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National Law Review Article Warns of Lawsuits for Deposit Refunds

By Joe Barks | February 22, 2021

On the heels of successful actions that saw one club make a $1.5 million settlement, some law firms are actively soliciting members who have recently resigned for class-action and individual lawsuits that “demand immediate payment of their refundable joining payments, notwithstanding the terms of their membership agreements.” Clubs that “fail to accurately maintain their waiting lists or enter into side deals with some members may find themselves facing fraud, breach of contract and consumer-protection lawsuits,” the authors warn.

The National Law Review published a recent article by Stephen A. Mendelsohn and Glenn A. Garena of Greenberg Traurig, LLP that warned of a trend through which law firms are actively soliciting plaintiffs who have resigned their club memberships for the purpose of filing class-action and individual lawsuits that “demand immediate payment of their refundable joining payments, notwithstanding the terms of their membership agreements.”

Recently, the authors wrote, Hawk Pointe Golf Club in Washington, N.J. settled such a class-action suit, while other similar cases are pending (https://www.law.com/njlawjournal/2020/12/08/country-club-will-pay-1-5m-to-settle-class-suit-over-denied-membership-refunds/).

Many country clubs require a membership deposit, capital, or equity to be paid for acceptance, the authors noted. Upon member resignation, clubs may allow for a refund of a portion of the membership deposit and joining payment when a certain number of new members in the same membership class join. The ratio of resigned members to new members varies from 1:1 to 5:1.

Assuming that the number of resigned members exceeds the number of new members, clubs employ a resigned list that ranks resigned members according to their resignation dates, the authors noted. In many cases, as the number of resigned members far exceeds the required number of new members, resigned members may sit for many years before their refunds are paid. As resigned members age, they will apply greater pressure to immediately receive their refunds.

Clubs should consider that changes to their refund policies may create an opening for plaintiff’s law firms to try to exploit, the authors wrote. Some courts have held that changes that reduce or delay a resigned member’s right to a refund payment are unlawful, even if the membership agreement allows changes in the discretion of the club.

Resigned members have argued that any changes, even if beneficial to some club members, may not be lawfully implemented, the authors noted. Clubs that fail to accurately maintain their waiting lists or enter into side deals with some members may find themselves facing fraud, breach of contract, and consumer-protection lawsuits.

Before making any changes to a club’s refund policy or responding to an attorney’s or resigned member’s request for information, the authors counseled, clubs should carefully review their membership documents with an attorney that routinely drafts club documents and defends club litigation. Amendments to club documents or mistakes in communication may expose the club to an expensive class-action suit, they added.

About The Author

Joe Barks
Joe Barks

Joe Barks is the Editor of Club & Resort Business magazine, working out of Wayne, Pa. (suburban Philadelphia). He has been covering the club and resort industry since the launch of C&RB in April 2005 and during that time has written cover-story profiles of over 150 club and resort properties, as well as many additional articles about specific aspects of club management and profiles of leading club managers. Barks has been a writer and editor for specialized business publications for over 40 years, covering a wide variety of industries and professional disciplines over the course of his career. He is a four-time winner of Jesse H. Neal Awards from the American Business Press, known as the “Pulitzer Prizes” for industry trade publications. He has also been a freelance contributor to many leading national consumer and business publications, and served as Marketing Manager for the Hay Group, a leading worldwide management consulting firm. He is a graduate of the University of Pennsylvania.

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