Doing Good While Making Money: Benefit Corporations in South Carolina
You’ve heard of C-corps and S-corps, but what about B Corps?
B Corp is short for benefit corporation, a type of for-profit business entity that is regulated by state law. Currently, 35 states and DC have enacted legislation to create benefit corporations, including South Carolina.
As stated in the 2012 South Carolina Benefit Corporation Act (find it here), “a benefit corporation shall have as one of its corporate purposes the creation of a general public benefit.” Here, “general public benefit” is defined as “a material positive impact on society and the environment taken as a whole.”
Who Benefits from a Benefit Corporation?
Traditionally, corporations are run with the primary driver of making money for their shareholders. High-level decisions are made with this question in mind: How can we maximize profits for the benefit of the shareholders? Though it’s not actually a legal requirement for corporations to make the most money possible, this is often the way it works in the real world. After all, a CEO who doesn’t make enough money for the shareholders can be ousted by the board of directors.
But in a B Corp, making money is not the primary driving force. Instead, business decisions are guided, in part, by the desire to create a particular benefit in the world.
Examples of some benefits that a B Corp might have include:
- Donating a portion of income to charitable causes
- Operating in a way to reduce environmental impact or actively preserve the environment
- Providing goods and services to a specific group of people such as low-income families
- Providing employment and economic opportunities for underserved groups
- Promoting education or awareness of a certain subject
- Advancing the welfare of other groups besides in addition to the shareholders, like the employees, the customers, or particular minority groups
A well-known business that’s also a B Corp is Patagonia, which amended their articles of incorporation in 2012 to include a commitment to sustainability and treating workers well. Ben & Jerry’s also became a B Corp in 2012, with a goal of advancing social change for good.
What It Means to Be a B Corp
The decision to be a B Corp is a big one. It can drastically change the way you approach decisions and run your business. Of course, that’s the exact reason why some people want to run a B Corp.
For instance, let’s say your stated public benefit is to protect the environment. You may choose packing for your product that is biodegradable and more environmentally-friendly but is more expensive to produce. A regular corporation may be bound to sticking with less environmentally-friendly options, because that’s the decision that maximizes profits and increases shareholder value. But as a B Corp with a stated intention of helping the environment, you can choose to forsake some of those profits for the public benefit of a better environment.
Requirements for Becoming and Being a B Corp
Entrepreneurs can incorporate their business as a benefit corporation in South Carolina by including a provision in its articles of incorporation that it is a benefit corporation and specifying its benefit purpose. Existing entities can also become B Corps by changing their status.
In South Carolina, there are some requirements that come along with being a benefit corporation. One is the submission of an annual report to the Secretary of State which must include, among other things, an assessment of the business against a third-party standard. Though the law says that a B Corp need not have an outside party certify them, there are organizations that do that, such as the independent nonprofit B Lab.
Additionally, a director on the board must be the elected and serve as the benefit director, and you may also have an officer designated as the benefit officer. (The same person can fill both roles at the same time.) Their roles and duties are described by law, but in short, both are responsible for making sure that the company is carrying out its mission as a benefit corporation in terms of the benefits it creates.
Advantages and Disadvantages
As with all types of business entities, there are pros and cons of being a B Corp.
Pros of being a B Corp:
- Furthering a cause you believe in and making a positive change in the world through your company
- Ability to make decisions in your company that align with your values rather than focusing solely on making more money
- Attracting and working with talented people who share the same values (especially important to younger workers who increasingly want to work at ethical, mission-driven companies)
- Attracting impact investors
- Good for public relations and consumer perception of your business
- Being part of a values-based global movement
- If you change your mind later, you can easily drop your B Corp your status
Cons of being a B Corp:
- Additional burdens of paperwork, certification, and maintaining benefit director and benefit officer roles
- Converting to a B Corp may be difficult for existing publicly traded companies (which is why Etsy gave up its B Corp status and Warby Parker did, too)
- Uncertainty due to how new B Corps are, and the potential increase in liability exposure
Though there many more advantages than disadvantages listed here, the disadvantages still merit consideration.
However, if you are driven to do good via your business and you want more control over how your company can make that happen, a B Corp is something to look into.
Is Becoming a B Corp Right for Your Business?
Changing your status or incorporating as a B Corp is a big step. Before taking that step, speak to an experienced business attorney like Gem McDowell. Gem has over 25 years of experience working with clients, giving them strategic advice on how to start, grow, and protect their businesses. Contact Gem and his associates at the Gem McDowell Law Group in Mt. Pleasant to schedule your free consultation by calling 843-284-1021 today.
Can Your HOA Foreclose on Your Home for Non-Payment of Dues?
Losing your home in a foreclosure because you missed a $250 HOA payment – can that actually happen? Is it even legal?
Yes and yes. This exact situation happened to Tina and Devery Hale. Our past two blogs went into detail on their case, Winrose Homeowners’ Association v Hale (read the opinion here), which went before the South Carolina Supreme Court in 2019. Those blogs are linked here and here.
But we’re not done yet because there’s even more to it. This case exposes bad parties acting in bad faith that every homeowner should be aware of.
Can Your HOA Take Your Home for Non-Payment of Dues?
Did you know that it’s not only the bank that has the power to foreclose on your home? It may seem absurd that your HOA can foreclose on your home because you missed paying your assessment, but it is legal in South Carolina and it does happen.
In the Winrose case, the Hales agreed to the following covenants and restrictions when they bought their house:
“If the [HOA dues] assessment is not paid within thirty (30) days after the delinquency date, the assessment shall bear interest from the date of delinquency at the rate of eight percent per annum, and the [HOA] may bring legal action against the owner personally obligated to pay the same or may enforce or foreclose the lien against the lot or lots […]”
The HOA was within their legal rights to do what they did. However, that doesn’t mean the SC Supreme Court was happy about it.
HOAs Making a Buck Off Unsuspecting Homeowners
Typically, once the court has stated its decision, that’s the end of the opinion. But not here. Writing the opinion for Winrose v Hale, Justice Kittredge had more to say. “We note our concern about this foreclosure proceeding,” he begins.
Recognizing the right of the HOA to pursue a lien and a foreclosure on the Hales’ house, the court characterizes this as a tactic to “capitalize on a small debt.” Though the amount past due was small, the HOA’s attorney went straight to the strongest measures possible as a next step – placing a lien and foreclosing on a house valued at $128,000 for a past due amount of $250.
Why? “The true nature of this foreclosure action is illustrated by the service and filing fees (which are more than double the amount of the principal due) and attorney’s fees (which were eight times the amount of the principal due),” writes the court (emphasis original). “A foreclosure proceeding is a last resort, not a business model to be swiftly invoked for the purpose of exploiting property owners.”
The Hales’ HOA was willing to let them lose their home and their equity in it in order to make some money in fees. Luckily for The Hales, they got their house back in the end, but that’s not always how this scenario plays out. Many people have lost their homes to HOA foreclosures.
Buyers Extorting Homeowners
The HOA was not the only bad actor here; the court was also “especially troubled” by the actions of the party that bought the Hales’ home, Regime Solutions, LLC.
In the majority of judicial sales, like the kind that was used to sell the Hales’ home, the purchaser of the foreclosed home takes on the property’s mortgage and other debts. This is necessary because the house is only free and clear once the associated debts are settled.
