The phones lines at the National Club Association have been lighting up with private clubs asking specific questions related to member discipline. The across the board inquiries highlight the need for a comprehensive review on the law governing member discipline and how clubs can avoid potential liability.
Clubs that are not member-owned, such as clubs owned by a corporation or individual and clubs that are still under developer control (“Company Clubs”), must carefully follow their membership documents and the contract laws applicable in their states. Company Clubs usually do not have the ability to conduct a member vote to change the documents, and courts do not give the same discretion to the Company Club management that they would to a member-elected board. Therefore, Company Clubs should carefully review all of their membership documents and be aware of local laws, so that they have strong contracts and can implement any member discipline processes appropriately.
STATE STATUTES
Member-owned clubs are nonprofit corporations formed under the laws of the state where they exist. Those clubs are obligated to follow the nonprofit corporate statutes of their state and to be aware of the local laws and case decisions that illuminate how those statutes are to be followed. Member-owned clubs also have bylaws that must be followed, and those bylaws can typically be amended by a vote of the members. Member-owned clubs need first to understand any state statutes governing member discipline. The nonprofit statutes in the vast majority of states provide that a member may not be suspended or expelled without “due process.” Although the club is not a governmental entity, and therefore due process does not actually apply, the principles of due process (notice and a hearing; fairness) do generally apply and are usually incorporated into the state statutes. The board should be familiar with this state statute and be sure that it is followed, whether or not the bylaws specifically require the elements of the statutory requirements. State statutes vary within their specifics, but some requirements to note are the number of days’ advance notice required before the hearing and before the discipline is effective, and any requirements for who must conduct the hearing (i.e., the board or a committee).
DOCUMENTS TO CONSIDER
The club’s bylaws should match the state statute requirements as discussed above. It is not necessary to provide a lengthy process within the bylaws. In most cases, the bylaws can simply provide that the member will be given the required number of days’ notice and the opportunity to be heard by the board the appropriate number of days before the discipline becomes effective. If the club’s bylaws are inconsistent with the statute, the club should follow the process that gives the greatest benefit to the member. For example, if one requires 10 days’ notice and the other requires 14 days’ notice, default to 14 days’ notice. However, it is easiest for all parties if the bylaws match the state statute. Therefore, keep this in mind the next time you consider bylaw amendments.
The club’s documents, between the bylaws and the rules, must provide members adequate notice of what is expected of them and what would be a violation susceptible to discipline. Many clubs suffer from definitions within their bylaws and rules that are not sufficiently broad to cover the specific bad acts in question at the moment. If your bylaws state that a member can be disciplined for violating the bylaws or the rules, for example, and the bylaws cover only the legal requirements (board and officer construction, member meetings, etc.) and your rules cover only specific discrete issues, such as collared shirts and cell phones, then you will not have sufficient discretion to discipline a member who drunkenly fondles a waitress. Of course, in those scenarios the club must still take action, but it is operating in somewhat unchartered territory.
PROCESS
Any member discipline process must include notice and an opportunity for the member to be heard. Generally, the process proceeds as follows.
Complaint. Complaints can be received from any number of sources: members, employees or guests. The club should take each complaint seriously, consistent with the content of the complaint. For example, every complaint by or on behalf of an employee should be taken very seriously. The club has the means to stop a member from harassing or touching an employee, and failure to act on such a complaint could lead to employment liability claims.
Investigation. Depending on the type of complaint, the investigation may be conducted by the general manager, club president, the club’s attorney, or another appropriate person. The investigation should be well-documented and validate or draw into question the complaint and supporting information. Often investigations will lead to information demonstrating other areas of weakness within the club, and those areas should be followed up as well. For example, if an investigation of member drug use at the club leads to the discovery that employees, for fear of upsetting a member, do not typically report drug use, management must conduct employee retraining to ensure that mindset is corrected.
Board Action. Based on the information the board receives from the investigation, it should make a preliminary determination of the appropriate result: no discipline, suspension, expulsion, etc. The board should take into consideration the seriousness of the offense, the magnitude of the supporting evidence, prior offenses by the member, and the range of the club’s prior sanctions for similar offenses.
