South Carolina Supreme Court

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)

Just in Time for Halloween, SC Supreme Court Declines Frightening Request to Compel Random Lawyer Trust Account Audits

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The South Carolina Supreme Court amended the rules that govern lawyer discipline on October 25.* The big news here is not the very minor amendments that were adopted but rather the major requested amendments the Court declined to adopt.

The Commission on Lawyer Conduct and the Commission on Judicial Conduct proposed a rule amendment that would have imposed mandatory random audits of lawyer trust accounts. Without comment, the Court declined to adopt this rule change after “careful consideration”.

The Court also declined without comment an amendment that would have required a new position, a presiding disciplinary judge to act as a hearing officer to preside over disciplinary and incapacity hearings.

I have no idea why the Court made these decisions, but my guess is that the motivation revolved around the additional funds that these proposals would have required.

*Appellate Case No. 2015-0002336

Could Efforts to Modernize Mortgage Practice Lead to Changes in SC Law?

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Reuters reports on a “patchwork of state laws” that hinder efforts.

In an article dated September 9, Reuters reports that the practice of notarizing documents, which dates back “at least to Ancient Rome” is becoming “passé” in the era of FaceTime, Skype and live-streamed social media. South Carolina real estate lawyers might want to take deep breaths and read the article, which is linked here. 

South Carolina practitioners are banking on State v. Buyers Service, our seminal case from 1987 holding that closings are the practice of law, to keep us in the closing business. Buyers Service is still good law in South Carolina and has been cited favorably many times and as late as this year.

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There have been some hints, however, in our long line of “UPL” cases that some of our current Supreme Court Justices may not be as committed to our strong rule as some of the prior Justices have been. (I hope that comment was vague enough to keep me out of trouble if I encounter any of the current or former Justices at a cocktail party. Please notice citations are purposefully missing.)

The South Carolina Supreme Court has repeated in almost every case on point that the purpose of requiring lawyers to be involved in closings is to protect consumers. The Reuters article suggests that the effort to modernize mortgages would also protect consumers. One borrower in the story, a civilian paramedic at a military base in Kuwait, was forced to fly 6,500 miles to buy a house in Virginia. Webcam notaries would cut expenses for lenders, notaries and borrowers, the article suggests.

Are the two efforts to protect consumers diametrically opposed? No doubt, South Carolina lawyers could be on one end of the webcams. I encourage all of us to read the news and to pay attention to how closings happen in other parts of the country and to continually think of ways to modernize our practices.  Keeping up with technology can only contribute toward keeping a real estate practitioner in the closing game.

A Certain Path to Disbarment:

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Fake a title insurance agency and ignore a real estate practice!

In the Matter of Samaha* is a South Carolina Supreme Court attorney disciplinary case that resulted in disbarment.

This lawyer was creative; you have to give him that!

For starters, he witnessed and notarized the signature of his client’s late wife, who had died seven years earlier. He typed, witnessed and notarized a revocation of a durable power of attorney for an 83 year old retired paralegal with cognitive and physical limitations.

Perhaps the most interesting violations, however, had to do with the title insurance. (What? It’s tough to make title insurance interesting. Trust me. I try and fail on a daily basis. This stuff is only interesting to title nerds like me!)

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A relationship with a title insurance company is essential to a real estate practice in South Carolina. The closing attorney must either be in a position to issue his own title insurance commitments and policies as an agent, or to certify to a title insurance company as an approved attorney to obtain those documents.

Consider the activities of  Mr. Breckenridge, the lawyer who was publicly reprimanded this spring for allowing non-attorney entities to control his real estate practice.** During oral arguments, he stated that he preferred to handle closings in the customary manner in South Carolina, where the attorney acts as agent for a title insurance company as well as closing attorney. But he had been suspended by the Supreme Court for a short time and, as a result, had been canceled as an agent by his title insurance company. He said he was then forced to work for an entity that hires lawyers to attend closings only.  When a problem arose with the disbursement of one of those closings, he found himself in front of the Supreme Court again.

Mr. Samaha had also been canceled by his title insurance companies. That did not stop him and his staff from proceeding full steam ahead with closings in the customary manner.  Although he originally denied any knowledge that documents had been forged in his office, he ultimately admitted that closing protection letters had been forged and issued to lenders.

