Governor Haley signs law to reverse S.C. Supreme Court ruling that hurt home building

Home Builders scored a huge victory last week in Columbia.  Legislation (H.4654) to restore the integrity of the Pollution Control Act in the wake of the Supreme Court ruling in the Smith Land Company case received final approval in the House and Senate this week. The bill was signed into law by the Governor on Wednesday, June 6th.

Under the Smith Land Company opinion, the Supreme Court held that a permit from the S.C. Department of Health and Environmental Control was required on any discharge into the environment under the state’s Pollution Control Act. Further, the Court held that a private right of action exists that would allow any citizen to sue an alleged violator under the Act. Both of these interpretations are a significant change in the implementation of the Pollution Control Act and would have posed uncertainty in the regulatory process, cause significant harm to SC’s economic development efforts, and expose business and industry to environmental litigation.

A controversial move by environmentalists (from Julian Barton’s Legislative Report)
Several environmental groups were a party to the compromise that resulted in the Smith Land Company bill that passed.  Just as the bill was passing the SC House, the Southern Alliance for Clean Energy, the Waccamaw River Keeper, and the SC Coastal Conservation League filed a lawsuit against Santee Cooper in violation of the compromise language in the bill.

It was clear that the environmental community once again did not live up to their word!  The 11th hour sneak attack was not appreciated by legislators who had worked hard to craft a solution.  The environmentalists unrelenting attack on coal fired electric plants in South Carolina continues unabated.  South Carolina is moving from being energy independent to energy dependent! 

Supreme Court removes nearly 100 candidates from the ballot

Last week the S.C. Supreme Court issued a ruling that will have the effect of removing an estimated 100 candidates statewide from the primary and general election ballots this year.  They were removed because they failed to file a statement of economic interest as required by law.  Below is the text of the law.

(8-13-1356) states that, “A candidate must file a statement of economic interests for the preceding calendar year at the same time and with the same official with whom the candidate files a declaration of candidacy or petition for nomination.” In addition, the code states, “An officer authorized to receive declarations of candidacy and petitions for nominations under the provisions of Chapter 11 of Title 7 may not accept a declaration of candidacy or petition for nomination unless the declaration or petition is accompanied by a statement of economic interests. If the candidate’s name inadvertently appears on the ballot, the officer authorized to receive declarations of candidacy or petitions for nomination must not certify the candidate subsequent to the election.” 
The law also states, “This section does not apply to a public official who has a current disclosure statement on file with the appropriate supervisory office pursuant to Sections 8-13-1110 or 8-13-1140.”  In other words, incumbents, who already file regular statements of economic interest, are exempt from the requirement to file a statement of econonic interest when they file for reelection.

Therefore, even if a candidate appeared on the ballot who failed to file the required documents, and won, he or she could not, according to the law, be certified the winner.  The court was clear in their ruling that they understand the gravity of their decision, which was unanimus, but that the law is very clear.  You can read the ruling and how The State covered the decision by clicking here.

The parties are trying to find a way around this issue and reopen filing.  However, Rep. Alan Clemmons, R-Horry, chairman of the House election law subcommittee, told The State that state law requires reopening “by loss of the candidate through death or through resignation of the nominee for nonpolitical reasons. Those are the only two exceptions.  There also are appeals to the Federal courts about this ruling and the law.

The Legislature also has attempted to restore at least some of the candidates to the ballot, but so far there has been insufficient support to correct the problem.

Assuming the parties do not find a way to reopen filing, or to otherwise challenge the decision, the following candidates in Greenville and Pickens counties are reported to be off the ballot:

Senate District 2 (Larry Martin is seeking reelection):
Rex Rice (R)

Remaining in the race in Senate 2:
Larry Martin (R)

Senate District 7 (Ralph Anderson is not seeking reelection):
Ennis Fant (D)

Remaining in the race in Senate 7:
Jane Kizer (R)
Karl Allen (D)
Lillian Brock Flemming (D)

Senate District 8 (David Thomas is running for reelection):
Jeff Dishner (D)

Remaining in the race in Senate 8:
David Thomas (R)
Joe Swann (R)
Chad Groover (R)
Jim Lee (R)
Ross Turner (R)

House District 25 (Karl Allen is running for Senate District 7):
Seldon Peden (D)
Leola Robinson –Simpson (D)

Remaining in the race in House District 25
Tony Boyce (D)

Note that this list is incomplete; it covers only races for the General Assembly.  If the parties and candidates erred in these races, it is likely that candidates for County Council also may be impacted.

