This article is the third in a special six-part series commemorating the 50th anniversary of the National Club Association. The article appeared in the August 1996 issue of Club Director and it tells the story of one club’s efforts—and an industry’s support—to fight a lawsuit initiated by the Equal Employment Opportunity Commission (EEOC). The EEOC’s challenge was never based on an actual discrimination charge, but rather, appeared to be an initiative to eliminate or at least narrowly restrict the private club exemption under Title VII. Eventually, the case was resolved by the Seventh Circuit Court of Appeals in early 1996. The court not only upheld the club’s position, but also was sharply critical of the EEOC’s dogged pursuit of the case.
NCA followed the case since its inception and helped raise funds to defray some of the club’s legal expenses because the issues had significant implications for the club community. The Private Club Exemption Fund raised more than $16,000 from the club community nationally. (See box below the article.)
In June 1991, Frank Stover, general manager of The Chicago Club, received a request from the Equal Employment Opportunity Commission (EEOC) to submit an EEO-1 form (detailing the composition of the workforce by race and sex). Several years earlier, the EEOC had conducted an investigation and determined that The Chicago Club was excluded from the employer definition contained in Title VII of the Civil Rights Act, the law administered by the EEOC which requires submission of the EEO-1 forms. Stover’s response included a reminder of their earlier decision and a copy of the EEOC’s own finding that it had no jurisdiction over The Chicago Club.
He thought that would end the matter. It didn’t—The EEOC subsequently informed him that the agency did not feel bound by its earlier decision and requested him to provide information to justify his position that The Chicago Club was outside the EEOC’s jurisdiction.
In fact, the EEOC had conducted a full investigation of The Chicago Club in 1986, and found it had no jurisdiction. However, a 1990 Chicago Federal District Court decision in a case the EEOC filed against the University Club of Chicago found that club was a covered employer under Title VII. Perhaps that is why the EEOC pursued The Chicago Club in spite of its 1986 decision.
In any event, The Chicago Club felt it was different from the University Club in many significant respects. It set forth its position in a lengthy statement, which was sent to the EEOC in August 1991.
The Chicago Club heard nothing from the EEOC until September 1992, 13 months later, when it received a letter rejecting the club’s position and threatening to sue within days unless the club was willing to concede that it was not the type of private membership club excluded from Title VII’s definition of employer. Because The Chicago Club felt strongly that it was indeed an exempt private club, it decided it had no choice but to defend its position. The EEOC filed suit in October 1992.
The Court Proceedings
Following the close of discovery in 1994, both the EEOC and The Chicago Club filed motions for summary judgment. Each side argued that there were no factual disputes and that each was entitled to judgment as a matter of law. In January 1995, a federal magistrate judge issued a report and recommendation granting The Chicago Club’s motion for summary judgment and denying the similar motion filed by the EEOC.
Approximately two months later, in March 1995, the magistrate’s report and recommendation was adopted by the Federal District Court. The EEOC appealed to the United States Court of Appeals for the Seventh Circuit.
Oral arguments were heard in January 1996 and on June 6, the Court of Appeals entered a decision affirming the District Court’s decision in favor of The Chicago Club.
The Issues Before the Courts
In analyzing the decisions entered in this case, it may be helpful to focus on three separate issues. First, what type of club is excluded from Title VII? Or, in legal terms, what is the appropriate standard to be applied in determining whether an organization is a “bona fide private membership club exempt from taxation under Section 501(c),” specifically excluded from the definition of employer under Title VII of the Civil Rights Act?
The second question is whether the EEOC carries the burden of proving that a club is covered by Title VII, or whether a club must prove it is not. Third, when applying the legal standard to the relevant facts, is The Chicago Club covered by Title VII?
The Applicable Standard
In July, 1986, the EEOC issued its most recent policy statement on bona fide private membership clubs. According to the statement (number N-91S):
[A]n organization is a bona fide private membership club if it:
(1) Is a club in the ordinary sense of the word.
(2) Is private.
(3) Requires meaningful conditions of limited membership.
In The Chicago Club case, the EEOC attempted to add other requirements to the standard. For example, the EEOC argued that an organization is a private club only if its members’ First Amendment associational values would be threatened if that organization were required to comply with Title VII. Under this requirement, in order to show a club was excluded from Title VII, the club would have to show that, based on the associational values of its members, it needed to discriminate against its employees.
