Law Office of Gem McDowell, P.A, Author at Gem McDowell

Same-Sex Marriage in South Carolina After Obergefell

The US Supreme Court made history with the 2015 decision Obergefell v Hodges, ruling that same-sex couples have a right to marry under the Fourteenth Amendment of the Constitution.

Before the Obergefell decision, states made their own laws regarding same-sex marriage. After the decision, all states were required to allow same-sex couples to marry and to recognize such unions that were performed in other states.

This is the background to the 2021 South Carolina Supreme Court decision in Swicegood v Thompson (read the court’s short decision here) regarding same-sex common law marriages and whether Obergefell applies retroactively.

The SC Court of Appeals Cites SC Law Prohibiting Same-Sex Marriage Post-Obergefell

Swicegood v Thompson first went before a family court in 2014 which ultimately found that the Obergefell decision does apply retroactively, and that that Cathy J. Swicegood and Polly A. Thompson, who were domestic partners for over 13 years, did establish a common-law marriage.

When the case came before the SC Court of Appeals in 2020, it found that Swicegood and Thompson had failed to establish a common law marriage because:

South Carolina Code Section 20-1-15 prohibited same-sex marriage, which prevents the formation of a common law marriage between same-sex couples, and
Swicegood and Thompson did not have the intent and mutual agreement necessary to enter a legally binding common law marriage.

As to the first point, the appeals court did recognize that the Obergerfell decision must be applied retroactively. Still, it found that SC Code Section 20-1-15 constituted a “pre-existing, separate, independent rule of state law, having nothing to do with retroactivity,” which formed an “independent legal basis” for the finding that Swicegood and Thompson didn’t establish a common law marriage.

The appeals court’s decision is significantly longer than the supreme court’s and contains the background of the case and its discussion of the law. You can find that here.

The SC Supreme Court Declares the SC Law Void

Upon appeal, the SC Supreme Court vacated in part and affirmed in part the appeals court’s decision.

It noted that in Obergefell, the US Supreme Court held that “same sex couples may exercise the fundamental right to marry,” and all state laws challenged in that case were “invalid to the extend they exclude same sex couples from civil marriage on the same terms and conditions as opposite sex couples.”

The Obergefell decision rendered SC Code Section 20-1-15 void ab initio (“void from the beginning”) and should be treated like it never existed. That means it cannot serve as an impediment to the recognition of a same-sex marriage predating Obergefell, so that part of the appeals court’s decision was vacated. However, the supreme court did affirm, without further discussion, that no common law marriage was established between Swicegood and Thompson.

The State of Same-Sex Marriage and Common Law Marriage in South Carolina

While the law prohibiting same-sex marriage is still on the books in South Carolina, as of the Obergefell decision by the US Supreme Court and the Swicegood decision discussed here by the SC Supreme Court, the right to same-sex marriage in the state of South Carolina is protected.

Common-law marriage, on the other hand, was abolished in South Carolina in July 2019. Read more about that here.

At-Will Employment in South Carolina: New Supreme Court Rulings

You may know that South Carolina is an at-will employment state. But what does that really mean?

In an at-will employment state, work is presumed to be at-will unless otherwise defined by contract. In an at-will employment arrangement, both the employer and the employee have the right to end the arrangement without notice and for any reason, without incurring liability. (There are a few exceptions to this, mentioned below.)

The South Carolina Supreme Court recently accepted three certified questions asked by the US District Court for the District of South Carolina to clarify state law on at-will employment matters. Here are the three questions put to the SC Supreme Court in Hall v UBS Financial Services Inc, 2021 (find it here) with more discussion on each issue below.

Are terminable at-will employment relationships contractual in nature as a matter of law?
Does the implied covenant of good faith and fair dealing arise in the context of terminable-at-will employment relationships, and can an employer’s termination of an at-will employee constitute a breach of the relationship such that it may give rise to a claim by the former employee against the employer for breach of the implied covenant of good faith and fair dealing?
Can an employer’s termination of an at-will employee, which results from a third-party employee’s report to the employer, constitute a breach of the relationship such that it may give rise to a claim by the former employee against the third-party employee for tortious interference with a contractual relationship?

The SC Supreme Court discusses the law rather than the particular facts of the case, but here’s some quick background before we delve into the court’s legal reasoning behind its answers:

Curt O. Hall sued his former employer, UBS Financial Services Inc., and a former co-worker, Mary Lucy Reid, after he was fired by UBS. Hall was a manager of the Greenville branch of UBS, and in September 2017 he organized a happy hour that a number of employees, including Reid, attended. Reid said she was scared to go home because of issues with her boyfriend, and Hall offered to let her stay at his home for the night. At the end of the night, Reid’s friend drove Hall home after the three of them had gone to dinner, with Hall and Reid sitting in the backseat together. Before getting out of the car, Hall again asked Reid if she was okay, then gave her a “European-style consolatory cheek kiss” (in the words of the district court) before getting out of the car. He texted her later that same night repeating his offer to let her stay, which she ignored. Soon after, Reid reported the incident to the HR department, and HR questioned Hall about his version of events. He was fired a few weeks later.

Hall brought a claim against UBS for breach of implied covenant of good faith and fair dealing and a claim against Reid for tortious interference with contractual relations, among other claims.

Question 1. Are terminable-at-will employment relationships contractual in nature as a matter of law?

The Supreme Court of South Carolina says yes.

The answer lies in general contract law. The court quotes itself in Prescott v Farmers Tel. Coop., Inc., 1999, in which it said “[T]o prove the existence of a definite contract of employment, the employee must establish all of the elements of a contract. The elements are: 1. A specific offer, 2. Communication of the offer to the employee, and 3. Performance of the job duties in reliance on the offer. The court says in Hall, “We agree with the majority of jurisdictions that have addressed this issue, and we hold those elements are present in every at-will employment arrangement.”

However, the court cautions that answering yes doesn’t “light a path” to make valid breach of contract claims when an employee is terminated. “[O]ur recognition that at-will relationships are contractual does not alter the established rule allowing an employer to discharge an at-will employee for any reason without incurring liability. That is because under South Carolina law, the right to fire the employee at any time and for any reason is an integral term of the at-will contract.”

(Note that there are exceptions that can impose liability on the employer for terminating an employee, such as termination in violation of the terms of the employee handbook or in violation of public policy, but here the supreme court answers the district court’s questions on the assumption that there are no exceptions.)

Question 2 Part A. Does the implied covenant of good faith and fair dealing arise in the context of terminable-at-will employment relationships?

The Supreme Court of South Carolina says yes.

“There exists in every contract an implied covenant of good faith and fair dealing,” says the court quoting Adams v. G.J Creel & Sons, Inc., 1995.

The court admits that both the SC Supreme Court and the SC Court of Appeals have previously found on occasion that the covenant doesn’t arise in at-will employment relationships. However, having answered a definitive “yes” to the first question, rationales denying the existence of the covenant in at-will employment relationships are no longer valid. “The implied covenant of good faith and fair dealing exists in all at-will employment contracts,” says the court in Hall.

Question 2 Part B. Can an employer’s termination of an at-will employee give rise to a claim by the former employee against the employer for breach of the implied covenant of good faith and fair dealing?

The South Carolina Supreme Court says no.

This question implies that breach of the implied covenant of good faith and fair dealing could be the basis for a cause of action. The SC Court of Appeals has held that it is not a cause of action separate and distinct from a cause of action for breach of contract. As answered in Part A, because every contract includes this covenant, then if the covenant has been breached then so has the contract, and the cause of action would be breach of contract.

In a separate opinion from the majority, Justice Few further explains the issue well, stating that while contracts have the covenant implied, the law superimposes over that the express provision that the employer may terminate an employee “at any time, for any reason or for no reason at all” (quoting Prescott). “This includes a reason that may not be in good faith,” writes Justice Few. “Stated differently, the implied promise to act in good faith does not protect the employee from being fired – no matter the reason – because the law specifically provides that the contract of employment permits any firing, even if it is not in good faith” (emphasis added).

In the majority opinion, the court answers Question 2 in its entirety as follows: “The implied covenant of good faith and fair dealing exists in an at-will employment contract; however, the employer’s termination of the employee cannot form the basis of a claim that the employer breached the covenant of good faith and fair dealing.”

Question 3. Can an employer’s termination of an at-will employee, which results from a third-party employee’s report to the employer, give rise to a claim by the terminated employee against the third-party employee for tortious interference with a contractual relationship, even when the termination itself was not a breach of the at-will contract?

The SC Supreme Court says yes.

The question the court poses and answers here is different from the one posed by the district court as stated at the top. The court revised the question because, it explains, the viability of a tortious interference claim brought by a terminated employee doesn’t depend on whether the termination was a breach of the at-will contract, but whether the third-party employee, without justification, made a report to the employer which led to the termination.

From Eldeco, Inc. v Charleston Cty. Sch. Dist., 2007, the elements of a claim for tortious interference with contractual relations are: 1. The existence of a contract, 2. Knowledge of the contract, 3. Intentional procurement of its breach, 4. The absence of justification, and 5. Resulting damages.

The court states that the majority of jurisdictions addressing this issue find that there can be a cause of action against a third party for tortious interference, even if there is no underlying breach of contract. It concurs, recognizing the validity of such a claim, and holds that “the absence of an underlying breach by the terminating employer does not shield the third party from liability when she intentionally and unjustifiably procures the termination of an at-will employee.”

Help with Contracts, Employment Matters, and Business in South Carolina

For help with contracts, corporate governance documents, starting or selling a business, and insightful advice from a legal perspective, contact business attorney Gem McDowell of the Gem McDowell Law Group. Gem has over 30 years of experience working with individuals and businesses in South Carolina, and he and his team can help you grow your business and protect your assets. Call the Mt. Pleasant office at 843-284-1021 today to schedule a free consultation.

Civil Conspiracy Claims in South Carolina After Abolishing the Todd Rule

The South Carolina Supreme Court has done away with the so-called Todd rule.

This comes from the court’s 2021 decision in Paradis v Charleston County School District (find the opinion here), in which Leisel Paradis asserted a civil conspiracy claim against Robert Bohnstengel and Stephanie Spann, the principal and assistant principal, respectively, of James Island Charter High School. The circuit court dismissed the claim because, among other things, it found that Paradis did not plead special damages; the SC Court of Appeals affirmed.

On appeal, the Supreme Court of South Carolina granted a writ of certiorari on one issue: whether to abolish the requirement of pleading special damages for civil conspiracy claims.

