What Makes an Arbitration Agreement Unenforceable?

UPDATE 03/04/25: Some sections below have been revised to reflect the Supreme Court of South Carolina’s decision in Huskins v. Mungo Homes (2024).

Originally published April 22, 2024:

Is it easy to get out of arbitration in South Carolina? That’s the question we’ll look at today.

Arbitration agreements and clauses are ubiquitous these days, from employment contracts to online End-User License Agreements. Arbitration is often touted as being a faster, less expensive, and more private alternative to civil lawsuits and civil court. But arbitration agreements can put individuals at a disadvantage by requiring them to waive their rights or burden them with lopsided terms. This may prompt them to try to get out of arbitration.

Maybe you’re a customer or consumer who doesn’t want to be bound to arbitration. Or maybe you’re a business owner or professional who wants to ensure the arbitration agreements in your contracts are enforceable. Whatever your situation, you should understand when arbitration is enforced and when it’s not in South Carolina so you can better look after your own interests.

First we’ll look at what makes a contract enforceable and unenforceable in South Carolina, then dive into some cases to see how these issues played out in the courts.

Are Arbitration Agreements Always Binding in South Carolina?

Generally yes, but occasionally no.

Valid arbitration agreements are enforceable in South Carolina. In the 2020 case Weaver v. Brookdale Senior Living, Inc. (which we’ve previously covered here), the South Carolina Court of Appeals stated that there is “potent” public policy favoring arbitration when the terms are entered into validly.

What constitutes a valid and enforceable contract in South Carolina? To start, parties signing the contract must have the authority and capacity to understand and enter into such an agreement. The contract also must:

Be mutually agreed upon
Be freely entered into
Include “consideration,” an exchange of values between the parties, such as money or the promise of a service
Not violate public policy

Since South Carolina courts view and treat arbitration agreements as they do any other part of a contract, these same standards apply.

In short, there’s no way to “get out” of a valid arbitration agreement in South Carolina.

Reasons an Arbitration Agreement May Be Unenforceable (Or, How to Get Out of Arbitration)

Arbitration agreements are not enforceable in South Carolina if they are not valid. Arbitration clauses within a contract may also be found to be unenforceable.

Reasons an arbitration agreement may found to be unenforceable (this list is not exhaustive):

Absence of signature
Fraud
Duress or coercion
Lack of authority to sign the agreement
Lack of capacity (aka sound mind)
Lack of mutual agreement
Lack of consideration
Violation of public policy
Unconscionability
Unclear language

Proving an arbitration agreement is unenforceable can be difficult, but it does happen. Next we’ll look at cases where arbitration agreements were successfully challenged in court.

Lack of Authority to Enter into Arbitration Agreement without Power of Attorney: Solesbee

In some cases, the enforceability of an arbitration agreement comes down to small details. That’s what happened in the 2022 South Carolina Court of Appeals case The Estate of Mary Solesbee v Fundamental Clinic (read it here).

The Background

Mary Solesbee entered Magnolia, a skilled nursing facility in Spartanburg County, in June 2016. Her son, Allen Dover, signed the admission agreement and a separate arbitration agreement when she was admitted. On July 14, 2016, Solesbee was transported to a hospital, where she died two weeks later.

Connie Bayne, Solesbee’s personal representative, then filed a wrongful death and survival action alleging nursing home negligence for actual and punitive damages. In response, Magnolia filed a motion to compel arbitration.

The trial court denied the motion to compel arbitration, finding that Dover did not have the authority to sign the arbitration agreement on behalf of his mother and rendering it invalid. On appeal, the SC Court of Appeals agreed with the trial court’s decision to deny Magnolia’s motion to compel arbitration.

The Details

The appeals court determined that the admission agreement and the arbitration agreement were two separate documents. Magnolia argued that the court should have found the two were merged, since merger is usually presumed when multiple documents are signed by the same parties at the same time as part of the same transaction.

But the court says that’s not always so. It found that the two documents were indeed separate because:

The admission agreement provided it was governed by South Carolina law, while the arbitration agreement provided it was governed by federal law
The arbitration agreement referenced the admission agreement, showing it was conceived of as a separate document
Each document was separately paginated with its own signature page

Additionally, the arbitration agreement was not a requirement for admission to Magnolia.

This matters because Bayne (Solesbee’s representative who brought the suit) argued that Dover (her son) did not have the authority to sign the arbitration agreement on his mother’s behalf. He did not have power of attorney for his mother at the time (and had only briefly possessed such powers years earlier before they were revoked) and did not have the authority to sign under any other legal theory.

He did, however, have the authority to sign the admission agreement under South Carolina’s Adult Health Care Consent Act. This act is limited to making health care related decisions only, and therefore did not give Solesbee’s son the power to sign the separate arbitration agreement.

Ultimately, because of how Magnolia wrote and structured its contracts, the court found that it could not compel arbitration.

Other Examples of Unenforceable Arbitration Agreements in South Carolina

Here are brief overviews of three other South Carolina cases in which arbitration agreements or sections were found to be unenforceable.

Lack of Authority Even with Power of Attorney: Arredondo

In Arredondo v. SNH SE Ashley River Tenant, LLC (2021), the South Carolina Supreme Court found that a daughter did not have the authority to sign an arbitration agreement on behalf of her father, despite being his agent under both a health care power of attorney and a general durable power of attorney. This case came down to the very specific wording in the powers of attorney, and it demonstrates how enforceability of a contract can hinge on language and word choice.

(The daughter also contended that the agreement was unconscionable and therefore unenforceable, but the court did not address this issue.)

Read more in detail about powers of attorney and the full story behind Arredondo in our blog on this case here.

Lack of Authority Due to Timing: Stott v White Oak Manor

In Stott v White Oak Manor, Inc. (2019), the South Carolina Court of Appeals found that a niece did not have the authority to sign an arbitration agreement on behalf of her uncle. There are two important elements in this case: One, capacity. The uncle possessed “intact mental functioning” at the time of his admission into a medical facility and therefore had the capacity to enter into agreements himself. Two, timing. A power of attorney that would have given the niece authority to enter into the agreement on his behalf was not recorded – and therefore not valid – until six days after her uncle was admitted to the facility.

Read more in detail about the background and the court’s reasoning in our blog on Stott here.

Violation of Public Policy: Huskins v Mungo Homes (2024)

The Supreme Court of South Carolina ruled that the arbitration agreement in the purchase agreement signed by the Huskins when buying a new home from Mungo was unenforceable because it included terms that violated public policy and were therefore unenforceable, regardless of whether they were unconscionable.

