Callawassie Island Members Club, Inc. v. Martin

437 S.C. 148

877 S.E.2d 341

The CALLAWASSIE ISLAND MEMBERS CLUB, INC., Respondent,

v.Gregory L. MARTIN and Rebecca L. Martin, Defendants,The Callawassie Island Members Club, Inc., Respondent,

v.Michael J. Frey and Grace I. Frey, Defendants,The Callawassie Island Members Club, Inc., Respondent,

v.Mark K. Quinn and Sherry B. Quinn, Defendants,Of Whom Michael J. Frey is the Petitioner.

Appellate Case No. 2020-000667

Opinion No. 28102

Supreme Court of South Carolina.

Heard November 9, 2021

Filed August 3, 2022

Ian S. Ford, Neil Davis Thomson, and Ainsley Fisher Tillman, all of Ford Wallace Thomson, L.L.C., of Charleston, for Petitioner.

Andrew F. Lindemann, of Lindemann and Davis, P.A., of Columbia; M. Dawes Cooke Jr., John W. Fletcher, and Bradley B. Banias, all of Barnwell Whaley Patterson & Helms, L.L.C., of Charleston; Stephen P. Hughes, of Howell Gibson & Hughes, of Beaufort; and James Andrew Yoho, of Boyle, Leonard & Anderson, P.A., of Charleston, for Respondent.

CHIEF JUSTICE BEATTY :

The Callawassie Island Members Club, Inc. ("the Club"), brought separate actions against three couples—the Martins, the Freys, and the Quinns—following a dispute over membership dues. The circuit court granted the Club's motion for summary judgment. The court of appeals consolidated the parties’ appeals and affirmed. Callawassie Island Members Club, Inc. v. Martin , Op. No. 2019-UP-393, 2019 WL 6897780 (S.C. Ct. App. filed Dec. 18, 2019). We granted a petition for a writ of certiorari filed by Michael J. Frey ("Frey") challenging the award of summary judgment.¹ Frey contends material questions of fact exist as to whether the Club improperly billed him for continuing membership dues, particularly where his membership was suspended over a decade ago and membership was undisputedly optional when he joined. We reverse and remand.

I. FACTS

The Club is a social and recreational organization operating within a private, gated, residential community on Callawassie Island, an area in Beaufort County. Frey purchased a Golf Membership in 1995 for a capital contribution of $22,000.00 from the Club's predecessor, the Callawassie Island Club, Inc. ("the Island Club"), thus becoming an equity member. In addition, he purchased real property on Callawassie Island in a separate transaction.

The Island Club was established as a South Carolina nonprofit corporation to provide amenities for the Callawassie Island development, including a golf course, clubhouse, tennis facilities, and swimming pools. The Island Club had a specified number of equity memberships available, which corresponded to the capacity of its facilities: Golf Memberships (595), Spring Island Founder Memberships (40), and Social Memberships (850 less the number of outstanding Golf Memberships). Payment of an initial capital contribution, monthly dues, monthly food and beverage minimums, and any special assessments were required to be an equity member of the Island Club.

At the time Frey joined, equity memberships were not required to own property on Callawassie Island. Rather, according to the Island Club's 1994 "Plan for the Offering of Memberships in the Callawassie Island Club" ("the 1994 Plan"), memberships were options to be offered "to purchasers of residential units or lots in Callawassie and such other persons as the Club determines appropriate from time to time."² The 1994 Plan, along with the Island Club's Bylaws and General Club Rules, made up the core of the Island Club's organizational documents.

The Island Club's facilities, including the real property, equipment, and supplies, were initially owned by the Callawassie Island Company, L.P., a Delaware limited partnership ("the Partnership"). The 1994 Plan contemplated the eventual transfer of ownership and control of the facilities from the Partnership to the Island Club's equity members. In 2001, the transfer of assets was completed, and the Island Club began operating under its current designation, the Club. In August 2001, the Club issued a membership plan adopted by the board of directors ("the 2001 Plan"), along with its own Bylaws and General Club Rules, which were similar in form to the organizational documents of the Island Club.

The Club's organizational documents were amended several more times after the Club assumed control in 2001. Among the notable changes that occurred in 2001 was an amendment to the Callawassie Island development's covenants to provide that all persons who purchased property on Callawassie Island after December 1, 2001 were required to purchase an equity membership in the Club and retain it so long as they owned their property.³ Although the new membership requirement did not apply to existing property owners like Frey, he nevertheless encountered difficulties in exiting the Club.