This requirement of pleading special damages to advance a civil conspiracy claim in South Carolina has been informally referred to as the “Todd rule” for decades. It comes not from statute but from legal precedent and is named after the 1981 SC Supreme Court case Todd v South Carolina Farm Bureau Mutual Insurance Co.

In this blog we’re going to look at what civil conspiracy is, what led to the Todd rule in the first place, what made the SC Supreme Court decide to overturn it, and what that means for civil conspiracy claims in South Carolina going forward.

What is Civil Conspiracy? Elements of a Civil Conspiracy Claim

First, let’s look at what civil conspiracy is. In the Paradis decision, the court quotes itself from the 1939 case Charles v Texas Co. (aka Charles I): “[A] definition of conspiracy has been given as the conspiring together to do an unlawful act to the detriment of another or the doing of a lawful act in an unlawful way to the detriment of another.”

It also quotes law professor Francis M. Burdick’s 1907 book Conspiracy as a Crime, and as a Tort, for a definition of civil conspiracy that includes its elements: “A combination between two or more persons to accomplish a criminal or unlawful purpose, or some purpose not in itself criminal or unlawful by criminal or unlawful means, subjects the confederates to criminal prosecution; and, if injury ensues to an individual therefrom, it subjects them to a civil action by their victim.”

To summarize, the essential elements of a civil conspiracy claim that the court describes as “fairly universal in contemporary tort law” and are recognized by most states under common law are:

An agreement between two or more individuals,
To do an unlawful act or to do a lawful act in an unlawful way,
Resulting in injury to the plaintiff inflicted by one or more of the conspirators, and
Pursuant to a common scheme

Point #3 is important. In what’s referred to as Charles II, a lawsuit with the same parties as Charles I three years later in 1942, the SC Supreme Court pointed out that it’s a “well known principle” that resulting damages are the basis of a civil conspiracy claim. An unexecuted conspiracy cannot be the basis for a civil conspiracy action since it does lead to injury of the intended victim. Instead, there must be an “overt act” that results in injury. This distinguishes civil conspiracy from criminal conspiracy, in which the very act of conspiring is a crime in and of itself.

What Led to the Todd Rule in the First Place

Now we come to the Todd rule. In 1981, the Supreme Court of South Carolina issued its decision for Todd v SC Farm Bureau Mutual Insurance Co., which has been interpreted as creating a new element for civil conspiracy claims in SC, the requirement that a plaintiff plead special damages.

In Todd, Petitioner John Wendell Todd alleged five causes of action following from the termination of his employment:

Intentional interference with contractual relations
Extreme and outrageous conduct
Bad faith termination of the employment contract
Invasion of privacy
Conspiracy to so damage the plaintiff

The court considered whether #5 was a claim for civil conspiracy. It reaffirmed Charles I, stating that that “conspiracy in and of itself is not a civil wrong”; there can only be a civil conspiracy claim if damage to the plaintiff results. Since the court found that Todd did not plead overt acts in furtherance of the conspiracy, the complaint failed as a matter of law.

It stated: “The only alleged wrongful acts plead are those for which damages have already been sought.” Essentially, the court barred Todd from recovering additional damages for the cause of action #5 because it simply restated the first four causes of action and did not assert any other acts related to the conspiracy that led to injury.

You can’t get damages for the same thing twice, in other words.

But cases after Todd interpreted this to mean that special damages must be pleaded. In Lee v Chesterfield Gen. Hosp., Inc., 1986, the SC Court of Appeals listed the required elements of a civil conspiracy claim as follows:

A combination of two or more persons,
for the purpose of injuring the plaintiff,
which causes him special damage

Oddly enough, the court notes in Paradis, Lee and similar cases that followed including Island Car Wash, Inc. v Norris and Yaeger v Murphy didn’t cite Todd as the basis of this three-part definition that included the special damages requirement, but it still became known as the Todd rule. It would have been more aptly named the Lee rule.

In any event, for the next several decades, it was seen as a requirement to plead special damages to forward a civil conspiracy claim in the state. Actions that did not expressly plead special damages were dismissed.

The Supreme Court’s Ruling in Paradis Abolishing the Todd Rule

In the current case, Paradis argued that the requirement to plead special damages for civil conspiracy was a misreading of the law in the US legal encyclopedia Corpus Juris Secundum and therefore should be abandoned.

The Supreme Court of South Carolina agreed that the Todd rule should be abolished. It found that the relevant section of CJS (Section 33, Conspiracy) is about barring duplicative recoveries, not about establishing a requirement for pleading special damages. It also suggested that in addition to a possible misinterpretation of the Todd decision, the Todd rule could have arisen from differing interpretations of “special damages.”

Todd intended to address the issue of pleading an overt act that resulted in injury, not to require the pleading of special damages, the court says. “As a result, we overrule Todd and cases relying on Todd or other precedent, such as Lee, to the extent they impose or appear to impose a requirement of pleading (and proving) special damages.”

Requirements for a Civil Conspiracy Claim in South Carolina Going Forward

The SC Supreme Court goes on to clarify exactly what a plaintiff asserting a claim for civil conspiracy in South Carolina must establish in light of the Paradis v Charleston County School District decision. The elements are:

The combination or agreement of two or more persons,
To commit an unlawful act or a lawful act by unlawful means,
Together with the commission of an overt act in furtherance of the agreement, and
Damages proximately resulting to the plaintiff

By overruling Todd, the court says “we are returning not only to our historical roots, but also to the traditional elements of a civil conspiracy claim as they have been similarly defined by the majority of jurisdictions.”

Legal Help in South Carolina

Though the legal history and reasoning behind the Todd rule and why it was overturned may not be of much interest to people outside of the legal profession, the fact is that decisions of the South Carolina Supreme Court and Court of Appeals do have direct and tangible impacts on everyday people and will for years to come. Read more on our blog for recent decisions out of the SC Supreme Court and the Court of Appeals that affect business owners, families, property owners, and other South Carolinians.

For help with estate planning, business matters, and commercial real estate law in South Carolina, contact attorney Gem McDowell at the Gem McDowell Law Group. He and his team can help you plan for the future and avoid problems by looking ahead and staying on top of the latest in SC law. Schedule a free consultation to talk over your matter with Gem by calling the Mt. Pleasant office at 843-284-1021 or filling out this form.

How is Joint Tenants with Rights of Survivorship Created and Severed in South Carolina?

UPDATE: The Supreme Court of South Carolina took up this case on appeal and filed the opinion on September 18, 2024; read it here. It reversed in part, affirmed as modified in part, and remanded. The original post below covers the relevant background of the case and the decision of the South Carolina Court of Appeals. This brief update covers only the portion of the SC Supreme Court’s decision regarding joint tenancy with rights of survivorship (JTWROS).

The court upheld the decision of the lower courts allowing the joint tenancy between Jeffcoat and Perkins to be severed, though with different reasoning. Jeffcoat argued that South Carolina Code section 27-7-40 bars the unilateral severance of joint tenancy with rights of survivorship. The court declined to take a stand on the matter at this time, saying only that the statute doesn’t apply to the joint tenancy between Jeffcoat and Perkins. Their deed was executed over a month before the statute came into effect, and the statute does not apply retroactively. Therefore, their tenancy was subject to common law, which did allow the tenancy to be severed by unilateral conveyance by one cotenant to another party. With the joint tenancy severed, Jeffcoat and Williams are now tenants in common.

ORIGINALLY PUBLISHED FEB. 17, 2022:

One of the key benefits of holding property with someone as joint tenants with rights of survivorship is that when one cotenant dies, his/her share in the property automatically passes to the surviving cotenant(s). The property doesn’t pass through probate and it’s not subject to the decedent’s last will.

This makes joint tenancy with rights of survivorship (JTWROS) a popular choice for married and partnered couples. A common scenario is when one spouse dies, the surviving spouse stays in the home they had shared together, which is what most couples intend.

But JTWROS is no guarantee that this scenario will play out. If the joint tenancy is severed, the surviving cotenant automatically loses his/her rights of survivorship. He/She may even find himself/herself forced out of the home he/she shared for years with his/her partner/cotenant, if a court orders the partition and sale of the property.

That’s exactly what happened to Bradford Q. Jeffcoat, Jr., as described in Williams v Jeffcoat (find it here) which went before the South Carolina Court of Appeals in 2021. It’s an interesting case that delves into how JTWROS can be created and severed in South Carolina. If you currently own, or plan to own, property with another person as joint tenants, you should be aware of the court’s ruling in this case.

Williams v Jeffcoat Background

Jeffcoat and Sandra P. Perkins were domestic partners for twenty years. Together, they owned some real estate in Charleston that they held “jointly with right of survivorship, and not as tenants in common,” as per the deed. They lived there together from 2000 to 2015.

Starting in 2009, Perkins began suffering advanced dementia. By 2015, her condition had deteriorated to the point where Jeffcoat asked Perkins’ only child, Vanessa Williams, for help. Williams cared for her mother and took her back with her to her home in Alabama in June 2015.

Williams petitioned the Alabama Probate Court to appoint her conservator and guardian of her mother, which it did in September 2015. (Perkins had previously made Williams her agent in a durable power of attorney and a health care power of attorney.)

In November, Williams transferred her mother’s one-half interest in the Charleston property to herself in her capacity as her mother’s conservator. She then sought the partition and sale of the property. Her mother died this same month.

Both Williams and Jeffcoat filed motions for summary judgment. The case was heard by a master who granted Williams’ motion for summary judgment in June 2018 compelling the partition and sale of the Charleston property. Jeffcoat appealed.

Two issues were up for review: One was whether the Alabama Probate Court had subject matter jurisdiction to appoint Williams guardian and conservator for her mother; the SC Court of Appeals affirmed that it did. We won’t go into that issue further here, since our focus is joint tenancy with rights of survivorship. The other issue was whether the master erred in granting Williams’ motion for summary judgment compelling partition and sale.

To answer this second issue, the SC Court of Appeals went into detail in its opinion on how JTWROS are created and severed in South Carolina.

Creating Joint Tenancy with Rights of Survivorship in South Carolina

Joint tenancy can be established in SC either through statute or common law, states the SC Court of Appeals in the Williams v Jeffcoat opinion. People or parties that wish to own property together as joint tenants can do so by including the following words in the deed after their names: “as joint tenants with rights of survivorship, and not as tenants in common.” (“Tenants in common” is the other main way to hold property jointly in South Carolina, and there is also a third, less used alternative called “tenants in common with a right of survivorship” which you can read about on our blog here.)