But Regime never took on the Hales’ mortgage. Not only that, but their business model appears to be based on not assuming the mortgage of the properties it purchases. After buying a foreclosure at a very low price, Regime either lets the bank foreclose on the property or it negotiates with the homeowners to let them have their house back for a large fee.
Between 2013-2016, Regime bought 38 properties that were later foreclosed on by the bank and 15 properties that it gave back to the original owners through a quitclaim deed for a profit of between $2,911-$13,984 per property. In the present case, the Hales offered to pay Regime $9,000 to settle the matter, but Regime asked for $35,000. The Hales didn’t pay it.
Summing up this section, the court states, “We do not countenance the improper use of foreclosure proceedings by the HOA, its attorney, or Regime” (emphasis original).
Could This Happen to You?
Yes, possibly. Depending on what covenants and restrictions you agreed to with your own HOA or regime, you could potentially find yourself in a similar situation as the Hales.
What can you do to avoid it?
First, make good decisions. Towards the end of its opinion, the court states “Our decision today should not be read as a shift toward providing relief to homeowners despite their own poor choices, in particular here, falling behind on a minimal amount of HOA dues and subsequently failing to respond to the summons and complaint.”
So take action on any and all legal matters that come your way. Fulfill your legal obligations as you promised to do in a timely manner by paying your mortgage and dues on time every month. Don’t assume that there could be no legal ramifications to paying late just because it’s a relatively small amount of money. This thinking can get you in trouble.
Next, review the paperwork you signed with your HOA or regime. It’s common for buyers to skim over these documents during a long real estate closing and therefore have no idea what it is they’re actually agreeing to. But you can take the time now to look at your covenants so you’re aware of the powers your HOA or regime has to charge you interest, place a lien on your property, pursue a foreclosure, and so on.
Finally, contact an attorney if you have any questions, especially if you’ve been served with papers.
Smart Legal Advice
If you need help with estate planning, business documents, commercial real estate, or strategic advice in a legal matter, contact Gem and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC. Gem is a problem solver with over 35 years of experience helping families and business owners alike protect their interests and make smart decisions for peace of mind. Schedule a free consultation by calling 843-284-1021 today.
What Makes a “Grossly Inadequate” Sales Price: The Debt Method vs. the Equity Method
In South Carolina, a judicial sale of a property can be set aside if the sales price is “inadequate.” Either the sales price must be “inadequate” and also involve fraud, or the price must be “so grossly inadequate so as to shock the conscience of the court.”
What makes a sales price “grossly inadequate”? Just how low does it have to be? In South Carolina, there is no set amount or percentage that a court must apply to make that determination. However, looking back at past cases in the state, courts have consistently determined that sales prices of 10% or less of the property’s value are “grossly inadequate.”
Based on this, the 10% threshold was used as a benchmark in Winrose Homeowners’ Association v Hale (read the opinion here) which went before the South Carolina Supreme Court in 2019, and which we discussed in a previous blog.
How to Calculate the Sales Price: Debt Method vs Equity Method
In Winrose, Tina and Devery Hale’s home was sold in a judicial sale after they missed an HOA payment of $250 and their HOA foreclosed. Regime Solutions, LLC, bought it with a high bid of $3,036. The fair market value of the house was $128,000, with an unpaid mortgage balance of $66,004.
Since fraud was not an issue in this case, the question for the court to decide was whether the sales price of the house in question was “so grossly inadequate” that the sale could be set aside. If so, the foreclosure could be vacated and the home returned to the Hales. If not, the judicial sale would stand and Regime would retain the house.
With the 10% benchmark in place, the court needed to determine what the sales price was. There are two methods for determining whether a bid price is so grossly inadequate as to shock the conscience:
- The Debt Method. This assumes that the party that purchases the foreclosed property will become responsible for the mortgage and other associated debts. This method focuses on how much the foreclosure purchaser must pay before having a free-and-clear title to the property, so the value of the outstanding mortgage is added to the bid price.
In this case, Regime would have paid ($3,036 bid) + ($66,004 mortgage balance) = $69,040. This is 53.9% of the Property’s fair market value of $128,000.
- The Equity Method. This method focuses not on the debt the foreclosure purchaser is taking on, but the equity they would gain through the transaction. Instead of adding the outstanding mortgage balance to the bid, the balance is subtracted from the fair market value and compared to the bid.
In this case, Regime would stand to gain ($128,000 fair market value) – ($66,004 mortgage balance) = $61,996. The amount Regime paid, $3,036, is 4.9% of the equity it would stand to gain.
The majority of the time, the party that purchases the foreclosure does take on the obligations of the mortgage, because associated debts needs to be settled in order to have a free-and-clear title. For these situations, the Debt Method is appropriate.
But in the present case, Regime never took on the Hales’ mortgage and never took any positive steps to do so. As Justice Lockemy pointed out in his dissenting opinion in the Court of Appeals decision, it didn’t make sense to credit Regime with having taken on the mortgage. Furthermore, the Hales continued to pay their mortgage, substantially reducing the outstanding debt on the house over time. Therefore, using the Equity Method in this case is, in the words of the SC Supreme Court decision, “the only logical option.”
Since 4.9% is clearly below the 10% threshold, the court concluded that the bid was, indeed, “so grossly inadequate as to shock the conscience of the court.” The court set aside the foreclosure sale.
Get Strategic Legal Advice
For guidance and legal help on business matters, estate planning, and commercial real estate in South Carolina, call Gem of the Gem McDowell Law Group in Mount Pleasant, SC. Gem and his associates are experienced problem solvers who are here to help you and your family. Call 843-284-1021 today to schedule a free consultation at the Mount Pleasant office.
How A South Carolina Couple Missed an HOA Payment and Lost Their Home
Imagine this situation:
You miss an HOA payment. Then you receive some legal documents in the mail, put them in a drawer, and forget about them. When the HOA sends a bill for the outstanding amount, you pay it and later receive confirmation that the situation is resolved.
The next thing you know, you discover that your house has been foreclosed on, someone bought it at auction, and now they are trying to evict you.
Though this may sound crazy, this is exactly what happened to Tina Hale and her husband Devery Hale. Their case, Winrose Homeowners’ Association v Hale (read it here), went all the way to the Supreme Court of South Carolina. It’s a good cautionary tale about what can happen when you ignore legal proceedings and an eye-opening look at the way some parties try to take advantage of unsuspecting homeowners.
The Hales Miss an HOA Payment
Tina and Devery Hale bought their home (the Property) in 1998 for $104,250. In addition to paying their mortgage regularly, they were also obligated to pay a monthly assessment of $250 to their HOA, Winrose Homeowners’ Association, Inc.
In January 2011, the Hales fell behind in HOA dues. In response, the HOA first filed a lien against the Property and then pursued a foreclosure, seeking $556.41, which was the amount of the late dues plus accrued interest. The right of the HOA to charge interest on late payments, put a lien on the lot, and pursue foreclosure was part of the covenants and restrictions that the Hales agreed to when they bought their house.
The Hales didn’t respond to the complaint (in an affidavit, Tina Hale said that she simply put it in a drawer and forgot about it), so the HOA submitted an affidavit of default. From then on, the Hales didn’t receive any further notices of what was going on with respect to the foreclosure and sale.
It was here that the HOA sent the Hales a bill for the outstanding $250, which they paid. The HOA’s law firm then sent the Hales a letter saying that the lien had been satisfied, and the Hales thought that was the end of it. But the HOA didn’t withdraw their suit.
