Manios v. Nelson

389 S.C. 126

697 S.E.2d 644

Louis MANIOS and Jimmy B. Rogers, Jr., as partners in M & R Investors, a South Carolina General Partnership, and M & R Investors, a South Carolina General Partnership, Appellants/Respondents,v.NELSON, MULLINS, RILEY & SCARBOROUGH, LLP, and David E. Hodge, Esquire, Respondents/Appellants.

No. 4699.

Court of Appeals of South Carolina.

Heard April 13, 2010.

Decided June 15, 2010.

Rehearing Denied Sept. 2, 2010.

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Desa Ballard & P. Christopher Smith, Jr. of West Columbia, for Appellants-Respondents.

R. Davis Howser & Andrew E. Haselden of Columbia, for Respondents-Appellants.

SHORT, J.

In this legal malpractice case, M & R Investors, LLC, and Louis Manios and Jimmy Rogers, Jr., as partners in M & R Investors (collectively, M & R), argue the trial court erred in: (1) denying M & R's motion for new trial nisi additur; (2) striking M & R's claim for damages for lost profits; (3) denying M & R's motion for directed verdict or judgment notwithstanding the verdict on the issue of legal malpractice; and (4) denying M & R's motion for a new trial absolute on the issue of damages. In its cross-appeal, Nelson Mullins Riley & Scarborough, LLP, and David Hodge (collectively, Nelson Mullins), argue the trial court erred in denying Nelson Mullins' motions: (1) for summary judgment; (2) to strike with respect to M & R's alleged damages; (3) for a directed verdict; and (4) for judgment notwithstanding the verdict. We affirm.

FACTS

M & R is a limited liability company dealing in real estate transactions. In January 2000, William J. Burk, individually and on behalf of Landex, Inc. and Concord Development Group, LLC (collectively, Borrowers) agreed to borrow $1.1 million from M & R, including a $100,000 fee to make the loan. The loan was to be secured by a 55-acre tract of land in Mecklenburg and Cabarrus counties, North Carolina.

M & R retained David Hodge of Nelson Mullins to handle the transaction including securing M & R's status as the first priority lienholder. M & R had retained Hodge for six or seven real estate transactions prior to the transactions in this case. Tim Gilbert, of Nexsen Pruet Law Firm's Charlotte office, represented Borrowers and was to perform the title work and obtain a title policy.

Unbeknownst to M & R, the property was encumbered by a 1999 deed of trust ¹ to Michael J. Gallis, which was recorded against the property. The deed of trust arose from a 1998 agreement between Borrowers and Gallis. ² In return for Gallis' “past and present efforts” regarding development and zoning on Borrowers' behalf, Gallis was to receive a $300,000 fee and a $200,000 bonus payment if re-zoning efforts on the secured property were successful. The 1998 agreement states: “This Agreement will be secured by a deed of trust described below.” The agreement later states: “While this Agreement is fully binding in all respects, we would like to prepare a more detailed agreement.... Upon receiving the information related to the Property, we will prepare the deed of trust which will provide for payment to Michael Gallis as provided herein.” The deed of trust was for $300,000.

Borrowers and Gallis entered into a subordination agreement on May 9, 2000. The subordination agreement provided Gallis would subordinate his deed of trust to M & R's $1.1 million loan to Borrowers. The agreement provided for penalty interest at 5 percent per month, compounded monthly, if payment to Gallis for his fee and bonus was not made within one business day after a “triggering event” such as a sale, or by July 17, 2000.

Borrowers and their counsel coordinated with Nelson Mullins to prepare the subordination agreement. According to a facsimile cover page from Hodge, “[t]he idea ... [was] to make it clear that ... [M & R's] security interest is, and will continue to be, first to the extent of the indebtedness.”

The subordination agreement states in part:

This Agreement only subordinates the Michael J. Gallis Deed of Trust to the Lender's [M & R's] Deed of Trust to the extent of the original amount of $1,100,000.00 and any amounts advanced pursuant to the provisions of the Lender's Deed of Trust for payment of insurance premiums taxes, costs of collection, or protection of the value of the Lender Property or Lender's rights in the Lender Property. This Agreement is not a subordination of the lien of the Michael J. Gallis Deed of Trust to any renewals, future advances, modifications, or rearrangements of the Lender's Note and Deed of Trust to the extent any such modification increases the amount secured by the Lender's Deed of Trust.

(Emphasis added.) The subordination agreement was recorded in both counties. M & R likewise recorded a deed of trust in each county.

