files

A look back at2006’s top court

cases thatsecured leading

headlines andchanged the face

of thetitle industry’s

business

Special report

Non-compete cases heat up courthouses in 2006:3 First California v. Financial Title: $16 million5 Gateway Title v. Mercury Companies: $8.34 million7 Security title v. Linda Pope and First American: $41.5 million

9 Calif. district court dismisses ALTA’s mortgage impairment insurance lawsuit

10 Michigan Supreme Court addresses county recording problems

11 South Carolina Supreme Court issues UPL opinion on loan

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2 CASE LAW FILES

Editor’s Note

In this special edition

Dear Readers,

What are the ramifications of 22 title company employeessimultaneously faxing their resignations to their employerand taking jobs with the company’s competitor? Is this an illegal attempt to destroy business, or par for the coursein a very transient industry?

These were among the many burning title industryquestions answered this year by state and federal courts.From questionable recruitment practices to the ever-present threat of mortgage impairment insurance, thegavel fell on many court actions involving the titleinsurance industry in 2006.

In this special report, we have compiled a handful of themost significant court decisions that impacted theindustry in 2006. Non-compete agreements, countyrecording backlogs, the unauthorized practice of law–these were the decisions being discussed in the hallowedhalls of courtrooms across the country last year. It's ourhope that this special report will further that conversationamong your colleagues and business partners.

On behalf of everyone at October Research Corp., thankyou for trusting us with the important duty of keeping youabreast of the industry’s most important legal developments.

Stay legal,

Amy SwindermanEditor

3 CASE LAW FILES

In title history lore, 2006 will probably be rememberedfor the many legal and regulatory challenges itsustained, not the least of which will be the three non-compete cases that finally came to trial in Arizona andCalifornia.

Because of the $43.2 million award in Ohio’s ChicagoTitle v. The Talon Group in January 2005, the progressof the three trials was carefully monitored on The LegalDescription Web site by agents across the country.

How would juries in other states view the recruitmentpractices that plaintiffs decried and defense counselcharacterized as business as usual?

The industry got a definitive answer when every trialended up in a verdict for the plaintiff, although theawards themselves were not consistent from trial totrial, as each case represented a variety of fact patterns.

As we prepared this wrap-up report, the verdicts are allstill under appeal in their various jurisdictions, with thefinal outcomes ostensibly years away.

First California v. Financial Title:$16 million

A Los Angeles jury found Financial Title and MercuryCos. Inc. liable for $16 million in damages in a casealleging the company attempted to destroy the businessof competitors First California and New Century TitleCo. by raiding employees en masse, stealingconfidential information and clients and forcing theshutdown of several offices.

The award amounted to nearly $2 million incompensatory damages and approximately $14.6million in punitive damages against the defendants.

“The jury obviously spoke when it came to the conduct of the defendants and their misguided corporateculture,” Kenneth Dzien, First California corporatecounsel told The Legal Description.

The jury sent a signal to the title industry that raidingcompetitors’ companies and taking their customers is not OK, he said.

While the plaintiffs asked for $50 million in damagesbased on their total estimated business loss, the jury’s damages award is considered substantial by theindustry.

The First California v.Financial Title award isapproximately twice aslarge as the $8.34 millionin damages a Los Angelesjury awarded the plaintiffsin Gateway Title v. JosephDiChiacchio, et al., whichalso included defendantMercury Cos. and itsaggressive recruitingpractices.

Attorneys in the casebegan their openingarguments in theCalifornia Superior Courtin Los Angeles Oct. 20,also accusing thedefendants of unfaircompetition, breach offiduciary duty, fraud andconspiracy.

The key players includeddefendants Stacy Neves, aformer vice president andmarketing coordinator forFirst California;Stephanie Howard,branch manager of FirstCalifornia’s Brentwood branch; and former New Century employees George Willard and TonyBecker.

In the beginningIn August 2004, the New Century Diamond Bar branchoffice was managed by Willard, a vice president withthe company— and acting manager of the Los AngelesCounty Region, entrusted with plaintiff’s confidential, proprietary, trade secret information— includingcompensation information for all employees.Plaintiff’s attorneys said that Financial Title solicited

(Continued on page 4)

Non-compete cases heats up courtrooms in 2006

Case: First CaliforniaTitle Co. and NewCentury Title Co. v.Financial Title Co.,Mercury CompaniesInc., Stacy Neves,Stephanie Howard,George Willard, TonyBecker and Does1-20.

