younglawyer SOUTH CAROLINA
VOL. 4, ISSUE 2
Does a Poor Driving Record Support a Cause of Action for Negligent Entrustment in South Carolina?
A REPORT TO MEMBERS OF THE SOUTH CAROLINA BAR YOUNG LAWYERS DIVISION
Caroline H. Raines • Howser, Newman & Besley, LLC Negligent entrustment of an automobile is an ordinary negligence action in which the focus is the scope of a vehicle owner’s duty to use due care in deciding when to allow a third party to drive the owner’s vehicle. In South Carolina, the cause of action of negligent entrustment of an automobile, although oft invoked, appears to be very narrow in scope. In the context of cases involving alcohol, the S.C. Supreme Court has expressly declined to adopt the broader standard set forth in Restatement (Second) of Torts sections 308 and 390. See Gadson v. ECO Servs. of S.C., Inc., 374 S.C. 171, 648 S.E.2d 585 (2007). However, the S.C. Appellate Courts may be amenable to the expansion of this cause of action in some circumstances other than those involving intoxicated drivers. The question the practitioner faces is: under what circumstances, if any, is a cause of action for negligent entrustment of an automobile viable, absent proof sufficient to meet the narrow McAllister test? More specifically, will a poor driving record be enough to support a negligent entrustment cause of action, and if so, how poor does that record need to be? The purpose of this article is to aid the practitioner in analyzing this inquiry by (1) providing an overview of the current standard applied in South Carolina
cases alleging the negligent entrustment of an automobile and (2) examining two recent cases that may indicate where this cause of action is headed. I. Negligent entrustment of an automobile in South Carolina: the current test Negligent entrustment is grounded in the principle that one who has control of a vehicle ought to exercise that control responsibly. See Robert H. McWilliams Jr., Negligent Entrustment in South Carolina: An Analysis of South Carolina’s Consistent
ALSO IN THIS ISSUE Some Simple Tips for Taking Effective Depositions ..............................................4
What Every Lawyer Needs to Know About Investment Fraud....................................8
Community Law Week ............................5
Amy Landers May Named Young Lawyer of the Year ..............................................12
Voices Against Violence Committee Springs Into Action.................................6
C. Tyson Nettles, Unsung Hero ............13 2010-11 Stars of the Quarter ..................14
South Carolina Young Lawyer is published semi-annually by the Young Lawyers Division of the South Carolina Bar, 950 Taylor St., P.O. Box 608, Columbia, SC 29202-0608. www.scbar.org. Copyright © 2011 South Carolina Bar. The opinions expressed are those of the authors and do not represent the opinions or policies of the Young Lawyers Division or the South Carolina Bar. Unauthorized reproduction or use of the materials contained herein is prohibited.
and Inconsistent Statements of the Standard After Gadson v. ECO Services of South Carolina, Inc., 59 S.C. L. Rev. 633 (2008). In order to prevail in a negligent entrustment action, a plaintiff must prove the following elements: (1) ownership of the vehicle, (2) control of the vehicle and (3) responsibility for the vehicle’s use. Am. Mut. Fire Ins. Co. v. Passmore, 275 S.C. 618, 274 S.E.2d 416 (1981). Once ownership, control and responsibility are established, the question for the court is what duty the owner of an automobile owes. Section 308 of the Restatement (Second) of Torts broadly defines the owner’s duty as follows: It is negligence to permit a third person to use a thing or to engage in an activity which is under the control of the actor, if the actor knows or should know that such person intends or is likely to use the thing or to conduct himself in the activity in such a manner as to create an unreasonable risk of harm to others. Section 390 of the Restatement provides: One who supplies directly or through a third person a chattel for the use of another whom the supplier knows or has reason to know to be likely because of his youth, inexperience, or otherwise, to use it in a manner involving unreasonable risk of physical harm to himself and others whom the supplier should expect to share in or be endangered by its use, is subject to liability for physical harm resulting to them. The S.C. Supreme Court has considered and declined to adopt Restatement (Second) of Torts sections 308 and 390 on two occasions. See Gadson v. ECO Servs. of S.C., Inc., 374 S.C. 171, 648 S.E.2d 585 (2007); Lydia v. Horton, 355 S.C. 36, 583 S.E.2d 750 (2003). In addition to declining to adopt sections 308 and 390, these cases share other important features: (1) both cases involved allegations that the vehicle owner entrusted his vehicle to a motorist whom the owner knew was
intoxicated; (2) both cases held that a cause of action for negligent entrustment did not exist under the facts; (3) both cases presented facts that presumably would not have passed muster under Restatement (Second) of Torts sections 308 and 390; and (4) in both cases, the Court “decline[d] to adopt sections 308 and 390 of the Restatement based on [the specific] set of facts [at issue].” Gadson, 374 S.C. at 177, 648 S.E.2d at 588; Lydia, 355 S.C. at 43, 583 S.E.2d at 754. Rather than adopting sections 308 and 390, in Gadson, the S.C. Supreme Court applied the McAllister test. Id. at 176, 648 S.E.2d at 588. In McAllister v. Graham, 287 S.C. 455, 339 S.E.2d 154 (Ct. App. 1986), the Court of Appeals adopted a very narrow test: The test of liability here under the theory of negligent entrustment is (1) knowledge of or knowledge imputable to the owner that the driver was either addicted to intoxicants or had the habit of drinking, (2) that the owner knew or had imputable knowledge that the driver was likely to drive while intoxicated, and (3) under these circumstances, the entrustment of a vehicle by the owner to such a driver. Id. at 458, 339 S.E.2d at 156. In his concurring opinion in Gadson, Justice Pleicones noted that this test is problematic because it creates a loophole in that the “current formulation would not admit of liability where there was no evidence the supplier knew the driver was a habitual drinker or addicted to alcohol.” Gadson, 374 S.C. at 179, 648 S.E.2d at 589. In other words, an owner could voluntarily entrust his vehicle to an intoxicated person and escape liability because the owner had no knowledge or reason to know that that person was a habitual drinker or addicted to alcohol. Justice Pleicones proposed the adoption of Restatement sections 308 and 390 to eliminate this loophole. Id. In Negligent Entrustment in South Carolina: An Analysis of South Carolina’s Consistent Application and Inconsistent Statements of the Standard After Gadson v. ECO Services of South