A mortgage lender later uncovered not only forged closing protection letters, but also forged title insurance commitments and policies. It was not possible for Mr. Samaha to obtain any of these documents legitimately during this timeframe, because his status had been canceled as an approved attorney as well as an agent. The Court commented that, absent the forgeries of these documents, the lawyer’s real estate practice could not have functioned.

(This is not the first disbarred lawyer in South Carolina to have included the forgery of title insurance documents in his repertoire of misdeeds.***)

The Court stated that Mr. Samaha allowed his staff to, in effect, run his office. He failed to supervise them and failed to supervise and review closing documents.  He, in effect, completely ignored his real estate practice.


He also committed professional violations of a more mundane but equally scary nature. For example, he made false and misleading statements on the application for his professional liability insurance.

red card - suitHe failed to pay off four mortgages. By his own calculations, the loss was more than $200,000, but the Office of Disciplinary Counsel stated that his financial records and computers had been destroyed, making it impossible to prove the true extent of the financial mismanagement and misappropriation.  Apparently, the money from new closings was used to fund prior closings, up until the date of Mr. Samaha’s suspension from the practice of law.

 

*In the Matter of Samaha, South Carolina Supreme Court Opinion 27660 (August 24, 2016)

** In the Matter of Breckenridge, South Carolina Supreme Court Opinion 27625 (April 20, 2016)

*** In the Matter of Davis, 411 S.C. 209, 768 S.E.2d 206 (2015)

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

SC Court Effectively Extends Statute of Limitations for Legal Malpractice

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Epstein case is overruled

SC Supreme Court LogoA car dealership case against a law firm provided the South Carolina Supreme Court the opportunity to reverse its prior ruling on the point in time the three-year statute of limitations begins to run in a legal malpractice case. Interestingly, retired Chief Justice Toal’s dissent in the earlier case was adopted. The new bright-line rule in South Carolina is that the statute of limitations does not begin to run in a legal malpractice case that is appealed until the appellate court disposes of the action by sending a remittitur to the trial court.

The current case, Stokes-Craven Holding Corp. v. Robinson*, involved a negligence suit against a law firm that was dismissed at summary judgment based on the expiration of the three-year statute of limitations.  The automobile dealership had been sued by a consumer who discovered the vehicle he purchased had sustained extensive undisclosed damage prior to his purchase.  After an adverse jury verdict which was affirmed on appeal, the dealership sued its lawyer, arguing that the lawyer, among other matters, failed to adequately investigate the facts in the case, failed to conduct adequate discovery, and failed to settle the case despite the admission by the dealership that it had “done something wrong”.

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The lower court, following precedent, found that the dealership knew or should have known it had a legal malpractice claim against its trial counsel on the date of the adverse jury verdict.  A 2005 South Carolina Supreme Court case, Epstein v. Brown **, had held just that, despite the fact that the claimant in the earlier case, like the current case, had filed an appeal.

Epstein represented a minority position in the country, according to the current case. A majority of states have adopted the “continuous-representation rule”, which permits the statute of limitations to be tolled during the period an attorney continues to represent the client on the matter out of which the alleged legal malpractice arose.  In Stokes-Craven, our Court continued to reject the continuous-representation rule, finding that rule to be problematic because its application may be unclear under some factual scenarios.  Our Court looked to existing appellate court rules to the effect that an appeal acts as an automatic stay as to the judgment in the lower court. In other words, if the claimant appeals the matter in which the alleged malpractice occurred, any basis for the legal malpractice cause of action is stayed while the appeal is pending.

The Court stated that its new bright-line rule is consistent with the discovery rule which states that an action must be commenced within three years of the time a person knew or by the exercise of reasonable diligence should have known that he or she had a cause of action.  A client either knows or should know that a cause of action arises out of the attorney’s alleged malpractice if an appeal is unsuccessful.

Chief Justice Pleicones dissented, stating he would adhere to the discovery rule adopted in Epstein and reverse the trial court’s order granting summary judgment because there are unresolved genuine issues of material fact making that relief inappropriate.

* South Carolina Supreme Court Opinion 27572 (May 24, 2016)

** 363 S.C. 381, 610 S.E.2d 816 (2005)

Another Win for MERS.