Foreclosure and Sale
The matter first went to a master-in-equity (Master), who entered a default judgment of foreclosure and sale against the Hales. He calculated an amount due of $2,898.67, comprised of $250 in principal, $80.87 in interest, and $2,025 in attorney’s fees. The Master noted that the sale of the property would be subject to the existing mortgage.
The Property sold at public auction two weeks later to Regime Solutions, LLC (Regime) with the high bid of $3,063. At that time, the fair market value of the Property was approximately $128,000, with an outstanding mortgage balance of approximately $66,000.
The Hales remained unaware of all of this. It wasn’t until Regime tried to evict them from their house – which they continued to make mortgage payments on – that they discovered what was happening.
The Hales Fight Back
Upon discovering what was going on, the Hales filed a motion to vacate the foreclosure sale on the basis of the sale price being “so grossly inadequate as to shock the conscience of the court.” Vacating the sale would give the Hales back ownership of their house.
The Master denied the motion to vacate. Though the amount of $3,063 is low, when taking into account the outstanding mortgage amount of $66,004, he calculated an effective sales price of $69,0404. At a little over half the fair market value of $128,000, this is a great deal for the buyer but is not low enough to shock the conscience of the court.
The matter next went to the South Carolina Court of Appeals, where a majority of the panel affirmed the Master’s decision. Notably, Chief Justice Lockemy dissented, saying it didn’t make sense to consider the outstanding mortgage amount in the effective sales price, since Regime had not, in fact, assumed the Hales’ mortgage and never took any steps to do so.
The South Carolina Supreme Court’s Decision
The matter then went to the South Carolina Supreme Court, where it was heard in September, 2019. The issues at hand were whether the judicial sale of the Property should be set aside due to an inadequate sales price and how to calculate that price.
Ultimately, the SC Supreme Court agreed with Chief Justice Lockemy’s take that it wasn’t right to credit Regime with having taken on the debt of the mortgage. Using the Debt Method, the court determined that the sales price of $3,036 on a house with a fair market value of $128,000 was, indeed, so grossly inadequate so as to shock the conscience of the court. The court set aside the foreclosure sale and remanded the case back to the Master.
(Read more on how the court determined the sales price and what exactly constitutes a “grossly inadequate” price in this follow-up blog.)
Take Care of Legal Matters Promptly
Though the Hales ultimately won, it took over eight years to get a verdict in their favor and surely caused a lot of stress and expense in the meantime. While they weren’t in control of the actions of their HOA or Regime, there are a couple lessons to be learned here.
First, do not ignore a summons, lawsuit, or any other legal document, and don’t put it in a drawer and forget about it; speak to an attorney right away about it. Second, understand the contracts you’re involving yourself in. Most people would probably find it inconceivable that their HOA would foreclose on their house for a simple missed payment of $250. But that’s exactly what happened here, and it was because of the terms in the contract both parties agreed to. It’s important to understand what you’re agreeing to anytime you sign a contract.
For help or advice on contracts, or for issues of business law or estate planning, contact Gem McDowell. Gem and his associates at the Gem McDowell Law Group can give you the strategic advice you need to make smart, informed decisions. Call 843-284-1021 today to schedule a free consultation or to book an appointment at the Mount Pleasant office.
What Is HEMS and What Does it Mean for Trustees?
HEMS is an acronym that stands for Health, Education, Maintenance, and Support. It’s commonly used in trusts as a way to guide and restrict the kinds of distributions that a trustee can make to a beneficiary.
Purpose and Benefits of HEMS
There are a few reasons for and benefits of HEMS.
For one, adhering to the “ascertainable standard” of HEMS can be vital for protecting the trust’s assets. For example, say a wife creates a testamentary trust that names her spouse both beneficiary and trustee upon her death. The trust may limit distributions of the assets to HEMS, which is an ascertainable standard recognized by the IRS. If the husband takes distributions that fall under one of these categories, the assets of the trust are not considered to be part of his personal estate – they belong to the trust, a separate entity – and are therefore protected from certain taxes. For this same reason, a creditor coming after the husband cannot access the trust’s assets to pay the husband’s debts.
Another benefit has to do with the trustee-beneficiary relationship, when it’s not the same person in both roles. It’s common for a beneficiary to want to draw more money from the trust while the trustee’s goal is to keep the trust as intact as possible. The HEMS standard serves to restrict the trustee from making distributions that can unnecessarily diminish the trust, while providing appropriate support for the beneficiary. By including this language in the trust, a grantor can prevent the beneficiary from having unlimited access to the trust’s assets.
Or, it can work the other way. Say that same couple from above has a trust that remains in the spouse’s control as trustee and beneficiary during his lifetime, and after his death passes to the couple’s children as beneficiaries. In this case, it’s the children who are motivated to ensure the trust remains as intact as possible. It’s in their best interest to ensure their father is adhering to the HEMS standard with the distributions he takes for himself as trustee and beneficiary.
Finally, the HEMS standard provides valuable guidance to trustees, whether they are also a beneficiary or not. By understanding what’s included under the umbrella of health, education, maintenance, and support, a trustee can better determine what distributions to make from the trust’s assets.
Examples of HEMS
Health, Education, Maintenance and Support are rather broad categories, but what do they include, exactly? The exact items included can vary by state, but here are examples of HEMS that are commonly included.
Examples of Health
Some basic examples in the Health category include:
- Routine health care
- Hospital care
- Emergency medical treatment
- Psychiatric or psychological care
- Prescription drugs
- Dental
- Vision
The following may also be considered included in this category:
- Elective procedures like LASIK or cosmetic surgery
- Alternative medicine treatments
- Gym, sports club, or spa memberships
- Health supplements
Examples of Education
This category commonly includes:
- Tuition for all levels of schooling from grammar to graduate, professional, or technical school or training
- Continuing education expenses
- Expenses for school-related programs, such as Study Abroad in college
- Support during schooling years, even during summers and other breaks
Examples of Maintenance and Support
“Maintenance” and “support” are one and the same. Commonly included in this category:
- Mortgage or rent payments
- Property taxes
- Premiums for health, life, and property insurance
- Travel and vacation expenses
- Charitable giving
This category is the least clearly defined. It’s typically interpreted to include distributions that help maintain the beneficiary’s standard of living. Distributions to cover expenses that are solely for the beneficiary’s happiness rather than support do not fall under this category.
For example, say our couple from above typically takes a two-week vacation to the Rockies each year. After the wife dies and her husband controls the trust, a distribution to cover this annual vacation would fall under this category. A distribution to cover a four-month, ‘round-the-world luxury cruise would not. That’s because such a vacation would be beyond his typical standard of living.
However, depending on the trust, the trustee may have some discretion to make distributions for just such an unusual vacation or other luxury that would be outside the beneficiary’s established standard of living.
Use of HEMS
Grantors can include general language regarding HEMS or they can be more prescriptive and precise about how they’d like the trust’s assets used. For instance, a grantor may specify that trust money can be used to pay for college but not for graduate school. Or that the beneficiary must use other sources of funds, if available, to pay property taxes or rent before accessing the trust’s money. The grantor has a large degree of control when directing how the trust’s funds can be used.
Not all trusts contain language relating to HEMS; it depends on the particulars and purpose of the trust. Whether or not it’s appropriate in your estate plan is something to discuss with an estate planning attorney.