Verdict: $16 million

Location: SuperiorCourt of California,Los Angeles County,Los Angeles, Calif.

Date trial began:October 20, 2006

Judge: Elihu Berle

Verdict Announced:Jan. 5, 2007

4 CASE LAW FILES

Willard and colleague Becker for employment whilethey were still employed by New Century. The twoaccepted the job offers in July 2004. While stillemployed at New Century, Willard and Beckerallegedly mounted a campaign to cultivate employeediscontent within New Century, and exploiting thatdiscontent, solicited the employees at the Diamond BarBranch office on behalf of Financial,” the plaintiffs alleged. This was done “with the consent and authority of defendants Financial and Mercury— and at theirurging,” said plaintiff’s attorneys.

Testimony showed that Willard and Becker allegedlydisclosed confidential and proprietary trade-secretinformation about their salaries and compensation toMercury and Financial, using trade secret informationto offer salary and compensation packages equal orexceeding their then current salaries from NewCentury. They also allegedly solicited business fromNew Century’s existing clients and set up an office for Financial’s new Diamond Bar office.

Three-hour noticeAs a result of Becker and Willard’s actions, on Sept. 1, 2004, 22 employees from the Diamond Bar Branchoffice simultaneously faxed their resignations to NewCentury at 9 a.m. and by noon had left, accounting for80 percent of New Century’s title, escrow sales and marketing force.

Between Sept. 2 and Sept. 15, 2004, an additional 11employees tendered their resignations without priornotice and at least 1,000 title orders, pending at theDiamond Bar Branch office, were canceled–alongwith a number of escrow files, testimony showed.

In late October 2004 or early November 2004, Nevessolicited Howard for employment with Financial andallegedly schemed to recruit all of the employees in theBrentwood Branch office.

As a result of the defendants’ conduct, a number of First California clients— including the most valuableand lucrative— transferred their business to Financial,the testimony showed. The defendants engaged in thesame pattern and practice of unfair, fraudulent andillegal conduct against at least two of the plaintiffsother branch offices located in San Ramon, Calif. andDanville, Calif., according to testimony.

An offer hard to refuseTo make sure Mercury’s employees did not return to First California or anywhere else, the employees wereforced to sign written agreements under undueinfluence and coercive circumstances, testimonyshowed.

The plaintiffs included the Capital Title Group, theparent company of First California, New Century Titleand United Title. The defendants were represented byMercury Co., the parent company that owns AllianceTitle and Financial Title.

Testimony also showed that the plaintiffs lost 80employees, more than 1,250 escrow and title orders,4,000 customers and several branches had to shutdown.

Plaintiff’s attorney Allen Brownetold the jury, “Our people had no idea what was going on until aftereverybody left and they started taking inventory.

“Why did they do it?” Browne asked in opening arguments. “Because (the defendants) would get more money, more revenue, other employees were goingalong and they had a ready-made customer base.”

(Continued from page 3)

5 CASE LAW FILES

Gateway Title v. Mercury Companies:$8.34 million

When JudgeRobert O’Brienread aloud the verdict inthe Gateway Title v. JosephDiChiacchio, et al., trial, Aug. 10, theSuperior Court of California, LosAngeles courtroom was momentarilystunned into silence.

The $8.34 million in damages the jurydecided to award plaintiff LandAmericaFinancial Group paled in comparison tothe $43.2 million award in Ohio’s Chicago Title v. The Talon Group inJanuary 2005 and the $41.3 million aPhoenix jury awarded plaintiffs in theSecurity Title v. Linda Pope, et al., trialin June, similar cases weighingemployment contracts and recruitingagainst employees’ free will.

BackgroundWhen Joseph DiChiacchio agreed inwriting with LandAmerica, Nov. 1,2003, to stay on as a senior manager atGateway Title Co. after it was acquiredby Transnation Insurance Co. and madea subsidiary of LandAmerica, no onethought he would bolt just six monthslater.

After all, DiChiacchio was considered aproven leader with management skillsand the necessary industry background,experience and knowledge in sales andmarketing to sign a multi-year contractstarting at a salary of $180,000 withbenefits.