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South Carolina Supreme Court tosses case against it brought by five Counties

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County administrators in five South Carolina counties were told they have no statutory cause of action against MERS in a case our Supreme Court dismissed on March 30.* Allendale, Beaufort, Colleton, Hampton and Jasper Counties brought suits against MERS and numerous banking institutions claiming their fraudulent practice of recordings disrupted the integrity of the public records.

The Supreme Court consolidated the five suits and assigned them to Business Court Judge Lawton McIntosh. MERS and the banking institutions filed a joint motion to dismiss, arguing the suit was barred by SC Code §30-9-30. The trial court denied the motion to dismiss, indicating dismissal is improper for a novel question of law. The Supreme Court granted cert and dismissed the actions.

MERS is a member-based organization made up of lenders, investors, mortgage banks and others. When a MERS lender takes a promissory note and mortgage, MERS is shown on the face of the mortgage as the nominee for the lender. The mortgage is recorded in the county where the real estate is located, and the loan is registered in the MERS system.

This system allows lenders to retain priority with MERS as nominee. MERS provides convenient framework through which its members can transfer notes and mortgages without having to record each assignment. As a result, the public records may not accurately reflect the true owners of mortgages.

The lawsuits claimed fraud, misrepresentation, unfair trade practices, conversion, and trespass to chattels. It sought a declaratory judgment stating MERS and the lenders had caused damage to the public index system by recording false documents. It requested injunctive relief barring further recordings showing MERS as nominee and requiring corrections to the public records. The prayer demanded direct and consequential damages to remediate deficiencies in the records, as well as compensatory and punitive damages in the event the errors could not be fixed.

The crux of the matter was surely the loss of income for the assignment fees, although that thought is never mentioned in the published opinion.

Sale of a house. Object over whiteThe statute, §30-9-30, allows a recorder to refuse to accept or to remove any document believed to be materially false or fraudulent or a sham legal process. MERS and the lenders argued the statute does not provide the counties authority to bring the lawsuit, and the counties argued that the statute allows them to bring the suit by implication. They suggest that the statute provides, by implication, the power to commence litigation to remediate the public records and to seek guidance from the Court. The Supreme Court declined to imply language into deliberate legislative silence.

The Supreme Court held that the lower court erred in declining to dismiss the suit on the ground that this is a novel issue of law despite the fact that earlier cases had held to the contrary. The Court stated that where the case involves simple statutory construction, the trial court should not deny a meritorious motion simply because the question is one of first impression.

According to the Court, the statute already provides a remedy to government officials by allowing them to remove or reject any fraudulent records. Will the counties attempt to utilize this remedy?  Only time will tell.

*Kubic v. MERSCORP Holdings, Inc. (Appellate Case 2015-001366, March 30, 2016)

SC Supreme Court Decides Family Equitable Mortgage Case

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…and dirt lawyers are gratified to see the deeds called deeds!tug o war

On Oct. 28, the South Carolina Supreme Court decided a family dispute surrounding a transaction between a deceased brother and his sister and held that two deeds to the sister were, in fact, deeds, and did not constitute an equitable mortgage*.

While Justice Kittredge’s dissent suggested the Court established a “categorical rule” that only evidence created contemporaneously with a conveyance can be considered in support of an equitable mortgage, the majority, in a footnote, disagreed with Justice Kittredge’s interpretation and signified subsequent events and writings may assist in determining the intent of the parties at the time of the conveyance.

After two appeals, the facts remain murky.

Kenneth Walker owned and lived on a 200-acre farm in Colleton County. In 1996, he conveyed 26.52 acres to his sister, Catherine Brooks. The stated consideration was $13,250, although Brooks testified she paid nothing. In 2002, Walker conveyed an additional 15.16 acres to Brooks for the stated consideration of $5.00.

According to Brooks, her brother conveyed the property to her because she supported him emotionally and financially. She testified that she paid his debts, paid his electric and telephone bills, bought his groceries, gave him cash for living expenses, helped him receive social security benefits and served as trustee for those benefits.

In 2004, at Walker’s request, Brooks wrote a note stating that Walker intended proceeds from sand removal and soil and waste water discharge onto the property would be paid to Brooks until she received $60,000. Walker and Brooks also generated a ledger that began with an entry of $60,000 and ended with an entry of $27,400.

