Ex Parte Gregory

• Decision Date: 16 June 2008
• Docket Number: No. 26504.,26504.
• Citation: 663 S.E.2d 46,378 S.C. 430
• Court: South Carolina Supreme Court
• Parties: Ex Parte George W. GREGORY, Jr., Appellant, In re Annie B. Melton, guardian ad litem for Jerry Bittle, a mentally incompetent adult, Plaintiff, v. Gerald Malloy, Respondent.

663 S.E.2d 46

378 S.C. 430

Ex Parte George W. GREGORY, Jr., Appellant In re Annie B. Melton, guardian ad litem for Jerry Bittle, a mentally incompetent adult, Plaintiff, v. Gerald Malloy, Respondent.

No. 26504.

Supreme Court of South Carolina.

Heard April 2, 2008.

Decided June 16, 2008.

Lawrence B. Orr, of Orr, Elmore & Ervin, LLC, of Florence, for appellant.

Desa A. Ballard and Stephanie Weissenstein, of Law Offices of Desa Ballard, of West Columbia, for respondent.

Justice MOORE.

Annie Melton filed an action against respondent, her former attorney, alleging causes of action for negligence, conversion, breach of contract, breach of contract accompanied by a fraudulent act, and constructive trust. Melton's attorneys were appellant and J. Leeds Barroll. Respondent answered and counterclaimed that the suit was frivolous and in violation of Rule 11, SCRCP, and the South Carolina Frivolous Proceedings Sanction Act, S.C.Code Ann. § 15-36-10, et seq. (2005).¹ Melton filed a motion to dismiss the counterclaims. Thereafter, respondent filed a motion for summary judgment as to Melton's causes of action.

After depositions were taken, Melton voluntarily filed a stipulation of dismissal of the complaint with prejudice. Respondent voluntarily dismissed his counterclaims and then filed a motion seeking sanctions against Melton and appellant, but not against Barroll.

After a hearing, the lower court issued an order awarding respondent $27,364.31 against appellant for fees and expenses incurred in defending the Melton suit and in pursuing sanctions. Appellant appeals this award.

FACTS

In May 1999, Jerry Bittle (Bittle) was seriously injured in an automobile accident in which one person died and four additional people were injured. Bittle sustained a brain injury and is now unable to care for himself. After the accident, Bittle's elderly mother, Melton, retained respondent to represent Bittle's interests in seeking recovery for his injuries.

In June 2001, an agreement was reached on how the available insurance coverage would be allocated among the claimants. Bittle was to receive $14,868.97. Within two months, Melton and Bittle went to respondent's office to consummate the settlement. Respondent was not present. Bittle endorsed the settlement check and respondent's secretary explained that Bittle would not receive the endorsed check but he would receive another check later.

Melton called and visited respondent's office several times to determine when the settlement check would be transferred to them; however she was unable to reach him. Melton was aware there was not enough money available from the settlement to pay all of the medical bills; however, she testified she thought respondent had either kept or spent the settlement proceeds.

Melton consulted appellant in January 2004. After the above facts were related to appellant, appellant contacted the insurance agency for the at-fault party and talked with the adjuster who had handled the claim. After obtaining the settlement documents, appellant determined the settlement check was presented for payment on August 24, 2001. Appellant reviewed telephone records that revealed the number of times Melton had called respondent. Appellant also knew that Melton had sought help from a North Carolina attorney; however, seeking that attorney's help did not produce any response from respondent.

Appellant informed Melton she should file a grievance with the Office of Disciplinary Counsel because he felt that if Melton filed a grievance then it might "shake [the money] loose" from respondent. Appellant prepared the letter to disciplinary counsel for Melton and also prepared a subsequent letter. At this point, appellant indicated he was waiting to see what would happen with the grievance and that he was hoping respondent would deliver the money; however, he became concerned that the statute of limitations on any claim concerning the settlement proceeds would run by the end of August 2004.

In June 2004, Melton wrote respondent a letter terminating his services for failure to account for the settlement proceeds. She then entered into a retainer agreement with appellant so that he would pursue claims for wrongfully holding the settlement funds. Appellant was to take one-third of Melton's recovery, plus any expenses were to come from Melton's portion of her recovery. Appellant associated J. Leeds Barroll as co-counsel in late July 2004.

