Friday, February 3, 2017

Club Members Cannot be Forced Into Giving Up Contractual Rights

By Janet L. Bozeman, Esq.

Hirsch v. Jupiter Golf Club LLC, No. 13-80456-CIV (S.D. Fla. Feb. 1. 2017), provides a cautionary tale for clubs looking to restructure their membership options:  tread lightly on existing members' rights.  It is possible to restructure a membership program, but care must be taken not to breach existing membership agreements.  Where the club owner does not have the right to alter existing membership rights, members may be offered incentives in exchange for giving up membership rights, but a change in membership rights cannot be forced on the members.  

Norman Hirsch, Matthew Dwyer and Ralph Willard (collectively, "Plaintiffs") acquired refundable memberships in the Ritz-Carlton Golf Club & Spa Jupiter, n/k/a Trump National Golf Club Jupiter ("Club") in Jupiter, Florida.  Each Plaintiff paid a membership deposit and entered into a membership agreement with the Club, which granted the Plaintiff a revocable license to use the Club facilities in accordance with the Club's membership plan and rules. 

The membership plan obligated Club members to pay regular dues as well as fees and charges to use particular facilities or services based on actual usage or consumption (e.g., cart and caddie fees and food and beverage charges).  The membership agreement also provided that members with refundable memberships would be entitled to a return of the membership deposit paid within 30 days after recall of the membership by the Club, among other circumstances. 

Under the membership plan, a member could provide written notice to the Club of his or her desire to resign.  However, the member remained obligated to pay dues, fees and other charges until the membership was reissued.  The member would be placed on a resignation waiting list until there was an interested buyer.  As long as the Club had unissued memberships in a particular category, every fifth membership issued in that category would come from the resignation waiting list.

The Plaintiffs notified the Club of their desire to resign and went on the waiting list.  In the meantime, they continued to use the Club facilities and pay dues, fees and other charges, as had always been the Club's practice.  The resignation waiting list was lengthy, and it could take 10 years or more to reach the top of the list.  A frequent problem for clubs with lengthy resignation waiting lists is to have members who "ride the list" by getting on the list without having any present intention to resign.  The thought is that they might want to resign in 10 years or so, and they don't want to be at the bottom of a list when that day comes.  Often, when the member reaches the top of the list, if he or she does not want to resign at that time, he or she can elect not to resign and move to the bottom of the list.

In 2012, Jupiter Golf Club, LLC d/b/a Trump National Golf Club Jupiter ("Trump Golf") purchased the Club and sought to make numerous changes in an effort to turn around the struggling club.  It can be very difficult to entice new members to buy into a club with such a long resignation waiting list.

On December 17, 2012, Trump Golf sent a letter to all members on the resignation waiting list.  They were given until December 31, 2012 to select one of three options:  opt-in, opt-out or remain on the resignation waiting list.

Members who opted in were given reduced Club dues for three years and reciprocal use rights in other Trump-owned clubs in exchange for the members forfeiting their rights to membership deposit refunds.  Members who opted out kept their refund rights, but they could not remain on the resignation waiting list and would pay the regular dues rate, with no cap on dues increases.  The Plaintiffs chose the third option – to remain on the resignation waiting list.

Trump Golf's letter clearly stated, "if you choose to remain on the resignation list, you're out."  The letter indicated that Trump Golf did not want members on the resignation waiting list to utilize the club and did not want their dues.  Beginning January 1, 2013, the Plaintiffs were denied access to the Club.  However, in February 2013, Trump Golf charged the Plaintiffs dues, even though they were still denied access to the Club.

The Plaintiffs filed a class action lawsuit on behalf of themselves and other similarly situated Club members.  The United States District Court for the Southern District of Florida certified a class of 65 identified members ("Class Members"), including the Plaintiffs. 

The membership plan clearly provided that a member on the resignation list must continue to pay dues, fees and other charges until the membership is reissued, but it did not specifically indicate whether the member was entitled to continue to use the Club facilities.  The court determined that intent was that members on the resignation waiting list retained active memberships affording them continued Club access.  Since fees and charges were based on actual usage and consumption, the obligation of a member on the resignation waiting list to continue to pay fees and charges must mean that the member has use rights.  It would be impossible to incur fees and charges if the member was prohibited from using the Club, and such an interpretation would render the payment obligation in the Membership Plan superfluous. 

Moreover, prior to Trump Golf buying the Club, the Club had always allowed members on the resigned waiting list to use the Club so long as they remained current on dues, fees and other charges due to the Club.  Courts can give considerable weight to the parties' long-standing interpretation of a contract's terms.

The court next examined whether Trump Golf recalled the Class Members' memberships by denying Club access.  The membership agreement expressly allowed the Club, in its discretion, to recall memberships "at any time for any or no reason whatever."  The court found that Trump Golf and its management consistently and clearly delivered the message that those members who chose to remain on the resignation waiting list would no longer be Club members. 

The court ruled that, when Trump Golf cut off the Class Members' access rights, it effectively recalled the Class Members' memberships.  "[W]ithout a right to Club access, no membership would exist and this essential purpose of the membership contract would be nullified." 

Accordingly, under the terms of the membership Agreements, the Class Members were entitled to refunds of their membership deposits by January 30, 2013.  Since Trump Golf refused to issue any refunds, the court held that Trump Golf materially breached the membership agreements.  Trump Golf was ordered to pay the Class Members refunds of their membership deposits totaling $4,849,000 and $925,010 in prejudgment interest, for a total of $5,744,010, plus post-judgment interest until payment is made.

Hyatt & Stubblefield, P.C. counsels clients on creating, operating and restructuring club membership programs.

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