Ending or Severing Joint Tenancy with Rights of Survivorship Under Statute in South Carolina

A joint tenancy with rights of survivorship can be severed in a number of ways under South Carolina law. Here are relevant parts of in SC Code 27-7-40 (and the full text is copied at the bottom of this blog post for reference as well):

(a) In addition to any other methods for the creation of a joint tenancy in real estate which may exist by law, whenever any deed of conveyance of real estate contains the names of the grantees followed by the words “as joint tenants with rights of survivorship, and not as tenants in common” the creation of a joint tenancy with rights of survivorship in the real estate is conclusively deemed to have been created. This joint tenancy includes, and is limited to, the following incidents of ownership:

(i) In the event of the death of a joint tenant, and in the event only one other joint tenant in the joint tenancy survives, the entire interest of the deceased joint tenant in the real estate vests in the surviving joint tenant, who is vested with the entire interest in the real estate owned by the joint tenants.

[…]

(v) If real estate is owned by only two joint tenants, a conveyance by one joint tenant to the other joint tenant terminates the joint tenancy and conveys the fee in the real estate to the other joint tenant.

[…]

(vii) Any joint tenancy in real estate held by a husband and wife with no other joint tenants is severed upon the filing of an order or decree dissolving their marriage and vests the interest in both the parties as tenants in common, unless an order or decree of a court of competent jurisdiction otherwise provides.

(viii) The interest of any joint tenant in a joint tenancy in real estate sold or conveyed by a court of competent jurisdiction where otherwise permitted by law severs the joint tenancy, unless the order or decree of such court otherwise provides and vests title in the parties as tenants in common.

(ix) If real estate is owned by two or more joint tenants, a conveyance by all the joint tenants to themselves as tenants in common severs the joint tenancy and conveys the fee in the real estate to these individuals as tenants in common.

[…]

(c) Except as expressly provided herein, any joint tenancy severed pursuant to the terms of this section is and becomes a tenancy in common without rights of survivorship. Nothing contained in this section shall be construed to create the estate of tenancy by the entireties. Nothing contained in this section amends any statute relating to joint tenancy with rights of survivorship in personal property but affects only real estate. The provisions of this section must be liberally construed to carry out the intentions of the parties. This section supersedes any conflicting provisions of Section 62-2-804.

In short, death, divorce, or sale/conveyance of a joint tenant’s interest in the property are the ways in which a JTWROS can be severed under SC law. The joint tenancy then converts to tenancy in common (if multiple cotenants remain) or sole ownership (if just one owner remains).

The Williams v Jeffcoat Decision Allows JTWROS to be Severed Under Common Law in South Carolina

In South Carolina, JTWROS can also be severed under common law, ruled the SC Court of Appeals in Williams v Jeffcoat.

Jeffcoat argued that SC Code 27-7-40 prohibits one cotenant from conveying his/her interest in the property to a third party, which would mean that the joint tenancy he shared with Perkins was not extinguished and that the master erred in granting Williams’ motion for summary judgment.

If you read the above statute closely, you might have noticed that conveyance of a joint tenant’s interest to a third party was not one of the methods for severing a joint tenancy listed under subsection (a). Furthermore, the last line of subsection (a) states “This joint tenancy includes, and is limited to, the following incidents of ownership” (emphasis added).

The SC Court of Appeals concedes that the statute does contain “limiting language” but finds that this “does not prohibit common law methods of severance but rather addresses the language below detailing a cotenant’s rights in the property upon a cotenant’s death and subsequent to any conveyances between the cotenants themselves.” In its decision, the court stresses the need to interpret language not in isolated phrases but as part of the whole statute and in light of the intent of the General Assembly. The court also relies on precedent set previously by the South Carolina Supreme Court in Smith v Cutler (2005), in which it stated, “Unlike a tenancy in common with a right of survivorship, a joint tenancy with a right of survivorship is capable of being defeated by the unilateral act of one joint tenant.”

Under common law, the court writes, a JTWROS requires the four unities to be valid: the unities of interest, title, time, and possession. Unity of interest means all joint tenants have an equal interest in the property. Unity of title means all joint tenants are made cotenants and owners by the same document. Unity of time means all joint tenants receive their interest in the property at the same. Unity of possession means all joint tenants have a right of possession of all parts of the property without restriction.

If one of those elements is destroyed, so is the joint tenancy – and the rights of survivorship along with it.

Therefore, under common law, when a cotenant conveys their interest in the property to a third party, the joint tenancy is severed. Williams’ conveyance of her mother’s one-half interest in the Charleston property did sever the joint tenancy and extinguish Jeffcoat’s rights of survivorship, and the SC Court of Appeals affirmed the master’s decision to grant Williams’ motion for summary judgment compelling the partition and sale of the Charleston property.

Note that this is a decision from the South Carolina Court of Appeals, and so there is still a possibility that it could be appealed to the South Carolina Supreme Court.

Protecting Your Interests with Smart Estate Planning

Smart estate planning can help you protect your assets now and ensure that your wishes are carried out once you’re gone. One challenge is to think through all the possible ways things could go wrong in the future and protect against them now. It’s probable that Jeffcoat assumed he would inherit Perkins’ half of the property they shared together, and he never considered the possibility of her interest in the property being conveyed away before her death. Otherwise, he might have been able to take steps to protect against that happening.

For smart estate planning in South Carolina, call estate planning attorney Gem McDowell. He and his team at the Gem McDowell Law Group can help you with important estate planning documents like last wills, trusts, powers of attorney, and more, all tailored to you and your specific circumstances. More importantly, he’s a problem solver who can help you understand difficulties that could arise in the future and what can be done now to avoid them. To schedule a free consultation, call Gem at his office in Mt. Pleasant, SC at 843-284-1021 today.

Addendum: Full Text of SC Code 27-7-40 Creation of joint tenancy; filing; severance

(ii) In the event of the death of a joint tenant survived by more than one joint tenant in the real estate, the entire interest of the deceased joint tenant vests equally in the surviving joint tenants who continues to own the entire interest owned by them as joint tenants with right of survivorship.

(iii) The fee interest in real estate held in joint tenancy may not be encumbered by a joint tenant acting alone without the joinder of the other joint tenant or tenants in the encumbrance.

(iv) If all the joint tenants who own real estate held in joint tenancy join in an encumbrance, the interest in the real estate is effectively encumbered to a third party or parties.

(vi) If real estate is owned by more than two joint tenants, a conveyance by one joint tenant to all the other joint tenants therein conveys his interest therein equally to the other joint tenants who continue to own the real estate as joint tenants with right of survivorship.

(b) The surviving joint tenant or tenants may, following the death of a joint tenant, file with the Register of Deeds of the county in which the real estate is located a certified copy of the certificate of death of the deceased joint tenant. The fee to be paid to the Register of Deeds for this filing is the same as the fee for the deed of conveyance. The Register of Deeds must index the certificate of death under the name of the deceased joint tenant in the grantor deed index of that office. The filing of the certificate of death is conclusive that the joint tenant is deceased and that the interest of the deceased joint tenant has vested by operation of law in the surviving joint tenant or tenants in the joint tenancy in real estate.

Source: South Carolina Legislature website

What is Inverse Condemnation? How Is It Different from Eminent Domain?

Let’s say a government agency undertakes a construction project that affects your ability to fully enjoy your property and reduces its value, which constitutes a “taking” on the part of the government. If the government acknowledges this taking before beginning construction and pays you just compensation for the use of your property, it has exercised its powers of eminent domain.

But what if the government doesn’t acknowledge the taking and doesn’t pay just compensation? This is where you might have a claim for inverse condemnation.

The concept of eminent domain – wherein the government has the right to use and take private property for the public good – is widely known. Less well known is the related concept of inverse condemnation. But property owners should be aware of what inverse condemnation is and when they may have a claim for it.

What is Inverse Condemnation? How is Inverse Condemnation Different from Eminent Domain?

“An inverse condemnation occurs when a government agency commits a taking of private property without exercising its formal powers of eminent domain,” in the words of the South Carolina Court of Appeals as quoted by the SC Supreme Court in Ray v City of Rock Hill, the case discussed below. (Find it here.)

In both eminent domain (also called condemnation) and inverse condemnation, the government takes or uses private property for the public good. The difference is that in eminent domain, the government initiates the process and pays the property owner just compensation for the taking. In inverse condemnation cases, the property owner initiates an action against the government agency because it did not declare a taking nor compensate the property owner accordingly.

What Forms the Basis of an Inverse Condemnation Claim? Examples of Inverse Condemnation

The classic example of eminent domain is when the government takes a piece of land in order to build a highway or public utility on it. But the taking doesn’t have to be physical to form the basis for an inverse condemnation claim. In fact, in inverse condemnation claims, it often isn’t.

The two most common broad categories of inverse condemnation claims are physical takings and regulatory takings. Physical takings include physical intrusion, damage to the property, and restriction of access, in addition to outright seizure. Regulatory takings involve government regulations and zoning ordinances that hamper a property owner’s ability to fully use and enjoy their property.

Examples of bases of inverse condemnation claims include:

The city builds a sewage plant on the lot next to the property, reducing its value
Government aircraft regularly flying so low that it disturbs the property
DOT removes the property’s access to a highway it depends on for business
A government project that leads to runoff, contaminating the property
Noise pollution from a freeway built next to the property
Restrictive zoning ordinances that prevent the property’s owner from developing it to its fullest potential

In inverse condemnation claims, the burden of proof is on the property owner. The property owner will sue the government agency and try to prove to the court that a taking did occur. If the court agrees, the property owner can then seek damages.

Inverse Condemnation in South Carolina

Property owners are entitled to just compensation when the government takes private property for public use. This protection is found in the Fifth Amendment of the US Constitution – “nor shall private property be taken for public use, without just compensation” – as well as in Article I, Section 13 of the South Carolina Constitution and in South Carolina Code Title 28.

Previous court cases in the state have established the following criteria for showing inverse condemnation:

An affirmative, positive, aggressive act on the part of the governmental agency;
A taking;
The taking is for public use; and
The taking has some degree of permanence”

The expression “affirmative, positive, aggressive act” is key here. It is not enough for the government to simply not act; it must take action that constitutes a taking of the property.

The issue of whether the City of Rock Hill in South Carolina committed an “affirmative, positive, aggressive act” was central to the case of Ray v City of Rock Hill, which the SC Supreme Court heard in 2021.

Ray v City of Rock Hill Background

In 1985, Lucille H. Ray bought a house and lot in Rock Hill on College Avenue (the Property). Before the house was built in the 1920s, someone installed a 24-inch terra cotta pipe (the Pipe) underground on the Property. In addition, three City of Rock Hill stormwater pipes nearby collect and transport water from the neighborhood and bring it to a catch basin located directly in front of the Property on College Avenue. The Pipe is connected to this catch basin, and it channels stormwater from the catch basin to the back of the Property. It has done this for approximately 100 years since the Pipe was installed.