After Barroll and appellant discussed the facts of the case, Barroll researched causes of action and drafted the complaint. Barroll asked appellant if he thought he should contact respondent but appellant did not think it would "do any good." Because respondent had not responded to Melton's requests for information regarding the funds, Barroll included the conversion action in the complaint. Barroll testified that because the statute of limitations was going to run, he felt they were in a "shoot first, ask questions later" mode. Barroll stated appellant did not initially tell him that he had been on the case since January.

Appellant testified that the basis of the claim for conversion against respondent was that respondent refused to account for the money. Appellant stated he had no knowledge that respondent had actually converted the money.

Leighton Bell, a staff writer with the Cheraw Chronicle, learned of Melton's suit against respondent when the process server personally gave the summons and complaint to him. As a result, he wrote two articles regarding the suit. He stated he spoke to appellant first and that appellant was not surprised by his call and was very helpful with the article. In one article, appellant was quoted as saying: "As an attorney [respondent] should have known he couldn't co-mingle funds," and "If for some reason he couldn't disperse the check he should have put it in a separate fund. Whatever [respondent] did, he shouldn't have kept it in his pocket and collected all the interest on it."

After the action began, respondent immediately transferred the settlement proceeds from his trust account to appellant. Barroll then deposed the Medicaid agent regarding Medicaid's lien on the settlement proceeds. After the deposition, Barroll voluntarily dismissed the case with prejudice a mere seven weeks after filing. Barroll stated that if he had been involved in the case since January, as appellant had been, he would have had time to interview the Medicaid agent prior to filing a lawsuit. Barroll also acknowledged that once he requested respondent's file and reviewed it, he was able to determine that respondent had been in touch with Medicaid about reducing its lien against the settlement proceeds. Although the contact was minimal, Barroll felt it was a waste of time to proceed with the lawsuit. He indicated there was no evidence that appellant ever asked for respondent's file.

As soon as respondent transferred the money to appellant, Barroll began negotiations with Medicaid and the medical providers to compromise the liens and bills. The Medicaid lien was compromised for $3,469 and the balance of the settlement funds, after subtracting $4,956.32 in attorney fees and $1,045.15 in expenses, was paid to Melton. Melton received $5,398.50.

Respondent filed his motion for sanctions and contended that appellant had no basis for filing a claim, and in particular, the conversion claim. Respondent stated in his affidavit that he was representing Melton and Bittle for free. He stated he discussed with Melton and Bittle how to deal with all of the medical liens and that they agreed that they did not want to jeopardize Bittle's Medicaid eligibility. He requested a waiver of the Medicaid lien but was only able to obtain an agreement for reduction. He stated, even with the reduction, there would be no funds left over for Bittle.

Due to Rule 1.15 of the Rules of Professional Conduct, respondent stated he was obligated to hold the settlement funds until the disputes between the lienholders and his client were resolved, a fact he explained to Bittle and Melton.² He informed them he may be able to recover funds for Bittle if he held the funds until the statute of limitations had expired on the medical provider liens. This method would leave only the Medicaid lien to resolve. He then held the funds per their agreement. The C.P.A. who reviewed respondent's account stated the funds never left respondent's trust account until the check was written to appellant.

Appellant testified he did not contact respondent because he thought if respondent would not respond to his clients or the North Carolina attorney, then he would not respond to him. He also felt it was unnecessary to contact respondent because he expected Disciplinary Counsel to take care of it. Appellant stated he did not get respondent's file because he did not think he would learn anything from it.

The trial court granted respondent's motion for summary judgment and found there was no dispute the funds remained in respondent's trust account from the time of the settlement until the funds were disbursed to appellant. The court concluded the cause of action for conversion was frivolous. The court did not issue a judgment against Melton because she had relied on the advice of counsel. The court found appellant had not conducted a reasonable investigation before filing the conversion suit. The court awarded respondent $27,364.31 in attorney fees and costs in defending the action and in pursuing the claim for sanctions.

Standard of Review

Pursuant to the South Carolina Constitution, an appellate court reviews findings of fact in an equity matter taking its own view of the evidence. Father v. South Carolina Dep't of Soc. Servs., 353 S.C. 254, 578 S.E.2d 11 (2003). However, the abuse of discretion standard plays a role in the appellate review of a sanctions award. Id. An abuse of discretion occurs where the decision is controlled by an error of law or is based on unsupported factual...