Osprey, Inc. v. Cabana Ltd. Partnership

• Decision Date: 05 November 1998
• Docket Number: No. 2898.,2898.
• Parties: OSPREY, INC. and W. Andrew Leheup, Appellants, v. CABANA LIMITED PARTNERSHIP, A South Carolina Limited Partnership; Maritime Development Corporation, A South Carolina Corporation; Bluewater Associates; William J. Reiner; Tompkins and McMaster, A South Carolina General Partnership; George Hunter McMaster; and Henry Dargan McMaster, Defendants, Of Whom, Cabana Limited Partnership, A South Carolina Limited Partnership; Maritime Development Corporation, A South Carolina Corporation; Bluewater Associates; and William J. Reiner are, Respondents.
• Court: South Carolina Court of Appeals

333 S.C. 323

509 S.E.2d 275

OSPREY, INC. and W. Andrew Leheup, Appellants, v. CABANA LIMITED PARTNERSHIP, A South Carolina Limited Partnership; Maritime Development Corporation, A South Carolina Corporation; Bluewater Associates; William J. Reiner; Tompkins and McMaster, A South Carolina General Partnership; George Hunter McMaster; and Henry Dargan McMaster, Defendants, Of Whom, Cabana Limited Partnership, A South Carolina Limited Partnership; Maritime Development Corporation, A South Carolina Corporation; Bluewater Associates; and William J. Reiner are, Respondents.

No. 2898.

Court of Appeals of South Carolina.

Heard October 8, 1998.

Decided November 5, 1998.

Rehearing Denied January 30, 1999.

A. Camden Lewis, Anne D. Zuckerman and Carol C. Ruff, all of Lewis, Babcock & Hawkins, of Columbia, for appellants.

Henry Dargan McMaster and George H. McMaster, both of Tompkins & McMaster; Nelda T. Smyrl, of Columbia; and William J. Reiner, of New York, respondents pro se.

GOOLSBY, Judge:

Osprey, Inc., and W. Andrew Leheup (also referred to collectively as Plaintiffs) sued Cabana Limited Partnership, Maritime Development Corporation, Bluewater Associates, and William J. Reiner (also referred to collectively as Defendants) and others. In their complaint, Plaintiffs alleged breach of contract, breach of contract accompanied by a fraudulent act, fraud, collection, constructive trust, conversion, breach of fiduciary duty, and unfair trade practices. Plaintiffs appeal the trial court's dismissal of several of their causes of action on the ground of champerty. We affirm in part, reverse in part, and remand.

BACKGROUND FACTS AND PROCEDURAL HISTORY

Beginning in 1990, Defendants Cabana and Reiner, among others, were plaintiffs in a federal lender liability action against Greyhound Real Estate Financing Company.¹ Tompkins & McMaster, a law firm in Columbia, South Carolina, represented Defendants in the federal litigation.

On March 18, 1993, while the federal suit was pending, Osprey, at the request of Tompkins & McMaster, agreed to pay Defendants $50,000 in exchange for an interest in the federal suit. Tompkins & McMaster had also represented Leheup, the president of Osprey, in various legal matters, including a trusteeship over certain properties of which Leheup was a beneficiary.

The agreement was executed by Leheup, in his capacity as president of Osprey, and Reiner, who signed individually and in his capacity as chief executive officer of Maritime, which in turn was a general partner of Cabana and Bluewater. The agreement provided in pertinent part as follows:

The parties acknowledge each to the other that there exists a certain Lawsuit between Cabana Limited Partnership vs. Greyhound Real Estate Finance Company, et al., and that in consideration for the advancement of the funds above, the Fifty Thousand and no/100 ($50,000.00) Dollars, Osprey, Inc. is buying an interest in that said Lawsuit. If said Lawsuit is settled or tried with a verdict in excess of Fifty Thousand and no/100 Dollars ($50,000.00) Dollars, Osprey, Inc. will receive the sum of the amount of the verdict up to a maximum of One Hundred Fifty Thousand and no/100 ($150,000.00) Dollars and the Note will be considered satisfied and paid in full. If the Lawsuit is never settled or if tried and the outcome is not in favor of Cabana Limited Partnership in an amount of One Hundred Fifty Thousand and no/100 ($150,000.00) Dollars or more, then the Debtor will remain obligated for the Note amount of the Settlement or verdict but in no event less than Fifty Thousand and no/100 ($50,000.00) Dollars. Cabana is to notify its counsel of the terms hereof. Same being confirmed by letter.

The agreement also provided that Bluewater would assign as collateral to Osprey its right, title, and interest in all notes and mortgages it held as of March 15, 1993, as well as the proceeds of this collateral. In addition, Reiner executed, on behalf of Cabana and Bluewater, a $50,000 promissory note collateralized by certain timeshare notes set forth on a list attached to the note. Reiner also executed a personal guarantee on the note and assigned to Osprey all of his right, title, and interest in and to the first $150,000 gross proceeds from termination of the federal suit. Finally, as memorialized in a letter from Tompkins & McMaster to Leheup, Leheup agreed to provide consulting services for the federal litigation for a fee of $25,000. This agreement for consulting services was apparently unsecured and separate from the documents concerning the advancement of funds by Osprey for litigation expenses.