Unsurprisingly, all of this water has affected the Property over time. Ray reported that she saw her gardener fall into a sinkhole up to the waist in 1992, and later she became aware of bending and movement in her home’s roof frame and hired a contractor to fix the problem in 1995 and again in 2007. In 2008, Ray noticed that her front porch steps were sinking. She contacted the City about it and an employee told her about the Pipe. (The court notes there was no record of an easement for piping water under the Property.)

Did the City Commit an Affirmative, Positive, Aggressive Act?

It wasn’t until November 6, 2012 that Ray sued the City for inverse condemnation. She alleged that the Pipe was deteriorating and the water running through it, which came from the catch basin, was the cause of her home’s foundation problems. Coincidentally, right around this time the City began a sewer maintenance project (the Sewer Project). The City dug up part of College Avenue in front of the Property and severed the three stormwater pipes connected to the catch basin in order to reach a sewer line underneath.

Ray’s attorney then wrote to the City demanding that the City not reconnect the three stormwater pipes it had severed during the Sewer Project. That action would begin bringing water flowing again into the catch basin, which would be funneled to the back of the Property by the Pipe.

But the City did reconnect the three pipes. Ray believes this was an “affirmative, positive, aggressive act” by the City. The SC Supreme Court agreed.

The Twist in This Case

The City argued that Ray missed the three-year statute of limitations to bring a claim. In 2008, she noticed her front porch steps sinking and called the City about it, but it wasn’t until 2012 that she filed suit. The court agree that Ray should have reasonably known in 2008 that she had a claim. That means that she missed the three-year cutoff because she didn’t initiate a claim by 2011.

But here’s the twist in the case, as the court calls it. The Sewer Project happened to commence soon after Ray filed her lawsuit against the City. When it reconnected the three pipes, it began the flow of water from the catch basin via the Pipe onto the Property anew. The court determined that Ray can only recover compensation for damage done to the Property after the City reconnected the three stormwater pipes. The SC Supreme Court remanded the case back to circuit court to determine whether such damage did occur.

Help with Commercial Real Estate

Inverse condemnation claims can be challenging to win. You can see that in the case above, it went all the way to the Supreme Court of South Carolina as each court came to different conclusions about whether the claim was legitimate or not. But sometimes bringing an inverse condemnation claim is the only way to get just compensation for a government’s taking of your property.

Real estate law is complex. For help with legal commercial real estate issues, contact attorney Gem McDowell of the Gem McDowell Law Group. He helps businesses in South Carolina with a variety of legal matters including acquisition and sales, financing, land use planning and development, title search review, and regulatory, zoning, and environmental issues review. (Note that Gem advises on matters of inverse condemnation but does not handle such cases start to finish.) Call Gem and his team at the office in Mt. Pleasant, SC to schedule a free consultation today at 843-284-1021.

What Powers Does a Power of Attorney Give Me?

A power of attorney (POA) is a document that authorizes a person (the “agent” or “attorney in fact”) to act on behalf of another person (the “principal”). Different kinds of POAs grant different kinds of authority. (For more on the basics of the financial power of attorney, the health care power of attorney, and the difference between limited, general, durable, and springing powers of attorney, check out this blog.)

If you’ve been named as an agent in a power of attorney, or if you are the principal, you might be wondering exactly what powers a power of attorney grants.

The answer is that it depends. The exact powers you have as an agent, or grant as a principal, depend on the wording of your power of attorney. That’s why it’s important to know exactly what’s in your POA(s). Sometimes the powers granted come down to the interpretation of just a word or two, as one woman who signed a document on behalf of her father discovered in a recent South Carolina Supreme Court case, Arredondo v. SNH SE Ashley River Tenant, LLC (read the opinion here). That case is discussed in detail below to show just how important the language in your estate planning documents can be.

But first, here are some examples of powers that POAs commonly grant to agents.

Powers Commonly Granted by a Power of Attorney

Different types of POAs grant different types of powers. Here are some examples.

A health care power of attorney, also called a medical power of attorney, may include the power of the agent to:

Make decisions about the principal’s treatment, medication, surgery, pain relief options, and other care
Discharge the principal from the hospital or other facility
Access the principal’s medical records
Sign documents related to the principal’s care

A financial power of attorney (which may be “general” or “durable”) may include the power of the agent to:

Open, close, and access bank accounts and other financial accounts
Buy and sell the principal’s property, like their house or stocks and bonds
Collect debts owed to the principal and settle debts owed by the principal
Financially care for principal’s family with assets from the principal’s estate
Sign legal documents

Note that these lists are not exhaustive.

Both types of POAs typically include language to the effect that the agent must act in the best interest of the principal. Generally, the agent is not held liable for mistakes made in good faith when carrying out their role as agent.

Words Matter: Close Reading of Powers of Attorney in Arredondo

Remember that the bullet points above are just examples of the types of powers that POAs can grant. Because POAs are not standardized documents, it means that the exact powers granted depend on the exact wording in an individual power of attorney. Arredondo v. SNH SE Ashley River Tenant, LLC is a case in point. At the heart of the matter is whether a woman was authorized under a POA to sign an arbitration agreement on behalf of her father.

We’re going into detail here in order to show just how important individual words and phrases can be in legal documents. It’s also an interesting look at the way different courts in South Carolina interpret the same language to come to different conclusions.

The Background

In October 2012, Thayer W. Arredondo placed Hubert Whaley, her 84-year-old father suffering from dementia, into an assisted living facility in Charleston owned by the Respondents in the case. At the time her father was admitted, Arredondo had authority to act as her father’s agent under two separate powers of attorney, a General Durable Power of Attorney (GDPOA) and a Health Care Power of Attorney (HCPOA).

As her father’s agent, she signed several documents when they first arrived at the facility. She signed more a while later, including an arbitration agreement. The agreement waived the right to a trial by judge or jury and required arbitration for claims over $25,000, barred appeals, prohibited punitive damages, limited discovery, and gave Respondents the unilateral right to amend the agreement.

The Lawsuits

In February 2014, Whaley was admitted to Bon Secours St. Francis Hospital where he died six days later. Arredondo brought a wrongful death claim against Respondents, stating that the Respondents’ negligence and recklessness caused her father’s death. The Respondents moved to compel arbitration based on the agreement she had signed.

Arredondo argued that 1) the POAs that named her as an agent for her father did not give her the authority to sign the arbitration agreement, so she was not bound by it, and 2) even if they had, the agreement was “unconscionable” and therefore unenforceable.

The circuit court found in favor of Arredondo, ruling that neither POA gave Arredondo the authority to sign the arbitration agreement and that even if they had, the agreement was unconscionable. The South Carolina Court of Appeals reversed this decision, holding that Arredondo did have the authority and that the agreement was not unconscionable.

The case then went to the Supreme Court of South Carolina, which reversed the appeals court’s decision, finding that Arredondo didn’t have authority to sign the agreement under the POAs. It did not address the question of whether the agreement was unconscionable.

Interpreting the Language in the POAs

How is it that the appeals court and the supreme court came to opposite conclusions?

First let’s look at the relevant sections in the POAs.

The general durable POA gave Arredondo the power “To make, sign, execute, issue, assign, transfer, endorse, release, satisfy and deliver any and all instruments or writing of every kind and description whatsoever, whether sealed or unsealed, of, in or concerning any or all of my business affairs, property or other assets whatsoever, including all property, real, personal or mixed, stocks, securities and choses in action, and wheresoever situated, including, without limiting the generality hereof thereto, notes, bonds, mortgages, leases, deeds, conveyances, bills of sale, and assignments, endorsements, releases, satisfactions, pledges or any agreements concerning any transfers of the above or of any other property, right or thing.” (Emphasis added.)

The health care POA gave Arredondo the power “To take any other action necessary to making, documenting, and assuring implementation of decisions concerning my health care, including, but not limited to, granting any waiver or release from liability required by any hospital, physician, nursing care provider, or other health care provider; signing any documents relating to refusals of treatment or the leaving of a facility against medical advice, and pursuing any legal action in my name, and at the expense of my estate to force compliance with my wishes as determined by my agent, or to seek actual or punitive damages for the failure to comply.” (Emphasis added.)

At first reading, these long paragraphs of dense legalese sound (at least to the layperson) like they cover pretty much everything. Surely Arredondo was authorized under one or both of these paragraphs to sign the arbitration agreement in question, wasn’t she?

But the SC Supreme Court’s close reading found that this wasn’t so, and it countered all the arguments of the Respondents and the SC Court of Appeals.

Argument 1: “Choses in action”

The GDPOA contains an old term that comes from common law and isn’t used often in modern law, “choses in action.” The SC Supreme Court defines it here as “a type of property interest or a proprietary right to a claim or debt.” The appeals court interpreted the term broadly enough to encompass the signing of the arbitration agreement. But the supreme court agreed with Arredondo that the appeals court’s definition was too broad, and “the arbitration agreement did not concern a chose in action or any other property right Whaley possessed at the time Arredondo signed it.”

(As a side note, Justice Few wrote a separate concurring opinion making known his dislike of the continued use of the imprecise, “obsolete,” and “antiquated” term.)

Argument 2: “Any other property, right or thing”

The SC Court of Appeals also stated that Arredondo was authorized to sign the arbitration agreement under the GDPOA because the authority it gave her extended to “any other property, right or thing.”

But this short phrase is taken out of context, the supreme court says; a longer reading of the text changes its meaning. Arredondo was given the authority to execute “any agreements concerning any transfers of the above or of any other property, right or thing.” (Emphasis added by the supreme court.) The arbitration agreement was essentially a series of waivers and had nothing to do with transferring any kind of “property, right or thing”; therefore, this language in the GDPOA doesn’t give Arredondo the authority, either.

Argument 3: Title of GDPOA

The Respondents argued that the very title of the POA – “General Durable Power of Attorney” – was intended to give Arredondo broad authority to act as an agent for her father’s care. But the supreme court states that it does not rely on a title, but rather the provisions within the POA to determine what the scope of her authority was, continuing, “Certainly, the GDPOA could have been drafted to give Arredondo the broad power to sign all documents Whaley could sign himself or otherwise do anything Whaley could do himself, but it was not so drafted.”

Argument 4: “Necessary”

Moving on to the HCPOA, the supreme court asked: Was it “necessary” for Arredondo to sign the arbitration agreement in order to act in the best interest of her father’s health?