Carolina, Inc., Robert H. McWilliams Jr. argued that “the Supreme Court of South Carolina should adopt Restatement sections 308 and 390, and the holdings of cases like Gadson should be viewed in light of their particular facts.” Id. at 655. In addition to closing the loophole illuminated in Justice Pleicones’ concurring opinion, according to McWilliams, the adoption of Restatement sections 308 and 390 would also “further the important South Carolina policy goals of citizen responsibility, public safety, and informed judgment and discretion.” Id. Despite such support for expanding the negligent entrustment cause of action, there is currently no cause of action for negligent entrustment unless the factors of the McAllister test are satisfied. II. A look at two recent cases: Jones and Hoskins The Court of Appeals signaled in a recent case that it is keenly aware of the policy concerns raised in Justice Pleicones’ concurrence and in the McWilliams’ law review article and that it may be ready to once again consider adopting Restatement (Second) of Torts sections 308 and 390 in cases where the McAllister test is simply not applicable because alcohol is not involved. In Jones v. Enterprise Leasing Company-Southeast, 383 S.C. 259, 678 S.E.2d 819 (Ct. App. 2009), the Court states, Here, unlike in Lydia and Gadson, where a negligent entrustment claim could be decided under the elements established in McAllister, there is no suggestion that alcohol played any role in this accident. However, neither party has expressly requested this court to once again adopt sections 308 and 390, and because the only issue before us is ERAC’s liability, we find it is unnecessary to adopt those sections for the purpose of this appeal, as [Plaintiff] cannot prove the compulsory element of ownership or control under either rubric. Id. at 266, 678 S.E.2d at 823. This statement begs the question of whether the facts at issue in Jones would have
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presented a jury question on the issue of negligent entrustment had the threshold inquiry of ownership and control been satisfied. There is some indication that the Court would have entertained a negligent entrustment cause of action on the facts. It is therefore helpful to take a closer look at the facts at issue in Jones. In Jones, the plaintiff, through her guardian ad litem, sued a car rental company and its parent corporation for negligent entrustment of an automobile. Id. at 261, 678 S.E.2d at 820. The Court of Appeals upheld the grant of the parent corporation’s motion for summary judgment on grounds that the parent corporation did not have ownership or control of the vehicle. Id. at 266, 678 S.E.2d at 823. The rental company rented the vehicle to a driver for a three-month period. Id. at 261, 678 S.E.2d at 820. While driving the rented vehicle, the driver struck the rear of the vehicle being driven by the plaintiff. Id. The plaintiff’s vehicle overturned and the plaintiff was seriously injured. Id. In her Complaint, the plaintiff alleged a cause of action for negligent entrustment of the vehicle to an incompetent, habitually reckless and otherwise unfit driver. Id. In support of this cause of action, the plaintiff alleged that the driver had: been convicted of at least nine speeding violations while operating a vehicle; been convicted of six speeding violations within the prior three years, three of which were for speeding greater than twelve miles over the speed limit; three speeding convictions while driving an Enterprise vehicle; his license suspended for several years for failing to pay tickets; and otherwise demonstrated a reckless driving pattern and/or habit. Id. at 262, 678 S.E.2d at 820. The Court notes that this may be the appropriate situation to consider adoption of Restatement sections 308 and 390, but does not comment as to whether these facts would be sufficient to survive a summary judgment motion under the Restatement standard. A recent federal case, Hoskins v. King, 676 F. Supp. 2d 441 (D.S.C.
2009), may shed some light on the question of whether a poor driving record is enough to support a negligent entrustment cause of action. The Hoskins Court analyzed the plaintiff’s claim as a negligent supervision and entrustment claim under Restatement section 317. Although the standard provided by Restatement section 317 is specific to the employment context and different from that set out in Restatement sections 308 and 390, both tests examine whether the negligent entrustment of the vehicle (or tool) created an unreasonable risk of harm to the public. Hoskins involved the textbook example of a distracted driver. On the way back from attending her own wedding, while talking on a company owned cell phone and tending to her dogs in the front seat of the company owned vehicle, the driver struck the plaintiff bicyclist. Id. at 444-445. The plaintiff alleged that the driver’s employer knew or should have known that entrusting the driver with a cell phone and an automobile would create an unreasonable risk of harm to the public. Id. at 446. The plaintiff pointed to the employee’s driving record to support the claim that the employer should have known that, equipped with a cell phone and a vehicle, its employee posed an unreasonable risk of harm to the public. Although she had no points on her license at the time she was hired, the employee subsequently incurred two speeding violations, including a 5point violation and a 2-point violation, and was involved in a rear end collision, which also may have occurred because she was talking on her cell phone. Id. The Hoskins Court held that the employee’s driving record was not, as a matter of law, enough to put the employer on notice that the employee posed an unreasonable risk of harm to the public. The Court found significant that the employee “ha[d] driven many miles while working for [the employer], and her driving record, while blemished, did not foreshadow the event that brought this case before this court.” Id. at 447. Because the plaintiff presented no evidence that speed was a contributing factor to the accident, the Court essentially dis-
counted the relevance of the speeding tickets to the section 317 analysis. Id. Similarly, the prior rear end collision was insufficient to impose liability because it was a low impact collision and resulted only in property damage. Id. The conclusion to draw from this case appears to be that for a blemished driving record to support a negligent entrustment theory, there must be some nexus between the blemishes and the accident at issue, and the blemishes must be substantial either in quantity or quality. Conclusion In light of the holding in Gadson, the question of whether a cause of action for negligent entrustment of an automobile to a sober driver exists— outside the employment context—remains unanswered. If it does, a second question arises as to what facts will be sufficient to support this cause of action and withstand a motion for summary judgment or directed verdict. It seems clear that even if this cause of action expands, a few minor and unrelated traffic violations and/or accidents are not going to be enough to support it. What standard the court will apply to poor driving record entrustment cases remains to be determined. In that regard, there is opportunity for attorneys to marshal the facts, frame the debate and influence the shape the law takes.
