

Citing earlier cases, the Court of Appeals stated that this statute can be used to set aside conveyances whether or not consideration is paid.

Where there is valuable consideration, the following element must be established:

  1. The transfer was made with the actual intent to defraud creditors;
  2. The grantor was indebted at the time of the transfer;
  3. The grantor’s intent is imputable to the grantee.

Where there is no valuable consideration, no actual intent to hinder or delay creditors is required. Instead, the transfer will be set aside if:

  1. The grantor was indebted to the plaintiff at the time of the transfer;
  2. The conveyance was voluntary; and
  3. The grantor failed to retain sufficient property to pay the indebtedness to the plaintiff at the time when the plaintiff seeks to collect the debt.

In this case, the Circuit Court found and both parties agreed that valuable consideration was paid. For that reason, First Citizens was required to prove that Clifton transferred the property with the intent to delay, hinder or defraud First Citizens.

Citing earlier cases again, the Court of Appeals stated that when a party denies fraudulent intent, as Clifton did, the creditor must prove “badges of fraud”. One badge of fraud may not create a presumption of fraud, but several badges of fraud does create the presumption.

Nine badges of fraud have been identified by our courts:

  1. The insolvency or indebtedness of the transferor;
  2. Lack of consideration for the conveyance;
  3. Relationship between the transferor and the transferee;
  4. The pendency or threat of litigation;
  5. Secrecy or concealment;
  6. Departure from the usual method of business;
  7. The transfer of the debtor’s entire estate;
  8. The reservation of benefit to the transferor; and
  9. The retention by the debtor of possession of the property.

The Court held that six of the nine badges of fraud were present in this case, resulting in a presumption of fraud. The Court next considered whether Clifton successfully rebutted the presumption. The Court concluded that Clifton wanted to protect the property from creditors, despite offering the legitimate reason for the transfer, that Whiteman was concerned about personal liability on hunting property.

Finally, the Court held that the invalidity of the conveyance of Clifton’s undivided 50% interest in the property does not invalidate Whiteman’s conveyance despite the fact that only one deed was used.

* First Citizens Bank and Trust Company, Inc. v. Park at Durbin Creek, LLC, South Carolina Court of Appeals Case 5469 (February 15, 2017)

SC Dirt lawyers: check your documents

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SC Supreme Court issues opinion that may keep us up at night!

Are the words “developed” and “improved” used interchangeably in your form real estate documents?  You might want to pull your documents to check based on a recent South Carolina Supreme Court case.*

The Supreme Court affirmed a Court of Appeals decision finding property had not been developed into discrete lots entitling them to voting rights under a set of restrictive covenants. While the two courts agreed on that determinative point, the Supreme Court felt the need to clarify the Court of Appeals’ opinion that may be read to “conflate” the terms “developed” and “improved”. (The only word that was unclear to me was “conflate”, which I now know means to combine two or more concepts into one.)

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The Supreme Court cited a 2007 Washington state opinion for the definition of “developed”: conversion of raw land into an area suiting for building, residential or business purposes. Improving land is subject to a higher threshold, according to the Court, and would require such actions as installing utilities or buildings.

Chief Justice Pleicones and Justice Few concurred, and the Chief wrote a separate opinion for the sole purpose of expressing concern that dictating the meanings of the terms “developed” and “improved” may inadvertently alter the meaning of documents or create a conflict with legislative enactments. He used a subsection of a statute dealing with mechanics’ liens as an example.

South Carolina Code Section 29-6-10 (2) contains the following definition of “Improve”:

 “Improve means to build, effect, alter, repair, or demolish any improvement upon, connected with, or on or beneath the surface of any real property, or to excavate, clear, grade, fill or landscape any real property, or to construct driveways and roadways, or to furnish materials, including trees and shrubbery, for any of these purposes, or to perform any labor upon these improvements, and also means and includes any design or other professional or skilled services furnished by architects, engineers, land surveyors and landscape architects.”

That definition is written as broadly as possible to protect the interests of any professional who provides labor or services in connection with developing, I mean improving, real estate.

The underlying Court of Appeals opinion** indicated that platting separate lots on paper without further steps did not rise to the level of the term “develop”, which, according to the Supreme Court, is a lower threshold than the term “improve”, which, according to the statute, includes platting. Do you see the Chief’s concern? I certainly do! Good luck with those documents!