The Chicago Club strenuously objected to this argument. Both the District Court and the Court of Appeals unequivocally rejected it, as well. The Court of Appeals concluded that constitutional issues were not involved in this case, that the language of the statute was clear, and that resort to the legislative history was unnecessary.
The EEOC also sought to extend its original standard by adding such factors as whether an organization was subsidized by nonmember income. The Court of Appeals, however, rejected that attempted extension, characterizing the effort as a “clumsy attempt to avoid the consequences of EEOC’s own interpretation of ‘private’ contained in its compliance manual [which] only undermines EEOC’s credibility in future cases where it may ask this or another court to rely on that interpretation.”
Burden of Proof
In Ouijano v. University Federal Credit Union (1980), the only previous Court of Appeals decision to address the issue, the Fifth Circuit found that the organization claiming not to be covered by Title VII had the burden of proof. In The Chicago Club case, the District Court agreed with the Fifth Circuit and held that club had the burden of proof that it was not covered by Title VII. The Chicago Club disagreed in its brief to the Court of Appeals, arguing that Ouijano was based on cases involving Title II, where private clubs were exempt from coverage under a separate section, in contrast to Title VII, where private clubs were excluded from the same section that defines “employer.”
Since the District Court found that The Chicago Club met the burden of proof, and therefore would have won the case anyway, the Court of Appeals felt that the issue was immaterial and should not be formally resolved in this particular case.
Nevertheless, the Court of Appeals, in a nonbinding portion of the opinion, expressed substantial sympathy with The Chicago Club’s position:
In this case, we do not see how a broad interpretation of Title VII consistent with its purposes translates to allocating the burden of proof to the club. Congress defined private clubs as outside the ambit of Title VII, and it is difficult to imagine how any rule of statutory construction could necessitate the sacrifice of so explicit a legislative directive.
The Chicago Club—A Bona Fide Private Membership Club
The two major issues before the courts with respect to The Chicago Club’s status under Title VII were (a) whether the club was private; and, (b) whether the club employed meaningful conditions of limited membership. The EEOC did not contest the issue of whether The Chicago Club is a club within the ordinary sense of the word, the third criteria contained in the EEOC policy statement.
Is the Club Sufficiently Private?
According to the EEOC’s own policy statement, the issue of privacy is to be evaluated based on the following three factors:
(1) The extent to which a club limits its facilities and services to club members and their guests.
(2) The extent to which, and the manner in which, the membership owns or controls it.
(3) Whether, and if so, to what extent and in what manner it publicly advertises to solicit members or to promote the general public’s use of its facilities.
Based on the evidence presented to the District Court, the EEOC had no choice but to concede that The Chicago Club met factors two and three. Therefore, the sole focus was on the extent to which use of The Chicago Club facilities was limited to members and their guests.
Both courts concluded that use of the facilities was sufficiently limited by the club to meet the applicable standard. They specifically found that nonmembers were allowed access to the club only as authorized guests of members and rejected the EEOC’s claim that the club lacked meaningful guest criteria. According to the Court of Appeals: “The suggestion that a private club exemption requires a certain level of intimacy between members and their invited guests is, to say the least, ridiculous.” Both courts also found the club’s practice of allowing its members to host private functions involving nonmember organizations to be consistent with private club status, even though the bill for such events might be paid directly or indirectly by the nonmember organization.
Is the Club Sufficiently Selective?
The Court of Appeals made clear that, in its view, selective membership practices are the essence of private club status and The Chicago Club’s practices were clearly sufficiently selective. The Court of Appeals concluded that the club’s screening procedure “has withstood the test of time and is apparently quite effective.” The court discussed The Chicago Club’s selection process in some detail saying, “we doubt that in such a regime there could be a more fitting or efficient system for selecting members than the intensive screening procedure used by the club.” Rejecting the EEOC’s position that standards need to be objective, the court stated:
That the club’s bylaws do not painstakingly describe subtleties inherent in this personal screening process in no way diminishes the practical significance of this practice. Indeed the very nature of a private club suggests this practice to be the best available course.