To submit items for the next issue of the South Carolina Young Lawyer, please contact: Amanda K. “Mandi” Dudgeon, Co-Chair email@example.com or Marshall Coleman Newton, Co-Chair firstname.lastname@example.org For a list of the YLD Ex. Council, circuit representatives, upcoming events, etc., please visit www.scbar.org/yld.
Some Simple Tips for Taking Effective Depositions Alicia C. Gibson • Marineau King, PLLC Crystal Young • Martineau King, PLLC
Preparation Know your case • Know all the facts. • Know all claims and defenses. • Know all the elements of claims and defenses. • Know all of the key pleadings and discovery. • Know all of the South Carolina Rules of Civil Procedure and South Carolina Rules of Evidence. Determine your purpose and goals for taking the deposition This step is necessary to be able to outline your deposition questions and determine your strategy for asking those questions. You may have more than one purpose or goal for the deposition including: • To gather information; • To get specific admissions of key facts; • To determine whether the elements of claims and defenses in the case can be met; • To preserve testimony for later use at trial; • To encourage settlement; • To explain or authenticate documents; • To lay the groundwork to impeach witnesses at trial; • To test case theories; • To observe the witness’ demeanor; and/or • To keep out harmful testimony. • Of course your ultimate goal is to move your case toward settlement or a favorable verdict. Briefly outline your deposition questions • Note the key word is “outline.” While scripted depositions may work for some attorneys, the key is to have some flexibility in your questions and be willing to change your questions depending on the witness’ answers and demeanor. • Most attorneys begin their examination with the inclusion of background questions such as the witness’ name, address, explanation
of the deposition process, education, employment history and so on. • You should definitely ask the witness whether there are any impediments to his or her answering questions (for instance, whether the witness is on medication or hard of hearing). • You may ask the witness about his or her preparation for the deposition, but be weary of attorney-client privilege limiting the scope of such examination. • Include all questions necessary to accomplish your purpose and goals for the deposition. • Contemplate whether your questions should proceed chronologi-
cally or by topic. • At this stage, also determine which documents and exhibits to use for certain deposition questions. If you have not pre-marked the exhibits, you may want to do so prior to commencing the deposition. However, once the document is marked, opposing counsel may have a right to see the exhibit prior to deposition, so if you have documents you do not wish opposing counsel to see in advance, you may want to delay marking said documents. Special preparation for expert witnesses • Consult with your own testifying
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expert witness or another non-testifying expert before deposing your opponent’s expert. • Obtain the witness expert’s curriculum vitae and files prior to the deposition if possible, or if not, request that they be produced during the deposition. • Read the expert’s published material prior to the deposition. Such preparation will help you understand what data an expert’s opinions and conclusions are based on, and you can identify weaknesses in his opinions as a result.
During the deposition • Confirm that the witness is able to testify by asking whether he or she is suffering from any mental or physical condition that could affect his or her ability to accurately answer your questions. • Maintain your professionalism even with belligerent or non-cooperating witnesses. • To elicit information, ask openended questions.
• When questioning an adverse witness, use leading questions that suggest the answer, but avoid asking ambiguous questions. • Use simple words and avoid jargon unless asking an expert witness to explain a term. • Always pause when the witness stops speaking; sometimes the silence will prompt the witness to give additional information. • Always ask follow-up questions, such as whether there is anything else the witness can recall or forgot to mention. • If objections are raised, always ask the basis for the objection. • Sometimes the opposing attorney will raise an objection as to form. In that situation, simply rephrase the question. • If the witness cannot recall information, offer to refresh the witness’ recollection. • Keep in mind that ultimately, you may need to be able to use the witness’ testimony at trial if settlement is not reached, so attempt to turn
inadmissible hearsay testimony into testimony that can be admitted at trial. You can accomplish this by stating on the record that the testimony might fall into an exception that makes it admissible • Be wary of revealing your hand at the deposition. Some questions are better left for trial. • Listen, listen, listen! • Finally, remember the court reporter. Provide the court reporter with the names of opposing counsel, the witness and other persons who will be present (perhaps you may consider a seating chart if there are many attendees). You may also provide the court reporter with a list of any names or words you anticipate repeatedly using during the deposition that have difficult or unusual spellings. Take pauses and breaks to enable him or her to capture the record. Do not speak too quickly or talk over witnesses. Create a record of any relevant nonverbal conduct by the witness or opposing counsel.
Community Law Week Foster Girard • Haynsworth Sinkler Boyd, PA
Community Law Week was a big success this year. YLD participated in the Cocky’s Reading Express program to give each circuit the option of participating in a Read Aloud Day. Cocky’s Reading Express is a collaboration of the University of South Carolina Student Government and the University’s School of Library and Information Science with a mission of encouraging reading among young children around the state. The circuits that participated in the Read Aloud Day sent young lawyers to
local elementary schools to read to kindergarten, first and second grade students. After reading to the students, the young lawyers gave each student a book of their own to take home. Cocky, the University of South Carolina’s mascot, made an appearance at a few of the schools. In total, young lawyers from around the state read and provided free books to more than 2,500 students. A number of the
teachers reported that many of their students had few, if any, books at home. We hope that our efforts will encourage good reading habits among the children we read to. Other 2011 Community Law Week projects included a DSS playroom refurbishing project, book drives, the Lawsuits Project, Speakers in Schools and a wills clinic.