Previously, South Carolina courts would have likely severed the offending terms and allowed the rest of the agreement to stand, as the SC Court of Appeals had done in 2022. However, in its 2024 Huskins decision, the supreme court stated that SC courts should no longer sever terms from an agreement lacking a severability clause.

Read more about this important decision about adhesion contracts here on our blog.

Unconsiconability: Damico v. Lennar Carolinas, LLC (2022)

The Supreme Court of South Carolina found the terms in the contracts between homebuilder Lennar Carolinas, LLC and several homebuyers (including Patricia Damico) unfairly favored Lennar to the point of being unconscionable and were therefore unenforceable. For something to be considered “unconscionable,” it must contain two elements: 1. The absence of meaningful choice, and 2. Oppressive and one-sided terms.

Read the court’s Damico decision here and read more about unconscionability in SC here on our blog.

Unconscionability: Huskins v Mungo Homes

In Huskins v Mungo Homes (2022), the South Carolina Court of Appeals found that a portion of an arbitration clause within a purchase agreement was unconscionable and therefore unenforceable. It found the offending terms were absent of meaningful choice and were oppressive and one-sided, making them unconscionable.

Importantly, only the offending portion was severed from the clause, leaving the rest of the arbitration clause enforceable, and the court affirmed the circuit court’s order to compel arbitration under the newly modified terms.

~~Read more in detail about the background of this case and about unconscionability in our blog on Huskins v Mungo Homes here.~~

Understanding Arbitration and Reserving Your Rights

The examples of cases above show just how challenging it can be to get out of arbitration in South Carolina.

As a consumer, customer, or patient, you need to understand that the majority of the time, you are bound to arbitration when you agree to it. However, it’s not a given that you must agree; many contracts and agreements online allow you to opt out in writing within (typically) 30 days of signing the agreement. The next time you encounter a wall of text online that tells you to click the “I Agree” button, first look in the fine print for instructions on how to opt out of compelled arbitration and reserve your rights.

As a business owner or professional drafting an arbitration agreement or arbitration clause, you should know that the enforceability of your agreement can come down to terms, word choice, and other seemingly small details. It’s also important to ensure that the parties signing your agreement have the authority to do so.

Get Help with Contracts and Business Law in South Carolina

For help drafting or understanding arbitration agreements, employment contracts, and other contracts, contact Gem at the Gem McDowell Law Group. With over thirty years of experience, Gem along with his team helps South Carolina business owners grow their businesses and protect their interests and can represent individuals in contract disputes. Call to schedule your free consultation today at the Mount Pleasant office or Myrtle Beach office by calling 843-284-1021 today.

South Carolina Rejects the Mortgage Replacement Doctrine

The Supreme Court of South Carolina rejected the mortgage replacement doctrine in the 2023 case ArrowPointe Federal Credit Union v. Bailey (PDF), upholding the decision of the SC Court of Appeals.

Under the replacement mortgage doctrine, if an older (original) mortgage is released and replaced with a new mortgage in the same transaction, the newer mortgage maintains the same priority for repayment as the original.

But the replacement mortgage doctrine is not part of South Carolina law, and the SC Supreme Court rejected it. Here’s some brief background on the case and the court’s main points.

The Background of ArrowPointe Federal Credit Union v. Bailey (2023)

In late October 2009, Jimmy Eugene Bailey and Laura Jean Bailey took out a mortgage from Quicken Loans on their Winnsboro, SC home in the amount of $256,500. In early November, they took out an equity line of credit with ArrowPointe Federal Credit Union (ArrowPointe), secured by a mortgage, with a maximum principal amount of $99,000.

Less than three weeks later, in December 2009, the Baileys refinanced and got a new mortgage from Quicken Loans in the amount of $296,000. At closing, they signed a document saying the only lien on the property was the original Quicken Loans mortgage. Quicken didn’t have ArrowPointe sign a subordination agreement to ensure that it (Quicken Loans) would be paid back before ArrowPointe. It appears the ArrowPointe loan was not discovered during a title search, even though it had been properly recorded and Quicken Loans had constructive notice.

Sometime later, the Baileys defaulted on their ArrowPointe loan, which stood at $187,201.60 in March 2017.

Who Gets Paid First?

In 2017, ArrowPointe filed this action seeking a declaration that its line of credit had priority over the second Quicken Loans mortgage – now held by U.S. Bank – and should be paid first.

U.S. Bank argued it was entitled to priority over ArrowPointe under the replacement mortgage doctrine. ArrowPointe argued that it was entitled to priority, as Quicken Loans had recorded notice of the ArrowPointe line of credit at the time the second mortgage was signed.

A special referee agreed with ArrowPointe, finding that South Carolina does not recognize the replacement mortgage doctrine and that ArrowPointe had priority over U.S. Bank under South Carolina’s race-notice statute (discussed below). The referee ordered the foreclosure of the mortgage and the sale of the Bailey home. The SC Court of Appeals affirmed the special referee’s decision. The matter then went to the Supreme Court in May 2022.

The SC Supreme Court Rejects the Mortgage Replacement Doctrine

The SC Supreme Court affirmed the lower court’s decision. Here are some takeaways from its opinion.

South Carolina Statute is Clear, and the Court is Not a “Superlegislature”

U.S. Bank’s argument for priority was based on the replacement mortgage doctrine, but that is not part of current South Carolina law. The Supreme Court agrees with the SC Court of Appeals that whether South Carolina should adopt the replacement mortgage doctrine is an issue for the General Assembly, not the court, saying, “We do not sit as a superlegislature to second-guess the General Assembly’s decisions.”

Current law is clear. South Carolina has a race-notice recording statute, which is one way of determining the lawful owner of a piece of property when more than one party makes a claim to it. In states with a race statute, the party that records the sale with the recording office first is the legal owner. In states with a notice statute, a subsequent buyer who is not aware of a previous sale of the property, through actual or constructive notice, is considered the owner. The buyer may be made aware of a prior conveyance either through actual notice or constructive notice, such as the recording of a deed which is public record.

In a race-notice statute state like South Carolina, a subsequent buyer must have no actual or constructive notice of a prior conveyance and must record the purchase before the prior buyer. Under this statute, ArrowPointe has priority over U.S. Bank.

