Osprey, Inc. v. Cabana Ltd. Partnership

Decision Date15 May 2000
Docket NumberNo. 25124.,25124.
Citation532 S.E.2d 269,340 S.C. 367
CourtSouth Carolina Supreme Court
PartiesOSPREY, INC. and W. Andrew Leheup, Petitioners, v. CABANA LIMITED PARTNERSHIP, a South Carolina limited partnership; Maritime Development Corp., a South Carolina corporation; Bluewater Associates; William J. Reiner; Tompkins & McMaster, a South Carolina general partnership; George Hunter McMaster, and Henry Dargan McMaster, Defendants, of whom Cabana Limited Partnership, Maritime Development Corp., Bluewater Associates, and William J. Reiner are Respondents.

A. Camden Lewis and Mark W. Hardee of Lewis, Babcock & Hawkins, L.L.P. Columbia, for petitioners.

Nelda T. Smyrl of Columbia and George Hunter McMaster of Tompkins & McMaster, Columbia, for respondents.

WALLER, Justice:

This case raises the issue of the continuing vitality of the common law doctrine of champerty, an issue this Court has not substantively addressed since 1830. The circuit court dismissed certain actions in a lawsuit brought by Osprey, Inc., and Andrew Leheup ("Plaintiffs") against Cabana Limited Partnership, Maritime Development Corp., Bluewater Associates, and William J. Reiner ("Defendants"). The Court of Appeals affirmed in part, reversed in part, and remanded the case for further inquiry. Osprey, Inc. v. Cabana Limited Partnership, 333 S.C. 323, 509 S.E.2d 275 (Ct.App.1998), overruled on other grounds by I'On v. Town of Mt. Pleasant, 338 S.C. 406, 526 S.E.2d 716 (2000)

. We granted Plaintiffs' petition for a writ of certiorari to review the Court of Appeals' decision. We affirm as modified.

FACTS

Cabana Limited Partnership was a plaintiff in a lender liability action filed in federal district court in South Carolina against Greyhound Real Estate Financing Co. and others. Two years into the federal case, with litigation expenses surpassing $100,000, Cabana attorney George H. McMaster asked Plaintiffs for a loan to help pay the expenses. McMaster's firm, Tompkins & McMaster, had represented Plaintiffs in other matters. Plaintiffs agreed in March 1993 to lend $50,000 to Defendants Cabana, Maritime, Bluewater, and Reiner. That agreement provided, in pertinent part:

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 [in the] amount of the Settlement or verdict but in no event less than Fifty Thousand and no/100 ($50,000.00) Dollars.

In related loan documents, Defendants Bluewater and Cabana signed a promissory note in the amount of $50,000, bearing an annual interest rate of 15 percent, to Plaintiff Osprey; Defendant Reiner personally guaranteed the loan; Reiner assigned all his right and interest in the first $150,000 of gross proceeds from the federal lawsuit to Osprey; and Bluewater assigned its interest in certain timeshare notes and mortgages to Osprey to serve as collateral for the loan.

In January 1994, the parties settled the federal case and entered into a sealed settlement agreement. Plaintiffs sought repayment of the loan upon learning of the settlement. Defendants asserted they were prohibited from revealing the terms of the settlement and refused to repay the loan. The federal court ultimately granted Plaintiffs' request to disclose the settlement agreement, and Plaintiffs discovered that Defendants had received $650,000. Tompkins & McMaster was paid $200,000 for attorney's fees and the remainder was placed in escrow.

The settlement agreement required Greyhound, the defendant in the federal lawsuit, to pay $650,000 directly to Tompkins & McMaster as compensation for legal services in five related cases, including Cabana's. The agreement prohibited any payment to Cabana, and required Tompkins & McMaster to hold $450,000 in escrow pending the resolution of tax levies filed against Cabana by the Internal Revenue Service. Tompkins & McMaster v. United States, No. 95-1882, 1996 WL 389483, 1996 U.S.App. LEXIS 17118 (4th Cir. July 12, 1996) (unpublished opinion).

Tompkins & McMaster filed a federal lawsuit to clarify its rights to the $450,000. The firm argued that no tax levy attached to the proceeds because Cabana received nothing from the settlement and had no right to legal fees received by the firm. The Fourth Circuit Court of Appeals, in affirming the district court's dismissal of the case, rejected Tompkins & McMaster's argument. Although the money was not paid directly to Cabana, it was paid to the firm on Cabana's behalf and for its benefit. Thus, the $650,000 represented Cabana's proceeds from the federal litigation. Tompkins & McMaster, supra. Defendants assert the IRS matter has since been resolved in favor of Greyhound and Tompkins & McMaster, and against the IRS.