Voices Against Violence Committee Springs Into Action Melissa Maddox-Barnes • The Housing Authority of the City of Charleston
Since its inception in 2009, YLD’s Voices Against Violence Committee (VAV) has promoted its mission of domestic violence awareness among lawyers through its various collection drives, continuing legal education workshops and pro bono representation opportunities, refurbishing projects and legislative advocacy efforts. Modeled after the ABA YLD’s VAV Committee (www.abanet.org/yld/dv) and initially established by Ginny N. Waller, executive director of Sexual Trauma Services of the Midlands, the Committee has encouraged many lawyers in the state to get involved by contributing to the improvement of the living environment for victims in shelters and by increasing the knowledge base for lawyers representing victims of domestic violence. Domestic violence is a crime that affects victims irrespective of race, national origin, sexual orientation, age, educational or socio-economic background. Victims of domestic violence are in need of proper legal representation and supportive services. Domestic violence includes any form of physical, emotional, psychological, economic or sexual abuse as well as threats of abuse. Intimate relationships can be between members of the opposite sex or same sex, spousal, familial or casual dating relationships. The VAV Committee seeks to promote awareness of domestic violence through several major projects as described below. Necessities and paper products drives October is National Domestic Vio-
lence Awareness and Prevention Month. Therefore, the VAV Committee chose October as the month to kick off the VAV Committee projects by sponsoring Necessities and Paper Products Drives throughout the state. Under the leadership of co–chair Melissa Maddox-Barnes of the Housing Authority of the City of Charleston, the collection drives were a huge success. Monetary donations and hundreds of personal care items, paper goods, clothing items, cleaning products and school supplies were donated, collected and delivered to 12 shelters across the state. The VAV Committee, through the generosity of individual lawyers, law firms and government agencies, assisted shelters for domestic violence victims in Charleston, Columbia, Orangeburg, Aiken, Camden and Beaufort.
Continuing legal education and pro bono representation Led by co-chair Caroline H. Raines of Howser, Newman & Besley, LLC, on March 4, the VAV Committee hosted its second annual CLE Workshop entitled, “Domestic Violence: What Every Attorney Should Know.” This program addressed both civil and criminal aspects of domestic violence representation, as well as ethical considerations and instruction on the mechanics of representing clients in civil protection order actions. The CLE attendees received 5.17 MCLE credit hours, including 1.0 hour of LEPR credit, free of charge in exchange for a commitment to assist two pro bono clients in order of protection actions. The VAV Committee thanks the attendees for their pro
bono commitment and the faculty for their commitment to education on domestic violence issues and for their stimulating and practical instruction. Our dedicated faculty speakers this year included Officer Potash of the Columbia Police Department, Tressa Dixon of the City of Columbia Police Department, Joni Jones and Sara Owen of Sistercare, Kelly Hall and Mardi Fair of the S.C. Attorney General’s Office, Rebecca Poston Creel of Pincus Law Firm, and Amie L. Clifford of the S.C. Commission on Prosecution Coordination. The VAV Committee hopes to continue to fulfill its mission by promoting the education of attorneys on domestic violence issues and by assisting victims of domestic violence in ending the cycle of violence.
Refurbishing projects Spring time is the natural time of year to dust off the winter doldrums and prepare for the summer. The VAV Committee, led by co-chair Katie McElveen of Richardson, Patrick, Westbrook & Brickman, LLC, embraced that theme and organized refurbishing projects for domestic violence shelters and advocacy organizations across the state. From painting to cleaning to fixing furni-
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ture, volunteer lawyers, law students, friends and family meet at participating shelters and paint rooms and perform light landscaping and heavy duty cleaning tasks. This year we assisted Hope Haven in Greenville, My Sister’s House in N. Charleston and Sexual Trauma Services of the Midlands in Columbia. To date, more than 40 lawyers, their families and their friends have donated their time and services towards this project, in addition to money, paint, cleaning supplies and paper products. It has been a truly gratifying experience to see the transformation of the facilities into brighter and cheerier living environments for the victims. These projects have generated much interest from South Carolina’s legal community, but the Committee is eager to promote other domestic violence awareness issues as well, such as teen dating violence awareness and legislative advocacy initiatives. Join us as we further our mission to promote awareness in this state. YLD and the Voices Against Violence Committee extend thanks to Saranac Management Group, LLC for providing supplies and assisting in the Sexual Trauma Services of the Midlands refurbishing project on April 23.
Special Olympics Will Johnson • Haynsworth Sinkler Boyd, PA
Approximately 40 members of the Young Lawyers Division teamed with Special Olympics South Carolina for the Mid-Winter Games at The Citadel in Charleston on March 6. YLD volunteers staffed the basketball skills competition, assisted with medal presentations and supported a variety of other events. In addition, Rebecca Roser, Will Johnson and Cooper Wilson presented a check for $10,000 to Special Olympics South Carolina’s
President and CEO Barry Coats. Approximately 30 young lawyers volunteeredat the 2011 Summer Games at Fort Jackson on May 7. Young lawyers assisted with the unified bowling competition and had the opportunity to watch some outstanding athletes in action. YLD and Special Olympics South Carolina teamed up in January 2010, a relationship that has generated more than 200 new volunteers for the organization. Young lawyers who are interested in assisting with Special Olympics should contact Will Johnson (email@example.com) for more information.
Making Prom Dreams Come True: Cinderella Project Continues to Grow Anne Marie Hempy • Collins & Lacy, PC This year marked the 11th anniversary of YLD’s Cinderella Project in South Carolina. The YLD once again hosted the event in Aiken, Greenwood, Greenville and Columbia and sponsored an event for the first time in Anderson. More than 50 young lawyers participated throughout the state, making this year’s event a huge success. Approximately 700 high school students attended a Cinderella Project Boutique, and nearly 600 of those young women left the boutique with the “perfect dress.” One of the many highlights of this year’s event included a feature story on a popular Upstate news program. Fox Carolina News adopted the Cinderella Project as its charity project for the “Fox Gives Back” segment, airing live from a Greenville drop-off location and advertising the event during its five-hour morning news program. With the help of this broadcast, as well as other local businesses, more than 1,000 gently used dresses were donated to the Greenville project. Despite similar projects hosted by different organizations, YLD’s project continues to grow in popularity within the community and among high school students and their families. Though the Cinderella Project is one of the oldest YLD projects, its continued success indicates prom will never go out of style and neither will the need for a dress. We look forward to continuing this project for years to come, making prom dreams come true for high school students in South Carolina.