Arredondo submitted an affidavit in which she said that the facility representative told her she had to sign the arbitration agreement for her father to be admitted. But the Respondents “consistently maintained” that signing the arbitration agreement was not a requirement for Arredondo’s father to be admitted to the facility. And indeed, by the time Arredondo signed the agreement, her father had already been admitted and given a room. At that point, Whaley had statutory protections and could not be discharged from the facility on the basis of Arredondo refusing to sign the arbitration agreement.

Since signing the arbitration agreement was not “necessary,” it was not authorized under this HCPOA.

Argument 5: “Required”

Similarly, was signing the arbitration agreement “required” by the facility to provide the care Arredondo’s father needed?

By the same reasoning above, the answer is no. Whaley was already admitted to the facility before Arredondo signed the agreement, so it could not have been a requirement.

Argument 6: Authority to pursue legal action

The appeals court also held that the clause above gave Arredondo the authority to pursue any legal action in her father’s name, which included signing the arbitration agreement. But the supreme court notes that the language gives Arredondo authority only to pursue legal action to “force compliance,” which is not applicable here. Citing a Kentucky Supreme Court decision Wellner, the South Carolina Supreme Court held that a pre-dispute arbitration agreement was not authorized by the HCPOA as it did not constitute the pursuit of legal action.

The Takeaway: Know What’s in Your POA

The SC Supreme Court went point by point and found that none of the language in either of the powers of attorney gave Arredondo authority to sign the arbitration agreement as her father’s agent, and it reversed the decision of the SC Court of Appeals.

While this ultimately worked out in Arredondo’s favor, it came at the cost of a long legal battle, during which time she was not able to pursue her original claim against the Respondents.

You cannot rely on the South Carolina Supreme Court finding in your favor. The easier thing to do is to know exactly what’s in any POA you sign or that names you as an agent. Don’t assume anything! Read your POA closely and take it to an estate planning attorney to discuss it if you’re unclear.

Personalized Estate Planning and Advice

For help with estate planning in South Carolina, including powers of attorney, call attorney Gem McDowell of the Gem McDowell Law Group. Gem believes that every situation is different and that estate planning documents should be tailored to the individual and family to reflect their unique circumstances.

Gem and his team can help you draft or revise powers of attorney as well as wills, trusts, and other estate planning documents. They can also give advice on contracts and other legal documents before you sign them so you know exactly what you’re signing and you have someone looking out for your best interests. Call the law office, located in Mt. Pleasant and serving the Charleston area and beyond, today at 843-284-1021 to schedule a free, no-obligation consultation.

Employee or Independent Contractor? A Closer Look at the Four-Factor Model

How do you know whether a worker in South Carolina should be classified as an employee or an independent contractor? The decision has big consequences for both employer and worker, as that classification impacts taxes, workers’ compensation, and more.

While the IRS has its own standard for determining whether a worker should receive a 1099 or a W-2 (which you can read about in this blog), right now we’ll focus on how the State of South Carolina approaches this question.

The Four-Factor Model to Determine Employment Status

For many decades, South Carolina courts have used what is called the four-factor model or four-factor test to determine whether a worker should be considered an employee or an independent contractor.

The four factors are:

The right or exercise of control;
Furnishing of equipment;
Method of payment; and
The right to fire.

Let’s look a closer look at all four.

The right or exercise of control. When an employer controls or directs the worker – or has the right to, even if that right is not exercised – that denotes an employer-employee relationship. An employee is told when to do their job, how to do it, and is typically supervised to some degree. In contrast, an independent contractor decides their own hours, determines how to do their work, and works without supervision.

Furnishing of equipment. When equipment is furnished by the employer to the worker to complete their job, that’s evidence in favor of an employee classification. An employee uses, for example, the computer and desk, or truck and tools, of the employer at the employer’s expense. An independent contractor uses their own materials and tools at their own expense.

Method of payment. Time-based payment tends to show an employee relationship while project-based payment tends to show an independent contractor relationship.

Right to fire. South Carolina is an at-will employment state meaning that an employer can fire an employee and end the relationship immediately with no further obligations or liabilities (assuming the termination was not unlawful). In contrast, many independent contracts include clauses in their contracts that require full or partial payment if a job is terminated unexpectedly before its conclusion.

When determining the status of a worker, no single factor is determinative, and South Carolina courts weigh all the evidence to come to a conclusion. The examples above are as black-and-white as possible, but when these types of cases reach the Court of Appeals or the Supreme Court of South Carolina, they are never as clear cut.

The Four-Factor Model Put to the Test in Ramirez v May River Roofing, Inc.

A case heard in the South Carolina Court of Appeals in November 2020, Ramirez v May River Roofing, Inc. (read the opinion here), shows the four-factor model in action and how SC courts approach the issue of determining a worker’s classification.

The Background

Francisco Cedano Ramirez started a business as a sole proprietor called Cedano Roofing. About a year later, he began working for a company called May River Roofing, Inc., and he worked “continuously and exclusively” with them for approximately three years.

In January 2016, Ramirez was on a roofing job when he fell to the ground, a fall of about 16 feet, and sustained “significant injuries to his back, neck, shoulders, chest, ribs, lungs, and upper extremities” as a result.

The Claims

Ramirez filed a claim for workers’ compensation on the basis that he was May River’s direct or statutory employee.

The Single Commissioner at the SC Workers’ Compensation Commission determined that Ramirez was neither a direct employee nor a statutory employee of May River, but an independent contractor, and therefore was not eligible for workers’ compensation benefits. Ramirez appealed and an appellate panel affirmed the decision.

This appeal followed in which the SC Court of Appeals looked at the evidence de novo to come to its own conclusion about whether Ramirez was an employee of May River and thus eligible for workers’ comp benefits.

Weighing the Evidence to Determine Employee or Independent Contractor Classification

Statutory employee: A statutory employee is worker whose income is treated as if they’re an independent contractor but whose taxes are treated as if they’re an employee. In South Carolina, “settled law commands” a sole proprietor may not be considered a statutory employee, so Ramirez’s claim that he was a statutory employee of May River was denied.

Direct employee: Here the court spends time looking at the evidence using the four-factor model.

Right or Exercise of Control

Factors in favor of independent contractor classification:

Ramirez had “a great deal of autonomy”
Ramirez set his own schedule
Ramirez did not punch a time clock
Ramirez was free to negotiate for additional payment or decline the job
Ramirez was free to hire additional help on a job without approval from May River

Factors in favor of employee classification:

Ramirez was required to wear a May River branded t-shirt at the jobsite
Ramirez was required to display a magnetic May River decal on his truck
Ramirez worked exclusively with May River for three years, which suggested to the court that May River had the right to control Ramirez by withholding work

There was also conflicting testimony about the level of supervision, so that was not considered as a factor in favor of either party.

The court acknowledges that May River’s control over Ramirez’s appearance and their exclusive working relationship might seem “trivial” but thinks they are not. It concluded that May River’s control over Ramirez was more than that of a typical employer-independent contractor relationship and concluded that this factor weighed in favor of an employee relationship.

Furnishing Equipment

Factors in favor of independent contractor classification:

Ramirez provided his own tools
Ramirez provided his own vehicle

Factors in favor of employee classification:

May River provided Ramirez with all the materials used in the roofing jobs
May River gave Ramirez a branded t-shirt and magnetic truck decal he was required to display

The court concluded that May River furnishing all the materials at its own expense showed “direct evidence of control” over Ramirez and found that this factor also weighed in favor of employee classification.

Method of Payment

Factors in favor of independent contractor classification:

Ramirez was paid “per roofing square” for roofing work (the majority of the work he did)

Factors in favor of employee classification:

Ramirez was paid by the hour for repair work (a minority of the work he did)

Because the majority of Ramirez’s work was paid on a project or piecemeal basis and his payment did not depend on the amount of time he spent working, the court concluded that this favored an independent contractor relationship.

Right to Fire

The court did not find any evidence that weighed in favor of either party.

Conclusion: Employee Relationship

The evidence in this case was a mix of factors in favor of both employee relationship and independent contractor relationship. However, after considering all the evidence the court concluded that May River and Ramirez did have an employer-employee relationship, meaning that Ramirez was eligible for workers’ compensation benefits.

Employers Take Note – South Carolina Courts Favor the Employee Classification

Even though Ramirez set his own schedule, had freedom to negotiate payment, could hire help without approval, was paid per roofing square the majority of the time, and used his own vehicle and tools, the SC Court of Appeals still found that the relationship he had with May River constituted an employer-employee relationship.

This reflects the tendency of South Carolina courts to strongly favor the employee classification over the independent contractor classification when it comes to cases involving benefits for injured workers. “The general rule is that workers’ compensation law is to be liberally construed in favor of coverage in order to serve the beneficent purpose of the [Workers’ Compensation] Act; only exceptions and restrictions on coverage are to be strictly construed,” the SC Court of Appeals states in this opinion. While this has long been a general rule, this bias towards employee classification has been even stronger since the Lewis v L. B. Dynasty (2015) case (covered briefly in the 1099/W-2 blog).

If you’re an employer, keep this in mind when hiring and classifying workers. You must treat independent contractors like independent contractors. Seemingly small things, like asking your worker to wear a branded t-shirt, can become evidence of an employer-employee relationship, as seen in this case. Otherwise, hire the worker as an employee so they have the protections they’re entitled to under South Carolina law.

Business Law and Strategic Advice

For help with starting, running, or ending a business, call attorney Gem McDowell of the Gem McDowell Law Group. He and his team help business owners in the Charleston area and across South Carolina with forming LCCs and corporations, drafting corporate governance documents like buy-sell agreements, handling commercial real estate transactions, and more. Gem is also a problem solver who can give you strategic advice so you can avoid problems and protect yourself and your assets. Call him at his Mt. Pleasant office today at 843-284-1021 to schedule a free consultation.

Tenants in Common with a Right of Survivorship: A Third Alternative in South Carolina

If you’ve bought property in South Carolina with another person or multiple people, then you might be familiar with the terms “tenants in common” and “joint tenants with rights of survivorship.” These are the two standard alternatives that determine the way multiple parties can own real property together in the state.

But did you know that in South Carolina there’s a third option? It’s so rarely used that not even the SC Court of Appeals knew about it when it heard Smith v Cutler, which then went to the SC Supreme Court in 2005. In its opinion (here), the SC Supreme Court goes into detail about this third option, called “tenants in common with a right of survivorship,” and how it came to be.

Tenants in common with a right of survivorship has elements of both tenants in common and joint tenants with right of survivorship. We’ll look at the latter two (the most common) first, then get into Smith v Cutler.