The Seventh Circuit Court of Appeals’ Conclusion
The Court concluded with language that was sharply critical of the EEOC’s pursuit of this case.
As even the casual reader may no doubt detect, we are astounded by EEOC’s decision to pursue this lawsuit in the face of the overwhelming evidence of the club’s selective membership admission and restricted guest practices.
In the face of the undisputed facts, we are also amazed by EEOC’s adamant refusal to acknowledge at oral argument that it may have overreached in this case.
In the hopes of altering the playing field for all private clubs under Title VII, EEOC decided to go after the biggest fish in the pond. In the process, it has diminished its reputation and needlessly squandered both its own resources and those of the federal courts.
The Future of the “Private Club” Issue
Because of the appellate court’s strong and unequivocal language, this case represents more than a victory for The Chicago Club; it is a significant precedent for all private clubs. In light of the fact that this is the only Court of Appeals decision to deal with the privacy issue under Title VII in a case involving a private club (the Fifth Circuit Ouijano case involves a credit union), the following language at the end of the court’s decision is particularly significant:
One further point is appropriate because of the EEOC’s approach in this litigation. We emphasize that by no stretch of the imagination should the practices of the [Chicago] Club outlined above be considered the minimum necessary to qualify as a bona fide private membership club under § 2000e(b) Title VII. To the contrary, it is clear that less stringent membership policies and guest arrangements than those employed by the club would easily meet § 2000e(b)’s bona fide private membership club requirements.
It can reasonably be predicted that the EEOC is unlikely to file suit against a private club in the future without first concluding a thorough investigation, whether or not a discrimination charge is filed. Nonetheless, one must be careful not to conclude from the court’s decision that any club, regardless of its membership and guest practices, will be found to be excluded from the employer definition contained in Title VII. Even though the Seventh Circuit rejected the EEOC’s attempt to expand its policy statement, the court did not reject the EEOC’s original standard and it will probably be used as the measuring rod in future cases.
Moreover, the University Club District Court decision (which was never appealed), was neither overruled nor criticized, but rather distinguished from The Chicago Club situation, at least with respect to its membership practices. Lines may be drawn in the future, but precisely where they might be drawn is one of those questions that will await future litigation, even though considerable guidance is contained in The Chicago Club decision.
Other interesting questions are also left to the future. What impact will The Chicago Club decision have on the interpretation of other statutes, ordinances, rules or regulations which contain language relating to private membership clubs, whether such laws relate to employment, membership, access, taxes or whatever? An even more interesting question relates to the possible impact of The Chicago Club decision, if any, on the development or modification of legislation relating in any manner to private clubs at the federal, state and local levels?
What is clear is that, thanks to The Chicago Club, the exemption for bona fide private membership clubs under Title VII is alive and well. The passage of time will surely result in future chapters to be written in this story.
Editor’s Note: The preceding article is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
Michael Rosenblum was lead counsel on behalf of the Chicago Club throughout the litigation. Rosenblum was a partner at Mayer, Brown & Platt, specializing in labor and employment law. He has since retired. Assisting Rosenblum in the litigation were Jeri Lindahl-Garcia, Jeffrey M. Carey, and Jeffrey Fowler, all of whom still practice law in the Chicago area.
The Private Club Exemption Fund: NCA and the Club Community Rally for The Chicago Club
Club Director, April 1996
In a spring 1996 visit to the Chicago area, NCA’s executive vice president, Susanne Wegrzyn, presented a contribution to The Chicago Club to assist with legal costs associated with a lawsuit initiated by the Equal Employment Opportunity Commission (EEOC). NCA launched the fundraising effort last fall because the association felt that the issues presented in the case had significant implications for the club community. This effort netted more than $16,000 from clubs throughout the country, as well as from the California State Club Association.
The suit, initiated in 1992, alleged that the club had failed to file an EEO-l report (employment profile report) and had failed to post employment information in the workplace. The club asserted it was tax-exempt, and therefore, was not subject to the reporting requirement. A federal district court agreed and granted summary judgment for the club.
The EEOC, however appealed the case to the U.S. Court of Appeals, where arguments were presented in January. A decision in the case is expected sometime later this year.