Archiving Historical Documents for Private Associations
October 27, 2019Bury me not on the lone prairie but on the golf club fairway
May 15, 2020By Fred L. Somers, Jr., P.C.[2]
[1] This blog is designed for general information only. The information presented at this site should not be construed to be formal legal advice or the formation of a lawyer/client relationship. The author of this blog is not certified by any state agencies or boards of legal specialization. This blog may constitute attorney advertising in some jurisdictions.
[2] The author is an Atlanta area attorney with a concentration in private clubs and trade associations. See www.somerslawfirm.org. The author is indebted to Peter A. Somers, Esq. for valuable comments included herein.
The defense of force majeure is based on a contractual provision. Force majeure has been defined as unforeseeable circumstances that prevent someone from fulfilling a contract duty.[1] Bylaws are considered a contract between a club and its members.[2] Under its bylaws, a club undertakes the duty to furnish its members with goods and services in exchange for dues and charges.
Because of the cessation of business (whether full or partial) caused by governmental mandates arising out of a pandemic, if the club desires to continue to have members pay dues and charges during the mandate’s term, the club should check its bylaws for a force majeure clause.[3] Without such a clause, the club may find it legally difficult to insist members continue to pay dues and charges if the club is closed.
That is, the flip side of a club’s unjustifiable inability to perform a duty may give rise to the members, the persons to whom the duty is owed, having a justifiable excuse for nonperformance of their duty to pay for the services owed them under the club’s duty to perform the services. Under this doctrine, (the mutuality doctrine), both parties must be bound to perform their obligations or the law will treat the agreement as if neither party is bound to perform.[4] Provided the right to avoid performance is dependent on some condition or event outside the control of the party seeking to cancel the contract, courts will find that mutuality of obligation exists.[5]
The clauses generally take two forms. The most general form excuses performance under the contract when it is due to any circumstance outside the party’s control, which presumably would include performances prevented by a corona virus or its derivative, a governmental closure mandate. The second type of force majeure clause lists specific events that trigger the clause. We surmise most clubs, if they have a force majeure clause in their bylaws, have one of the latter variety.
In most commercial contracts, force majeure events are contemplated to cover acts of God, extreme weather events, riot, war or invasion, governmental or regulatory action including strikes, terrorism, or the imposition of an embargo. It is less common to see force majeure clauses that expressly contemplate a global health emergency, pandemic, or epidemic as a force majeure event.[6] However, if the pandemic results in a governmental or regulatory action causing the club to cease operations, it is possible if not likely a court may afford relief under the mutuality doctrine for nonpayment of dues or other charges based on a claim for failure of the club’s performance.
Clubs that desire to enforce ongoing dues and other charges during an epidemic or pandemic occurrence which legally requires them to close all or a significant portion of their facilities to members need to examine their bylaws and rules to see if they have adequate grounds to continue to insist on payment.
For, example, consider a provision stating: “Facilities Unavailable. If any of the Club facilities are unavailable for Membership use due to renovations, repair, fire, casualty or other similar occurrence beyond the Club’s control, the Membership will continue to be liable for the timely payment of all Dues and other duly-authorized charges to Member’s receivable accounts including but not limited to assessments.”
Or consider the provision contained in NCA’s model bylaws: “Even though certain Club Facilities are unavailable for Membership use due to repairs, maintenance, or renovation, or fire, casualty or other similar occurrence beyond the Club’s control, the Membership will continue to be liable for the timely payment of all dues.”[7]
Is the imposition of a municipal, county, state, or federal closure mandate arising from a pandemic ordering the closing of “non-essential” businesses under the mandate a “similar occurrence” to “renovations, repair, fire or casualty”?
Perhaps the word “similar” should be stricken in the quoted provisions if the governing board has the authority to amend the bylaws without member concurrence. Or, if not, the club’s governing board might consider issuing an interpretation (assuming it has interpretation authority) that the state, county or municipal order for the facility closing due to the pandemic is an event beyond the club’s control and within the intent of the bylaw prescribing the obligation to continue paying dues and charges.
What is included in the term “casualty”? One legal definition has it as “A disastrous occurrence due to sudden, unexpected, or unusual cause.”[8] However, it is manifest COVID-19 wasn’t the proximate cause of Club shutdowns. It was and in some venues still is a governmental mandate arising from concern over the further spread of contagion. You can argue over whether the government is justified under our Constitution or whether it is economically efficient to mandate these shutdowns. The point being is that it is not necessary for the government to assume control over the exercise of free commerce merely because it believed it justified. Thus it is not the virus pandemic that reasonably might be thought of as a casualty. Rather it is/was the government’s unilateral decision to implement curtailment of business by exercising its presumed power of interference with commerce that caused the cessation of furnishing goods and services by Clubs to its members.
Or Is the Club considered a “non-essential business” under the mandate? Or is part of the club considered “essential” as an outdoor recreational facility? If “essential” the club is vulnerable. That is, if the club chooses to close the use of its facilities voluntarily, it is doing so without the excuse of force majeure. In this latter situation, the club may be faced with a stronger mutuality contention the members don’t have to pay dues and charges during the closure.