Equitable Subrogation Doctrine and Replacement Mortgage Doctrine Are Not the Same

U.S. Bank also argued that because the South Carolina Supreme Court has adopted the equitable subrogation doctrine as an exception to the race-notice statute in the past, it may also adopt the replacement mortgage doctrine.

But the two are different, says the court. With equitable subrogation doctrine, a new party essentially “steps into the shoes” of the existing mortgagee, to use the court’s analogy. The party has changed, but the loan itself has not. With the mortgage replacement doctrine, however, the old mortgage is satisfied and replaced with a wholly new mortgage that may or may not have similar terms. In the present case, the second mortgage the Baileys took out was substantially more than the first – $39,500 more – so the two mortgages were significantly different. The second mortgage was not an exact replacement for the first.

A Thorough Title Search is a Better Solution

A thorough title examination is “inherent” in our state’s race-notice statute, says the court. Quicken Loans should have discovered the ArrowPointe line of credit in a title search and addressed it during refinancing, but it didn’t.

“We conclude the replacement mortgage doctrine invites needless litigation that could be avoided by a simple examination of the title to the real property,” says the SC Supreme Court. “We see no reason to adopt a doctrine that excuses the failure to conduct such a title examination—or, when a title examination is conducted, the failure to ascertain the existence of an intervening lien.” (Emphasis added by Gem McDowell Law Group.)

Don’t take chances or shortcuts when it comes to real estate deals. Work with an attorney who can help you cover all your legal bases so there are no surprises in the future.

Call South Carolina Attorney Gem McDowell

For help with contracts, commercial real estate transactions, and other estate planning and business law needs, call Gem and his team at his Mt. Pleasant office. Gem has over 30 years of experience helping individuals and businesses in South Carolina to protect their interests and avoid potentially costly mistakes. Call 843-284-1021 today to schedule your free consultation.

What is a Lady Bird Deed? Are Lady Bird Deeds Legal in South Carolina?

A lady bird deed, like other kinds of deeds, determines how ownership of a property is transferred and to whom. It’s similar to a life estate deed in that it allows the transfer of property outside of probate. But the big difference is that a lady bird deed gives the life tenant rights to the property that are restricted by a traditional life estate deed, such as the right to mortgage or sell the property.

A lady bird deed – also known as a ladybird deed or an enhanced life estate deed – can be a useful tool in the right estate plan. But it’s not right for everyone, and using a lady bird deed can lead to serious unintended consequences.

Let’s look at what a lady bird deed is and what it does, the advantages and disadvantages of the lady bird deed, and lady bird deeds in South Carolina.

What Is a Lady Bird Deed? What Does a Lady Bird Deed Do?

The lady bird deed was created by Florida attorney Jerome Ira Solkoff in the early 1980s; the name comes from Solkoff’s book and is not a reference to First Lady “Lady Bird” Johnson. Solkoff started using the lady bird deed to address an issue with the traditional life estate.

In a typical life estate, a piece of property (often but not always real estate) is owned by a “life tenant” for the duration of their life only. When the life tenant dies, the property automatically passes to a “remainderman” or “remaindermen.” The life tenant may be the grantor (the original owner of the property), the grantor’s spouse or child, or someone else.

One big advantage of a life estate deed is that the property is not subject to probate. But one big disadvantage – to the life tenant, at least – of the traditional life estate is that the life tenant does not have full rights to the property during their lifetime. The life tenant cannot, for example, sell or take out a mortgage on the property without the permission of the remainderman. Understandably, selling or mortgaging the property goes against the best interests of the remainderman, who would prefer for the property to remain intact with its full value. This clash of interests between the life tenant and the remainderman effectively means that, in most cases, the life tenant is unable to sell or mortgage the property, even if it is legally theirs.

Enter the lady bird deed. With a lady bird deed, the life tenant has full rights to the property during their lifetime, including the right to mortgage, sell, or otherwise dispose of the property without the permission of the remainderman. This is why the term “enhanced life estate” is also used for a lady bird deed, since it’s essentially a life estate deed that gives the life tenant additional rights to the property. Upon the death of the life tenant, the property, or what remains of it, automatically goes to the remainderman (or remaindermen).

Another important difference between a lady bird deed and a life estate deed is that a lady bird deed can be revoked or changed by the grantor alone. By contrast, a life estate deed can only be revoked or changed by the grantor with the permission of the life tenant and the remainderman.

Benefits of a Lady Bird Deed

As covered above, the main benefits of a lady bird deed over a life estate deed include:

Full property rights to the life tenant including the right to sell or mortgage the property without the remainderman’s permission.
Ability for grantor to revoke or change the lady bird deed without the remainderman’s permission.

Other benefits of a lady bird deed are the same as a typical life estate deed, which include:

Avoiding probate. Because the lady bird deed (or life estate deed) directs where the property should go after death, the property passes automatically to the heir without needing to go through probate.
Help with Medicaid eligibility. If the grantor is also the life tenant, then the property is not considered an asset when the grantor applies for Medicaid. Lady bird deeds aren’t considered a transfer for Medicaid eligibility purposes.
Prevent property from being used to repay Medicaid. Lady bird deeds (and life estate deeds) prevent the property from being used to repay the state for Medicaid costs related to long-term care after the individual’s death.
Avoid federal gift tax. Importantly, it does not help you avoid applicable estate taxes.

This list is not exhaustive. Depending on your specific circumstances, you may derive other benefits from a lady bird deed or life estate deed.

Drawbacks of a Lady Bird Deed and Potential Consequences

Lady bird deeds sound great. They provide all the benefits of a life estate deed but without the major drawback of restricting the life tenant’s rights. Plus, they can be changed or revoked by the grantor at will.

But there are two major drawbacks specific to lady bird deeds that can create unintended consequences. These are:

Drawback 1: Lack of widespread recognition

Lady bird deeds are not as common and widespread as life estate deeds and many other estate planning tools. As of now, only five states fully recognize lady bird deeds (usually called enhanced life estate deeds): Florida, Michigan, Texas, Vermont, and West Virginia.

While this doesn’t mean you are prohibited from having a lady bird deed if you live in one of the other forty-five states, it does mean that doing so is taking a risk. Your wishes may not be carried out as you want, because the law still isn’t clear on how to handle lady bird deeds in most states.

Drawback 2: Difficulty obtaining title insurance

One of the great benefits of a lady bird deed is that the life tenant does not require permission from the remainderman to mortgage, sell, or otherwise encumber or dispose of the property. But this can cause a problem when it comes to title insurance if the life tenant ever decides to sell or take out a mortgage on the property.