In December 2000, M & R agreed to lend Borrowers an additional $1.6 million to be secured by the subject property.³ M & R again retained Nelson Mullins to represent its interests in the transaction. Hodge testified he was “heavily involved in the drafting and negotiation” of the note on the second loan. The note provides the loan is secured by a deed of trust that “shall be in second position behind the Existing Deed of Trust.” The deeds of trust likewise indicate the $1.6 million loan is second in priority.

Gilbert handled the title work and secured the title insurance policy. The title commitment indicates the subordination agreement as an exception, but not the Gallis deed of trust. The commitment was faxed to Susan Hughes, a licensed title insurance agent and paralegal at Nelson Mullins. Hodge did not recall reviewing it but conceded “[t]here's an excellent chance that I did.” There was no billing record for anyone at Nelson Mullins reviewing the title commitment. In preparing the second loan, however, Hughes billed for reviewing the prior loan documents.

The title insurance policy also listed the subordination agreement as an exception, but not Gallis' deed of trust. Hodge testified he did not realize there was an intervening lien between the M & R deeds of trust until a “year or so after these transactions occurred.” Hodge testified none of the documents put him on notice that the second loan would not have second priority.

Borrowers defaulted on the loans and M & R hired Ashley Hogewood of Parker Poe Adams & Bernstein, LLP to handle a foreclosure action. At the time, M & R believed they had first and second priority. During the course of preparing the foreclosure action, Hogewood found Gallis' recorded subordination agreement and deed of trust. Hogewood notified M & R. According to Louis Manios of M & R, Hodge had never informed him of the subordination agreement. Manios testified he told Hogewood: “There's no way.... We have got a first and a second. David Hodge was told from day one we had to be in the first and second position.” Manios testified that he, Rogers, Hodge, and Hogewood met, and Hodge claimed to know nothing about a subordination agreement. Although M & R had used Hodge in the past, this was the first time it hired Hodge to represent it as a lender. Manios testified he dealt only with Nelson Mullins and was not aware Nexsen Pruet was involved.

Robert McNeill, an attorney hired by the title insurance company, testified the priority of liens in North Carolina is not determined in a foreclosure action but in a separate proceeding in Superior Court. In this case, the foreclosure sale was held in December 2001. M & R bid $1,418,500 for the property. The bidding in North Carolina is held open for ten days and a subsequent bid must exceed the latest bid by five percent. Gallis bid $1,495,000. The Speedway, who owned property adjacent to the subject property, entered the next bid of $1,569,750. The required amount for a subsequent bid was $1,648,237. M & R entered a bid of $3,328,000. This was the final bid and the property was deeded to M & R. The Final Report and Account of Foreclosure Sale reports M & R was paid $1,390,304.79 but that “Adverse claims are asserted and the Trustee is in doubt as to who is entitled to surplus” funds of $1,923,137.

In March 2002, Gallis filed a petition to determine the ownership of the surplus funds. Gallis claimed entitlement to the second lien priority and $795,989.28, including compound interest. The title insurance company hired Robert McNeill to represent M & R in Gallis' action. The trial court granted summary judgment to Gallis and ordered that $300,000 of the surplus proceeds be distributed to Gallis. M & R appealed. The North Carolina Court of Appeals reversed the trial court and remanded the matter for trial. M & R settled with Gallis for $300,000. M & R filed this action alleging legal malpractice, breach of fiduciary duty, and breach of contract.

At trial, Manios testified M & R borrowed $1 million from NBSC to lend to Borrowers on the first note. Hodge was aware M & R borrowed funds to make this loan. Manios explained the bank required additional collateral for the $1.6 million loan, so he and his partner, Jimmy Rogers, pledged other real property and personally-owned stock to borrow the loan amount to lend to Borrowers. Hodge knew M & R had to borrow money to fund both loans, and the partners had to pledge personal assets to fund the $1.6 million loan.

M & R also borrowed $3.2 million to purchase the property at the foreclosure sale. M & R paid interest on the $1.1 million loan until it was paid as the first lienholder from the proceeds of the foreclosure sale; paid $316,225 in interest on the $1.6 million loan during the note period and the three years of litigation; and paid interest on the $3.2 million loan.

The parties introduced expert testimony at trial. Warren Herndon, Jr., a real estate lawyer practicing in South Carolina, was qualified as an expert as to the standard of care owed by a South Carolina attorney with reference to a commercial real estate transaction. Herndon testified Hodge had a “duty to fully find out what was represented by the...