On January 25, 1994, Cabana entered into a settlement agreement in connection with the federal suit. The terms and conditions of the settlement agreement were subject to an order of confidentiality issued by the federal court. Plaintiffs requested payment pursuant to the loan agreement, but Defendants would neither pay nor reveal voluntarily the terms of the settlement agreement.

Plaintiffs petitioned the federal court for access to the settlement documents. The federal court granted the petition. The settlement agreement revealed Defendants received $650,000, which was paid directly to Tompkins & McMaster, as escrow agents for Defendants. Pursuant to the settlement agreement, Tompkins & McMaster paid itself $200,000 in attorney fees from the proceeds.

The disposition of the remaining $450,000 is disputed. Plaintiffs assert Tompkins & McMaster was required to pay the Internal Revenue Service $450,000 of Cabana's proceeds resulting from levies related to the federal litigation. Defendants deny Tompkins & McMaster was required to pay the liens. Rather, Defendants contend the remaining $450,000 was to be held in escrow pending the outcome of certain tax liens levied against Greyhound, but nothing was being held in escrow for Cabana, Reiner, Bluewater, or Maritime. According to Defendants, Tompkins & McMaster would potentially have to reimburse Greyhound in the event Greyhound was required to pay the lien, but the settlement agreement expressly provided that, upon presentment of proof of discharge or release of the liens, the escrowed funds could be released to Tompkins & McMaster.²

Plaintiffs commenced the present action against Defendants in state court on March 7, 1994. In their initial complaint, Plaintiffs alleged breach of contract, breach of contract accompanied by a fraudulent act, fraud, collection, constructive trust, conversion, breach of fiduciary duty, and unfair trade practices. Subsequently, Plaintiffs filed a motion to amend the complaint, together with a proposed amended complaint dated August 12, 1994. The trial court allowed the complaint to be amended as proposed. At that time, Plaintiffs agreed to drop their causes of action for conversion, unfair trade practices, and constructive trust. Plaintiffs served a second amended complaint dated February 7, 1996. This complaint dropped the causes of action for conversion, unfair trade practices, and constructive trust, and added, among other things, a cause of action for professional negligence. In response to Plaintiffs' submission of the second amended complaint, Defendants moved to dismiss, strike certain portions of the complaint, and require Plaintiffs to provide a more definite statement. Defendants asserted several grounds for dismissal, including an assertion that the agreement was champertous and therefore unenforceable. Plaintiffs then filed a motion to amend the second amended complaint and submitted another "second" amended complaint with a more definite statement.

At a status conference on November 6, 1996, the parties agreed to have the trial court rule only on Plaintiffs' motion to amend and Defendants' motions to dismiss on the basis of champerty. By order dated February 14, 1997, the trial court refused to allow Plaintiffs to amend their complaint to include a cause of action for professional negligence, but otherwise granted the motion to amend. As to Defendants' motion to dismiss, the trial court found the agreement and assignments champertous and thus void. Accordingly, the trial court dismissed Plaintiffs' actions for breach of contract and breach of contract accompanied by a fraudulent act, as well as a related cause of action against Reiner.³

DISCUSSION

1. Plaintiffs first argue the doctrine of champerty is not recognized in South Carolina and, therefore, the trial court erred in applying the doctrine. We disagree. To date, there are no appellate decisions in this state voiding an agreement as champertous. Nevertheless, the supreme court has given the term "champerty" unfavorable recognition as early as 1830.

[I]f one lay out money in the prosecution of a suit to recover a close, of which his poor neighbor has been deprived, and without which he must lose it, he is no champertor, because right, humanity, and justice would approve it: but if he do it upon a stipulation, that he shall receive one half of the field, if it be recovered, he is, according to the legal definition of this offence, a champertor.

State v. Chitty, 17 S.C.L. (1 Bail.) 379, 401 (1830).

In addition, S.C.Code Ann. § 14-1-50 (1977) provides as follows:

Common law of England shall continue in effect.

All, and every part, of the common law of England, where it is not altered by the Code or inconsistent with the Constitution or laws of this State, is hereby continued in full force and effect in the same manner as before the adoption of this section.

Without question, the doctrine of champerty is part of the ancient common law of England. Plaintiffs do not argue that the doctrine is inconsistent with our Constitution or that the General Assembly has passed legislation restricting the application of the doctrine. As well, we are aware of no South Carolina case law, and Plaintiffs cite none, expressly abrogating the doctrine.

Plaintiffs direct our attention to several decisions in which the appellate courts of this...