The question of whether a pandemic caused governmental closing mandate is a “similar occurrence” to a list of specific casualties is a question of interpretation. Do the Bylaws provide the governing board decides all matters of interpretation? Is its decision declared to be final or conclusive? Does the interpretation have to be “reasonable” or can it be arbitrary? For example, a member could contend the interpretation a closing caused by a governmental mandate arising out of a pandemic is not reasonably similar to a closing due to “renovations, repair, fire, or casualty”. Hopefully, the club has a mandatory alternative dispute clause in its bylaws that avoids litigating the question.
Does the Club’s business interruption insurance include a provision allowing for recovery of lost revenue due to a governmental mandate closing the Club’s operations? If “yes” what components of the revenue are covered?
Should the Club consider suspending certain charges during the pandemic that might be considered prudent and appropriate if its facilities are closed to member use? For example, if the Club cannot serve food and beverages, wouldn’t it be appropriate to suspend “minimum” and “service charges”?
The continuation of dues is deemed economically justified if the Club continues to incur maintenance, taxes, utility and labor expenses during a closure. Other than dues and capital assessments, (if, e.g., the latter are being used to discharge mortgage debt and interest), the question of whether other charges should be abated or suspended is relevant. Is maintaining the usual complement of a labor force necessary if the Club is not open? The club argument for doing so is to retain valuable employees and avoid the need for recruitment and training of new employees for when the club reopens. But for how long is this retention justified if there is no reason to believe reopening will occur in the near term?
If the club is proprietary, i.e., not owned by its members, a weaker case is presented for the continuation of dues if the rules, membership plan, or agreements don’t require their continuation if the club is closed for whatever reason. That is, we find proprietary clubs likely don’t require their members to sign contracts including force majeure clauses. Hopefully, the membership contracts at least require agreement to the club’s rules or membership plan.
In the case of semi-private clubs, we find they may not even require a signed contract or enrollment agreement for memberships. Obviously, for non-member use, there is no need for protection against claims for the non-availability of the facilities.
If the club is owned by the members, a stronger economic case may be made for not only the continuation of dues but also capital assessments. After all, the club board is charged with the protection of the members’ collective assets. This duty of asset preservation if ignored can come back to bite individual governing board directors via derivative or class action lawsuits for dereliction of duty.
The incentive for having a force majeure clause in the bylaws is to reduce the possibility or even likelihood many members may question whether it is desirable to continue their membership if the Club is not going to be available for their use for the indefinite future. Having a substantial initiation fee which is forfeited upon resignation protects against the wholesale loss of members who paid the nonrefundable fee.
If the Club provides for an inactive status with reduced or suspended dues and charges during the inactive status period, a suspension of some or all of these non-dues and assessments may forestall a “run on the bank”. That is, the club may be confronted with an abnormally high request for inactive status if the club is not perceived to be available for member use for the indefinite future. Charging less than full dues and charges during the “inactive” status may abate the potential for resignations if the resigning member stands little to lose by resigning.
If the club has outdoor recreational facilities, e.g., one or more golf courses and the governmental pandemic mandate allows for outdoor recreation as an “essential activity”, then the club may be obligated to mitigate the loss of use damages to its members if it can accommodate golf course use within legal guidelines prescribed by the governmental authority. Not only is it prudent to mitigate as a legal matter, but it is also prudent as a psychological means to allow the members some facilities use, albeit restricted. Thus, as we have seen, numerous golf clubs have opened their courses for play without golf cars, bunker rakes, restrooms, or use of practice facilities and subject to other restrictions or conditions. Tennis, croquet, and other outdoor activities are more problematic as they usually require participants to violate the “social distance” separation rule.
Learning to live with governmental intrusion upon the constitutional freedom to use or deal with one’s property as one desires is a difficult and sometimes legally questionable necessity. Its origins lie in Supreme Court cases dating back at least to 1917.[9] It is presumably the result of the concern for the safety and well being of all citizens trumping this freedom. As individuals, we are called upon to sacrifice individual freedoms for the health and safety of all of us. It is the social contract we made by becoming citizens in an organized society. Provided the regulation is constitutional, we have no complaint or redress for perceived interference with our freedoms, whichever they may be.
[1] https://www.bing.com/search?q=force+majeure+definition&qs=SS&pq=force+majeure&sk=HS1LS1&sc=8-13&cvid=F5B27D31AFA74014A6E7465705A1BD1E&FORM=QBRE&sp=3
[2] https://legal-dictionary.thefreedictionary.com/Club
[3] Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or an event described by the legal term act of God, prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the force majeure. https://www.bing.com/search?q=force+majeure+clause&form=WNSGPH&qs=LS&cvid=ce7a62a169f24c64baf9b670e871ecca&pq=force+majeure&cc=US&setlang=en-US&PC=LCTS&nclid=8F4E2041C49DA6D983A581C3A47AE5FD&ts=1588784809424&wsso=Off
[4] https://contracts.uslegal.com/elements-of-a-contract/mutuality-of-obligation/
[5] Id.
[6] See “Push the Pause Button? Contracts and COVID-19” By Mark P. Henriques March 25, 2020
[7] National Club Association Club Director Series “Model Club Bylaws”© page 30 (2012)
[8] https://legal-dictionary.thefreedictionary.com/casualty
[9] E.g., Buchanan v. Warley, 245 U.S. 60 (1917),b
Copyright 2020
Fred L. Somers, Jr., P.C.
Atlanta, GA 30338