After nearly fifteen years as a dues-paying member, Frey wished to end his Club membership, and he stopped paying dues in October 2009. There is evidence in the record that the Club formally deemed Frey's account delinquent and placed Frey's membership on the Club's suspension list in 2011.⁴ Frey retained ownership of his property on Callawassie Island.

In 2012, the Club brought the instant action against Frey to collect allegedly delinquent dues, fees, and assessments based on claims of breach of contract and quantum meruit. The Club maintained that, when Frey purchased his property in 1995, he "could have elected to decline a membership with the Club at the time," but his purchase of an equity membership and ownership of a lot "require[d] [him] to remain [a member] in good standing under the terms and conditions of the governing documents, including the Plan and the Declaration."⁵ According to the Club, Frey was required to continue paying dues until his membership was reissued by the Club to a new member.

Frey, in turn, asserted Club membership was not contingent upon or linked to the ownership of his property on Callawassie Island. Further, the organizational documents at the time he signed a membership agreement provided a suspended member "shall" be expelled after four months of nonpayment. Frey alleged he should have been expelled from the Club four months after he stopped paying dues, which would have terminated his membership and the accrual of additional financial obligations. Frey contended the expulsion provision was unilaterally changed by the Club by amending the Club Rules (around 2007 to 2008) to make expulsion subject to the Club's discretion rather than compulsory. Frey further contended this change was made without notice to, or voting by, the equity members, contrary to provisions in the organizational documents that required any material alterations in the controlling terms affecting equity members to be approved by a majority of the members.

Frey additionally asserted the Club was obligated to keep a Resale List whereby memberships would be reissued pursuant to an agreed-upon protocol, but the Club did not do so and it has refused to provide full disclosure of its resale activities. Frey stated the Club selectively permitted some individuals to leave the Club without imposing the ongoing accrual of dues. In Frey's case, however, the Club insisted—and continues to insist, more than a decade after Frey was suspended from his "optional" membership—that Frey has a continuing obligation to pay dues until the Club reissues his membership.

It is undisputed that the Club has never reissued Frey's membership. Frey alleged the Club effectively prevented him and other members from leaving because only the Club can expel a member and reissue memberships.

Based on the foregoing, Frey asserted several defenses and counterclaims regarding the Club's policies and contended he had no further obligations to the Club. Among his allegations, Frey maintained the Club violated South Carolina's Nonprofit Corporation Act of 1994 ("the NCA") by (1) failing to treat members of the same class the same with regard to their rights and obligations, particularly as to their rights of transfer; (2) improperly restricting transfer rights; (3) failing to allow members to approve fundamental membership changes; (4) improperly refusing to expel Frey and, thus, end his ongoing financial obligations; and (5) failing to have and maintain a fair and reasonable process for the termination of memberships.⁶

The circuit court granted the Club's motion for summary judgment and dismissed Frey's counterclaims. The circuit court awarded the Club damages of $58,744.23 and attorney's fees of $9,132.23, for a total judgment of $67,876.46. The circuit court reasoned that, even if Frey were expelled, he was obligated to continue paying dues, fees, and assessments until the Club reissued his membership pursuant to the Club's organizational documents, and it noted the decision whether to expel a member had been changed from the time Frey became a member and was now solely within the Club's discretion, rather than mandatory. The circuit court found it was irrelevant whether the Club had improperly amended any of the organizational documents regarding expulsion because the obligation to pay dues, fees, and assessments until a membership was reissued was evident in the original 1994 Plan. The circuit court rejected any relief under the NCA, finding "no violation of the statutory provisions relied upon by" Frey. The circuit court reasoned that the NCA recognizes a member of a nonprofit corporation is not relieved of "obligations incurred or commitments made" to the corporation prior to the member's resignation, suspension, or expulsion, so Frey's obligations were ongoing despite his suspension. See S.C. Code Ann. § 33-31-620(b) (2006) (obligations made prior to resignation); id. § 33-31-621(e) (obligations made prior to suspension or expulsion). It also rejected Frey's contention that discovery was prematurely ended by the grant of summary judgment.

Frey appealed (along with his wife, who was then still a party). The Freys and two other couples who were...