It is clear that Brooks did not exercise control over the property.

deed - definitionBefore Walker died, his attorney sent a letter to Brooks referring to this note and ledger, and requesting her to tender a deed in exchange for $2,893.87. This amount was inexplicable, according to the Court.  After Walker’s death, his son and personal representative offered to pay Brooks $27,400 in exchange for a deed. Brooks refused, and this dispute arose.

The special referee held that the note and ledger showed that Walker was indebted to Brooks at the time of his death, and the conveyance was intended as security for the debt. He found the existence of an equitable mortgage, and held that the estate was entitled to the property upon payment of $27,400. The Court of Appeals reversed, and the Supreme Court granted certiorari.

The Supreme Court, referring to a C.J.S. article and a prior case, indicated that the existence of an equitable mortgage must be shown by clear and convincing evidence, and that the intent of the parties must be evaluated at the time of the conveyance.  The court referred to the personal representative’s “self-serving testimony” and the fact that Brooks did not exercise control over the property as the only evidence that the parties intended to establish an equitable mortgage at the time the property was conveyed. The existence of the note and ledger were discounted as not being contemporaneous with the deeds.

Justice Kittredge would have reinstated the trial court’s finding of an equitable mortgage, denouncing the Court’s “categorical rule” in the face of these “equitable, fact intensive inquiries.” He found the existence of the note and ledger persuasive that the parties intended that the conveyance was, in legal effect, a mortgage.

Like dirt lawyers everywhere, I like certainty when it comes to deeds and find the Supreme Court’s holding comforting.

 

 

*Walker v. Brooks, Appellate Case No. 2013-001377

Dirt Lawyers Will Like This Mortgage Satisfaction Case

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S.C. Supreme Court holds equity lines are subject to the timely satisfaction statute.

In an opinion written by Justice Beatty, our Supreme Court held on August 5 that open-ended mortgages are satisfied in the same manner as conventional mortgages and under the same statutory requirement for timely satisfaction by lenders.

Regions Bank v. Strawn involved a mortgage foreclosure against Robert and Nancy Borchers. The Borchers counterclaimed seeking to recover from Regions Bank under §§29-3-310 and 29-3-320 of the South Carolina Code based on the bank’s failure to satisfy the mortgage within the three-month time period required.

mortgage jengaThe home had been purchased from Cammie Strawn, who had taken title from her then-husband, Richard Strawn. Mr. Strawn had previously obtained the home equity line of credit. At the time of the Borchers’ closing, the balance of the mortgage was $32,240.42. Immediately after the closing, the Borchers’ attorney, James Belk, had an employee deliver a payoff check and a mortgage satisfaction transmittal letter to Regions Bank. The check had the words “Payoff of first mortgage” typed on it.

Instead of satisfying the mortgage, the bank applied the check to the balance, bringing it to zero, and provided Richard Strawn with new checks even though he had not owned the home for more than two years. Mr. Strawn spent more than $72,000 on the equity line.

When Regions Bank attempted to collect on Mr. Strawn’s debt by foreclosing on the Borchers’ home, the Borchers answered, counterclaimed and moved for summary judgment. The bank argued that a revolving line of credit should be handled differently than conventional mortgages, and this particular mortgage could not be satisfied without instructions from Mr. Strawn.

The trial court and Court of Appeals ruled in favor of the Borchers. On appeal to the Supreme Court, Regions Bank made two basic arguments: (1) open ended mortgages are an exception to the statutory satisfaction requirement because only the original borrower is authorized to request a satisfaction; and (2) the Borchers could not assert a violation of the mortgage satisfaction statutes because their attorney had the authority to satisfy the mortgage pursuant to the attorney satisfaction statute (§29-3-330).

The Court affirmed and held that the first argument failed because the mortgage itself contemplated that the property may be sold and specifically stated that it would be binding on the mortgagor’s successors and assigns. Also, the court stated that anyone with an interest in mortgaged property is allowed to request a satisfaction upon payment, and there is no exception for equity lines of credit.