A title insurance company in a state where lady bird deeds are not routinely recognized may refuse to issue title insurance unless it has the “joinder of the remainder,” that is, the agreement of the remainderman or remaindermen to the sale or mortgage. Since, as discussed above, doing so goes against the remainderman’s best interests, it may be impossible to obtain the joinder of the remainder. At that point, the enhanced life estate created by the lady bird deed is no different than a typical life estate.

What if you simply don’t get title insurance and go ahead with the sale? It’s true that title insurance is not required for every sale. But skipping the title insurance doesn’t address the underlying problem, which is that the remainderman has a vested interest in the property and can bring a claim in the future. Fighting such claims in and out of court can be costly and time consuming, and they can irreparably damage relationships among heirs.

Are Lady Bird Deeds Legal in South Carolina?

Lady bird deeds are not codified into law in South Carolina, nor have they been officially recognized by the courts.

However, in at least two instances, South Carolina higher courts have agreed with the intention of an enhanced life estate, or, in its words, a “life estate with the power of disposition,” as far back as 1971. That is, it recognized the right of a life tenant to dispose of the property as they wish without the consent of the remaindermen when this wish was explicitly expressed in the original property owner’s last will. See Blackmon v. Weaver (2005) (here) and Johnson v. Waldrop (1971) (here).

This may be reassuring to those who wish to take advantage of the benefits of a lady bird deed in South Carolina, but it’s still a long way from being widely used and recognized here. Plus, it still doesn’t change the fact that title insurance companies may refuse to issue title insurance without the joinder of the remainder, which could hamper real estate deals. Finally, it’s worth noting that both of the “life estates with the power of disposition” recognized by the courts were created in last wills, not through deeds, meaning that the properties in question were subject to probate.

Alternatives to Lady Bird Deeds in South Carolina

At this time, the most prudent thing to do may be to find an alternative to the lady bird deed if you live in South Carolina or another state where enhanced life estate deeds are not routinely recognized. Some possible alternatives to a lady bird deed, depending on your objectives, include a life estate deed, a transfer-upon-death deed, or a revocable living trust.

If you have questions about your estate plan and are concerned about avoiding probate or ensuring that your property is inherited according to your wishes, call estate planning attorney Gem McDowell at the Gem McDowell Law Group. He and his team can help you create, review, or update your estate plan so it reflects your current life circumstances and future wishes. He can also help you understand the possible consequences of how your estate plan will play out and how that can affect your family members and heirs and prevent friction in the future.

Call Gem today at his office in Mount Pleasant, SC, at 843-284-1021 to schedule your free consultation today.

What Is the Legal Rate of Interest in South Carolina in 2024?

Update: Read about the 2025 legal rate of interest here on the blog.

On January 4, 2024, the Supreme Court of South Carolina issued an order regarding interest rates on money decrees and judgments for the next twelve months. The legal rate of interest for money decrees and judgments is 12.50% compounded annually for the period between January 15, 2024 and January 14, 2025. (Read the original order in PDF format.)

The rate “is equal to the prime rate as listed in the first edition of the Wall Street Journal published for each calendar year for which the damages are awarded, plus four percentage points, compounded annually,” according to South Carolina Code § 34-31-20 (B). The law also provides that the SC Supreme Court updates the interest rate every year, no later than January 15^th, for the upcoming year.

Are You Responsible for Your Spouse’s Debts?

Are you responsible for your spouse’s debts? It depends. Generally, you are not responsible for any debts your spouse brings into the marriage.

As for debts incurred during the marriage, it depends on the state you live in and the type of debt. In an equitable division state such as South Carolina, both spouses are responsible for debt taken on jointly and for debt that benefits the marriage. In South Carolina and many other states, you would not be liable for debts incurred only by your spouse that don’t benefit the marriage.

There’s one important exception – the doctrine of necessaries.

The Doctrine of Necessaries in South Carolina

The doctrine of necessaries (also called the necessaries doctrine or sometimes the doctrine of necessities) comes from common law and is still valid in many states today, including South Carolina. It makes an individual liable for a spouse’s debts if the debts are related to medical care, food, shelter, or other “necessaries” for life. It also applies to parents who are liable for their minor children’s debts including medical bills.

The necessaries doctrine has been affirmed a number of times in South Carolina courts, including in the case Richland Memorial Hospital v Burton (1984) in the Supreme Court of South Carolina (here). Richland Memorial Hospital brought a collection action against Cary Burton, the husband of a deceased patient of the hospital, for debts incurred by his wife during her medical care. The trial court found Burton liable for the debts, and the SC Supreme Court ultimately affirmed.

This case is important because it brought equality to a common law that originally applied only to men and not to women.

Historical Inequality in the Doctrine of Necessaries

Originally, only husbands had the legal duty to support their wives and take on their debt. The necessaries doctrine comes from common law during a time when women did not have all the rights they do today, including property rights and the right to enter into contracts. A husband had a duty to support his wife, even taking on the debts she incurred before the marriage, and he also had the authority to use her property to satisfy her debts. Common law did not require a woman to take on her husband’s debts, because it didn’t make sense at the time.

Things began to change in the mid-1800s when Married Women’s Property Acts and similar acts were passed, state by state, across the country, giving women more legal authority and property rights. South Carolina later enacted Code 20-5-60 which relieved husbands of liability for their wives’ debts, except for her necessary support: “A husband shall not be liable for the debts his wife contracted prior to or after their marriage, except for her necessary support and that of their minor children residing with her.”

Still, while women gained more rights, the necessaries doctrine remained unchanged in many places for a long time, including South Carolina.

An Old Common Law in Modern Times

In Richland Memorial Hospital v Burton, Burton argued that the necessaries doctrine and SC Code Section 20-5-60 were unconstitutional because they violated the equal protection clauses of the South Carolina Constitution and the United States Constitution. The appellant and respondent conceded that the necessaries doctrine denied equal protection because it imposed an obligation on husbands it did not impose on wives. The court agreed.

But the court also agreed with Richland Hospital that the doctrine of necessaries remains a viable common law doctrine. The court determined that both husbands and wives were subject to the necessaries doctrine. From the court’s opinion: “We accordingly hold that the necessaries doctrine allows third parties providing necessaries to a husband or wife to bring an action against the individual’s spouse.”

In short, yes, in South Carolina you can be responsible for necessaries-related debts your spouse alone incurs – whether you’re a husband or a wife.