*Hanold v. Watson’s Orchard Property Owners Association, Inc, South Carolina Supreme Court Opinion 27702 (February 15, 2017)

**Hanold v. Watson’s Orchard Property Owner’s Association, 412 S.C. 387, 772 S.E.2d 528 (2016)

Don’t Amend Your Master Deed As A Litigation Strategy

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The South Carolina Court of Appeals was not impressed!

The owners of The Gates at Williams-Brice (a great place to tailgate!) were surprised in 2012 when a maintenance company refused to bid on an exterior caulking/sealant job because of perceived construction defects.  Almost immediately, the owners’ association and an individual owner filed a complaint alleging negligence, gross negligence, breach of warranty and strict liability claims. The defendants were numerous developer and contractor entities.

The plaintiffs demanded a jury trial and sought to establish a class action for the condominium owners. The developer filed a motion for a nonjury trial and to strike the class action allegations. The Circuit Court ruled for the plaintiffs, and the defendants appealed. The Court of Appeals, in an Opinion dated August 31*, reversed.

The case contains several practice pointers for dirt lawyers, especially those who draft master deeds and amendments to master deeds and those who represent owners’ associations.

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The Master Deed establishing The Gates at Williams-Brice contained provisions requiring arbitration, waiving the right to a jury trial, waiving the right to a class action, and eliminating the right to secondary, incidental or consequential damages.

The original complaint was filed in December of 2012. An answer, opposing the certification of a class, was filed in May of 2013. Later that month, the complaint was amended to add defendants. And on May 23, the homeowners amended the Master Deed to remove the provisions that thwarted their litigation efforts.

The Circuit Court found that the provisions at issue were no longer within the Master Deed and that the defendants were precluded from enforcing unconscionable arbitration and alternative dispute resolutions that contained oppressive, one-sided terms.

On appeal, the defendants argued that the Master Deed could not be amended retroactively to remove the provisions at issue. Neither party contested that the homeowners’ actions were taken in anticipation of litigation. The Court of Appeals held that the homeowners knowingly, voluntarily and intelligently waived their rights to a jury trial and to a class action when they signed their deeds.

Citing a North Carolina case**, the Court of Appeals said that to remove the agreed-upon waivers retroactively would effectively substitute a new obligation for the original bargain of the parties. The Court pointed to the cites in the North Carolina case that indicate several jurisdictions apply a reasonableness standard when reviewing amendments to covenants and holding a provision authorizing an owners’ association to amend covenants does not permit amendments of unlimited scope; rather, every amendment must be reasonable in light of the contracting parties’ original intent.

The Court of Appeals discounted several cases involving amendments in condominium projects by the Circuit Court as not controlling. One such case found the developer’s amendment to increase maintenance assessments was enforceable against new purchasers. Another case approved an amendment regarding leasing restrictions. A third case found that an owners’ association properly amended covenants to prohibit the developer from advertising on the property. The final case held that an amendment authorizing the association to suspend utilities for unpaid judgments was properly applied against a unit owner because any alleged retroactivity was proper based on the contractual relationship between the association and the unit owner.

Other cases cited by the Circuit Court were dismissed as neither dealing with amendments to condominium declarations nor to master deeds.

The Court stated that it was unaware of any authority in South Carolina that would permit contracting parties to unilaterally alter agreed upon provisions once litigation has started.

The developer also argued that the amendments were ineffective because they failed to obtain the required permission of lenders and other “bound parties” such as the developer. The Court declined to address that issue because of its other conclusions.

What will the Supreme Court say if it gets the opportunity to rule on this issue?

 

*The Gates at Williams-Brice Condominium Association v. DDC Construction, Inc., S.C. Court of Appeals Opinion 5438 (August 31, 2016)

**Armstrong v. Ledges Homeowners Ass’n, Inc., 633 S.E.2d 78 (N.C. 2006)

Another South Carolina Arbitration Case

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Following these cases is like watching a tennis match!

This is the third blog on this topic this summer! The June 7 blog surrounded a South Carolina Court of Appeals case* that held an arbitration clause in a roofing supplier’s warranty provision was not unconscionable. The lower court had ruled that the supplier’s sale of shingles was based on a contract of adhesion and that the injured property owners lacked any meaningful choice in negotiating the warranty and arbitration terms, which were actually contained in the packaging for the shingles.