In fact, he signed the employment agreement to serveas executive vice president of Gateway, where hisresponsibilities included overseeing all businessoperations and increasing sales volume in the sixsouthern California counties where Gateway doesbusiness.

DiChiacchio was also responsible for monitoring thecompetition and increasing the market share forGateway.

Yet, according to the complaint filed by attorneysrepresenting Gateway, Commonwealth Land Title andLandAmerica Financial Group, DiChiacchio turned thetables on Gateway on May 13, 2004, by suddenlyannouncing he was leaving to work for a direct

competitor, Financial Title Co.

He was not the only one, according tocourt records.

DiChiacchio also “hired key employees with the administrative and sales staffwith the avowed intent and purpose todamage or destroy the ability ofGateway to service its customers, andthereby divert these customers toFinancial,” court documents stated.

Robert Olivero resigned his position atCommonwealth as a vice president andmanager in the Glendale office, andimmediately began working for AllianceTitle Co., a competitor, as a seniorexecutive of that competing titlecompany, court filings alleged.

Commonwealth also alleged that RayArias, who prior to his resignation, wasthe sales manager of the Glendale office,solicited and induced other employeesof Commonwealth to join Alliance. Thisincluded defendants Peter Watson andRonald Jones.

Plaintiffs’ attorneys in the case were Patrick C. Mullin and William S. Garrof Jackson Lewis who set out to proveallegations that DiChiacchio not onlyleft his former employers high and dry,but that he and others were guilty ofbreach of contract, violating California’s

Uniform Trade Secrets Act and of conspiracy forunfairly recruiting other Gateway and Commonwealthemployees to competitors.

The plaintiffs alleged that DiChiacchio and otheremployees not only broke the terms of theiremployment agreements, but enticed others to takecompany trade secrets with them into other jobs to gainan unfair competitive edge.

(Continued on page 6)

Case: Gateway TitleCompany Inc.,Commonwealth LandTitle Insurance Co.Inc., and LandAmericaFinancial Group Inc. v.Mercury CompaniesInc., Alliance Title Co.Inc., Financial Title Co.Inc., Investor’s Title Co. Inc., JosephDiChiacchio, RobertoOlivera, Ray Arias andPeter Watson.

Verdict: $8.34 million

Location: SuperiorCourt of California,Los Angeles County,Los Angeles, Calif.

Date trial began: May11, 2006

Judge:Robert O’Brien

Verdict Announced:August 10, 2006

6 CASE LAW FILES

The plaintiffs further alleged that by recruitingnumerous key Gateway employees, DiChiacchio“destroyed the underwriting and administrative sections of the organization which are necessary to service thepresent and future volume of title insurance business,damaged the reputation of Gateway as a provider oftimely and quality title insurance service in thecommunity and ultimately recruited the sales staff toFinancial.”

These actions “diminished the ability of Gateway to provide the required title insurance services to itscustomers,” the complaint alleged.

Gateway also alleged that DiChiacchio “used confidential and proprietary trade secret informationacquired at Gateway to wrongfully compete against itfor the benefit of Financial, thereby breaching theduties and obligations owed to both Gateway andLandAmerica under the contract set forth.”

But the allegations didn’t stop with competition. The plaintiffs also attached the salaries that were offered tothe recruited employees, saying they were “much higher than the salaries paid in the industry forcompetent employees in the same or similar positions.The level of salaries offered simply indicates that thetrue purpose of hiring Gateway’s employees was to destroy its infrastructure so as to induce the sales forceto leave,” court records stated.

Commonwealth also alleged that Olivera“misappropriated confidential and proprietary trade secret information of great commercial value toCommonwealth, which is not generally known to thepublic or those in the title insurance industry.”

“The confidential and proprietary trade secret information was acquired at significant cost andinvolved a substantial expenditure of time and effort,” Commonwealth alleged.

That information included advertising efforts andpromotional material, records of historic and currentsales patterns, records of historic and current referralpatterns and information pertaining to customerpreferences and requirements and other salesadvantages impacting Commonwealth’s ability to compete in the title insurance market.

“Arias acted in concert with Olivera to first solicit and

induce the sales representatives in the Glendale officeto leave en masse during the first few days of July,2003,” the complaint alleges. “The conduct of Arias in soliciting employees of Commonwealth while he wasstill employed by that corporation interfered withexisting business relationships with both employeesand customers.”