Get Help with Trusts and Estate Planning
The HEMS standard is just one commonly used tool grantors have to direct how a trust’s assets are distributed. Trusts are powerful documents that can be a cornerstone of an estate plan. For help creating a trust, or other estate planning documents like wills, living wills, and POAs, contact the Gem McDowell Law Group. Gem and his associates will help you create the personalized plan you need so your family is cared for and your wishes are carried out. Whether you have documents that need review or updating, or it’s your first time doing estate planning for your family, Gem and his team can help. Call 843-284-1021 today to schedule a free consultation or to book an appointment at the Mount Pleasant office.
Sharing the Cost of Liability: What is Contribution?
Let’s say there’s an accident that leaves a person injured. The injured party sues the party at fault – the tortfeasor – who ends up paying damages. The injured party has received compensation for their injury, and the tortfeasor has paid what they owe. End of story.
But what if more than one party is liable for the accident? What is a party to do when they have paid the full amount of damages for an accident they’re only partly responsible for?
The answer: seek contribution.
What is Contribution in Civil Law?
Contribution is the “tortfeasor’s right to collect from others responsible for the same tort after the tortfeasor has paid more than his or her proportionate share, the shares being determined as a percentage of fault,” as defined in United States v. Atl. Research Corp.
In other words, a defendant (tortfeasor) who has paid out more than their fair share of money to a plaintiff has the right to seek contribution (money) from other parties who also bear liability for the injury or wrongful death in question. That money must be in a proportional amount, so the tortfeasor is limited to recovering an amount equal to the excess paid to the plaintiff.
This right of contribution does not exist for any party that intentionally caused or contributed to the injury or wrongful death in question. (For more on the ins and outs of contribution, read the South Carolina Contribution Among Tortfeasors Act in the SC Code here.)
A Case Concerning Contribution: The Background
The South Carolina Court of Appeals heard a case in December 2018 that concerned contribution, Charleston Electrical Services, Inc. v. Rahall. (Find the decision here.) The situation is nuanced and involves a party seeking contribution from a daughter for an injury to her mother, which makes it especially interesting.
In August 2010, Wanda Rahall and her mother, Elsie Rabon, visited Rahall’s fiancé at his apartment in Charleston. The apartment of her fiancé, George Kornahrens, was located in a building on property he owned but was leasing to Charleston Electrical Services (CES). He was the business manager of CES but had no ownership in the company.
During the August visit to the property to see Kornahrens, Rabon was knocked down and injured by Gunner, an “overly friendly” German shepherd owned by CES. Rabon was hospitalized and it was determined she had a broken hip.
In December 2010, Rabon filed a lawsuit against CES for negligence and strict liability. The parties later settled for $200,000, and Rabon released CES, Rahall, and Kornahrens from liability.
In July 2013, CES and Selective, its insurance carrier, filed a lawsuit against Rahall seeking contribution in the amount of half the settlement paid to Rahall’s mother Rabon. The issue went before a master-in-equity in August 2016, who found against CES and Selective. They appealed to the SC Court of Appeals.
Here’s Where Contribution Comes In
A party can only successfully seek contribution if there is another party partially responsible for the injury. CES and Selective needed to show that Rahall was also responsible for her mother’s injury in order to recover money from her.
CES and Selective argued that Rahall was negligent, and therefore was partially liable for the accident. To show negligence, the following points must be established: 1) the defendant (Rahall) owed a duty of care to the plaintiff (Rabon); 2) the defendant breached the duty of care by negligent act or omission; 3) the defendant’s breach was the cause of the plaintiff’s injury; and 4) the plaintiff suffered damages as a result.
Premises liability
Rahall owed her mother a duty of care, CES and Selective argued, under a premises liability theory. In SC, a landowner owes a duty of care to guests on their property. This includes a duty to warn a guest of potential dangers they should know about.
Remember that Rahall was not the owner of the property where the accident occurred; her fiancé was, and he was leasing it to CES who had full control of the property at the time when the injury occurred. However, Rahall had been engaged to her fiancé for four years and lived in the apartment on the property with him when she was in Charleston. She kept things there and had a key. Based on this, CES and Selective argued that she was a “possessor of the Property” and therefore owed a duty of care to Rabon.
The Court of Appeals disagreed. Rahall didn’t pay utilities, rent, or taxes on the apartment, she kept a separate home in a different city, and she had no ownership interest or control of any part of the property. (The master had even called the idea that she was liable under a theory of premises liability “patently meritless.”) Therefore, she had no duty of care and negligence could not be established as a basis of liability under a premises liability theory.
Special relationship exception
In SC, no one owes a duty to warn another person about potential danger or to control their conduct with these five exceptions: 1) where the defendant has a special relationship to the victim; 2) where the defendant has a special relationship to the injurer; 3) where the defendant voluntarily undertakes a duty; 4) where the defendant negligently or intentionally creates the risk; and 5) where a statute imposes a duty on the defendant.
CES and Selective argued that Rahall owed a duty to Rabon under this “special relationship exception” rule. She knew that Gunner had previously jumped on visitors, they asserted, and should have known that the dog would pose a threat to her elderly mother – and warned her.
But the master and later the Court of Appeals disagreed with this argument. “Our jurisprudence has not extended a legal duty to children to protect, warn, or supervise a parent,” stated the Court of Appeals in its decision.
Ultimately, the Court of Appeals affirmed the master-in-equity’s decision, and CES and Selective were unsuccessful in their attempt to seek contribution.
The Challenges of Seeking Contribution
CES believed it was not wholly responsible for the accident that injured Rabon and so sought contribution from another party they believed was also partially liable. But you can see that seeking contribution can be challenging – they had to prove liability, and they failed. It’s also a large commitment of time and finances on the part of the defendant. It’s something no business wants to go through.
In situations like these, sound legal advice is a necessity. If you’re a business owner looking for help with a legal issue, contact Gem McDowell and his team at the Gem McDowell Law Group in Mt. Pleasant, SC. With over 25 years in business law in SC, Gem has the experience to not only handle legal matters but also offer sound strategic advice that can protect your business and help it grow. Schedule a free consultation to discuss your business with him by calling 843-284-1021 today.
Protecting Land for the Common Good: The Public Trust Doctrine in South Carolina
“The underlying premise of the Public Trust Doctrine is that some things are considered too important to society to be owned by one person.”
This is what the South Carolina Supreme Court said in its decision Sierra Club v Kiawah Resort Assocs., 1995 and it’s a concise summary of the Public Trust Doctrine (PTD) concept. It’s an interesting topic because when it comes to the law, the courts must balance the interests of an individual owner versus the public good.
The Public Trust Doctrine
The PTD has its roots in ancient Roman and Byzantine law. It was included in the Magna Carta and became part of the common law in the US as our nation developed. The US Supreme Court first upheld the doctrine in a case in 1842.
In the Sierra Club decision, the court goes on to say, “Traditionally, these things have included natural resources such as air, water (including waterborne activities such as navigation and fishing), and land (including but not limited to seabed and riverbed soils). Under this Doctrine, everyone has the inalienable right to breathe clean air; to drink safe water; to fish and sail, and recreate upon the high seas, territorial seas and navigable waters; as well as to land on the seashores and riverbanks.”
PTD in South Carolina
To safeguard the public’s interest in natural resources and access to them, a sovereign or government entity holds certain property in trust for the public. In South Carolina, that means land with things like shoreline, tideland areas, and navigable waterways. “The public trust doctrine provides that lands below the high water mark are presumptively owned by the State and held in trust for the benefit of the public,” said the South Carolina Court of Appeals in its decision Hoyler v. The State of South Carolina, 2019.