Candidate Screening:
The HBA Legislative Committee is currently screening candidates for support.  Their recommendations will be sent to the HBA Board of Directors and if approved, some candidates will receive campaign contributions from the South Carolina Builders Political Action Committee.

How “Limited” is Your Liability as a Member of an LLC?

By Ron G. Tate, Esq.

Gallivan, White & Boyd, P.A.

The owners of many building companies choose to organize their business as Limited Liability Companies LLC).  Many home builders organize as an LLC to avoid potential personal liability in civil actions. They were taking advantage of what seemed on the surface to be a clearly worded statute that insulates individual LLC members from civil liability for wrongful acts, called torts, such as negligent construction.

Supreme Court Decision Changes the Protection of an LLC
The South Carolina Supreme Court’s April 4, 2012, opinion in 16 Jade Street, LLC v. R. Design Construction Co., LLC calls into question the “limited liability” nature of the LLC business entity. In that case, the court held that the Limited Liability Company Act (Act) does not shield an LLC member from liability for his own torts, but rather protects only those members who did not directly commit wrongful acts, from vicarious liability.

In this case, Carl Aten and his wife were the sole members of R. Design Construction Co., LLC (R. Design), a South Carolina LLC, acting as general contractor for a construction project in Beaufort, South Carolina. After defects were discovered and one subcontractor left the project over a payment dispute, the construction ground to a halt. R. Design abandoned the project, never replacing the subcontractor nor adequately addressing more than sixty defects. At trial, the court awarded the plaintiff $925,556 in damages, finding R. Design and the subcontractor liable, as well as finding Aten personally liable for negligence. On appeal, the South Carolina Supreme Court concluded that the Act does not shield a member of an LLC from liability for his own torts. Rather, the Act protects only non-tortfeasor members of an LLC from vicarious liability.  For example, Aten’s wife is shielded from liability because she was not found to be personally negligent.

About the LLC Act
The statute, § 33-44-303 of the South Carolina Code, provides that the liabilities of the LLC are solely the liabilities of the company, and a member or manager is not personally liable for them solely by reason of being a member or manager. In examining the plain language of the statute, the court acknowledged that it suggests a member is shielded from individual liability from torts committed in furtherance of the LLC. After all, as the court acknowledged, § 33-44-303(a) provides that obligations arising in tort are “solely” those of the company. A footnote further strengthens the argument against the court’s ultimate conclusion in pointing out that because § 33-44-303(c) expressly provides how a member can become personally liable, “it therefore stands to reason that the general rule is he is not otherwise personally liable.” (Emphasis added)

What the Court Said
Nevertheless, the court reasoned that the “right to sue one’s tortfeasor” is a “long-standing right” in our legal system, which will only be abrogated by statute through clear legislative intent. While the court agreed that “the language of the LLC act appears to insulate a member from personal liability,” it ultimately held that “such a sweeping liability shield was not intended by the General Assembly.”

The court also drew a parallel between LLCs and corporations noting that a shareholder of a corporation is not personally liable for the acts of the corporation except that he may become personally liable by reason of his own acts or conduct. Therefore, the impact of the decision is that business owners may not insulate themselves from personal liability for their own torts by organizing as either a corporation or an LLC.

The court certainly recognized the impact of its decision would be particularly acute in the case of a single member LLC. Because “one cannot be vicariously liable for his own actions,” there simply is no one to protect in the case of a single member LLC. Moreover, where the LLC member is a license holder who is required to be in charge of the work, this case raises a question of whether he or she may ever escape personal liability.

The court’s suggestion that the legislature could clarify the intent of the Act has already been taken: Senator Larry Martin has introduced a Joint Resolution of the General Assembly that the “clear and unambiguous intent of the… limited liability act was… to shield a member of an LLC from personal liability for actions taken in the ordinary course of business of the LLC.”

What You Need to do to Protect Yourself and Your Assets
So what does all this mean for you? Perhaps the proposed Joint Resolution will persuade the court that individuals in future cases should not be personally liable where they conduct business under an LLC. Until this issue is resolved by the legislature and the courts, many uncertainties remain. The best practical advice is to look closely at your company’s liability insurance coverages. Talk with your insurance agent or broker about your business risks and make sure that you have appropriate insurance policies that cover you and your activities at adequate coverage limits. Careful analysis of your insurance program is especially important for builders, because liability insurance coverage for construction defects is frequently the subject of litigation. Finally, talk with your legal advisor about how you may protect your individual assets in light of this decision.