Estate Planning with Gem McDowell

For help with estate planning, call estate planning attorney Gem McDowell at the Gem McDowell Law Group. He and his team can help you with estate planning documents like wills, living wills, and trusts, and help make sure your estate plan is up to date and reflects your wishes and current laws. Call 843-284-1021 to schedule your free initial consultation today.

What is a Right of First Refusal and When Is It Enforceable?

The right of first refusal sounds simple on the surface. A right of first refusal (ROFR) gives the right-holder the opportunity to enter into a business transaction with another party before anyone else. It’s most commonly seen in real estate contracts, such as when a lessor signs a contract giving them the ROFR to put in an offer to purchase the property if it ever comes up for sale.

But as straightforward as it sounds on paper, it’s not always so straightforward in the real world. Contracts that include an ROFR must be clear and detailed in order to be enforceable.

The Supreme Court of South Carolina addressed this issue in the 2023 case Clarke v. Fine Housing, Inc. (here). We’ll look at the factors required for an enforceable right of first refusal in South Carolina and how they played out in this recent case.

The Pros and Cons of a Right of First Refusal

An ROFR can benefit both parties. In the example of a lessor with the ROFR to purchase the property, if and when it comes up for sale, they can be sure not to miss out on the opportunity to put in an offer. There’s no downside for the potential buyer; if they don’t want to buy the property, they simply refuse.

The property owner can benefit by having a potential buyer already lined up when it’s time to sell, which may help them in negotiations with other potential buyers. However, the downside for the property owner is that a ROFR can restrict their power of alienation, which is their ability to dispose of property.

“South Carolina law prohibits enforcement of unreasonable restraints on alienation of real property,” the court says in the Clarke opinion. The key word here is “unreasonable.” Whether a particular ROFR is enforceable depends on whether the restraints on alienation are considered unreasonable.

Unreasonable Restraints on Alienation of Property: What is Unreasonable?

In the Clarke opinion, the SC Supreme Court turns to the Restatement (Third) of Property. The Restatements of the Law (Third) are a comprehensive set of legal treatises widely referenced and relied upon by courts, judges, lawyers, and others across the U.S. On the subject of the ROFR, it says, “Reasonableness is determined by weighing the utility of the restraint against the injurious consequences of enforcing the restraint.”

The Supreme Court of South Carolina uses the factors listed in the Restatement (Third) of Property (Comment f) to determine, on a case-by-case basis, whether a right of first refusal is enforceable. The factors are:

The legitimacy of the purpose of the right,
The price at which the right may be exercised, and
The procedures for exercising the right

These factors are not exclusive.

Let’s look at each one of the factors and how they figure into the Clarke case.

Background of Clarke v Fine Housing (2023)

First, the pertinent background of 2023 Supreme Court of South Carolina case Clarke v. Fine Housing, Inc.: Barry Clarke owned a strip club in Charleston. In 1999, he entered into a lease agreement with the owners of another strip club across the street to use part of their unimproved land for parking. The lease contained the following language:

Section 5.2. Right of First Refusal: Lessor grants the Lessee the right of first refusal should it wish to sell.

Note that there’s no mention of price, timing, how to exercise the right, or any other specifics – not even which property this right of first refusal applies to.

In 2013, then-owner RRJR conveyed the property in question to Fine Housing, Inc. Clarke learned of the sale in 2014 after it was a done deal, having had no opportunity to exercise what he believed to be his enforceable right of first refusal (Right).

In 2015, Clarke brought this action for specific performance against Fine Housing and RRJR. The case eventually came before the Supreme Court of South Carolina, which agreed with the SC Court of Appeals that the Right was not enforceable because it constituted an unreasonable restraint on alienation.

Factors for an Enforceable Right of First Refusal

Here are the three factors the Supreme Court of South Carolina uses to determine enforceability of a right of first refusal on a case-by-case basis and how they show up in Clarke.

Factor 1: Legitimacy

In Clarke, Fine Housing didn’t challenge the legitimacy of the purpose of the Right, so the court didn’t address the issue.

Factor 2: Price

Price may or may not be an unreasonable restraint on alienation. If, for example, the ROFR were dependent on a fixed price, that could restrain alienation. If the price were to be matched to a third party’s offer, there would be less restraint.

In Clarke, Clarke argued that the Right left the price to be determined entirely by RRJR and required him to match any offer from a third party. He also argued that exercising the Right would have started a bidding war that would have benefitted RRJR.

The court agreed with Fine Housing that the absence of any method for determining the purchase price in the lease constituted an unreasonable restraint on alienation. Absence of specifics on how to determine price may not be as restraining as a fixed price, says the court, but it is still a restraint, and “a right of first refusal should contain some method for determining the price at which it may be exercised.” The lease Clarke signed had no method, and therefore this factor worked against him.

Factor 3: Procedures governing the exercise of the right

Comment f to the Restatement stresses the importance of provisions governing the exercise of the right, stating, “Lack of clarity may cause substantial harm by making it difficult to obtain financing and exposing potential buyers to threats of litigation. Lengthy periods for exercise of rights of first refusal will also substantially affect alienability of the property.”

Time is also an important consideration. How soon after the owner decides to sell does the right holder have to exercise their right? An extended period of time can be a restraint on the property owner, while a “reasonable” time frame does not impose unreasonable restraint and is generally enforceable.

In Clarke, Clarke argued that a ROFR does not require detailed instructions on how to exercise it to be valid, but this directly contradicts the Restatement (Third) of Property. He also argued that the lease provided satisfactory procedures regarding the exercise of the right. The court disagreed “because the Right contains no such procedures whatsoever.”

As for timing, Clarke argued that if there’s no mention of a timeline in the language of the agreement, then it must be done within a “reasonable time.” The court disagreed, saying that the point of the Restatement is to include a predetermined time limit so as to protect the property owner’s power of alienation, rather than having the owner rely on a “judicially implied ‘reasonable time.’”

Because of the total lack of provisions regarding timing and procedures on how to exercise the Right, the court found again in favor of restraint on alienation.

Additionally: Which Property?

The court also addressed a matter specific to Clarke: to which property did the Right ostensibly apply? The entire property that includes the unimproved land Clarke leased for parking, or the unimproved land only?

Clarke argued that the Right applied to the entire property, but the court disagreed because the language in the lease was not clear. That uncertainty constitutes an additional unreasonable restraint on alienation.