This concept has many practical ramifications. For instance, it means that the public has access to the beach, because a beachfront property owner does not own the land between the mean high and low tide water marks and therefore does not own the beach. Similarly, the public cannot be stopped from kayaking navigable waters, even if that means kayaking through what someone considers to be “their” backyard.
However simple PTD sounds in principle, in reality it can be quite complicated, as issues must weigh individual property rights versus the public good. A recent example comes from May 2019, when Governor McMaster vetoed a bill that would have allowed some beachfront property owners in Georgetown County to rebuild a seawall. Doing so would violate a ban on seawalls that’s been in place since 1988. While the seawall would protect the property owners’ houses, it would also accelerate erosion of the beach, which is clearly not in the public interest. (And in some cases, such seawalls also cut off public access to the beach.)
Another reason PTD can be complex is because in some instances, a sovereign or government entity has lawfully given an individual rights to land that would otherwise be held in trust for the public. This was the central issue in Hoyler v. The State of South Carolina, which the South Carolina Court of Appeals heard in 2019.
Hoyler v. The State of South Carolina and the Public Trust Doctrine
The case is rather convoluted, and you can read the decision here, but here’s the short version:
In 2006, Merry Land Properties, LLC, bought two tracts of land in the Town of Port Royal, near Parris Island, with plans to develop it that included a marina. One tract had access to Beaufort River via deep waters, the other via tidelands. Within those tidelands was an area of 95.27 acres that was disputed by H. Marshall Hoyler, who filed action against the State of South Carolina to get a declaration that he owned the disputed marsh.
Hoyler said he had a deed from 1891 given to his predecessor in title, J. M. Crofut, by Governor Benjamin R. Tillman for 95.27 acres of marshland on the Beaufort River. The State of South Carolina argued that it, in fact, “held prima facie title to the disputed marsh in trust for the public and Hoyler lacked the power to exclude the public from the marsh.”
The issue went before a master who conducted a hearing and found that the governor did have the power to convey the land to Crofut, as it “was a valid exercise of the State’s authority under the law as it existed at the time of the conveyance.” However, since the property could not be accurately located based on the available documentation, Hoyler was not entitled to the declaration he sought stating that he held the title to that marshland.
Hoyler in the Court of Appeals
Hoyler appealed and the South Carolina Court of Appeals heard the case in March 2019. Hoyler argued that the disputed land was indeed identifiable based on the plat from the deed, but the State of South Carolina argued that it wasn’t, as the plat was illegible in places making the precise location of the disputed 95.27 acres unclear.
The Court of Appeals noted that “Because the law, as a zealous guardian of the public interest, bestows presumptive ownership of tidelands on the State for the benefit of the public, any deed from the State purporting to convey tidelands to a private individual must be strictly construed against the grantee and in favor of the public.” Therefore it’s up to the individual to bear the burden of proof to show that the grant intended to include the tidelands, and the documentation must be precise enough to be certain.
Ultimately the court sided with the State of South Carolina in this case, saying it was not clear exactly which land was referred to in the plats, and therefore while the validity of the conveyance was not in question, the land itself was. “While a property description need not be perfect, it must allow one examining it to identify the property conveyed; otherwise, the conveyance is void.”
Public Good Versus Private Interests
While South Carolina courts do place the burden of proof on the individual, if the individual can meet that burden of proof then it has in the past upheld an individual’s right to land that was granted to them. In previous case where that has happened, the documentation of the grant has been so accurate and precise in its language to the point where there is no question about the intention of the grantor over the location and contents of the land grant.
Still, South Carolina courts do require a high level of proof in order to give individuals ownership and access to lands that would otherwise be held in trust by the state, as it recognizes the importance of protecting and preserving waterways and tidelands for the public good and for the future.
Strategic Advice for Commercial Real Estate Deals
In the case above, Merry Land Properties got caught up in a complicated situation because it discovered too late that some land it purchased was claimed by another party. Things like this happen all too often in the world of commercial real estate, which is why it’s important to have an experienced attorney working with you.
Gem McDowell has worked on large land development and commercial real estate projects in South Carolina for over 25 years and has closed over $1 billion in deals. He and his associates at the Gem McDowell Law Group in Mt. Pleasant can help you if you’re contemplating buying, selling, or developing land in South Carolina and need smart strategic advice. Schedule your free consultation by calling 843-284-1021 today.
Knowing Your Property Rights: Easements and Trespassing
We’ve talked about easements before, when a party has limited legal rights to land owned by someone else. Examples of common easements include an individual’s right to enter someone’s property in order to gain access to a public area like a beach, or a utility company’s right to dig up a yard in order to lay pipes or cables.
Drainage easements are another common type. It’s this type of easement that was at the center of a South Carolina Court of Appeals case, Ralph v. McLaughlin, 2019, which we’ll look at today. This case shows how important it is to fully understand the limits and the extent of your property rights when an easement is – or historically has been – involved.
Ralph v. McLaughlin: Facts and Background
The background to this case is long and quite complex, and for the full story, you can read the court’s decision here.
It starts in 1984, when E. M. Seabrook prepared and recorded a plat of a section of Seabrook Island that contained lots 21 through 28. The plat records a 20-foot-wide drainage easement and no-build area across the back of those lots, plus a drainage easement running along the property line between lots 21 and 22 from the front to the back.
Fast forward decades later, and Richard and Eugenia Ralph (the Ralphs) own lot 23 and Paul Dennis and Susan Rode McLaughlin (the McLaughlins) own lot 22. The McLaughlins purchased the lot from Carroll and Lorraine Gantz, who had previously approached the Seabrook Island Property Owners Association (SIPOA) about eliminating the 20-foot drainage easement and no-build area on the back of their lot. The SIPOA agreed, and in September 2002 a new plat was drawn up, documenting that the drainage easement and no-build area were both abandoned with respect to lot 22.
In 2006, the McLaughlins wanted to build a house that would partially be built on the area of the drainage easement and no-build area. The SIPOA’s architectural review board agreed, with a number of stipulations.
This was followed by a lot of back and forth between the McLaughlins who wanted to remove the drainage pipe and begin construction, their neighbors who didn’t want the pipe removed for fear of flooding and drainage issues, and the SIPOA who wasn’t able to get all parties to come to an agreement. In October 2008, the SIPOA sent a letter saying it was out of options and was rescinding the previous resolution to abandon the easement.
The McLaughlins still insisted there was no easement and went ahead with the removal of the drainage pipe and construction of their building in late 2008. In fall 2011, the Ralphs filed a complaint seeking actual and punitive damages, alleging the McLaughlins’ actions led to flooding and poor drainage in the Ralphs’ yard. They said the loss of the drainage pipe meant they had severe flooding issues and the value of their house was significantly lower because of it. They also filed a trespass claim.
In May 2016, the matter went to trial and the jury in the circuit court found in favor of the plaintiff (the Ralphs), ordering the defendant (the McLaughlins) to pay $1,000 in nominal damages. The case came to the SC Court of Appeals, where it was ultimately reversed and remanded.
Rights, Abandonment, and Dominant Tenement Versus Servient Tenement
With respect to easements, a dominant tenement (or dominant estate) is the party gaining the benefit of the easement, while the servient tenement (or servient estate) is the party bearing the burden and/or granting the benefit of the easement. It’s understandable that in some instances, the servient tenement may not want to bear that burden anymore and want to free themselves of the easement. That’s what the McLaughlins’ predecessors-in-title did when they approached the SIPOA about removing the easement from their lot.