“Tenants in Common” versus “Joint Tenants with the Right of Survivorship”

What’s the difference between tenants in common and joint tenants with a right of survivorship? In South Carolina, this is what it means to own property with another party or parties:

As tenants in common:

Each party owns a share of the property, and that share can be unequal
When one party dies, their share of the property goes to an heir as directed by their will (or according to state law, if they die intestate)
A party may sell or convey their share of the property without permission of the other party or parties
The property is subject to partition

As joint tenants with rights of survivorship:

All parties own the whole property together (i.e., the property is not divided into shares)
When one party dies, their interest passes automatically to the other party or parties (without going through probate), and the property remains undivided and intact
A party may sell or convey their interest in the property at any time before their death, but at death their interest will still pass to the other party or parties
The property is subject to partition

Married couples in South Carolina most commonly own property together as joint tenants with rights of survivorship. The advantage is that when one spouse dies, the surviving spouse automatically takes ownership of the property without it being subject to probate. When a couple that owns property together as joint tenants divorces, the ownership converts to a tenancy in common.

“Tenants in Common with a Right of Survivorship”

The third and less well-known option combines elements of both of the above. When parties own property together as tenants in common with a right of survivorship:

Each party owns a share of the property, and that share can be unequal
When one party dies, their interest passes automatically to the other party or parties (without going through probate), and the property remains undivided and intact
Parties may not sell or convey their interest in the property without the consent of the other party or parties
The property is not subject to partition

The last two points are what distinguish this type of ownership from the two above. It’s similar to “tenancy by the entirety” which is a way for multiple parties to own property together in some other states but not in South Carolina.

Smith v Cutler Reaffirms Tenancy in Common with a Right of Survivorship

As stated above, this third type of ownership is so rare in South Carolina that even the SC Court of Appeals didn’t seem to know about it. But the SC Supreme Court reaffirmed the validity of the tenancy in common with a right of survivorship in Smith v Cutler.

Ernest J. Smith, Sr. and Joanne Rucker Smith married in June 2000 when he was in his 80s and she was in her 70s. Joanne owned a parcel of land in its entirety until she deeded a 50% share to her husband in August 2000. She wanted to ensure that if she died before him, he would inherit the property.

The language in the deed stated that the property was to be owned “for and during their joint lives and upon the death of either of them, then to the survivor of them, his or her heirs and assigns forever in fee simple.”

A few years later, family conflict led to the following legal action. Ernest J. Smith, Sr. became incapacitated and his son (the Respondent in this case), as personal representative of his father, brought a partition action to divide the property. If successful, the action would force the sale of the property that Joanne had owned most of her life and that had been her home since 1958. At the time the action was brought, Ernest Sr. and Joanne were still married and there was no evidence that they intended to divorce.

The case went to the master-in-equity who granted the Respondent’s motion for summary judgment allowing the partition, ruling that the deed was consistent with the laws of joint tenants with rights of survivorship. The SC Court of Appeals affirmed the decision.

Joanne’s personal representative, Verne E. Cutler (the Petitioner in this case), appealed, and the case went to the Supreme Court of South Carolina in 2005.

The SC Supreme Court’s Answer to Tenancy by the Entirety

The supreme court found in favor of the Petitioner, meaning that the partition action was denied, and the property would remain intact.

That’s because the deed did not contain language consistent with joint tenants with a right of survivorship. The language was consistent with tenancy in common with a right of survivorship, which the SC Supreme Court “created” (in its own words) in 1953 in the case Davis v Davis (find the opinion here). Property owned in this manner cannot be compelled to partition by the act of one owner – all owners must agree – and when a party dies their interest automatically goes to the survivor. This effectively allows married couples to own property together in a manner similar to tenancy by the entirety which is otherwise not recognized under South Carolina law.

For Complex Matters of Estate Planning, Work with Gem McDowell

Estate planning can be complex, and changing laws can affect the way your estate plan plays out. For help with wills, trusts, powers of attorney, and other estate planning documents, call Gem McDowell of the Gem McDowell Law Group in Mt. Pleasant. He and his team help people in the Charleston area and across South Carolina create an estate plan that will carry out their wishes and reflects current inheritance and tax laws. Gem is a problem solver who can advise you on how to protect your assets, divide your estate, and avoid problems. Call the office today at 843-284-1021 to schedule a free, no obligation consultation.

Can You Be Bound by an Arbitration Clause You Didn’t Agree to?

In June 2016, 90-year-old Bonnie Walker moved into the Brookdale Senior Living Center, a residential care facility in Charleston, SC. Six weeks later, she wandered out of the center one evening, and the following day her body was found by family members at a retention pond on the property, where she had been maimed and dismembered by an alligator.

This tragic event forms the basis of Weaver v. Brookdale Senior Living, Inc. (find the opinion here), a case heard by the South Carolina Court of Appeals in 2020. Walker’s granddaughter Stephanie Walker Weaver brought a lawsuit in her personal capacity (rather than on behalf of her deceased grandmother or anyone else) against the facility, its owner, and its director (collectively, the Appellants) for negligence, negligent infliction of emotional distress, and intentional infliction of emotional distress.

However, those aren’t the main issues for the court here. Instead, the court focuses on arbitration – specifically, whether the Appellants could compel Weaver to arbitration.

Arbitration and Potent Public Policy

Arbitration is an effective form of alternative dispute resolution (ADR) that settles matters out of the courtroom. In binding arbitration, the outcome is legally binding, just as it would be in litigation. Unlike litigation, however, arbitration is typically less expensive and faster in reaching a resolution. Another benefit of arbitration is that it keeps private business private, as opposed to resolving an issue in court where it becomes a matter of public record.

In this case, the Appellants say the trial court erred by denying their motion to compel Weaver to arbitration because there is strong state and federal policy favoring arbitration. The court of appeals agrees there is “potent” public policy favoring arbitration, but only in terms of interpreting and enforcing arbitration agreements that are entered into validly. The Federal Arbitration Act, which was signed in 1925 and applies to both state and federal courts, commands that arbitration agreements be treated like other contracts – no better or worse – but it doesn’t compel arbitration where mutual agreement among parties to arbitrate is absent. Nor does it give Appellants a “leg up,” in the words of the appeals court, in determining whether a valid arbitration agreement exists in the first place.

With this in mind, the issue in the present case is to determine whether a valid arbitration agreement exists: Are Weaver and the Appellants bound by a valid arbitration agreement?

When Nonsignatories Can Be Bound to Arbitration Agreements

If you’ve signed many contracts in your life or clicked “I Agree” on terms of service online, there’s a high chance you’ve agreed to binding arbitration with certain parties. That’s because standalone arbitration agreements and arbitration clauses within contracts are now commonplace. In those situations, you’ve agreed that you and the other party will settle disputes through arbitration rather than through litigation.

The residency agreement that Weaver’s grandmother signed when she entered the Brookdale facility contained an arbitration provision. It not only bound Walker to arbitration, but “third parties not signatories to this Arbitration provision,” including her family members, too.

However, Weaver herself never signed such an agreement with Brookdale, and there’s no evidence that she was aware of the content of the agreement her grandmother signed, yet the Appellants moved to compel her to arbitration. How is this possible?

In South Carolina, state law says that that nonsignatories can be bound to arbitration in an agreement they were not a party to under a number of theories, such as incorporation by reference, assumption, veil piercing/alter ego, and estoppel. For appellants, there’s only one theory: equitable estoppel, also called direct benefits estoppel in arbitration.

Equitable Estoppel, or Direct Benefits Estoppel

Equitable estoppel prevents someone taking legal action that goes against their previously stated words or prior behavior. The idea of equitable estoppel is that the party wishing to use it was in some way misled by the other party.

Under equitable estoppel/direct benefits estoppel, a nonsigner can be compelled to comply with a contract’s arbitration provision if all three of these conditions are met:

The nonsigner’s claim arises from the contractual relationship;
The nonsigner has “exploited” other parts of the contract by reaping its benefits; and
The claim relies solely on the contract terms to impose liability

As to the first point, the court of appeals concludes that Weaver’s claims do not arise from the contractual relationship. Her claims are not about how the Appellants breached any provision(s) in the residency agreement entered into with her grandmother; rather, they’re about general duties Appellants owe to everyone.

For instance, the court notes that one of Weaver’s claims was for emotional distress over the Appellants’ mishandling and failure to safeguard her grandmother’s remains. There is no provision in the residency agreement Walker signed relating to handling of remains. So Weaver’s claims do not arise directly from the contractual relationship between Walker and the Appellants, meaning the first of the three conditions is not met.

As to the second point, the court concludes that Weaver “exploited” and otherwise benefited from the residency agreement as much as “a pedestrian run over by a truck has benefited from the contract for the purchase of the truck” – that is to say, not at all. Therefore the second condition is not met, either.

Since all three conditions must be met and the first two weren’t, equitable estoppel cannot be used here. The court of appeals concludes that there is no valid arbitration agreement between Weaver and Brookdale and therefore affirms the trial court’s denial of the Appellants’ motion to compel arbitration.

Legal Help for Strong Contracts

Whatever side of the agreement you’re on, it’s important to understand the rights and limitations relating to arbitration whenever you sign a contract or agree to terms of service that include an arbitration provision. South Carolina courts have enforced arbitration agreements when valid but do not go so far as to bind nonsignatories to arbitration except under certain conditions.

For help with arbitration clauses, contracts, and other business matters, contact Gem McDowell at the Gem McDowell Law Group in Mt. Pleasant, SC. He and his associates serve clients in the Charleston area and across South Carolina, protecting their business interests and helping them plan for the future. If you have an issue to discuss or are looking for an experienced business attorney to advise you, call Gem today at 843-284-1021 to schedule a free consultation.

Is Promissory Estoppel Subject to Statute of Limitations in South Carolina?

Thomerson v. DeVito came to the Supreme Court of South Carolina on certification from the U.S. District Court for the District of South Carolina, as the U.S. District Court needed a matter of South Carolina law settled before it was able to issue a full judgment in the case. (Read the SC Supreme Court’s opinion here.)

The certified question is: “Does the three-year statute of limitations of S.C. Code Ann 15-3-530 apply to claims for promissory estoppel?”

First let’s briefly look at the background of the case, then at what promissory estoppel is, and finally at how the court answered the question and the reasoning behind it.

Thomerson v. DeVito

Johnny Thomerson was hired at Lenco Marine, a boat products manufacturer, and stated that in employment negotiations he (along with another employee) discussed getting ownership interest in the company as part of his compensation package. Richard DeVito, president of Lenco at the time, said they’d “work on that as we go down the road,” and the subject was dropped.