Takeaway: Rely on Clear, Specific Contracts

The SC Supreme Court affirmed the appeals court’s decision, finding in favor of Fine Housing and against Clarke, stating “The Right does not identify the property it encumbers, contain price provisions, or contain procedures governing the exercise of the Right. We conclude the Right is an unreasonable restraint on alienation. We therefore affirm the court of appeals’ holding that the Right is unenforceable.”

An important takeaway for anyone entering into a contract with a right of first refusal in South Carolina: Make sure the language in your contact is clear and specific and that it addresses the three factors discussed above. It must contain language on how the price should be determined and how the right should be exercised. Language that unreasonably restrains the property owner’s power of alienation may render it unenforceable, so the right cannot be construed too favorably to the would-be buyer.

Call Gem McDowell for Contracts, Strategic Business Advice, and Commercial Real Estate

Many legal disputes come down to the language in a contract. Is it clear? Is it enforceable? Would the courts side with you if the matter were ultimately litigated? It’s critical to get the contract right before signing it, so you lessen the chances of complications and litigation down the road.

For help with business contracts and commercial real estate, call business attorney Gem McDowell at the Gem McDowell Law Group. Gem has over 30 years of experience working with business owners to help them start, grow, and protect their businesses. He and his team can help you with contracts, corporate governance documents, strategic advice, and more. He also has extensive experience in commercial real estate transactions in South Carolina. Call the Gem McDowell Law Group today to schedule a free consultation at 843-284-1021.

What is Family Malpractice™, and Have You Committed It?

Have you committed Family Malpractice™?

If you’ve neglected your legal responsibilities regarding your family, then yes, you have.

What is Family Malpractice™?

You’ve heard of attorney malpractice, where an attorney’s misconduct causes problems for a client, and you’ve heard of medical malpractice, where a doctor’s error or negligence causes problems for a patient. Similarly, Family Malpractice™ is when an individual causes problems for his/her family members, usually because of failure to take action on a legal matter.

Problems that are created can be legal, financial, and/or familial in nature. I’ve seen a decedent’s heirs have to go through years of expensive and stressful legal battles over how to divide up assets. I’ve seen people take a huge financial hit because of how property was handled after the owner’s death. I’ve seen families torn apart and relationships permanently ruined due to Family Malpractice™.

While it’s not something you can be prosecuted for, Family Malpractice™ is something to avoid. You can easily do so by knowing some of the common pitfalls that put your family in peril legally and financially, and how to avoid these easily avoidable situations yourself.

When You Have Children but Have No Will, That’s Family Malpractice™

Do you know what happens in South Carolina if you die without a will, leaving behind a spouse and children? When I ask this question in consultations or at live, in-person seminars, most people believe that 100% of the deceased’s probate estate goes to the spouse. This is incorrect. By state statute, the deceased’s probate estate is divided evenly between the spouse, who gets 50%, and the children, who share the remaining 50% among themselves.

This sounds reasonable and fair. But, as straightforward as it sounds, this simple arrangement can cause a lot of problems, usually for the spouse. For instance, if a husband and father dies intestate (without a will), his half of the house is divided equally between his surviving wife and children. So his wife now owns 75% of the house and the children own the other 25%. If she’s not able to keep up with the house payments and wants to downsize, she can’t sell unless her children agree. They then have leverage and can demand more than the 25% of the sales price of the home, or else simply refuse to sell.

Who would do this to their own mother, you ask? Plenty of people, unfortunately. I’ve seen scenarios like these play out many times in my 30+ years of being an attorney. Situations like these can ruin a person financially in their later years and destroy family relationships irrevocably.

The situation becomes even more complicated in blended families where one or both spouses have children from a previous marriage. Imagine then, the surviving spouse may own 75% of the house and the children from a previous marriage own the other 25%. The children from the previous marriage are not required to cooperate with the surviving spouse. They can veto a sale, refinance, etc. They essentially control the property. That is not what the decedent wanted, and that decedent committed Family Malpractice™ with regards to the surviving spouse.

In short, the way an estate is passed along and divided up according to South Carolina law may not be what an individual wants, but if they die intestate, they don’t get a choice – and their heirs have to live with the consequences.

The solution: Have a will drawn up. This is vital if you have a family and especially if you have anything other than a small estate. Dying without a will can potentially create a lot of problems for your heirs that could have been avoided with a current estate plan.

When You Don’t Probate Your Deceased Mom or Dad’s Estate, That’s Family Malpractice™

The idea of a family home being passed down from generation to generation is something many people aspire to. Passing on wealth in the form of real property to your children, and to their children in turn, and so on, is a wonderful gift.

At least, it can be. It’s not uncommon for property passed on after death to become “heirs property,” which can cause a lot of problems for the heirs. This can happen when the surviving children of the original, now-deceased homeowner continue to live in the home but don’t go through the proper legal process to put the property in the new owners’ names. That is going through the probate process. If the same situation repeats for a few generations in a row, you can end up with literally dozens of people (typically, the grandchildren or great-grandchildren of the original owner) who all have legal claims to the property, all while the property is still technically in the original owner’s name.

Why is this such a problem? Because it’s very difficult to sell a house like this, when there are so many owners and a cloudy title. A buyer interested in the property risks having the deal fall through if one of the many owners decides they want more than their proportional share of the sales price or refuses to sell altogether. Getting the title cleared takes extra time and money. Meanwhile, the family members who own the house cannot sell and take the equity in the house, and they may be barred from accessing things that require clear title of ownership, like mortgages, loans, and government programs.

The solution: Ensure your deceased parent’s estate goes through probate. The probate process does not happen automatically; it’s something the executor named in the will must carry out. If there is no will, the probate court names an executor, usually a child or close relative of the deceased.

There are a few roadblocks keeping people from ensuring a deceased parent’s estate goes through probate. One is simply not knowing that it’s needed; they may incorrectly assume that the ownership of the house legally passes from the parent to the child(ren) without having to do anything. Another reason is an aversion to having to pay a lot to probate the estate. But in SC, probate fees are not very high. For instance, probate fees on an estate worth $1 million is just $1,845, which is paid out of the estate, as are attorney’s fees. Finally, some people want to avoid dealing with the government altogether. While this may be understandable, it’s not a good reason to avoid probate. Working with an experienced probate attorney you trust can help you and ensure that your estate is handled legally and fairly.

Read more about probate here on our blog.