As stated above, the SIPOA agreed. But it was wrong to do so. It was not the SIPOA’s place to unilaterally abandon the easement, since other parties had special property interest in it – namely, the owners of lots 21-28 that benefitted from the drainage easement. To abandon the easement legally, it would require the agreement of all parties with property interest in it. That agreement was never sought, let alone attained.
Trespassing
Because the Ralphs had ownership interest in the drainage pipe that was part of the drainage easement, and because the dominant tenement had the right to have the pipe on the servient tenement’s property, Mr. McLaughlin trespassed when he removed the drainage pipe. Though the drainage pipe was in his yard, his actions were considered trespassing because he did not wholly own it and by removing it, he destroyed the easement. This was the basis of the Ralphs’ claim of trespass.
Mr. McLaughlin admitted he told the contractors to remove the drainage pipe and construct the building over part of the no-build area, and he didn’t get the Ralphs’ permission to do so. In its decision, the court states, “the owner of a servient estate commits trespass by intentionally destroying an easement without the consent of the easement holder.”
This case still isn’t settled, as the Court of Appeals remanded it back to the circuit court. The McLaughlins maintain that they were not subject to the easement because it had been abandoned by the SIPOA before they purchased their property. Yet the SIPOA didn’t have the authority to abandon the easement the way it did. The circuit court will need to determine, among other things, whether the McLaughlins owe compensatory or punitive damages to the Ralphs.
You Need to Know What You’re Getting
Things like easements come up during a title search, which is one reason it’s so vital to have a thorough title search done before purchasing a piece of real estate. You should also know what’s in the deed to the land you’re purchasing, whether you read it yourself or rely on your attorney to tell you what it contains. Interestingly, in this case Mr. McLaughlin said his real estate agent insisted the easement had been abandoned, but the deed to the land did specify that it was subject to the easement. If the McLaughlins were so intent on buying property without an easement, that should have been a red flag.
If you’re planning on purchasing commercial land in South Carolina, talk to commercial real estate attorney Gem McDowell. Gem has been practicing in South Carolina since 1992 and has closed several multi-million-dollar transactions for a total of more than $1 billion in real estate deals. He and his associates at the McDowell Law Group in Mt. Pleasant, SC can help you understand your rights, limits, and opportunities with respect to your land purchase and offer strategic advice to help you grow your business. Call 843-284-1021 today to schedule a free consultation to discuss your commercial real estate deal with Gem.
Is Your Company’s Website ADA Compliant? And Does It Need to Be?
If you own a brick-and-mortar business that serves the public and has an associated website or app, read this blog, as it pertains to you directly.
Most people are familiar with the American with Disabilities Act (ADA), a landmark piece of legislation signed into law in 1990 that requires businesses serving the public to make their locations accessible to people with disabilities. This means things like installing ramps, providing accessible parking spaces, and making walkways wide enough to accommodate wheelchairs.
In this digital age, companies are learning that the ADA may apply to many websites and mobile applications, too, and what that means for them.
Domino’s Website and App Not Accessible
Normally on this blog we look at court cases from the South Carolina Court of Appeals and Supreme Court, but today’s case is actually from the US Court of Appeals for the 9th Circuit (which encompasses several western states, Alaska, and Hawaii), Robles v. Domino’s Pizza, LLC, which you can find here.
Guillermo Robles is a blind man who relies on screen-reading software to vocalize visual information of websites so he can use them. On at least two occasions, he was unable to order a pizza online from Domino’s Pizza because, he said, the company’s website and app were designed in a way that weren’t accessible to him.
In 2016, Robles filed a suit against Domino’s seeking damages and injunctive relief, arguing that Domino’s website and mobile app violated the ADA as well as the California’s Unruh Civil Rights Act (UCRA), which outlaws discrimination based on disability and other factors. Domino’s argued that the ADA didn’t apply to their website and also argued that enforcing ADA compliance standards would violate their 14th Amendment right to due process. The case went to a district court and was later appealed.
Two questions (among others) the US Court of Appeals had to answer were:
- Are Domino’s Pizza’s website and mobile app subject to the ADA?
- Does the Department of Justice have to articulate specific standards for businesses to follow before these businesses make their websites and mobile apps ADA-compliant?
Here’s what the court found.
Yes, Domino’s Websites and Mobile App Are Subject to the ADA
The district court held that the ADA (specifically, Title III) did apply to Domino’s Pizza’s website and mobile app, and the court of appeals agreed.
The intention of the ADA is to eliminate discrimination against individuals with disabilities in a variety of ways. The Act expressly states that places of public accommodation where goods and services are available to the public – like Domino’s Pizza – must take steps to ensure that people with disabilities are not excluded or denied services. These businesses must provide “auxiliary aids and services” to ensure access.
But does a website need to meet the same standards of accessibility as a place of public accommodation? The court of appeals states in its decision that a website associated with a physical location does need to be accessible. The inaccessibility of Domino’s Pizza’s website and app in this case prevented a disabled user, Robles, from accessing the goods and services of the physical location, thus violating the ADA. In making this determination, the court joins several other courts that have come to the same conclusion in similar cases.
No, the DOJ Does Not First Have to Articulate Specific Standards
The Department of Justice (DOJ) is tasked with regulating implementation of the ADA, and it promised to provide guidelines for website accessibility back in 2010. But that hasn’t happened.
One of Domino’s arguments was that it wasn’t responsible for making its website or mobile app accessible because the guidelines promised by the DOJ hadn’t materialized, so it didn’t know exactly which standards to adopt.
However, there does exist a widely known set of standards that Domino’s could have reasonably adopted and could still adopt as a possible equitable remedy. Those are the Web Content Accessibility Guidelines (WCAG) 2.0, a set of private industry standards for website accessibility. In a footnote, the court mentions that even though these guidelines are private industry standards, they have been widely adopted by many entities, including by federal agencies on their public-facing electronic content. The Department of Transportation requires airlines to adopt WCAG 2.0, and the DOJ has required several ADA-covered entities to adopt them in consent decrees and settlement agreements in the past.
The district court said that imposing WCAG 2.0 standards on Domino’s “fl[ew] in the face of due process” and stated that the DOJ needed to provide guidelines.
The court of appeals disagreed. The Constitution doesn’t require the DOJ or Congress to articulate exactly how a business should comply with the law. “The Lack of Specific Regulations Does Not Eliminate Domino’s Statutory Duty,” says the court (emphasis added). Further, though it hasn’t come out with specific guidelines, the DOJ has “repeatedly” affirmed that websites of public accommodation are subject to Title III of the ADA. Because of this, it’s reasonable to say that Domino’s Pizza has been “on notice” since at least 1996 and has been aware that it has a duty to make its website accessible.
What This Means for You, a Business Owner
Domino’s Pizza petitioned the US Supreme Court to take up the case in June 2019. Showing support for Domino’s were a number of outside parties filing amicus curiae briefs: the Washington Legal Foundation, Retail Litigation Center, Inc., et al., the Cato Institute, the Restaurant Law Center, and the Chamber of Commerce of the United States, et. al.
But the US Supreme Court denied certiorari, meaning the decision discussed above by the US Court of Appeals for the 9th Circuit stands for its district. This will likely have big ramifications for businesses not only in that district, but the rest of the country.
