IN JANUARY, the National Club Association (NCA) filed an amicus curiae (friend of the court) brief supporting an NCAmember club appealing an unfavorable lower court ruling in Florida. The ruling would have had an enormous negative impact on all clubs in the state, and NCA weighed in to assist in having it overturned.
The case involved member-owned golf community Fiddlesticks Country Club in Fort Myers, Fla., and arose over a dis agreement about a change in the club’s bylaws with respect to assessments. When the community was formed, the bylaws stated that all member assessments would be 100% refundable. That was a common practice when the club was founded in the ‘90s, but it is not a sustainable, long-term model for most clubs.
In 2012, the membership voted to change the bylaws to state any prospective assessment issued after Jan. 1, 2013 was no longer refundable. The club properly fol lowed its procedures to amend its bylaws and all seemed to be well.
In June 2018, members voted to assess themselves $9,000 to fund improvements at the club. Under the new bylaws, duly passed by the membership in 2012, this assessment would not be refundable. At this point, a group of unsatisfied members decided to file suit against the club who joined prior to the 2021 change in the bylaws.
After briefs were submitted by the plaintiff and defendant, the judge issued summary judgment in favor of the plain tiff, agreeing that the bylaws in place at the time members joined were a binding contract between the club and the mem bers. The Court stated: “The plaintiffs have a vested contractual right to the terms of the Bylaws in place at the time of their purchase of the Equity Certificates … the Club is not permitted to amend its contractual obligations to deny the Plaintiffs a full refund of the assessments, as required by the Bylaws in place at the time of their purchase of the Equity Certificates.” In effect, the ruling meant that notwithstanding any amendments clubs may have made to their bylaws, the bylaws in effect at the time a member joins are a static and unalterable contract. Ominously, this meant that any club in Florida that amended its bylaws in the last 10 years would need to review them and retrospectively apply the bylaws in effect when each member joined—a potential administrative and operational nightmare scenario.
The ruling was issued in June 2021 and NCA began looking into the case that September to determine what steps, if any, the Association could do to assist. It claiming the change was in violation of the bylaws of the club in effect when they joined the club, which stated that assessments are 100% refundable. They argued that the bylaws are a binding contract that cannot be amended by one party alone and therefore, the $9,000 assessment must be refundable to members was clear from the ruling that the judge had not considered recent case law on the subject of vested rights as they apply to club memberships and recognition the law provides for clubs to amend their bylaws. Just months before the ruling, NCA had formed a new Legal Committee comprised of top attorneys
in the club space and chaired by Tom Lenz, partner at Atkinson, Andelson, Loya, Ruud and Romo in California; he is also an NCA Board Member and a frequent contributor to Club Director. At a regularly scheduled committee meeting, its members discussed the case and necessity of ensuring the best
possible outcome in the appeals process.
Ultimately, the committee gave the go-ahead to pursue filing an amicus
brief in support of Fiddlesticks’ appeal. Through referral from another NCA member, the Association engaged with former Florida Appellate Court Judge Frank Shepard to submit a motion for leave to file an amicus curiae brief on behalf of the broader club community.
With the motion agreed to by all parties, NCA began work on the substance of the brief in November and December.
It was evident from the ruling that the amicus brief was going to have to argue the law and educate the appellate court on some of the fundamentals of how clubs operate and govern themselves. In assembling needed information about the club community, its governance practices and financial
structures, NCA naturally pulled from its own resources, but we also worked with the Florida Chapter of the Club Management Association of America (FLCMAA) and Ray Cronin at Club Benchmarking. This collaboration was instrumental in providing the needed information and
resources to craft what we believe to be a very solid brief and a template for how NCA can bring club expertise together to build the strongest case possible to ensure the health and vitality of the club community whether it be in the courts, agencies or legislature.
The main argument we needed to impress upon the Court is the fact that there is already case law in the state of Florida recognizing that clubs routinely amend their bylaws. As long as it is clear in the governing documents that there is a process by which the club can change the bylaws and the club follows that process, the bylaws are not in and of themselves a nonbinding, unalterable contract between the club and the member. The
brief argued that the contractual issue is not a complicated one and the trial court misapplied the law. It further pointed out that we were unable to locate any published Florida opinion that has concluded that a club’s bylaws create any vested right. To the contrary, the only Florida appellate court to consider the issue—the Fourth District Court of Appeal—has concluded that a club’s bylaws do not create vested rights because they are subject
to amendment. In the case of Hamlet Country Club, Inc. v. Allen, the Fourth District Court of Appeal ruled “that the members did not have vested rights” because “the alleged vested rights are all contained in the bylaws which are subject to amendment.”
To educate the appellate court, the brief explained that FLCMAA had conducted a recent survey of clubs in Florida regarding recent changes to their governing documents. Of those clubs responding, 80% were nonprofit organizations and 30% indicated they were homeowners’ associations similar to Fiddlesticks. Each of the respondents said they have a process under which the bylaws can be amended and 94.6% of them had done so in the last 10 years. Of the respondents that were homeowners’ associations, 74% indicated they had a process to change their bylaws and 58%
had done so in the last 10 years. Clearly, if the ruling were to stand, its effects would reverberate through the club community in Florida and the Appellate Court needed to understand the impact of the erroneous lower court ruling.
To further drive home the point that clubs must have the ability to amend their bylaws to respond to economic and financial realities, the brief cited Club Benchmarking’s work on capital funding models that have been shown to be unsustainable–one of which is a 100% return on capital investments paid by an equity member. Club Benchmarking noted that this model essentially means that a club member never has to pay for the assets they consumed during their tenure as members—thus not accounting for the members’ share of the depreciation expenses. In the spring of 2019, Club Benchmarking published “Measuring Capital Health,” in which they make the case that one of the most critical aspects of club sustainability is capital income from the members and capital investments in the physical assets of the club to meet member expectations and that capital emanates almost exclusively from joining fees and special assessments.
The brief concludes by restating that the club amended its bylaws in accordance with the applicable laws in effect at the time and that the Florida Legislature is fully capable and knowledgeable enough to legislate further in this area if they desired, but they haven’t shown an inclination to do so.
To support this amicus effort, NCA established a Legal Action Fund to offset the necessary legal fees associated with drafting and filing the brief. An email seeking support for the Legal Action Fund was sent to clubs in Florida and the response was gratifying. Clubs from all over the state recognized the threat posed by allowing the lower court ruling to stand and contributed $500 or $1,000 toward the fund. More than $13,000 was raised within three weeks and fully funded the amicus. On behalf of NCA, I would like to thank those clubs that contributed to the Legal Action Fund— your generosity and support is critical in defending the interests of private clubs in Florida and around the country. We expect the appellate court to issue a decision sometime this summer.
Disclaimer: This column is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other National Club Association (NCA) publication does not create an attorney-client relationship. NCA is not responsible for inadvertent errors that may occur in the publishing process.
Joe Trauger is NCA’s Vice President of Government Relations. He can be reached at [email protected]