Commonwealth also alleges that prior to announcinghis resignation, Watson purchased a portable hard drivewith personal funds and secretly used this device todownload all of the confidential and proprietaryinformation contained on his company laptopcomputer, including trade secret information.

Watson allegedly “induced his administrative assistant to refrain from resigning for two weeks so to use thesame device to download confidential informationcontained on her desktop computer and obtain otherinformation directed by Watson.”

Plaintiffs further allege that Watson “acted in concert with Olivera and Arias to concentrate on salesrepresentatives and administrative staff in the Irvineoffice … significantly impacting Commonwealth’s ability to service title insurance business.”

The complain also alleged that Jones took several ofthe customer service representatives who reported tohim to Marie Calendar’s Restaurant to attempt to cause them to leave Commonwealth and become employed atAlliance and/or Investor's Title Co.”

Complete daily testimony from the trial is available onwww.thelegaldescription.com.

(Continued from page 5)

Financial Title Co.used Joseph DiChiacchio to “hire key employees with the administrative and sales staff with theavowed intent and purpose to damage or destroy the ability ofGateway to service its customers,” court documents said.

7 CASE LAW FILES

Security Title v. Linda Lorene Popeand First American: $41.5 million

After four and a half days of deliberation, a Phoenixjury in the Security Title v. Pope et al.,trial affixed a 3.17 percent “degree of fault” to the actions of Linda Pope in the civil damages case and 96.83 percentdegree of fault against First AmericanTitle Insurance Co.

The jury awarded Security Title $6.3million in compensatory damages. ForLinda Pope’s part in the events of October 2003, the jury assessed a$200,000 award to Security Title, whileFirst American was assessed $35 millionin punitive damages, for a total of $41.5million in damages.

Security Title, a subsidiary of FidelityNational Financial, had accused Pope ofviolating fiduciary duties, copyingconfidential customer files and takingcustomers and about 40 Security TitleBranch 66 employees with her tocompetitor The Talon Group, a newbranch of First American Title InsuranceCo.

Pope contended that as an at-willemployee, she had the free will to switchcompanies. First American admitted torecruiting Pope, but denied attempting torecruit anyone else at Security Title.

In announcing its verdict, the jury noted an additionalfinding that “the defendants did not act in concert.”

First American plans ‘vigorous appeal’First American Title Insurance Co. plans to appeal thejury decision, according to a statement issued bycompany spokesman David Schulz.

“We are extremely disappointed in the outcome of the litigation and will be exploring post-trial alternativeswith outside legal counsel,” the statement said. “The company does not believe the amount of the judgmentis material. We anticipate vigorously pursuing allavailable appellate remedies.”

Pending the outcome of the appeal, the financial impactto First American is not known. First American Corp.,the parent holding company of First American TitleInsurance Co., took a $25 million charge to secondquarter 2006 earnings, according to the statement. The

Legal Description contacted sixfinancial analysts for their predictions,but all declined to comment.Fidelity declined to comment on thejury’s decision.

Plaintiff: Case defied credibility,common senseIn his closing arguments, Security Titleattorney Steven Goldfarb told the jury,“determination of the facts will come down to two things— credibility andcommon sense.”

Goldfarb said that one theme presentedby the defense that “defies common sense and credibility” was whether or not Kermott discussed the plan to recruitPope at a luncheon with Talon’s West/Southwest Regional ManagerSteve Veltri, Talon Senior VicePresident James Clifford and FirstAmerican executive NickVelimirovich.

“Clifford testified that he didn’t hear Kermott say this. Veltri also said hedidn’t recall Kermott saying that, as did Velimirovich. You mean to tell me thereare five people sitting at the table, andmost didn’t hear what the president of a

multi-million dollar operation is saying? This is simplynot a credible story,” Goldfarb said. “This whole story was conceived to convince you that everyone was fired,without the preparation of the office, the benefits andsalary discussions and the copying of files.”

Goldfarb likened the situation to a child who isstanding by an empty cookie jar with icing and crumbsall over his face and shirt, saying that he didn’t eat the cookies.