What Every Lawyer Needs to Know About Investment Fraud Michael Traynham • Office of the South Carolina Attorney General
Same scam, different day Bernard Lawrence “Bernie” Madoff’s 2009 guilty plea on federal securities fraud charges brought the classic Ponzi scheme back into the limelight of public awareness. Mr. Madoff’s scheme was perpetuated over several decades and cost his “investors” approximately $18 billion in losses, making it the largest Ponzi scheme uncovered to date. The Madoff Ponzi scheme was unique in its particulars, but there was nothing unique about the underlying scam. Ponzis, and the broader category of investment fraud, are prevalent in good economic times. However, in tough economic times, regulators see an upswing in investment fraud activity. A recent survey by the Investor Protection Trust revealed that 20 percent of Americans over the age of 65 have already been the victim of a financial swindle. See www.investorprotection.org/learn/ research/?fa=eiffeSurvey. Moreover, incidents of investment fraud often go unreported because of a victim’s embarrassment, confusion or simple lack of knowledge about where to turn for help and what constitutes fraud. As attorneys, we serve our clients’ legal needs, but the vast majority of us do not deal directly with securities or advising our clients about their investment decisions (nor should we, unless properly registered to do so). But we do serve an important and trusted role as advisors, counselors and advocates for our clients, and are occasionally consulted on the significant decisions our clients are faced with—including those related to investments and finances that may involve suspicious circumstances. Quite aside from our role as attorneys, each of us may one day be faced with securities fraud in our personal lives, whether we are targeted directly or the fraud is directed at our parents, grandparents or other loved ones. No one can afford to ignore the problem presented by invest-
ment fraud, and everyone can play a role in the solution.
Securities law in South Carolina The South Carolina Uniform Securities Act of 2005, S.C. Code Ann. §§ 351-101 to 35-1-703 (Supp. 2010), outlines the authority and responsibilities of the South Carolina Attorney General as the ex officio Securities Commissioner, and, by extension, defines the duties of the Securities Division of the Attorney General’s Office. The Securities Division, like state securities regulators in
other states, is a co-regulator with the SEC, FINRA and other agencies. State securities regulators play a critical role in investigating investor complaints and are an important point of contact for those who may have been targeted by investment scams. In South Carolina, the Securities Division is responsible for the registration of securities professionals and securities offerings and for the enforcement of the South Carolina Uniform Securities Act. See S.C. Code Ann. §§ 35-1-601 through 35-1-604. The Securities Division also imple-
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ments investor education initiatives to inform the public about investing in securities, with a strong focus on the prevention of securities fraud. Securities fraud is defined by S.C. Code Ann. § 35-1-501: It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly: (1) to employ a device, scheme, or artifice to defraud; (2) to make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (3) to engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person. A few points regarding the securities fraud statute are worth noting. First, and most obviously, securities fraud must involve a “security,” which is itself a statutorily defined term. See S.C. Code Ann. § 35-1-102(29). Securities are defined to encompass numerous specific instruments, as well as the broader concept of “investment contracts.” In general, “investment contract exists where there has been (i) an investment of money, (ii) in a common enterprise, (iii) with an expectation of profits garnered solely from the efforts of others.” Majors v. S.C. Securities Comm’n, 373 S.C. 153, 163, 644 S.E.2d 710, 716 (2007) (citing SEC. v. W. J. Howey Co., 328 U.S. 293 (1946)). “Securities” can therefore be interpreted broadly to include most passive investments. Second, securities fraud can occur in the absence of a defined transaction. No purchase or sale need actually occur in order for securities fraud to exist. It is sufficient that, for example, the untrue statement of material fact is made in connection with the offer of a security, whether that offer is made in person, in writing, or in any other fashion. Finally, in the context of an administrative action, securities fraud does not require proof of culpability. See S.C. Code Ann. § 35-1-501, cmt. 6. This is not
the case in the context of a criminal prosecution, or even necessarily in a civil action in which the Division is a party. Id. There is no requirement that willfulness or any other standard of culpability be pled or proven in an enforcement action. All these factors, coupled with other provisions of the Securities Act, add up to fairly broad authority for the Securities Division to take action against fraudulent or possibly fraudulent activity. But a significant barrier regulators face in creating a safer marketplace is the high incidence of unreported fraud. As discussed above, many victims fail to report fraud because of embarrassment, confusion or lack of information. The lack of information can at least be addressed through education.
Signs of investment fraud Scams come in every shape and size and are pitched from every angle imaginable. The stories con artists use to sell their scams change with the times and with headlines, but the most common signs of investment fraud remain the same no matter how the fraud is packaged. A few of the most recurrent signs of fraud are discussed below: The promise or expectation of high returns No matter how good the cover story for the “investment” or “business opportunity,” if it sounds too good to be true, it almost certainly is. Virtually every case of investment fraud that is investigated involves the promise or expectation of a return which is, to one degree or another, too good to be true. Unfortunately, what constitutes a “too good to be true” return cannot be defined by bright-line rules and depends heavily on a number of facts and circumstances. Generally speaking, expected returns that are higher than prevailing market returns deserve extra scrutiny, and returns that are promised in short time frames (30, 60 or 90 days, for instance) should be met with caution. Many frauds promise returns well out of proportion to the initial investment—sometimes ten-, hundred- or thousand-fold returns. For instance, the Securities Division
recently took action against an “investment opportunity” that asked for an initial investment of $50 with a promised return after six months of $335,000. See Cease and Desist in the Matter of Imperia Invest IBC, et al, at www.scag.com/scsecurities/ notices-and-orders. Most importantly, any return which is “guaranteed”—i.e., no risk—should be treated as suspect. The no risk or low risk investment No investment is truly risk free. The rule of thumb is that risk increases with the possible return, which creates a sort of spectrum of investment risk. At the low end of the risk spectrum are investment instruments like money markets and CDs, which are virtually guaranteed to preserve an investor’s principal, but which typically pay low returns and are subject to “inflation risk”—the risk that inflation will outstrip the investment return. As possible returns increase, as with stocks, bonds, mutual funds and the like, the possibility of loss increases as well. This pattern tends to hold true with more speculative investments as well. Con artists often push investment opportunities that are purported to offer high returns at little or no risk. These are often opportunities that they claim have been “overlooked,” “held back from the public” or that they claim “your broker doesn’t want you to know about.” Such offers are suspect at best and should be carefully vetted or—preferably—avoided altogether. Pressure tactics Con artists frequently employ highpressure tactics in face-to-face pitches and sometimes in written marketing materials. A few of these tactics can include: 1. Pressing a target to make an immediate decision. Often con artists will present their scam as a time-sensitive offering or insist that there are a limited number of investment “spots” available to encourage a quick, ill-considered decision. 2. Discouraging a target from consulting with disinterested third parties. Sometimes con artists will employ “confidentiality agreements” or attempt to elicit promises that the