Notice. The member should be given written notice (consistent with the statutory and bylaw requirements) of the board’s investigation and preliminary decision on discipline. The notice should describe the member’s opportunity to be heard, referencing any statutory or bylaw requirements. Many statutes and bylaws require the member affirmatively request the hearing. However, those provisions often then require the club to set the hearing within a certain number of days, which can be inconvenient for the board. One alternative is to include within the notice letter a hearing time and date so that the board can plan in advance to be available.
Hearing. The member should have the opportunity to be heard in person or in writing. Absent extenuating circumstances, members should be allowed to bring witnesses and/or deliver written statements. There is not a consistent rule on whether the member can be represented by counsel. Most clubs require that a member advise several days in advance whom they intend to bring to the hearing so that the club may have counsel present if necessary. Remember this is not a legal process and attorneys are not required and often are not helpful.
Consequence. After the hearing, the board affirms its decision and sends written notice of the final determination of discipline. The discipline imposed can be less than but not greater than the discipline proposed in the notice letter. Boards often take into consideration the information provided at the hearing to modify the discipline in some way.
Appeal. If the hearing is conducted by, and decision made by, the Board, an appeal is likely pointless. One circumstance where an appeal would likely occur is when the general manager or club president suspends a person immediately, before a hearing. I typically draft this into bylaws, and it should be used with great discretion and only when the risk of not acting immediately might lead to greater harm. Some examples have included a club member leaving a gun in his unlocked locker at the club, and a parent using drugs at the club while the member’s small child wandered unsupervised.
RECORDS
The specifics of member discipline should never be noted in the club’s corporate minute book. Members are entitled to review the club’s corporate minute book. Therefore, the minutes should reflect that a member discipline issue was addressed but not name the member or the complained actions.
PLANNING IN ADVANCE FOR MEMBER DISCIPLINE ISSUES
The club can avoid a number of the pitfalls related to member discipline by planning ahead. Having clear rules and written policies that are provided to each new member and published to the members (such as on the member website) will help everyone understand the club’s expectations for member behavior. If your bylaws, rules or policies are inconsistent with your actual practices, you must update your documents or your practices! When a club’s behavior does not match its documents, it opens the board members to liability for failing to fulfill their responsibilities. It also creates ambiguity and misinformation, so that members do not understand exactly what is required of them and do not understand why they are being disciplined. When your documents are consistent with your behavior, publish the requirements and policies on a regular basis. For example, there might be a rules update section of your monthly newsletter.
It is critical to document infractions as and when they occur. It is not helpful when a member steps over the line to support the discipline recommendation with statements about the member’s prior actions if those prior actions have not been documented.
SPECIAL ISSUES
NCA has received a number of specific questions related to member discipline that are summarized in the following set of questions.
What is best practice regarding posting member names? Clubs should not post member names for any purpose, including delinquent financial obligations. Boards of private clubs are given some latitude in making decisions relating to membership and club operations, but that latitude does not extend to publishing their decisions as though they were factually true. Some club’s documents still require publishing delinquent members and, in that event, the club should be extremely clear that its information is correct before it takes the step of publishing.
What happens when a member behaves poorly at a reciprocal club? Some clubs have reciprocal arrangements with other clubs (although that is strongly discouraged for clubs that wish to be “purely private” or tax exempt). A member’s behavior at a reciprocal club reflects on that member’s own club. If your club documents are well drafted, behavior at a reciprocal club should fall within the broad behavioral requirements in the club’s rules and be susceptible of discipline at the home club.
Do directors’ confidentiality agreements apply to member discipline issues as well? Yes. Directors should be admonished that their confidentiality requirements apply in this area. No matter what gossip circulates at the club regarding a member’s behavior, directors do not participate in those conversations. As with any other board decision, once the board has voted, the entire board must support that decision outside the boardroom as an act of the club. Differences in opinion must happen inside the boardroom before the vote. Directors’ violation of their confidentiality obligations to the board and the club should be treated as a violation of the club’s rules or policies and should be treated under the club discipline policies.
Well-drafted club documents address the circumstances in which the club might incur expenses as a result of the member’s bad behavior. These provisions should be broad enough to encompass related issues, such as litigation between two members where the club is pulled in and incurs legal expenses. This can be incorporated into the bylaws.
Robyn Nordin Stowell is a partner in the law firm of Sherman & Howard L.L.C. in Scottsdale, Ariz. Robyn may be reached at 480-624-2736 or by email at [email protected]. This article is for informational purposes and is not legal advice.