“You need to reach your own conclusion, but Veltri, Clifford, Velimirovich and Halvorsen are all standingthere with crumbs on their shirts and frosting on their

(Continued on page 8)

Case: Security TitleAgency Inc. v. LindaLorene Pope, ThomasE. Pope, FirstAmerican TitleInsurance Co., Johnand Jane Does 1-50,Black & WhiteCompanies 1-10

Verdict: $41.5 million

Location: MaricopaCounty CourthousePhoenix, Ariz.

Date trial began: April17, 2006

Judge: Ruth Hilliard

Verdict announced:June 15, 2006

8 CASE LAW FILES

faces, claiming they didn’t know what happened to the cookies,” he said.

Goldfarb continued that Pope is not the primary target,and in some ways, she was a misguided pawn. He saidthat First American went after its competitor Fidelity toget a bigger piece of the Phoenix market, and that bydoing so, they took the business risk for themselves andfor Pope.

Pope’s attorney: ‘Vindicate Linda’Pope’s attorney Jeffrey Smithconceded that “perhaps it’s not the best judgment” that Pope copied Security Title files prior to her departure, “but there’s no evidence that confidential, proprietary documents wereused for any purpose.

“Folks, Linda just wanted to change jobs,” Smith said. “She couldn’t grow the business. She couldn’t provide the service that she wanted. She had no thought tocause them harm and continued working in SecurityTitle’s interest. She wanted to go where she would be appreciated.

“FNF wants to make a statement to the industry about at-will employees,” he concluded. “At-will employeescan’t do a thing about a company that’s out of touch and unresponsive. Folks, you are the last resort tovindicate Linda’s rights as an at-will employee, and theright of Linda to better herself and her employeeswithout fear of corporate retribution. This is a chanceto speak out for at-will employees on where they wantto work, who they want to work for and to betterthemselves.”

First American: Case about loyalty, not recruiting“Alleged recruiting did not cause the employees to leave,” First American attorney LawrenceScarboroughsaid. “Security Title did nothing to save them. Why did they leave? It’s not that they had been offered jobs, salaries, benefits, anything. It’s loyalty, not substantial assistance from Talon, to cause thesepeople to come streaming out and sign with Talon,” he said.

“If I could give you better service somewhere else, what do you think? Is not improper under Arizonalaw,” Scarborough said.

Scarborough also contended that rushing,confidentiality and finding space for 50 people is a

proper and normal procedure within First American.

“Every First American office opening is rushed and confidential,” Scarborough said. “The whole series of emails on opening offices and computers and such—it’s not at all difficult for First American to use in another office, as they open four to eight offices everymonth,” he explained.

“The $13.9 million is a pie-in-the-sky number andpunitive damages are not warranted,” he said. “Rely on what you heard, saw and think. Because of Talon’s lack of wrongdoing, we urge you to find in First American’s favor.”

Complete daily testimony from the trial is available onwww.thelegaldescription.com.

(Continued from page 7) Linda Popeand her

attorney,Jeffery Smith,

walk into theMaricopa

CountyCourthouse inPhoenix, Ariz.

Security TitleBranch 66 hadaccused Pope ofviolating fiduciaryduties, copyingconfidential filesand taking custom-ers and about 40employees with herto competitor TheTalon Group.

The Talon Group,a new branch of

First AmericanTitle Insurance

Co., admitted torecruiting Pope,

but deniedattempting to

recruit anyoneelse at Security

Title.

CASE LAW FILES

American Land Title Association v. Great AmericanInsurance Co., et al., (U.S. District Court, NorthernDistrict of California, Case No. 3:05-cv-04365-PJH)

A federal district court in California dismissed acomplaint filed by the American Land TitleAssociation (ALTA) alleging that several insurancecompanies were unlawfully selling title insurancepolicies under the guise of mortgage impairment or lienpriority insurance for lack of subject matterjursidiction. The case was reported in the June 6, 2006,issue of The Legal Description.

The facts:In October 2005, ALTA filed an action allegingdiversity jurisdiction against the following insurancecompanies incorporated in various states: GreatAmerican Insurance Co., Great American AssuranceCo., Seattle Specialty Insurance Services Inc., SafecoInsurance Co. of America, Safeco Financial InstitutionsSolutions Inc., Agricultural Insurance Co., Group9 Inc.,Mattherhorn Financial Services Inc., Bancinsure Inc.,Deerfield Insurance Co., Guaranty National InsuranceCo., North American Capacity Insurance Co., TravelersIndemnity Co., Zurich American Insurance Co.,Fidelity & Deposit Co. of Maryland, ColonialAmerican Casualty and Surety Co., and EmpireIndemnity Insurance Co.