If you own a business with a physical location that is open to the public and you have a website that helps people acquire goods and services from your business, the smart move is to make sure that your website is accessible to people with disabilities. As the DOJ has made clear for many years, it is your legal responsibility to make sure your website is accessible. (It’s also good business.)
If you work with a web developer, ask them about your site’s accessibility. Or if you’re developing your own site and haven’t ever thought about accessibility, learning about WCAG 2.0 is a good place to start.
What if you own a business but it’s not open to the public, or you run a website that has no connection to a brick-and-mortar location? There’s no obligation for such websites to be ADA compliant, so it’s up to you whether you want your site to be accessible or not.
Strategic Business Advice and Guidance
The case above is just one example where the law and business intersect, but it happens all the time. By knowing more about your company’s legal duties, options, and potential pitfalls, you can help strengthen your business. For smart strategic advice to help protect and grow your business, contact business attorney Gem McDowell and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC by calling 843-284-1021 today.
What is a Title Search and Why is It Important?
If you’ve ever bought a piece of real estate in South Carolina, then you probably remember that one of the items on the to-do list before closing was a title search. Since the sale went through, the title was likely clear and you probably didn’t think much of it. But what is a title search and why does it matter? What can happen if you fail to do a title search before buying a piece of property?
The Purpose of the Title Search in South Carolina
A title search is a thorough examination of the public record for anything relating to the property in question. That includes information such as:
- Ownership
- Rights
- Sales
- Current mortgages
- Taxes
- Judgments
- Liens
- Pending lawsuits
and anything else that may affect the property. The purpose of the title search is to bring any potential issues to the attention of the buyer and seller so they can make an informed decision before pursuing the transaction.
Although all this information is in the public record, it’s not necessarily easy to find and therefore it’s typical for an independent third party to do the title search and produce a title report, which is then reviewed by an attorney. (South Carolina is one of a number of states that requires an attorney to assist with the closing.)
If the title search reveals an issue such as an existing lien or unpaid property taxes, it’s said that the title has a “cloud” on it. Sometimes, a clouded title will simply delay the closing as the issues are cleared up and the cloud is lifted. Other times, it can kill the transaction entirely, as it can be too risky for the prospective buyer to purchase a title that’s not clear. They may find themselves on the hook for unpaid taxes, or embroiled in liens and judgments they had nothing to do with.
What is Lis Pendens?
One thing a title report might uncover is a notice of “lis pendens,” Latin for “suit pending.” If a lawsuit has been filed that affects the title of a piece of property, a notice of lis pendens may be filed by an attorney with the clerk of the county where the property is located in order to alert anyone doing a title search of the pending suit.
Someone purchasing a property with a notice of lis pendens on it is bound by the outcome of the underlying suit as the new property owner. For this reason, many people will avoid purchasing such a property. This makes a notice of lis pendens a powerful tool when used incorrectly, as it can unfairly cloud a title and prevent the sale of a property when the property wouldn’t actually be affected by the outcome of the suit.
This was an issue in a case that came before the South Carolina Court of Appeals in November, 2018, Gecy v Somerset Point (read the opinion here). Benjamin C. Gecy is the owner of River City Developers, a residential construction company that built several homes in the Hilton Head subdivision Somerset Point at Lady’s Island. Coosaw Investments was the real estate developer and in charge of the HOA at Somerset Point. River City alleged that Coosaw deviated from construction designs and standards; Coosaw alleged that River City deviated from the standards. In 2011, River City sued Coosaw, and Coosaw counterclaimed and crossclaimed. Coosaw also filed a notice of lis pendens on Lot 16 in the development.
The Court of Appeals looked at a number of issues which aren’t relevant here, but the takeaway is that the lis pendens was not legitimate, because the counterclaims and crossclaims did not affect the title to the real property. Therefore, the notice of lis pendens could only serve to deter potential buyers from buying Lot 16 when there was no danger of the suit affecting the property at all. The Court cited a 2002 SC Court of Appeals decision, Pond Place Partners, Inc. v Poole: “The lis pendens mechanism is not designed to aid either side in a dispute between private parties. Rather, [the notice of] lis pendens is designed primarily to protect unidentified third parties by alerting prospective purchasers of the property as to what is already on public record, i.e., the fact of a suit involving property.”
In short, a notice of lis pendens should only be filed when the property in question could be affected by the outcome of a lawsuit, and not as a weapon to, for example, spite the opposition or gain leverage. The Court of Appeals also confirmed in the River Point decision that “a maliciously filed notice of lis pendens can act as the primary basis for a malicious prosecution claim” in some cases. (But, unfortunately for Gecy, not in the River Point case.)
Buyer Beware
It’s not required by law that a prospective buyer does a title search before purchasing real estate in South Carolina, but skipping the title search is, frankly, reckless. Real property can come with a long list of disputes, competing rights, liens, lawsuits, and more, and a buyer may have no idea what they’re getting themselves into.
If you’re planning on purchasing commercial property in South Carolina, work with an experience commercial real estate attorney like Gem McDowell. He and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC can help you through the process as well as provide strategic advice to help you grow your business. Call today to schedule your free consultation at 843-284-1021.
Timing Is Everything: When Powers of Attorney Aren’t Bulletproof
In the previous blog, we looked at the basics of financial and medical powers of attorney. Today, we’re going to look at how these documents are not as straightforward as you think, courtesy of a case heard by the South Carolina Court of Appeals, Stott v White Oak Manor, Inc. (read it here).
Facts and Background
Jolly P Davis (Decedent) was taken to Spartanburg Regional Medical Center on December 22, 2012 by EMS due to dropping oxygen saturation levels. Less than two weeks later, he was transferred to White Oak Manor for rehabilitation and care. Upon admission, White Oak found that he possessed “intact mental functioning” and was able to correctly answer questions about his age, location, the current date, and so on. Over the next couple weeks, he was transferred between the two facilities several times until he died on January 16, 2013.
Leading up to this, Decedent’s niece, Hilda Stott, was named as the agent in a durable POA for finance and a durable HPOA for Decedent in documents executed May 11, 2012. (A durable POA remains in effect even when the principal is incapacitated, so the agent can make decisions when the principal is, for example, in a coma or suffering from dementia.)
When Decedent was admitted to White Oak, Stott signed papers on her uncle’s behalf, including an Arbitration Agreement. The durable POA for finance was recorded on January 8, 2013, six days after Decedent was admitted to White Oak. The durable HPOA was never recorded. (As a reminder, South Carolina law requires that a POA, but not an HPOA, be recorded with the county in order for an agent to exercise their powers after the principal becomes incapacitated.)
On December 16, 2015, Stott filed a wrongful death suit against White Oak, alleging Decedent was “overmedicated and dehydrated,” which led to his death. White Oak filed a motion to compel arbitration based on the Arbitration Agreement that Stott had signed.
The Circuit Court’s Findings
The case when to the circuit court. Stott argued that even though she signed the Arbitration Agreement on behalf of Decedent, she actually did not have the authority to do so under the durable POA for finance and therefore was not bound to the Arbitration Agreement.
White Oak argued but the court ultimately sided with Stott, finding that (1) Decedent had full capacity to sign the Arbitration Agreement at the time of admission, (2) the durable POA for finance did not become effective until after the Arbitration Agreement was signed because it hadn’t been recorded in time, and (3) the durable HPOA also didn’t authorize Stott to sign the Arbitration Agreement because Decedent was competent when it was signed.
White Oak appealed.