target will not share information prior to telling the target anything about the “offering.” 3. Attempting to prey upon a target’s fears, greed or distrust of other institutions. Con artists will frequently try to elicit strong emotional responses such as fear and greed. A sales pitch may focus on a target’s fears of being left out of a big profit, or on more specific fears like being leaving nothing behind for family or being forced to live in a nursing home because of a lack of means. Con artists will also use the trappings of wealth to trigger greed or will attempt to create an “us against them” mentality by encouraging targets to distrust traditional investment institutions, banks or the government. While these tactics are sometimes employed by salespeople who are not engaged in fraud, they should be treated as red-flags. As far as the “confidentiality agreement” ploy is concerned, it should be noted that the vast majority of legitimate securities must be registered with the SEC or state regulators before they can legally be offered. This means that substantial disclosures about the registered investment are a matter of public record. Thus, confidentiality is rarely an issue in legitimate securities transactions with retail investors, and requests for confidentiality should be viewed with caution. Insufficient information provided by the offeror In any legitimate securities transaction, information and written disclosures are likely to be abundant. If an individual is making an investment offer and cannot or will not answer reasonable questions about the investment offer, one of two things is likely true: (1) the individual offering the investment does not understand the investment sufficiently to answer reasonable questions, or (2) the investment offer is fraudulent. In either case, an investor is well served by avoiding the offer. This precaution is especially necessary where an offer is made and no information is put in writing. As discussed above,
most legitimate securities will be registered with state or federal regulators, meaning disclosure information about that investment is a matter of public record. A lack of written disclosures in an investment transaction is a bad sign and could mean that the offering party is trying to avoid a paper trail. Everyone is doing it When an investment opportunity appears to be prolific within a given group—perhaps a church congregation, civic organization or military unit—additional scrutiny is warranted. Group focused “investment” offers may be part of an affinity fraud scheme. Affinity fraud is a key component of many Ponzi and pyramid scams. Essentially, affinity fraud is perpetrated when a con artist infiltrates a group, either by joining it directly (as with a church or civic organization) or by targeting key members of the group as early “investors.” After a con artist attracts a few early investors and convinces those individuals that the investment is legitimate and profitable, positive word-of-mouth drives other members of the group to invest. A con artist may be able to continue the scam for long periods by using the investments of latecomers to make payouts to earlier targets, thus creating the appearance that the investment works. The schemes inevitably collapse when new money stops coming in, if not before. South Carolina recently saw the effect of affinity fraud first hand in the matter of The Three Hebrew Boys. In that case, three individuals targeted church groups and other individuals, promising astronomical returns from investing in foreign exchange markets. The individuals used some early “investment” money to pay off mortgages for key investors and created the illusion that the offered investment was legitimate. The vast majority of the victims’ money was spent on luxuries for the perpetrators, such as a private jet, suites at professional football games and a small fleet of luxury cars. Ultimately, the scheme cost victims approximately $82 million. Typically, investors are not going
to have a friend or family member actively trying to defraud them in this manner (although fraud and financial abuse between family members and friends does occur). But even the most well meaning friends or family members can themselves be defrauded and unwittingly recruit others for a con artist. Investment decisions should not be made on the basis of who else is investing but on what can reliably be known about the investment itself.
What to do if you see a scam If any of these signs of fraud are present in an investment offer, it goes without saying that at a minimum, further inquiry should be made before investing. There are a number of places where you can find more information about an investment offer or a promoter for yourself, your client or a loved one. A good place to start is your state securities regulator, which in South Carolina is the Securities Division. State regulators can answer questions about an individual’s professional registration, or lack thereof, to offer or sell securities or to provide securities advice to investors. Similarly, state regulators maintain information about what specific securities offerings are registered within the state. While registration is not a guarantee against fraud, it is a minimum threshold retail investors should seek out before committing to a particular investment or advisor. More importantly, state regulators can investigate complaints and take enforcement action where appropriate. If fraudulent activity is reported early, such enforcement actions may prevent victims from losing money. If you have a question about securities fraud or need to make a complaint, contact the South Carolina Securities Division at (803) 734-9916 or P.O. Box 11549, Columbia, SC 29211. Check out www.scag.com/securities if you prefer to file a complaint online. For more information about investor education, securities related news or recent enforcement actions, find the Securities Division on Facebook at www.facebook.com/SCSecurities.
SOUTH CAROLINA YOUNG LAWYER
iCivics Training Workshops Allison P. Sullivan • Bluestein Nichols Thompson & Delgado, LLC The YLD iCivics Committee sponsored iCivics Training Workshops in Columbia on April 4 and in Charleston on April 8. iCivics (www.iCivics.org) is a web-based education project designed to enhance civics education of middle and high school students and inspire them to be active participants in our democracy. iCivics is the vision of Justice Sandra Day O’Connor to address her concern that students are not getting the information and tools they need for civic participation and that civics teachers need better materials and support. The iCivics website provides games, lesson plans and classroom handouts specific to the Constitution, Bill of Rights, three branches of government and persuasive writing at absolutely no cost to the students or to educators. The two one-day workshops were attended by more than 60 educators from all over the state. The workshops provided interactive hands-on training on how educators can use iCivics in the classroom, including a “shovel ready” eight-day program that can be implemented at the end of the school year after PASS testing. The workshops featured remarks from Chief Justice Jean Toal, Judge Kristi Harrington, LLR Director and iCivics National Coordinator Catherine Templeton, and Jay Bender.
Courthouse Keys Chad Johnston • Willoughby & Hoefer, PA On May 4, 35 YLD members participated in a truly unique opportunity offered by the Courthouse Keys Committee. YLD participants from throughout South Carolina joined all five sitting Justices of the Supreme Court of South Carolina for a breakfast held at the Supreme Court Building in Columbia. In addition to a wide-ranging question and answer session led by Chief Justice Toal, participants were treated with the opportunity to both meet and interact with the Justices on a more intimate and personal level than that to which they might be accustomed. A special thanks to each of the Justices and the Supreme Court staff for their participation and hospitality. The Courthouse Keys Committee hopes to make this event a regular offering in the future, so be on the lookout for information about this and other offerings in the coming year. For more information about the Courthouse Keys Committee, please contact Edward Rawl (firstname.lastname@example.org) or Chad Johnston (email@example.com).