A few years later, in early 2009, DeVito told Thomerson and the other employee that Lenco was buying back 15% interest from a minority shareholder, and the plan was to distribute those shares in equal 3% amounts to five separate employees. Thomerson stated that he believed the shares would be issued when the buyback occurred.

But by 2011, Thomerson still hadn’t received any shares. He asked DeVito about it, who said he didn’t want to distribute shares while the company was involved in a lawsuit. By 2013, the lawsuit had been settled, but DeVito continued to put Thomerson off about the ownership shares. (By this time, the other employee had left the company, without ever receiving the promised 3% interest.) In 2016, DeVito finally admitted he was not going to fulfill the promise he made to Thomerson to give him 3% ownership interest in the company.

In 2018, Thomerson brought a lawsuit against DeVito and Samuel Mullinax, CEO of Lenco at the time in question (collectively, the Defendants), in federal district court. The court granted summary judgment in favor of the Defendants on all but one of Thomerson’s many claims on the basis that they were barred by the three-year statute of limitations. The court determined that the three years started counting down in 2013 after the lawsuit against Lenco was settled and DeVito still refused to give Thomerson the promised ownership interest. To be in time, Thomerson should have filed by 2016, but he didn’t bring suit until 2018.

The one claim the district court didn’t grant summary judgment on was Thomerson’s claim of promissory estoppel, as it was unclear whether the statute of limitations applies to promissory estoppel in South Carolina.

What is Promissory Estoppel?

First, what is promissory estoppel? Promissory estoppel is a legal doctrine that says a promise is enforceable by law when the person making the promise goes back on their word to the detriment of the person they made the promise to. This is true even when there’s no valid written agreement memorializing the promise. When it’s enforced, the promiser must follow through on their promise, or somehow make it up to the wronged party if the promise can no longer be kept.

In the Thomerson case, DeVito promised Thomerson a 3% share of ownership in the company but went back on his word. So when Lenco Marine was sold to another company in 2016, Thomerson didn’t see any money from the sale because he never received the ownership interest he was promised.

Since Thomerson’s five other claims were barred by the district court, promissory estoppel was the only claim left that could bring him relief – if the Supreme Court of South Carolina determined that the statute of limitations is not applicable to promissory estoppel.

Is Promissory Estoppel Subject to Statute of Limitations in South Carolina?

No. The Supreme Court of South Carolina determined that promissory estoppel is not subject to the three-year statute of limitations in the state.

Most of the opinion is the legal reasoning and discussion behind this conclusion, which is too detailed to cover fully on this blog, but here are some of the main points.

The South Carolina Supreme Court has recognized that the statute of limitations applies to actions at law (that is, where legal relief is sought, often monetary damages), while laches applies to suits in equity (that is, where equitable relief is sought, such as an injunction or specific performance, rather than monetary damages). Whether promissory estoppel is subject to the statute of limitations depends on whether it’s characterized as a legal or equitable claim.

The court ultimately reasons that it’s an equitable claim, which is subject to laches rather than the statute of limitations. This is true even if in certain cases the relief being sought is monetary. For instance, in Thomerson, the equitable remedy of enforcing the promise by making the Defendants give Thomerson 3% ownership interest in the company is impossible because the company has already been sold. The fair remedy now would be monetary damages to make up for what Thomerson would have received in the sale had he originally been given the 3% he was promised.

Legal Help with Contract Law and Business Law in South Carolina

Though promissory estoppel can be enforced in some circumstances even when a written contract isn’t present, it’s always best to get things in writing to protect your interests. For help with contracts and other business matters, including governance documents, business planning, business acquisition, and commercial real estate transactions, contact Gem McDowell of the Gem McDowell Law Group. Gem has over 30 years of experience solving problems and advising his clients to protect their business interests.

Gem and his associates serve clients in the Charleston area and across South Carolina. Call the Mt. Pleasant office today to schedule your free, no-obligation consultation at 843-284-1021.

What is Title Insurance and Why is It Important?

We’ve previously discussed the importance of a title search on this blog. A title search occurs before a real estate closing to ensure that the property in question is free of any liens, pending lawsuits, unpaid taxes, and other similar issues that could “cloud” the title.

Once the title search is completed, the purchaser may then wish to buy title insurance. While South Carolina doesn’t require buyers to get title insurance, lenders typically do, meaning if you have a mortgage on property in SC then you most likely have title insurance to cover it.

Title insurance was the subject of a case that went before the South Carolina Court of Appeals in 2020, Jericho State v. Chicago Title Insurance (read the opinion here). This case demonstrates what’s at stake for property owners who discover a defect or encumbrance on their title and shows how the court views the role of title insurance in protecting property owners’ interests.

Jericho State v. Chicago Title Insurance Background

The case centers around a large piece of commercial real estate in Horry County, South Carolina.

In 2006, Peachtree Properties of North Myrtle Beach, LLC (Peachtree) bought 131.40 acres in Horry County (the Property) from the McClam family for $22.5 million. The plan was to develop the land into a residential subdivision on the waterway. It was financed with two mortgages: one from Jericho State Capital Corporation of Florida (Jericho) and one from R.E. Loans, LLC (REL).

In 2007, Peachtree defaulted on the loans. Jericho foreclosed and successfully bid on the Property at sale, getting a master’s deed to the land that was still subject to the REL mortgage, which was later assigned to Lynx Jericho Partners, LLC (Lynx Jericho).

Two years later, in 2009, the South Carolina Department of Transportation (SCDOT) filed an eminent domain action against Jericho for 10.18 acres of the Property to use for a roadway, the Carolina Bays Parkway.

Previously, in 1999, Horry County created a map which included proposed locations for parts of the Carolina Bays Parkway, and a 2002 amendment to the map added a right of way that had the parkway bisecting the property in question and crossing the intracoastal waterway. The 1999 Official Map Ordinance (Ordinance) had established Horry County’s right to reserve future locations of streets, utilities, and other building projects in the public interest, as allowed by South Carolina law. The land SCDOT claimed for eminent domain was land that had been reserved for future use in Horry County’s map.

Jericho and Lynx Jericho were awarded $2.1 million dollars in 2014 by a jury as just compensation for the government taking the land. During the litigation, Jericho and Lynx Jericho submitted title insurance claims to Chicago Title Insurance Company (Chicago Title), which had written both title insurance policies for the two original mortgages.

Chicago Title denied their claims, which led to Jericho and Lynx Jericho (collectively, the Appellants) suing Chicago Title for breach of contract, breach of the covenant of good faith and fair dealing, and bad faith refusal to pay insurance benefits. A special referee granted summary judgment to Chicago Title. The case was then appealed.

What is Title Insurance and What Does Title Insurance Cover?

While title searches should, ideally, discover all actual or potential defects and encumbrances to a piece of property so they can be dealt with before closing, it’s not guaranteed that a title is entirely free and clear. That’s where title insurance comes in. Title insurance protects the real estate buyer or the mortgage holder/lender from problems that arise due to a defect in or encumbrance on the title to the land. The court of appeals defines encumbrance as “a burden on the land that is adverse to the landowner’s interest and impairs the value of the land but does not defeat the owner’s title.”

Many title insurance claims are related to:

Back taxes
Pre-existing liens
Easements
Judgments
Unmarketable title
Fraud and forgery
Inheritance issues (e.g., conflicting wills or undisclosed heirs)

Title insurance is different from other common kinds of insurance. Car insurance and homeowners insurance, for example, protect you against things that happen after you purchase your car or home. But title insurance protects you against losses that arise from issues that were already present before you purchased the property. Quoting another case, the court of appeals says the purpose is to “place the insured in the position he thought he occupied when the policy was issued.”

The SC Court of Appeals’ Findings in Jericho

The questions for the court of appeals in Jericho are whether the Appellants’ claims were covered or excluded by their title insurance policies and whether the special referee erred in granting summary judgment to Chicago Title.

The relevant part of the title insurance policies (which used the same language, as they were created using the same standard form) is as follows:

“SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE… AND THE CONDITIONS AND STIPULATIONS, CHICAGO TITLE INSURANCE COMPANY… insures, as of Date of Policy… against loss or damage… sustained or incurred by the insured by reason of:…

“2. Any defect in or lien or encumbrance on the title;

“3. Unmarketability of the title…”

When it comes to what’s covered, the insured has the burden of proving its claims fall under the policy’s coverage. When it comes to what’s excluded, the burden of proof flips, and it’s up to the insurer to show that the claims are excluded from the policy’s coverage. With that in mind, here are some issues the court discusses:

Did the Ordinance constitute a defect or encumbrance that was subject to the insurance policy?

The Appellants argued that the Horry County Ordinance caused a defect or encumbrance on the title which burdened the land and depreciated its value. The court of appeals agrees. It concludes that the Ordinance went beyond regulating use of the land and created a third-party interest in the Property in favor of the County. Such a defect or encumbrance is covered under point 2 in the policy.

Chicago Title argued that the Ordinance allowed landowners to appeal and oppose their property’s inclusion on the map which reserved lands for future use, but that just proved the Appellants’ point: the Ordinance created an encumbrance on the Property.

Did the Ordinance affect the marketability of the title?

Quoting another case, the appeals court says, “A marketable title is one free from encumbrances… It is a title which a reasonable purchaser, well-informed as to the facts and their legal significance, is ready and willing to accept.” It must be not only free of defects and encumbrances but “the reasonable probability of litigation,” too. Here, the Ordinance did create a reasonable probability of litigation over the title.

Chicago Title argues that the Ordinance only regulated the use of the Property and therefore didn’t affect the marketability of the title. But the court again stresses that the Ordinance created a “third party interest in the Property,” saying that it was “so foreign” from normal land use measures that there’s no real argument here that it made the title unmarketable. The court agrees with Chicago Title that any landowner may face eminent domain claims, but the Ordinance and maps made Horry County’s intentions clear several years earlier and there was a high probability of such a claim here.

The court sides with the Appellants on the issue of the title’s marketability and reverses the special referee’s grant of summary Judgment to Chicago Title.

Were the Appellants’ claims excluded from coverage?

Exclusion 1 bars coverage for “Any law, ordinance or governmental regulation… restricting, regulating, prohibiting, or relating to (i) the occupancy, use or enjoyment of the land…” However, as discussed above, the Horry County Ordinance didn’t just affect the use of the land, but its title, and therefore Exclusion 1 doesn’t apply.

Exclusion 2 bars coverage related to eminent domain, but the Appellants’ complaint is for the loss of value in the title when they acquired it in 2007, not for the eminent domain action that occurred in 2009 (after the effective date of the policies). Therefore, Exclusion 2 does not apply.