The Court of Appeals indicated that the underlying sale was a typical modern transaction for goods in which the buyer never has direct contact with the manufacturer to negotiate terms. The Court found it significant that the packaging for the shingles contained a notation:  “Important: Read Carefully Before Opening” providing that if the purchaser is not satisfied with the terms of the warranty, then all unopened boxes should be returned. The Court pointed to the standard warranty in the marketplace that gives buyers the choice of keeping the goods or rejecting them by returning them for a refund, and blessed the arbitration provision.

SCORE:  15- Love in favor of arbitration

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Let’s Talk Dirt on July 14 addressed a South Carolina Supreme Court case that appeared to take the opposite approach. ** A national residential construction company’s contract contained a number of “oppressive and one-sided provisions”, including an attempted waiver of the implied warranty of habitability and a prohibition on awarding money damages of any kind. The Supreme Court held that the home purchasers lacked a meaningful ability to negotiate their contract, the only remedy through which appeared to be repair or replacement.

SCORE:  15-all.

Note that Justices Kittredge and Pleicones dissented, stating that the contract involves interstate commerce and, as a result, is subject to the Federal Arbitration Act (FAA), “a fact conspicuously absent in the majority opinion”. The dissent stated that federal law requires that unless the claim of unconscionability goes to the arbitration clause itself, the issue of enforceability must be resolved by the arbitrator, not by the courts. The majority construed the Warranties and Dispute Resolution provisions of the contract as comprising the arbitration agreement and thus circumvented controlling federal law, according to the dissent.

Since the property owners raised no challenges to the arbitration clause itself, the dissent would have required that the other challenges be resolved through arbitration.

In a case dated August 17***, the majority decision is written by Chief Justice Pleicones with Justice Kittredge concurring. (Do you see a pattern here?) This case involved a residential subdivision that had been built on property previously used as an industrial site. The developer had demolished and removed all visible evidence of the industrial site and removed underground pipes, valves and tanks.

The plaintiffs bought a “spec” home in the subdivision and later discovered on their property PVC pipes and a metal lined concrete box containing “black sludge”, which tested positive as a hazardous substance. The present lawsuit was brought, alleging the developer failed to disclose the property defects. The developer moved to compel arbitration.

Paragraph 21 of the purchase agreement stated that the purchaser had received and read a copy of the warranty and consented to its terms. The purchasers had been provided with a “Homeowner Handbook” containing the warranty.

The circuit court, which was affirmed by the Court of Appeals, found the arbitration clause was enforceable for two reasons:

  1. it was located within the warranty booklet, making its scope limited to claims under the warranty. The Supreme Court held that the plain and unambiguous language of the arbitration clause provides that all claims, including ones based in warranty, are subject to arbitration.
  2. The alleged outrageous tortious conduct of the developer in failing to disclose concealed contamination made the outrageous torts exception to arbitration enforcement applicable. The Supreme Court overruled all South Carolina cases that applied to outrageous torts exception, making that exception no longer viable in South Carolina.

The Supreme Court discussed the heavy presumption in favor of arbitration by the FAA and in the federal courts and the push to place arbitration agreements on equal footing with other contracts and enforce them in accordance with their terms.

SCORE:  30-15 in favor of arbitration

You won’t be surprised to learn that there was a dissent, this time by Acting Justice Toal, and a concurrence, by Justices Hearn and Beatty.

And remember that the CFPB recently announced a proposed rule that would ban financial companies from using mandatory pre-dispute arbitration clauses to deny consumers the right to join class action lawsuits.

SCORE:  30-all

All of these authorities affect matters involving dirt law. So the tennis match involving arbitration clauses in our area is still being played, and we will continue to watch!

*One Belle Hall Property Owners Association v. Trammell Crow Residential Company, S.C. Ct. App. Opinion 5407 (June 1, 2016)
** Smith v. D.R. Horton, Inc., S.C. Supreme Court Opinion 27643 (July 6, 2016)
*** Parsons v. John Wieland Homes, S.C. Supreme Court Opinion 27655 (August 17, 2016