National Law Review Article Warns of Lawsuits for Deposit Refunds

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.

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.