The Effectiveness of the Durable POA for Finance
Here’s where things get rather complicated. Stott signed the Arbitration Agreement on January 2, 2013, but didn’t record the durable POA for finance until January 8, 2013. She argued that she didn’t have the authority to sign the Arbitration Agreement on Decedent’s behalf on the 2nd. But, White Oak noted, the agreement contained an opt-out clause giving the signer a limited time period in which to opt out of the agreement, after which the agreement “will remain and continue in full force and effect.” (Emphasis added by the SC Court of Appeals.) White Oak argued that because the agreement didn’t become binding until the opt-out period expired on January 19, 2013, Stott did, in fact, have the authority to sign it because by then, the durable POA for finance had been recorded – 11 days earlier.
The Court of Appeals disagreed, citing the language used in the opt-out clause. It was stated so that the party would “no longer” be bound by it, and after the opt-out window closed, it would “remain and continue” – language indicating that the agreement was in effect the entire time during the opt-out window. Therefore, because the durable POA for finance had not been recorded by the time she signed the Arbitration Agreement, Stott did not have the power to sign it on Decedent’s behalf.
The Effectiveness of the Durable HPOA
The other issue the Court looked at was whether Stott had the authority to sign the Arbitration Agreement based on a valid durable HPOA. White Oak argued that she did; the Court disagreed.
That’s because Decedent’s durable HPOA contained a provision entitled “EFFECTIVE DATE AND DURABILITY” that stated it would become “effective upon, and only during, any period of mental incompetence.” In other words, it was a springing POA, discussed in the previous blog, which only becomes effective once the principal becomes incapacitated.
White Oak’s own evaluation of Decedent found him to be mentally intact with full capacity upon admission and at the time Stott signed the Arbitration Agreement. Therefore, the Court concludes, the durable HPOA was also not effective to authorize Stott to sign the agreement on her uncle’s behalf.
In short, the Arbitration Agreement is invalid and White Oak cannot compel arbitration of Stott’s claims of wrongful death and survival actions.
Confusion and Lack of Clarity
In this case, the powers of attorney were executed well in advance of any need for them. They were both clear in their intentions, and the durable HPOA even used the language provided by statute. Neither POA was disputed. Decedent’s mental capacity was not called into question by White Oak Manor. And still, confusion occurred regarding whether the agent had authority to sign for the principal.
This case illustrates how complex matters of estate planning can be, even when they appear simple on the surface. This is why it’s so important to work with an experienced estate planning attorney like Gem McDowell to handle your estate planning. Gem has over 25 years of experience helping individuals and families with estate planning in South Carolina. Call him and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC today at 843-284-1021 to schedule a free consultation to discuss your estate planning needs.
Do You Know the Limits of Your Powers of Attorney?
The power of attorney for finance and the power of attorney for health care are two essential documents of estate planning. These documents give a person (the agent) the power to make, respectively, financial or health-related decisions on behalf of another person (the principal). If you have gone through estate planning, you may have had one or both of these documents drawn up for you. (If you haven’t done any estate planning, now is the time!)
But having these documents may give you a false sense of security. You should know the types, conditions, and limitations of powers of attorney so that if you ever need to rely on them – either as the principal or the agent – you are already informed and know what they can and can’t do.
The Powers of Financial and Health Care Powers of Attorney
A power of attorney for finance (POA) gives an agent the power to make financial decisions on behalf of the principal, such as buying or selling property including real estate, accessing bank accounts, managing investments, signing contracts, or borrowing money. The principal can decide which particular powers they want their agent to have.
Similarly, a health care power of attorney (HPOA) gives an agent the power to make health care decisions on behalf of the principal, such as which treatment plan to follow, doctors to use, medication to give, and arrangements for care. It is a type of advance directive and is called different things in different states, including medical power of attorney or healthcare proxy.
What’s the Difference Between Limited, General, Durable, and Springing Powers of Attorney?
There are different types of powers of attorney and the kind of POA that’s best for you depends on your specific goals.
Limited. A limited power of attorney gives the agent the power to act in a limited capacity and often for a specified time period. This is useful if, for example, you’ll be traveling on the day of a real estate closing, and you want your spouse or business partner to be able to sign for you, in which case you’d want a limited POA for finance. Or if you’re going under the knife and want to give your sister the power to make decisions for you relating to the operation while you’re incapacitated, you’d want a limited HPOA.
General A general power of attorney does not limit the agent’s powers to a particular task or time period, but gives them as much discretion to control and direct the principal’s affairs as the principal chooses. The powers of this type of POA last until the principal’s death or until they revoke the POA.
Durable. A durable POA is one that is in effect even when the principal is incapacitated and unable to make their own decisions, for instance, because they are under anesthesia, have dementia, or are in a coma. South Carolina also recognizes that incapacity can also be because a person is missing, detained or incarcerated, or abroad and unable to return to the U.S. If the POA is not durable, then the agent’s powers end once the principal is incapacitated.
For the HPOA, it makes sense that you’d want it to be durable, because the point of having an HPOA is for someone else to make medical decisions for you when you’re unable to. But for a POA for finance, a principal may want a limited POA to be non-durable, as in the example above where the principal is traveling during a closing. A durable POA for finance is also common between spouses, so one may make decisions for the other in the case of incapacity.
Springing. Unless stated otherwise, in South Carolina the powers in a power of attorney commence immediately. However, some people choose to have a springing POA, where the powers “spring” into effect only once the principal becomes incapacitated. So while a durable POA remains effective once the principal becomes incapacitated, a springing POA only becomes effective once the principal becomes incapacitated.
Someone may feel more secure with this type of POA because they know that their agent doesn’t have any powers to make decisions on their behalf while they have mental capacity, and therefore do something they (the principal) wouldn’t want done. The trouble with this kind of POA, however, is that it can be extremely difficult to pinpoint the moment someone becomes incapacitated, especially in cases of dementia and Alzheimer’s, where a person can have good days and bad days. This can make it impossible to effectively use the POA for its original purpose. This is why we here at the Gem McDowell Law Group do not do springing POAS for our estate planning clients.
South Carolina Requires Powers of Attorney to Be Recorded
On January 1, 2017, South Carolina’s Uniform Power of Attorney Act went into effect, requiring durable POAs to be recorded in order for the agent to exercise their powers once the principal has become incapacitated. (POAs made before this date are subject to the laws that were in effect at the time.) Note that a POA does not have to be recorded for the agent to exercise powers while the principal still has capacity.
How do you record a power of attorney? If you work with an attorney to draft your estate planning documents, they will typically do it for you. (You can ask just to be sure.) If you printed your own off the internet or otherwise didn’t go through an attorney, you may contact your county clerk for instructions on how to record your POA. It must be done so in the same manner as a deed in the county where the principal resides at the time, and may be recorded before or after the principal’s incapacity.
Do You Know What Type Your Powers of Attorney Are?
You can see that with so many different types of powers of attorney, the occasional difficulty of pinpointing when incapacity occurs, and South Carolina’s relatively new requirements for recording POAs, things can get confusing. That’s why it’s so important to review the documents you’ve signed and understand exactly what powers you, as the principal, are giving your agent and when they come into effect.
For comprehensive estate planning that is tailored to your life and the needs of your family, contact Gem McDowell and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC. They can help you draft estate planning documents including powers of attorney, wills, and trusts that will give you peace of mind and protect your family. Call to schedule a free consultation at 843-284-1021.