When You Don’t Take the 1014(e) Step-Up in Basis, That’s Family Malpractice™

A step-up in basis occurs when the cost basis of an asset, like a home, is adjusted from the original cost basis to the current fair market value upon the death of the owner.

Let’s say your parents bought a house 20 years ago for $150,000, and when you inherited it upon their deaths, it was worth $350,000. If you don’t take the step-up in basis and proceed to sell it, you’ll have to pay capital gains tax on the difference, which is $200,000. If instead you do take the step-up in basis, and have the cost basis of the house increased to $350,000 (the fair market value at the time of your parents’ deaths), then you’ll only pay capital gains tax on the difference between $350,000 and whatever you sell it for in the future.

Depending on the value of the house, and how much that value has grown over time, that can mean saving a lot of money in taxes. When someone does not take this step-up in basis, it can lead to very large tax bills when the time comes to sell the property. There are a few reasons a person may fail to do so; they may not even know that the option exists, or they may mistakenly assume that it happens automatically.

The solution: Take the step-up in basis on property in an estate that you are executor of, or ensure that the executor of your parents’ estate does so. The probate attorney handling the estate can help you. As a probate attorney, my goal is to get the largest step-up in basis possible for my clients in order to reduce their tax liability in the future.

Work with Estate Planning Attorney Gem McDowell

Wills, probate, and step-up in basis are things that most people don’t think about because it’s outside the scope of daily life. But failing to take care of these matters is what I call Family Malpractice™, and it can lead to major legal and financial hassles in the future. Even more devastating, it can cause rifts between family members as they fight over assets in and out of court. Fortunately, these issues are completely avoidable. Work with an estate planning attorney and probate attorney to ensure your estate plan is solid and current and that you’re handling your deceased relatives’ estates correctly.

If you have questions about creating or revising your own estate plan in South Carolina, or you want advice or assistance handling the estate of a deceased relative, contact Gem McDowell at the Gem McDowell Law Group today. Gem has over 30 years of experience as an attorney and has helped countless families in South Carolina create estate plans, avoid mistakes, and fix problems. He and his team can help you understand and avoid committing Family Malpractice™ that can harm your family. Call him at his Mount Pleasant office today at 843-284-1021 to schedule a free consultation.

What Happens to Your Estate If You Die During a Divorce in South Carolina? Spousal Elective Share

Imagine this scenario:

Husband and Wife have been married for many years. One day, Wife files for divorce. At a hearing a few months later, the divorce is granted.

Husband dies about a week later.

A few days after that, the final divorce decree is signed by the judge, then filed with the clerk.

The tragic and unlikely timing of Husband’s death brings up some important questions.

Were Husband and Wife still married when he died because the decree wasn’t yet signed and filed?
Or were they already divorced because the divorce had been officially granted by the court?
Would Wife be entitled to part of Husband’s estate as a surviving spouse?

This exact situation happened in South Carolina in the late 90s and ended up before the South Carolina Court of Appeals in the 2000 case Hatchell-Freeman v Freeman. It’s an interesting case to know for anyone contemplating or going through a divorce in South Carolina as it answers the questions above.

Dying Before Divorce Is Finalized: Hatchell-Freeman v. Freeman (2000)

In the Hatchell-Freeman case (read it here), Angela Hatchell-Freeman filed for divorce on June 21, 1996. The divorce was granted at a hearing on September 27, 1996, and ten days later, on October 7, Husband died. The final order granting the divorce was signed on October 10, and the following day the order was filed.

In December, father of the decedent Gilbert Freeman filed a petition to be appointed personal representative of his late son’s estate, which the court granted. He did not list Hatchell-Freeman as an intestate heir or as “a person having a prior or equal right of appointment.”

In January, Hatchell-Freeman filed a notice of election by surviving spouse for her intestate share – aka “elective share,” which is a portion of the decedent’s estate the surviving spouse is entitled to by statute. The probate court ruled that she was entitled to elective share.

She also filed a petition to be appointed personal representative, which would mean removing Gilbert Freeman from the role. The probate court ruled that she had had “adequate” time to file – over three months since her husband’s death – and so denied her petition.

Both parties appealed.

The Circuit Court’s Findings

The circuit court affirmed the probate court’s finding that Hatchell-Freeman was the wife of the decedent at the time of his death and therefore entitled to her elective share.

However, it found that she had a superior right to serve as personal representative. Gilbert Freeman was removed from the role and replaced by Hatchell-Freeman.

Gilbert Freeman then appealed.

The SC Court of Appeals

The appeals court affirmed the circuit court’s findings.

It found that the couple was indeed married at the time of Husband’s death, making Hatchell-Freeman eligible to receive her elective share of the estate. The fact that the divorce had been granted at the final hearing before Husband’s death was irrelevant, as South Carolina Code 62-2-802(c) (1987) is clear: “A divorce or annulment is not final until signed by the court and filed in the office of the clerk of court.”

The court also affirmed the lower court’s decision to replace Gilbert Freeman with Hatchell-Freeman as personal representative. SC Code 62-3-203(a) (1999) lists in order which individual should be given priority for the role of personal representative, and when there is no will naming a personal representative (as in this case, since Husband died intestate), a surviving spouse has priority over other heirs.

Although it may not have been Husband’s intention for the woman he was divorcing to inherit any portion of his estate, that’s what happened. But was there something he could have done to prevent it?

(Technically) Married at Time of Death: Spousal Elective Share in South Carolina

As stated above, a surviving spouse is entitled to spousal elective share, which is a portion of the deceased spouse’s estate. The concept of elective share originates from English common law and is widespread across the US, with different laws governing elective share in different states.

In South Carolina, a surviving spouse may claim one third of the decedent’s probate estate. (“Probate estate” is defined in SC Code Section 62-2-202 as “the decedent’s property passing under the decedent’s will plus the decedent’s property passing by intestacy, reduced by funeral and administration expenses and enforceable claims.”) This is a minimum; the testator or testatrix can of course leave more than one third of their estate to their spouse in their will.

It doesn’t matter whether the decedent had a will or not; whether the couple was separated at the time of decedent’s death, divorce pending; or even whether the decedent had purposely left the surviving spouse out of the will in an attempt to disinherit them. The surviving spouse is legally entitled to their elective share.

In short, if you die before your divorce is signed and filed, your spouse is entitled to claim a portion of your estate under South Carolina law even if that’s not what you want. The only exception is if your spouse has waived their right to elective share, typically via a prenuptial or postnuptial agreement.