Plaintiffs filed suit in state court to enforce the loan agreement. Defendants moved to dismiss the complaint under Rule 12(b)(6), SCRCP, because the agreement was champertous on its face and consequently unenforceable. The circuit judge granted Defendants' motion to dismiss as champertous the causes of action for breach of contract, breach of contract of assignment, and breach of contract accompanied by a fraudulent act1 Plaintiffs appealed. Reviewing the matter as a motion for summary judgment pursuant to Rule 12(c), SCRCP, the Court of Appeals affirmed the circuit judge's ruling that South Carolina recognizes the doctrine of champerty. However, the Court of Appeals reversed the judge's ruling that the loan agreement is champertous as a matter of law. The Court of Appeals limited the doctrine of champerty, then remanded the case for further inquiry into the facts to determine whether the agreement is enforceable. Osprey, 333 S.C. 323,509 S.E.2d 275.

ISSUE
Does South Carolina recognize the common law doctrine of champerty and, if so, does it remain a viable defense to the enforcement of the loan agreement in this case?
STANDARD OF REVIEW

This case raises a novel question of law. We are free to decide a question of law with no particular deference to the lower court. See S.C. Const. art. V, §§ 5 and 9; S.C.Code Ann. §§ 14-3-320 and -330 (1976 & Supp.1999); S.C.Code Ann. § 14-8-200 (Supp.1999) (granting Supreme Court and Court of Appeals the jurisdiction to correct errors of law in both law and equity actions); I'On v. Town of Mt. Pleasant, 338 S.C. 406, 526 S.E.2d 716 (2000).

DISCUSSION

Plaintiffs contend the Court of Appeals erred in holding that South Carolina recognizes the doctrine of champerty. They assert that champerty is not and should not be recognized because it is rooted in feudal England. It is an outdated concept no longer needed in twenty-first century America, Plaintiffs argue. They urge the Court to refuse to recognize champerty and enforce the entire agreement as it was written.

Defendants assert the Court has long recognized champerty, should continue to recognize it, and should apply it in this case to nullify the entire loan agreement—including the $50,000 note and guarantee—because it is champertous as a matter of law.

We agree with the Court of Appeals that this Court previously has recognized the common law doctrine of champerty. Osprey, 333 S.C. at 329-30, 509 S.E.2d at 277 (citing S.C.Code Ann. § 14-1-50 (1977), which provides that "[a]ll, 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").

Champerty is defined as a bargain by a person with a plaintiff or a defendant for a portion of the matter involved in a suit in the event of a successful termination of the action, which the person undertakes to maintain or carry on at his own expense. State v. Chitty, 17 S.C.L. (1 Bail.) 379, 400 (1830); 14 C.J.S. Champerty and Maintenance § 2 (1991); 14 Am.Jur.2d Champerty and Maintenance § 3 (1964). A champertor is one who purchases an interest in the outcome of a case in which he has no interest otherwise. A champertous agreement is unlawful and void where the rule of champerty is recognized, and the tainted agreement is unenforceable. 14 C.J.S. Champerty and Maintenance § 17; 14 Am.Jur.2d Champerty and Maintenance § 7.

Barratry (or barretry) is the offense of frequently exciting and stirring up quarrels and suits between other individuals. Chitty, supra; 14 C.J.S. Champerty and Maintenance § 2; Black's Law Dictionary 150 (1990). Champerty and barratry have been described as forms of maintenance, which is defined as "an officious intermeddling in a suit that in no way belongs to one, by maintaining or assisting either party with money or otherwise, to prosecute or defend [the suit]." 14 C.J.S. Champerty and Maintenance § 2(b); 14 Am.Jur.2d Champerty and Maintenance § 2.

As explained by the United States Supreme Court, "[p]ut simply, maintenance is helping another prosecute a suit; champerty is maintaining a suit in return for a financial interest in the outcome; and barratry is a continuing practice of maintenance or champerty." In re Primus, 436 U.S. 412, 424 n. 15, 98 S.Ct. 1893, 1900 n. 15, 56 L.Ed.2d 417, 429 n. 15 (1978). "The laws against...

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