ALTA asserted that the defendants, who are notlicensed title insurers, were unlawfully selling titleinsurance under the guise of mortgage impairment orlien priority insurance. ALTA sought a judicialdeclaration that mortgage impairment or lien prioritypolicies are actually title insurance policies andrequested that insurers not licensed to sell title policiesbe prohibited from selling mortgage impairment or lienpriority policies. The group also sought an orderpermanently enjoining the defendants from sellingthose policies anywhere in the United States.

Safeco Insurance Co. of America and Safeco FinancialInstitutions Solutions Inc. were dismissed from theaction. The other defendants moved to dismiss, onvarious grounds, or filed notices of joinders in themotions to dismiss. Most moved to dismiss for lack ofsubject matter jurisdiction because there was notcomplete diversity between all defendants andmembers of ALTA. They also argued that ALTA had

no private right of action to assert the claims alleged inits complaint. The defendants also moved underFederal Rule of Civil Procedure 20 for an orderdismissing all claims except those against GreatAmerican Insurance Co., arguing that the otherdefendants were improperly joined, as the claimsagainst the remaining defendants did not meet therequirements for permissive joinder. Finally, thedefendants contended that the court should abstainfrom adjudicating the case under the DeclaratoryJudgment Act based on concerns of comity andbecause each state regulates insurance practices,providing ALTA and its members with reasonablealternative remedies.

What the court decided:The court dismissed the complaint for lack of subjectmatter jurisdiction because there was not completediversity between ALTA and its members and all of thedefendants. “Because ALTA is suing in a representative capacity, it is the citizenship of ALTA’s title insurer members that controls in this case forpurposes of diversity jurisdiction analysis,” the court stated. “Because some of ALTA’s members are licensed as title insurers by the same states in whichsome of the defendants are incorporated and domiciled,there is no complete diversity.”

Because there was no subject matter jurisdiction, thecourt did not decide the question of the existence of aprivate right of action or the question of whether ajoinder was proper. Finally, because the court alsodeclined to exercise jurisdiction under the DeclaratoryJudgment Act, the court ruled the dismissal waswithout leave to amend.

The court also weighed in on the regulation of titleinsurance: “Each individual state must decide who can be licensed to sell title insurance within its borders,” the court stated. “Each state has a strong interest in having the issue decided in its own courts, not in afederal district court in California. Any individualizedissues regarding the lien priority policies can be moreefficiently resolved in the individual state courts, whichare more familiar with the laws of insurance regulationof their particular states. Retaining jurisdiction couldalso lead to unnecessary entanglement between stateand federal court systems.”

Calif. district court dismisses ALTA’s mortgage impairment insurance lawsuit

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CASE LAW FILES

In re: Certified Question from the U.S. BankruptcyCourt for the Eastern District of Michigan, in thematter of Rickie and Laura Adams, U.S. BankruptcyCase No. 04-71695, Stewart A. Gold, trustee v.Mortgage Electronic Registration Systems Inc.,(Supreme Court of Michigan, Case No. 130966)

The Supreme Court of Michigan declined to answer abankruptcy court’s certified question as to when a mortgage is deemed recorded, but granted theMichigan Land Title Association’s (MLTA) motion to file an amicus curiae brief addressing ongoing countyrecording backlogs. The case was reported in the Nov.20, 2006, issue of The Legal Description.

The facts:In December 2003, Rickie and Laura Adamspurchased a home in Eastpointe, Mich., and executed a$116,250 mortgage recorded with Mortgage ElectronicRegistration Systems (MERS). The mortgage bears aliber and page stamp of Nov. 18, 2004. When theAdamses filed for bankruptcy on Nov. 8, 2005, atrustee of their bankruptcy estate said the mortgage wasavoidable because the mortgage was not recorded priorto the bankruptcy filing. MERS asserted that themortgage was presented and filed more than 90 daysbefore the bankruptcy petition was filed. However, asthe court discovered, Macomb County does notmaintain entry books to evidence when mortgages andother documents are presented for recordation asrequired by Michigan law.