Reviewing and Revising Your Estate Plan During or After Life Events – Call Attorney Gem McDowell

If you’ve recently undergone a major life event like divorce, marriage, or birth of a child, you should consider contacting an estate planning attorney to review your last will, powers of attorney, and other estate planning documents. It’s a good opportunity to ensure that your estate plan is in line with your current wishes and life situation.

For help with estate planning, asset protection, and contracts including prenuptial agreements and postnuptial agreements, contact attorney Gem McDowell. He and his team at the Gem McDowell Law Group can help you with your estate planning needs before, during, and after a divorce. Call him at his Mt. Pleasant office at 843-284-1021 today to schedule a free consultation.

What is “Unconsionability” in the Law?

UPDATE 03.04.25: The discussion below centers on the Court of Appeals of South Carolina’s 2022 decision in the Huskins v. Mungo Homes case. Since then, the Supreme Court of South Carolina took up the case and rendered its decision in 2024. It skirted the issue of unconscionability entirely, stating that because the contract terms were found to violate public policy, they were unenforceable and the issue of whether they were unconscionable was moot. Read more about the 2024 Huskins decision and what it means here on our blog.

For a relatively recent Supreme Court of South Carolina case that discusses unconscionability (again in the context of a home builder’s one-sided contract), read the Damico v. Lennar Carolinas, LLC (2022) decision here.

Originally published Jan. 23, 2023:

What is “unconscionability” in the law, and how is it viewed by the high courts in South Carolina? In this blog we’ll look at the definition of unconscionability, its elements, and what unconscionability looks like in real-life cases, including the 2022 SC Court of Appeals case Huskins v Mungo Homes, LLC.

“Unconscionability” in the Law

“Unconscionability” is used by courts most often in the context of contract law. It refers to terms that are so egregiously unjust or one-sided that they are unreasonable and may shock the conscience of the court. Typically, it’s the party with greater bargaining power that creates a contract favoring themselves to the detriment of the other party. When a contract or one of its terms are found unconscionable, it is unenforceable.

“Unconscionable” is also used by courts to describe a party’s grossly unfair conduct. A party that behaves unconscionably may not benefit from their conduct.

Elements of Unconscionability in South Carolina

“Unconscionability has been recognized as the absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them.” – South Carolina Court of Appeals quoting the SC Supreme Court decision Carolina Care Plan, Inc. v United HealthCare Servs., Inc. (2004) in the Huskins decision (emphasis added).

From this understanding of unconscionability, South Carolina courts look for two elements to determine whether something is unconscionable or not:

Absence of meaningful choice
Oppressive and one-sided terms

What would constitute a “meaningful choice” in the eyes of the court, and when are contract terms considered “oppressive and one-sided”? Let’s look at unconscionability in some real-life South Carolina cases.

Unconscionability in Real Life: Huskins v Mungo Homes, LLC

We’ve run into the concept of unconscionability in previous blogs:

To describe bad conduct in the context of minority member oppression (squeeze out/freeze out) in Wilson v Gandis (SC Supreme Court, 2019) (blog here)
Whether a prenuptial agreement in Hudson v Hudson (SC Court of Appeals, 2014) was unconscionable (blog here)
Whether an arbitration agreement in Arredondo v SNH SE Ashley River Tenant (SC Supreme Court, 2021) was unconscionable (blog here)

The 2022 SC Court of Appeals case Huskins v Mungo Homes, LLC (read the decision here) also looked at unconscionability in regards to an arbitration clause.

Briefly, a couple (the Huskinses) bought a house from Mungo Homes, LLC (Mungo), entering into a purchase agreement that included an arbitration clause and a limited warranty. Two years later, in July 2017, the Huskinses filed an action against Mungo over issues they had with the purchase agreement. (They did not allege any problem with the home itself.)

Mungo filed a motion to dismiss and to compel arbitration. The Huskinses argued that the arbitration clause was unconscionable and unenforceable. The appeals court looked at the two elements described above to determine unconscionability.

Element 1: Absence of Meaningful Choice

The appeals court found that the Huskinses did have an absence of meaningful choice. It found that the Huskinses:

Were average purchasers of residential real estate
Were not represented by independent counsel
Were not a substantial business concern to Mungo and therefore had no more bargaining power than the average homebuyer

The Huskinses did not have a viable alternative to the arbitration agreement in the purchase agreement; if they wanted Mungo to build their home, they had to sign it and agree to its terms.

Element 2: Oppressive and One-Sided Terms

The Huskinses argued that the arbitration agreement was unconscionable, in part, because of its last two sentences: “Each and every demand for arbitration shall be made within ninety (90) days after the claim, dispute or other matter in question has arisen, except that any claim, dispute or matter in question arising from either party’s termination of this Agreement shall be made within thirty (30) days of the written notice of termination. Any claim, dispute or other matter in question not asserted within said time periods shall be deemed waived and forever barred.”

South Carolina law provides a statutory period of three years for such claims, which is drastically different from 30 or 90 days.

Still, the circuit court found these limited terms were not one-sided and oppressive. The appeals court disagreed, citing SC Code Section 15-3-530(1), which provides a three-year statute of limitations for such claims, and Section 15-3-140, which explicitly states that no contract provision attempting to shorten the statutory period shall bar any such actions from being brought.

Furthermore, the appeals court states that while in theory the clause applies equally to both the Huskinses and Mungo, in reality it would disproportionately affect the Huskinses. The appeals court also found that it was not “geared towards achieving an unbiased decision by a neutral decision-maker,” as the Fourth Circuit Court of Appeals directs courts to consider when it comes to arbitration agreements.

The SC Court of Appeals therefore found that due to an absence of meaningful choice and the presence of oppressive and one-sided terms, this section of the arbitration agreement was unconscionable and unenforceable. (The court also found this section was severable, meaning the rest of the arbitration agreement and purchase agreement stood, and the circuit court’s order compelling arbitration was affirmed.)

Contract Law in South Carolina

Would your contracts hold up to such scrutiny in court? You need to know what’s in every contract you write and sign as a business representative and as an individual and to avoid terms that could be construed as unconscionable.

For help creating and understanding contracts, contact attorney Gem McDowell. He and his team at the Gem McDowell Law Group can help ensure your contracts are clear, fair, honest, enforceable, and don’t violate SC code or public policy. Call Gem at his Mt. Pleasant office at 843-284-1021 today to schedule a free consultation.

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.

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.

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