Supreme Court Ruling a Victory for Property Rights

A unanimous decision handed down by the U.S. Supreme Court this week is a huge victory for property rights advocates and very good news for NAHB’s members.

In Sackett v. U.S. Environmental Protection Agency, the high court agreed with NAHB arguments (submitted in the form of two amicus briefs) that a property owner who receives a Compliance Order from the EPA or Army Corps of Engineers should be able to obtain judicial review in court.

The case involved property owners Michael and Chantell Sackett, who owned an undeveloped half-acre lot in a residential area near Priest Lake, Idaho. When the Sacketts began the process of building their dream home by preparing the lot for development, the EPA accused them of placing fill material into a jurisdictional wetland and issued a Compliance Order requiring them to immediately remove that material and restore the wetland — or face thousands of dollars in fines for every day they did not do so.

When the EPA denied the Sacketts’ request for an administrative hearing to challenge the order, they filed an action in district court seeking relief, but both the district court and the Court of Appeals for the Ninth Circuit held that the Clean Water Act (CWA) precluded pre-enforcement judicial review of administrative compliance orders.

On March 21, every member of the U.S. Supreme Court was in agreement in deciding that “there is no reason to think that the Clean Water Act was uniquely designed to enable the strong-arming of regulated parties into ‘voluntary compliance’ without judicial review.” Moreover, two of the Justices (Ginsburg and Alito) wrote concurring opinions in which they explained that because the EPA had determined its jurisdiction over the Sacketts’ property, judicial review was appropriate.

This decision is extremely important to our industry because home builders (like the Sacketts) are often subject to Administrative Compliance Orders with no means to challenge them, unless the government decides to file an enforcement action or the builder applies for and is denied a CWA Section 404 permit.

As of now, this is no longer the case. Instead, any builder who receives a CWA Compliance Order can now challenge that order in federal court. In addition, whereas builders have previously had no place to turn when the EPA or Army Corps determines that a wetland or water body on their property falls under the agency’s jurisdiction, Justices Ginsburg and Alito have now indicated that they may in fact seek relief in court.

In an official NAHB reaction statement, Chairman Barry Rutenberg summed it up in saying, “This ruling provides a check on EPA’s capricious expansion of its regulatory authority. Finally, home owners and home builders have a way of challenging EPA compliance orders before they face big fines.”

HBASC takes active role in reversing anti-economic development decision by S.C. Supreme Court

by Julian Barton, Director of Government Affairs
Home Builders Association of South Carolina

Late last summer the SC Supreme Court handed down a decision that sent shock waves through the development community in the SC League of Women Voters vs. Smith Land Company case. Under the Supreme Court’s Smith Land Company opinion many citizens may be in violation of the Pollution Control Act (PCA) and now every other citizen has the right to sue them, even though the case does not directly impact them.

The decision nullified sixty years of case law with two liberal interpretations of the law:

1. Zero Tolerance: The Court ruled that any discharge into the environment must have a permit – this case involved filling in .19 acre of wetlands on a .33 acre lot that was not required by state or federal law to have a permit. Based on this decision, any emission into the environment must have a permit. To meet the courts new direction, DHEC alone will need to double or triple their permitting departments!

2. Encourages Lawsuits: The Court also ruled that anyone could have “standing” in a case, and they did not have to be directly impacted by the case. In the past the individual filing the lawsuit had to be directly impacted to file suit. This now opens the door for a flood of litigation from every activist group in the state. Don’t like a Walmart in your city, don’t like electric generation plant, don’t like a business that is building on the water, then the new strategy is to bury them in lawsuits! The SC Supreme Court has set back economic development in our state by ten years!

If this case is allowed to stand, economic development in this state could come to a grinding halt as anti-economic development groups sue every business that wants to come to the state. Companies will locate in less litigious states! The court has given a big advantage to our competitors, Georgia and North Carolina, with this decision!

Senator Harvey Peeler and Representative Nelson Hardwick are expected to introduce legislation next week to reverse the onerous and dangerous SC Supreme Court decision. Passage of this bill will be a top priority for the business community this session!