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Article
Courtesy of The Daily Report
By Greg Land
Published May
18, 2007
• Complaint (May 4, 2007; 1.6 MB
pdf)
MANICURED LAWNS, multimillion-dollar mansions and lush golf greens are hallmarks of Alpharetta’s Country Club of the South. But behind its gates, homeowners are battling over a plan that may force them to become members of the independent county club from which the development draws its name.
Opponents of the plan sued the homeowners association board of trustees last week in Fulton County Superior Court, asking the court to halt the plan on the grounds that it violates the association‘s covenants and Georgia’s conflict-of-interest law. They are represented by Edmund J. Novotny, Damany Ransom and L. Clint Crosby of the Atlanta office of Baker Donelson Bearman Caldwell & Berkowitz.
The Residents Action Committee of The Country Club of the South, a new group of more than 100 homeowners in the 700-plus home community, claims that the trustees of the country club and leaders of the homeowners association are conspiring to force membership on property owners in an effort to bail out the club’s $9 million debt and, in the process, scrap long-standing covenants that kept both entities separate.
“Fundamentally, when Country Club of the South was first organized, there were two separate, residential organizations,” said Jim Bridges, a 12-year resident. “One was the homeowners association, which was organized to mange security and maintenance and so forth, and the other was the board that managed the club.”
But he added that the homeowners association’s endorsement of the plan, and a recent vote to fund a study as to how to implement it, have spurred many residents to try to head off what they fear may be a costly—and perhaps illegal—merger.
“We’ve been forced into the position of opposing it,” he said softly. “I don’t think we have any alternative but to let the people here choose whether or not to be a member, the way they always have.”
According to the suit, ever since the property was acquired and development commenced in 1985 by Jack Nicklaus Corp., membership in the country club was optional, as spelled out in the covenants governing the non-profit homeowners association. Homeowners are assessed an annual fee for upkeep of common areas and security, but otherwise not bound to the golf club, a for-profit entity which also features tennis courts, a swimming pool, restaurants, lounge and other amenities.
Current memberships in the country club are offered at a variety of levels, according to the suit and the club’s Web site, but a full golf membership costs a $22,000 initiation fee, plus $520 in monthly fees. A tennis membership requires a $7,500 initiation fee, and $299 a month in fees.
Homeowners association fees fluctuate according to the needs of the development, but are at about $2,800 a year now, said Bridges. According to a flyer his organization circulated, each homeowner may be liable for as much as $40,000 if the plan is implemented.
The attorney for the homeowners association board, George E. Nowack Jr. of Weissman Nowack Curry & White, said neither he nor any board members would be able to comment on the complaint until it is settled.
Historically and currently, according to the suit, roughly half the development’s residents have chosen to join the club.
In 2000, Nicklaus Corp. was considering selling the club, but the members took advantage of their right of first refusal to buy the facility. They funded the deal with collected funds from members and loans, and setting up a board of directors to manage the club’s affairs.
“Over the next six years,” the complaint states, “the Club Board paid down none of the original debt and, instead, increased the indebtedness of the Country Club with spending to modify the golf course and other club facilities.”
Looking to allay some of that debt, the complaint continues, the club board and that of the homeowners association, called the CCSHA, in 2004 “began informal, behind-the-scenes discussions regarding means by which the Board of Trustees of the CCSHA could force the members of CCSHA to assist with the financial difficulties faced by the club.”
The suit says “the vast majority” of the CCSHA board were also members of the country club.
According to the suit, the homeowners association was warned that the cross-membership created an inherent conflict of interest, since club members will benefit financially from any such merger.
But in 2005, the CCHSA board voted to endorse a plan under which, says the suit, current residents would not be required to join the club, but new residents would. Any such plan would require that the governing covenants be rewritten, which can only occur by approval of two-thirds of the property owners.
The association board scheduled a vote for November 2005, but it was never held. Instead, an informational campaign was launched during which the club disclosed that it was $9.3 million in debt and carried an annual debt service of $650,000. Throughout last year, discussions on the merger continued and in February, the board announced a plan under which the homeowners association would assume all the outstanding debt in return for “all the Country Club’s assets as common property for the use of all homeowners.”
Cognizant that the plan still represented a conflict of interest for club members on the association board, the board also called a March vote to approve spending what the suit estimates as at least $100,000 to perform due diligence to investigate the financial and legal eventualities of instituting the plan.
Novotny, the lawyer for the plaintiffs, said his clients don’t want to pay for facilities they won’t use and are also concerned about increased tax and capital gains assessments and, if the provision requiring new residents to join is enacted, an increased difficulty in marketing their homes.
There are also unexplored ramifications of merging the for-profit club with the non-profit homeowners association, he noted.
“There are roughly 51 or 52 percent of the homeowners out there who do not belong to the club, and who do not want to pick up the cost of acquiring and maintaining it, let alone the tax and other liabilities,” he said.
And the $9.3 million debt, he said, “may only be about half” of the real debt, he said. “That’s only the mortgage amount,” he said. “Under the club bylaws, owners’ equity interest has to be paid back when they leave the club. And we think those liabilities add up to about another $9 million.”
The due diligence being proposed—“whatever that means”—is really just an effort “to use the homeowners association’s money to try to do something they can’t legally do,” he says. “Corporate governance laws are clear: If there’s a conflict of interest, the law requires full disclosure, and they haven’t done that.”
The case is Residents’ Action Committee of the Country Club of the South v. Board of Trustees of the Country Club of the South Homeowners Association Inc., No. 2007CV13370.
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