Sale of a house. Object over whiteAs to the argument that the Borchers’ attorney could have satisfied the mortgage, the Court stated simply that this argument is without merit because the statutory framework does not exempt a mortgage holder of an equity line from the penalty provisions for failing to satisfy a mortgage within the required time frame.

This is a good opinion for South Carolina closing lawyers!

Malpractice Case Questions Delegation of Responsibility for Title Work

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SC Supreme Court decides client’s informed consent is required.

The South Carolina Supreme Court has ruled that a closing attorney cannot delegate the ultimate responsibility for delivering clear title to a purchaser without the purchaser’s informed consent. Johnson v. Alexander is an attorney malpractice case decided on July 29. This case involved Amber Johnson’s 2006 closing of a home in North Charleston.  Ms. Johnson alleged that her closing attorney, Stanley Alexander, breached his duty of care by failing to discover the house had been sold at a tax sale in 2005.

shutterstock_113463292The title examination had been performed by another attorney, Charles Feeley at the request of Ms. Johnson’s previous attorney, Mario Inglese.  Mr. Alexander purchased the title work from Mr. Inglese and relied on the title examination, which concluded that no back taxes were owed on the property. Ms. Johnson stopped making mortgage payments when she learned she didn’t have title to the property, and the property went to foreclosure.

At trial, Ms. Johnson moved for partial summary judgment as to Mr. Alexander’s liability. At the summary judgment hearing, an affidavit of the Delinquent Tax Collector for Charleston County was proffered to prove the availability of the delinquent tax records during the time when the title would have been examined.  Mr. Feeley’s affidavit indicated he could  not remember the specific title work, but that he always searched titles the same way, and he always checked delinquent taxes for a ten-year period. His notes showed that he found no outstanding taxes. Further, Mr. Feeley attested that the tax sale would not have appeared in the chain of title because the tax sale deed was actually recorded after the closing.

As a side note to abstractors: recent tax sales often do not appear in chains of title because the deeds are not yet recorded. Title examiners should check for payment of taxes for a ten-year period to uncover ad valorem tax delinquencies.

The trial court granted Ms. Johnson’s motion on Mr. Alexander’s liability.  On appeal, the Court of Appeals reversed and remanded, holding the lower court incorrectly focused its inquiry on whether an attorney conducting a title examination should have discovered delinquent taxes from 2003 and 2004 and the tax sale from 2005. Instead, the appellate court held the proper question was whether Mr. Alexander acted reasonably in relying on the title work and reversed and remanded the case for trial.

The Supreme Court reversed and remanded for a determination of damages. Ms. Johnson argued that the Court of Appeals erred in holding the correct inquiry is whether an attorney reasonably relied on another attorney’s work where that work is outsourced. She contended that an attorney should be liable for negligence arising from tasks he delegates unless he has expressly limited the scope of the representation. The Supreme Court agreed.

The Supreme Court said the Court of Appeals erroneously equated delegation of a task with delegation of liability. The opinion, written by Justice Hearn, stated that while Feeley’s negligence was the issue, that does not displace Alexander’s ultimate liability.

The opinion states, “while an attorney may delegate certain tasks to other attorneys or staff, it does not follow that the attorney’s professional decision to do so can change his liability to his client absent that client’s clear, counseled consent.”

The Court cited Rule 1.8(h) of the Rules of Professional Responsibility which indicates a lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.

Notice that the Court makes no distinction between delegating a task to staff and delegating it to another attorney. Mr. Alexander had argued that because Ms. Johnson knew he did not personally examine the title, its accuracy was not within the scope of his representation to her. The Court clearly held that the scope of representation can only be limited through the clear, counseled consent of the client.

Many residential closings are handled in South Carolina by attorneys who have nothing to do with the title examination. This case clearly states that those attorneys should limit the scope of their representation and obtain their clients’ clear, counseled consent. Otherwise, the title work is the ultimate responsibility of the closing attorney regardless of who performs it.

shutterstock_233295964And on a related topic, it is my opinion that any title examination that covers less than a full-search period or is based on a prior title insurance policy should be used only after consultation with the client and obtaining the client’s informed consent.  Many residential and commercial closing attorneys rely heavily on prior title policies for back title, and they may want to tweak their practices after they read this opinion.

Closing attorneys’ files should be papered with those informed consents confirmed in writing!