Amy Landers May Named Young Lawyer of the Year Stinson Ferguson • Law Clerk to Circuit Judge Kristi L. Harrington, 9th Circuit The S.C. Bar Young Lawyers Division is pleased to announce that Amy Landers May, a shareholder with Rogers Townsend & Thomas, PC, has been named the Young Lawyer of the Year for her commitment to the profession and the community and for her tireless advocacy for the elderly and the disabled. “Amy’s practice in itself is generally devoted to protecting persons that cannot necessarily protect themselves and fighting for their rights,” said Lisa M. Steets Hostetler, an attorney with Rogers Townsend & Thomas in Columbia. May has lived a life dedicated to service and leadership since a young age and has been described as an outstanding volunteer. May currently chairs the “Each One Reach One” Committee that raises funds for the S.C. Bar Foundation. The Foundation uses this funding to award grants to programs that provide civil legal services to indigents in South Carolina as well as law-related education opportunities. Tina Herbert, 2010-11 YLD President, worked closely with May on the Each One Reach One Committee and spoke of May’s persistence and diligence despite the “obvious obstacles” involved with the project. When asked about the importance of philanthropy and the Each One Reach Once campaign, May said, “As young members of the S.C. Bar, what better way can we give back to the community than by contributing to our own Foundation, while at the same time benefitting the programs we all hold dear through the YLD? It is my privilege to be a part of the Young Lawyer Legacy.” May also serves on the Bar’s Elder Law Committee, Real Estate Practices Section, Probate, Estate Planning and Trust Section and Dispute Resolution Section. May joined Rogers Townsend & Thomas in 2006, practicing in estate planning, probate and elder law. She holds a position on the steering committee for the Guardianship/Incapacity Section of the National Academy of Elder Law Attorneys and is the current chair of the Palmetto Health
Hospice and Palliative Care Board. According to May, “Being a member of the Hospice and Palliative Care Board gives [her] a rare opportunity to personally affect the lives of many people, and [she] is grateful for that.” As a member of Palmetto Health’s Board of Directors, she fundraises for understaffed hospice programs, facility renovations and patient expenses. As an active member of the Citizens Advisory Board for the C.M. Tucker Jr. Nursing Care Center, May works with an interdisciplinary team to support and assist residents and recognize exemplary staff members. From 2005 to 2011, May has been actively involved with the South Carolina Federation of Business and Professional Women’s Clubs, Inc. This organization advocates for women’s rights and family rights in the workplace. As a member of the Federation, May lobbied on Capitol Hill in Washington, D.C. and served as the State President during the 2009-10 fiscal year. From 2007 to 2010, May served as a board member, vice president and president of the South Carolina Gerontological Society. This
non-profit organization seeks to educate and provide resources to those serving the senior community. May regularly invests time and resources in the United Way’s Women in Philanthropy, Historic Columbia, the March of Dimes, Phi Mu Fraternity, Children’s Miracle Network and the EdVenture Children’s Museum. Born into a family of active philanthropists, May said she “learned at an early age from [her] parents that the more you give, the more you receive.” She is sought as a public spokesperson on the issues of elder law, estate planning, guardianship and special needs trusts issues. In 2010 alone, May’s speaking engagements included the S.C. Appleseed Legal Justice Center’s Elder Law CLE, the Family Connections Annual Conference, the Annual Alzheimer’s Association Symposium and Habitat for Humanity of Columbia. Michael Graham, member the Rogers Townsend & Thomas Board of Directors and May’s law partner, said that May “epitomizes what we think the bar looks for in a young lawyer.” Graham also spoke of May’s absolute dedication to clients, her diligent work to remain up to speed with developments in her area of practice, her passion for service and the high regard in which the partners at the firm hold her. May is a 2001 graduate of the Mercer University Walter F. George School of Law and a 1998 graduate of Lander University. She returned to South Carolina after law school to practice and currently works in her hometown of Columbia. The Division is proud to recognize Amy Landers May for her service, advocacy and dedication to our state and profession.
SOUTH CAROLINA YOUNG LAWYER
C. Tyson Nettles, Unsung Hero Jocelyn Newman • Richardson Plowden & Robinson, PA As Theodore Roosevelt once said, “Far and away the best prize that life has to offer is the chance to work hard at work worth doing.” While many may believe those words, few actually exemplify those ideals. Tyson Nettles is one of the few. If you were to read Tyson’s resume, you would learn that he was born in Columbia, grew up in Sumter, is an associate at the Hood Law Firm in Charleston, and is a member of the Mississippi and South Carolina Bars. What you would not see is a list of the many contributions that he has made to the South Carolina Bar and the time that he has invested in the Young Lawyers Division during the short time in which he has been a member. Beginning in 2005, immediately after becoming a member of the South Carolina Bar, Tyson joined the Professional Development Committee, ultimately becoming its chair. For years he helped coordinate luncheons, CLEs and social activities with Charleston-area accountants and other young professionals. In 2007, Tyson was instrumental in launching the first-ever Young Lawyers Division Leadership Academy. According to his friend and colleague Cooper Wilson, “While Tyson has been the chairman, leader, or representative to many YLD committees and groups, what sets him apart is his willingness to help with YLD projects simply because people need help. Though his contributions are not always recognized in E-Blasts or e-mails, the members of the committees he supports recognize that the YLD is successful because of selfless volunteers like Tyson.” In 2009, Tyson increased his dedication to service and took on greater responsibilities by being elected to represent the young lawyers of Charleston and Berkeley counties as their Ninth Circuit Representative. Tyson was also selected to represent South Carolina and the U.S. Virgin Islands on a national stage as the 10th District Representative for the American Bar Association’s Young Lawyers
Division from 2009-11. As the ABA YLD District Representative, Tyson attends four meetings per year all over the country and acts as a liaison between the ABA and the S.C. Bar YLD. “Tyson has expressed his belief that South Carolina is best served in the ABA through a constant presence, and he has represented our state consistently and earnestly during his tenure,” said fellow YLD leader and friend William R. Johnson. Largely
because of Tyson’s representation and leadership, South Carolina will continue to represent the ABA’s 10th District for six consecutive years— a seat that typically alternates between South Carolina and the U.S. Virgin Islands every two years. Tyson was also instrumental in successfully lobbying to have South Carolina host the 2012 ABA YLD Fall Conference, which will be held in Charleston. His dedication to service was recognized by Gov. Mark Sanford, who appointed Tyson to the South Carolina Board of Architectural Review. Somehow, while giving considerable time and energy to being a dutiful servant of the Bar, Tyson has managed to thrive in the practice of law. Professionally, Tyson is busy with his construction law practice. According to colleague William “Trey” Watkins, “Tyson is a detail-oriented attorney who is well versed in the law of his practice areas.” Like most young lawyers, Tyson constantly works to balance his work commitments with his service projects. It is this detail-oriented, dedicated servant who continuously “works hard at work worth doing.” For that, Tyson, we salute you.