Exclusion 3(d) excludes coverage for defects, liens, encumbrances, and so on that occur after the effective date of the policy. Since the Ordinance and the 2002 amendment to the map creating the encumbrance were already in existence years before the policies went into effect, Exclusion 3(d) does not apply.

The court of appeals determined that none of the Appellants’ claims were barred by the policies’ exclusions, and that the special referee erred in finding they applied.

Summing up the purpose of title insurance and how exclusions should be interpreted, the court of appeals says, “Real estate investors buy title insurance to protect against such unforeseen ‘off the record’ risks… The fundamental idea behind title insurance is to cover rather than exclude unforeseen and unknown risks; otherwise, title insurance would not provide the peace of mind it touts.”

Help with Commercial Real Estate Deals in South Carolina

When it comes to buying real estate, having a free and clear title as well as title insurance is important to protect your interests, whether it’s a commercial deal or a private one.

If you’re involved in commercial real estate transactions in South Carolina, work with an experienced commercial real estate attorney like Gem McDowell. Gem has nearly 30 years of experience practicing law in South Carolina and has closed over $1 billion in real estate deals, including one deal worth $270 million. He helps his clients close the deal while advising them, protecting their business interests, and preventing problems before they arise. He’s ready to do the same thing for you.

Call Gem and his team at the Gem McDowell Law Group in Mt. Pleasant, SC today at 843-284-1021 to schedule your free consultation.

A Classic Squeeze-Out: Minority Member Oppression in Wilson v Gandis

In the previous blog, we looked at one of the risks of being in an LLC, minority member oppression. This happens when a member or members of the LLC act to reduce a minority member’s involvement in the company against their will. The majority member(s) may try to “squeeze out” or “freeze out” the minority member from the company altogether. Or they may engage in conduct like withholding distributions and reducing the minority member’s involvement in the company while essentially trapping their investment in the LLC with no way for the minority member to get it back out.

This was the central issue in a case heard by the South Carolina Supreme Court in June 2019, Wilson v Gandis, in which the oppression was described as a “classic squeeze-out.” It’s rather convoluted, with multiple lawsuits and issues, but we’ll focus on the issue of minority oppression and exactly what constitutes it in the eyes of South Carolina courts.

The Background

In 2007, David Wilson and John Gandis formed Carolina Custom Converting (CCC), a company selling film, resin, and other materials. It was a manager-managed LLC, with each owning 50% membership interest. Importantly, Wilson and Gandis never executed a formal operating agreement and had no employee, noncompete, nondisclosure, or nonsolicitation agreements. Many of their oral conversations and agreements were memorialized through email, however.

CCC’s business was intricately linked to other businesses owned by Wilson and Gandis. When CCC was formed, Wilson owned Eastern Film Solutions (EFS) and Gandis owned DecoTex and M-Tech. Wilson agreed to wind down EFS and bring that business over to CCC, for which he was compensated $8,000 per month, later raised to $12,000 per month. Gandis agreed to extend a line of credit to CCC from DecoTex and M-Tech. Plus, CCC operated out of a building owned by M-Tech, so Gandis received the benefit of the rent money paid by CCC.

Gandis brought on Andrea Comeau-Shirley, a CPA, to help with accounting and advice. In 2009, Gandis and Wilson each transferred 5% of their interest to Shirley. She didn’t have a formal voting interest but was actively involved in managing CCC.

Not long after, things started to go south for Wilson. Shirley and Gandis grew closer and began excluding Wilson from discussions about the company’s operations. Over the course of years, they exchanged many emails, which later the trial court said “provide[d] evidence of their oppressive conduct against Wilson.”

The Lawsuits: Wilson v Gandis

After a long period of behavior unfavorable to Wilson, lawsuits followed. The main issue we’ll be looking at is Wilson’s claim against Gandis and Shirley for minority member oppression. (Other issues not relevant here include Gandis’s and Shirley’s counterclaim against Wilson for breach of fiduciary duty, which they lost, and CCC’s claim against Wilson and companies he worked with after CCC for misappropriation of trade secrets, which they also lost.)

In a 5-day bench trial in 2014, a trial court found Gandis and Shirley had engaged in oppressive conduct against Wilson, saying “This is a classic squeeze-out,” and that the body of emails between Gandis and Shirley “abounds with evidence of calculated oppression” and “could serve as a script” for minority member oppression. The court found in favor of Wilson and ordered Gandis and Shirley to buy out Wilson’s interest in CCC as individuals, rather than having CCC buy him out.

Gandis and Shirley appealed, and in an unpublished decision, the appeals court agreed with the trial court and adopted the order in its entirety. They appealed again, and the South Carolina Supreme Court heard the case in June 2019.

Examples of Oppressive Conduct

In its opinion, the supreme court states that it’s not necessary for the plaintiff to prove illegal or fraudulent conduct in order to prove minority oppression. The minority investor instead needs to show that their investment is “trapped” and that they’re facing exclusion from participation in business returns for an indefinite period of time. What constitutes oppressive behavior must be determined on a case-by-case basis.

In this case, the supreme court agrees with the trial court’s conclusions about oppressive conduct on the part of Gandis and Shirley. Here are many of the acts Gandis and Shirley engaged in that the courts found oppressive:

Conspiring together to “get Wilson out.” Many emails exchanged between Gandis and Shirley blatantly and boldly discussed their plans to get Wilson out by different means, including making him an employee with a 5-year noncompete agreement and firing him on the smallest of pretexts.

Withholding distributions. From 2007 to 2010, CCC set aside funds to cover members’ individual tax liabilities, which were proportional to their membership interests. In 2011, this changed. Shirley emailed Gandis and encouraged him to use the funds that would have gone to members to help pay their tax liabilities to instead pay back what was owed on CCC’s line of credit from Gandis’s other business, which would directly benefit Gandis and leave Wilson without money to pay his tax liability. Shirley let Wilson know that there would be no distributions that year to members to cover tax liabilities.

Secretly monitoring Wilson’s emails. Gandis and Shirley began reading Wilson’s emails and referenced them in their own email exchanges. In 2011, they read an email to Wilson from his wife in which she expressed frustration over how Shirley and Gandis were managing CCC. From then on, Gandis’s and Shirley’s efforts to exclude Wilson from the LLC increased.

Gandis and Shirley later said in court that they were simply archiving all of CCC’s incoming emails in order to keep customer quotes and so forth available, but the trial court said this testimony was not credible, and the supreme court agreed. They also said that the employee handbook makes it clear that company email should not have an expectation of privacy – but the handbook was never issued.

Withholding income from Wilson. Not long after reading the email to Wilson from his wife, Gandis and Shirley stopped paying Wilson the monthly $12,000 they had agreed upon to compensate him for bringing his previous company’s business over to CCC.

Plus, they began classifying Wilson’s distributions as loans. When the situation came to a head in October 2011, Gandis (on Shirley’s advice) gave Wilson two options. 1. Surrender his membership interest in order to satisfy his loan balance of $123,000, which began accruing once they recategorized his distributions as loans. Or 2. Become an at-will employee of CCC (with the aim of firing him for the smallest of reasons, according to an email from Shirley).

From there, Wilson and Gandis entered into back-and-forth negotiations. Wilson was trying to find a way to either stay involved fairly or leave with his rightful share of what he was owed, while Gandis was trying to find a way to get Wilson out paying as little as possible.

Revoking financial authority. Around this time, Shirley removed Wilson as signatory on CCC’s bank account, leaving Gandis as the only signatory on the account, and revoked Wilson’s authority to make wire transfers. Wilson’s ability to access CCC’s financial information was also limited.

Misrepresenting the company’s finances. Gandis and Shirley made it look as if CCC had less cash than it had and later manipulated the December 2011 pro forma balance sheet to make it look like Wilson’s interest in the company was less than it really was.

Locking Wilson out of the building. In January 2012, after Wilson and Gandis were unable to come to an agreement about what should happen, Wilson arrived at the office to find Gandis there with a police officer and a locksmith. Since Wilson was a co-owner, the officer didn’t make him leave, and Wilson was able to enter the building and take two laptops, a Blackberry, and a number of files with him before he left and the locks were changed.

Emails between Gandis and Shirley showed that this was their plan. They discussed the legality of it and what to use as a cover story – first that Wilson had resigned (which he protested he didn’t), then that they did it because Wilson was competing with CCC.

Terminating Wilson’s health insurance coverage and cell phone services. These benefits were cut off for Wilson – but not for other members of the LLC – after he was locked out. Plus, from here Gandis and Shirley increased CCC’s monthly rent, which, remember, directly benefited Gandis since CCC rented a building from Gandis’s company M-Tech. They also raised the rate on the line of credit, which again directly benefited Gandis.

Starting up a competing company. In July 2012, Gandis and Shirley started up another LLC, ZOi Films, without telling Wilson. They said they founded it in an attempt to rebrand CCC and it was to be a wholly-owned subsidiary of CCC, but the trial court characterized it as an attempt to “siphon off” business from CCC.

Minority oppression must be determined on a case-by-case basis, says the supreme court, and in this instance it was not ambiguous – the trial court, court of appeals, and supreme court all agreed that Gandis and Shirley engaged in oppressive acts that were “brazen” and “unconscionable” (in the words of the trial court).

A Point of Disagreement

There was one point on which the supreme court disagreed with the trial court, and that’s the issue of who should be responsible for buying Wilson out. Gandis and Shirley argued against the trial court’s order that they must buy out Wilson’s share with their own money, as they argue that the LLC should protect them. They cited subsection 33-44-303(c) of South Carolina Code which protects LLC members from personal liability when acting in the course of ordinary business. But engaging in acts of calculated oppression is not in the course of ordinary business, the court determined.

Still, the supreme court did reverse the trial court’s order for Gandis and Shirley to personally buy Wilson out and remanded the case back to the trial court. CCC is ordered to buy out Wilson’s share, and if it doesn’t do that in a timely manner, then Gandis and Shirley will have to do so personally in a way that’s proportional to their interest in the business.

Protect Your Interests with LLC Governing Documents

The supreme court’s opinion called out that Wilson and Gandis did not have an operating agreement, employee handbook, or other optional but important documents to help them run their business. While having governance documents can’t entirely prevent minority oppression, they can help protect minority members’ interests and give recourse should the issue go to court. Not all instances of minority oppression are as blatant (and numerous) as in the case above.

If you are planning to start up an LLC with other people, or even if you already run one but don’t have anything beyond Articles of Incorporation, get your governance documents drafted and done. Call business attorney Gem at the Gem McDowell Law Group in Mount Pleasant, SC. He and his associates can draft documents that are tailored to your business that are fair to members and will help as you run the business and run into questions. Call today to schedule a free consultation at 843-284-1021.

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