This was just one of several cases supporting a requestfor certification by the judges of the U.S. BankruptcyCourt for the Eastern District of Michigan: “When a county register of deeds does not maintain an ‘entry book’ as identified in MCLA 565.24 and 565.25, when, if ever, is a mortgage deemed ‘recorded’?”

The MLTA submitted a motion to file an amicus curiaebrief in support of the certified question. The MLTAasked the court to clarify its decision in Central Ceiling& Partition Inc. v. Department of Commerce in orderto properly apply it to the context of federal bankruptcylaw. In that case, the Supreme Court took theextraordinary action of directing BernardYoungblood, Wayne County Register of Deeds—who was not a party to the litigation— to file briefsand appear in the action to explain why he was not

complying with his statutory duty to maintain entrybooks. Although the court ordered Youngblood to filequarterly progress reports on the installation of a newcomputer system, after two years, Youngbloodadmitted that the system still had not been scheduledfor installation.

What the court decided:Calling the ongoing failure of county registers of deedsto properly record real estate instruments “unsettling,” the Supreme Court of Michigan granted the MLTA’s motion to file an amicus curiae brief.

“Without question, the property interests of thousands of homeowners, mortgage companies, lienholders andothers are jeopardized when registers of deedsthroughout the state are derelict in their statutory dutyto note in an entry book the day, hour and minute theyreceive an instrument for filing,” said Justice Robert P.Young.

However, the court declined to answer the U.S.Bankruptcy Court for the Eastern District ofMichigan’s question of when an instrument should be deemed recorded if a county register of deeds has failedto maintain an entry book as required by state statute.That task would be better suited to the legislativeprocess, Young said.

In a dissenting opinion, Justice Stephen J. Markmanargued that leaving the bankruptcy court’s question unanswered would infuse more chaos into the system.“The erosion of recent decades of the position of the state judiciary within our federal system isunmistakable, and yet this court acquiesces in thefurther relinquishment of its authority to interpret thelaw of this state on behalf of the people in this state,” he said.

Michigan Supreme Court addresses county recording problems

10

11 CASE LAW FILES

Doe Law Firm v. Henry B. Richardson Jr.,Disciplinary Counsel, and Henry Dargan McMaster,Attorney General, (Supreme Court of South Carolina,Case No. 26214)

The South Carolina Supreme Court held thatdisbursement of loan proceeds for a refinance or creditline transaction constitutes the practice of law— andthus, disbursement must be conducted under thesupervision of an attorney. The case was reported in theNov. 20, 2006, issue of The Legal Description.

The facts:At issue in this case was whether the disbursement ofloan proceeds is the practice of law, currently an openquestion in South Carolina.

Doe Law Firm, a South Carolina law firm, was retainedby an out-of-state lender to serve as its closing attorneyfor certain in-state refinancing and credit linetransactions. Doe represents both the lender and theborrower in connection with the transactions aftermaking proper disclosure to both regarding dualrepresentation, supervises the title search and certifiesthe title in accordance with South Carolina law.

In Doe v. McMaster (2003) and State v. Buyers ServiceCo. Inc. (1987), the state Supreme Court identified foursteps in a closing that involve the practice of law:performing the title search, preparing loan documents,closing and the recordation of documents. In bothMcMaster and Buyers Service, the funds weredisbursed directly by the lender pursuant to the HUD-1Settlement Statement, yet the court did not define thisstep as one involving the practice of law. The parties inthis case, however, pointed out that the disbursementprocess was not at issue in either case. Similarly,several attorney disciplinary cases have implied— butnot decided— that disbursement is the practice of lawwhen performed in connection with a closing.

What the court decided:The state Supreme Court held that the disbursement of

funds in the context of a residential real estate loanclosing cannot and should not be separated from theprocess as a whole. Because the decision was a newrule, and lenders and attorneys may have establishedprocedures that do not account for this step in theclosing process, the court delayed the effective date ofthe opinion until Jan. 22, 2007.

“Viewed in isolation, it cannot be said that the disbursement of loan proceeds in and of itself ‘entails specialized legal knowledge and ability,’ such that it constitutes the practice of law,” the court said. “In our view, however, we hold that the disbursement of thefunds must be supervised by an attorney.”

South Carolina Supreme Court issues UPL opinion on loandisbursements

11