Diversity Clerkship Program Tigerron A. Wells • Haynsworth Sinkler Boyd, PA This year, YLD organized its first ever Diversity Clerkship Program. Nine 1L law students from the University of South Carolina School of Law and the Charleston School of Law were chosen from a pool of 18 applicants and matched with participating employers for six-week paid summer internships. Student participants were placed with SCANA, Haynsworth Sinkler Boyd, PA, Nelson Mullins Riley & Scarborough, LLP, Richard A. Harpootlian, PA, the S.C. Workers’ Compensation Commission, the City of Columbia’s Office of Community Development and the Fifth Circuit Solicitor’s office. Young lawyers interested in volunteering to assist with the 2012 program, and legal employers interested in participating in the 2012 program, should contact Tigerron “Tiger” Wells (firstname.lastname@example.org) for more information.
The Young Lawyers Division is Committed to Inclusion Tina Herbert • City of Columbia This year’s theme for the division was “Get Involved, Get Ahead!” In order to help more young lawyers get involved, more opportunities were provided for involvement. During the planning stages for this year, we solicited ideas from young lawyers from across the state and received several recommendations. Two of these projects—Volunteer Income Tax Assistance (VITA) and The Color of Justice—were programs that got young lawyers involved with community service who had never been involved before. Additionally, the young lawyers served segments of the community that had not been reached before—undoubtedly continuing to improve the reputation of lawyers throughout the state. Another major goal this year was to make our inclusion initiatives more effective in promoting diversity
in the legal profession. To this end, two other new projects had great success—the BLSA Symposium (in conjunction with the S.C. Black Lawyers Association) and the Minority Clerkship Program. We kicked off the year with the symposium, with U.S. Rep. James Clyburn as speaker. BLSA students from both USC and Charleston School of Law were able to hear from minorities from across the state working in various practices, including our very own Immediate Past President Carl Solomon. As minority students still face various challenges, including many being first generation lawyers, we found that they still need guidance and mentorship while matriculating through law school. The diversity of the student participants in the Diversity Clerkship Program really impressed me and helped establish a broader view of
“minority” beyond African Americans. Participants were also Asian, Polish (native) and a Caucasian female. Thanks to the following participating firms/organizations that offered paid internships to our participants in spite of the instability of the economy. Because of their commitment, our participants were given a valuable opportunity this summer: • City of Columbia • Haynsworth Sinkler Boyd • Nelson Mullins Riley & Scarborough • Richland County Solicitor’s Office • SCANA • S.C. Workers’ Compensation Commission These projects mark a great continuation of diversity efforts by the YLD. I look forward to seeing the expansion of these existing programs and additional initiatives that reflect the Bar’s commitment to inclusion.
2010-11 Stars of the Quarter
Mark C. McLawhorn S.C. Court of Appeals BLSA Symposium Chair
Catherine H. “Katie” McElveen Richardson Patrick Westbrook & Brickman, LLC Wills Clinic Chair
Tina Herbert, 2010-11 YLD President I have had a wonderful time working with the Young Lawyers Division this year. Special thanks to Kayla Smith, Rebecca Roser, Trey Mills and Will Johnson—we would not have accomplished our work without your help. In addition to our normal cast of “all-stars” above, I want to acknowledge this year’s Stars of the Quarter. Every circuit representative, committee chair and volunteer is important to YLD; however, these individuals performed above and beyond the call of duty and have been an outstanding benefit to the YLD. Many of these young lawyers have proven to be dedicated over several years or have welcomed new challenges or assignments. Thanks to all for your hard work!
First Quarter Paul H. Hoefer Robinson McFadden & Moore, PC Back Pack Drive Chair
Allison P. Sullivan Bluestein Nichols Thompson & Delgado, LLC iCivics Chair Circuit Rep: Ashley A. McMahan S.C. Attorney General’s Office Fifth Circuit Representative
Second Quarter Chisa J. Putman Chisa J. Putman Attorney at Law, LLC The Color of Justice Chair Patrick C. Wooten Nelson Mullins Riley & Scarborough, LLP Professional Dev. CLE Coordinator Anne Marie Hempy Collins & Lacy, PC Cinderella Project Chair Circuit Rep: Reid T. Sherard Nelson Mullins Riley & Scarborough, LLP 13th Circuit Representative
Third Quarter R. Britton “Britt” Kelly Rosen Rosen & Hagood, LLC Annual Bar Convention Co-Chair
Eve A. Ross McNair Law Firm, PA Volunteer Income Tax Assistance (VITA) Co-Chair Circuit Rep: Benjamin A. “Ben” Baroody Bellamy Rutenberg Copeland Epps Gravely & Bowers 15th Circuit Representative
Fourth Quarter L. Foster Girard Haynsworth Sinkler Boyd, PA Community Law Week Co-Chair Caroline H. “Carrie” Raines Howser Newman & Besley, LLC Voices Against Violence Chair Tigerron A. “Tiger” Wells Haynsworth Sinkler Boyd, PA Minority Clerkship Program Chair Circuit Rep: Thomas E. Hite III Hite and Stone Attorneys at Law Eighth Circuit Representative