One lawyer mentioned "the 900-pound gorilla in this room."
Another said the problem was too "dangerous" to delve into publicly.
Still another said the consequences of information getting out would be "grave."
That's how lawyers representing Coral Resorts described the issue confronting the Hilton Head Island timeshare company during a hearing before the S.C. Real Estate Commission.
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The transcript of the hearing -- kept from the public until now by order of two courts and a state regulatory official -- paints a picture of Coral Resorts lawyers pleading for a tight lid on information they claimed could damage timeshare owners, the company and the island's economy.
A computer disk containing the 114-page transcript arrived in The Island Packet's mailbox on Monday in a yellow padded envelope with no postmark or return address.
The newspaper posted the transcript on its website, islandpacket.com, because it believes it is a public record and because doing so is in the public interest.
A spokesman for Coral Resorts declined to comment Friday. One of the company's attorneys, Nekki Shutt of Columbia, emailed a letter saying Coral Resorts objected to the transcript being posted.
For several years, Coral Resorts did not pay annual fees required by the state Department of Labor, Licensing and Regulation (LLR). The lapsed payments led to questions about whether registrations of the company's four timeshares remained intact during the years fees weren't paid, according to records. LLR is the agency under which the Real Estate Commission operates.
The registration issue is key to more than 25 lawsuits filed by people unhappy with the timeshares they bought from Coral Resorts. If registrations did lapse because the fees weren't paid, the owners could argue that the contracts they signed during the lapses are invalid because an unregistered company can't legally sell timeshares. Two documents included with the transcript use the term "Registration lapsed" in describing the status of the registrations. For example. "Island Links Resort -- Registration lapsed 9-11-2005."
The four timeshares involved are Port O'Call at Shipyard Plantation, Island Links, Coral Sands and Coral Reef resorts.
Coral Resorts lawyers insisted at the Jan. 23, 2013, Real Estate Commission hearing that the unpaid renewal fees had no bearing on whether it was registered to sell timeshares.
The lawyers for the dissatisfied timeshare owners disagree. In fact, they say the transcript provides "absolute, direct evidence" supporting the owners' lawsuits.
Coral Resorts brought a team of lawyers to the Real Estate Commission hearing, including a state legislator and a former LLR attorney, to argue that the company's registration was in good standing and to keep what was said confidential.
The contingent included Hilton Head Island Mayor Drew Laughlin. Laughlin, a lawyer himself, represented Coral Resorts in a court case at the time of the hearing and continues to represent the timeshares' homeowners associations.
Shutt, another Coral Resorts attorney, introduced Laughlin as the island's mayor. Neither Shutt nor Laughlin mentioned that he represented Coral Resorts in a case or that Coral Resorts was paying him to be at the hearing. Laughlin testified Coral Resorts had a good reputation, was a good corporate citizen and brought millions of dollars to the island.
The hearing had been called to discuss the implications of Coral Resorts' failure to pay its annual fees, according to the transcript. The issue had come to light four months earlier, when a Coral Resorts attorney tried to pay the late fees at the LLR office in Columbia.
LLR employees refused to accept the $7,500 check. Because more than four years had passed since the last payment, LLR staff members wondered whether they should treat Coral Resorts as a new applicant, according to LLR complaint analyst Roderick Atkinson.
This brought into question whether Coral Resorts was even registered, Atkinson said in the transcript.
"In my opinion, it's not necessarily a matter of just the fees, it's a matter of the registration being renewed," he said. "You know, as we treat other licensees if they do not renew their registration for a particular year, then they are no longer registered or no longer licensed at that point."
Atkinson declined to elaborate when contacted Thursday.
When LLR staff looked deeper, they found that the company made changes to contracts and timeshare plans during the same period when renewal fees weren't being paid, according to the transcript. The S.C. Timeshare Act requires companies to notify the LLR of "substantial changes" to these documents.
The changes Coral Resorts made included a provision requiring disgruntled purchasers to arbitrate their disputes with the company -- rather than going to court, according to lawsuits filed by the owners.
Coral Resorts attorneys said the company always informed LLR of what it believed were substantial changes, adding that the state's timeshare law doesn't define what constitutes a substantial change.
FEES IN ARREARS
Coral Resorts' attorneys told the Real Estate Commission the company overlooked paying its annual fees because LLR had at one time mailed renewal notices every year, but stopped in 2007.
But they insisted the unpaid fees didn't create a lapse in the timeshares' registrations.
"There is nothing (in the S.C. Timeshare Act) to say that a failure to pay a fee will cause a registration to lapse, because it doesn't," said James Smith, a Columbia attorney and state legislator.
The consequences of such a lapse would be "grave," according to Shutt.
When asked to explain, she said: "Since we are in a public hearing, I hesitate to spend too much time talking about what the potential outcomes could be."
If timeshare owners were able to pull out of their contracts because Coral Resorts hadn't paid its fees, "then that would upset the balance as far as who is paying a share of the taxes and the pool fee and everything else, and could send these resorts into turmoil," she said.
Near the end of the hearing, Shutt asked the commission to find there was no lapse or violation, and to "let us pay the money and show that -- and to issue that in private orders."
The commission did as she asked, casting a unanimous voice vote "to bring it current as of today."
In another voice vote, the commission voted unanimously to make its decision private.
PUBLIC OR PRIVATE HEARING?
During the nearly three-hour hearing, Coral Resorts' attorneys repeatedly urged the commission to keep the hearing off the record. They argued the proceedings could hurt timeshare owners' ability to sell and re-sell property. They also said it would have a ripple effect through Hilton Head's economy, where the company is a major employer.
Sharon Dantzler, a Coral Resorts attorney who formerly was general counsel for LLR, opined that the agency had set the stage for a confidential hearing by sending Coral Resorts "private orders" to attend the hearing. She further suggested the commission did that to "protect the 900-pound gorilla in this room, which is the fact that there are thousands of timeshare owners whose titles and whose property rights are being affected by what we do today."
She argued the state's Freedom of Information Act allowed for closed hearings in such cases.
Smith, the legislator, agreed.
"What we are trying to avoid is to, you know, is to invite litigation to call into question title for all these homes."
Shutt expressed concern about the presence in the room of people not directly involved in the hearing, and asked that it be conducted off the record and not be recorded.
The commission seemed taken aback.
It was "the first request of this type that we've had," Commission chairman Tony Cox said.
Sarah Takacs, a commission member from Hilton Head, questioned how a closed hearing would benefit timeshare owners. She suggested Coral Resorts was "concerned about the PR."
Commission member Wayne Poplin said he was "confused" about how an open hearing would negatively impact timeshare owners.
In the end, the commission voted unanimously to keep the hearing public. That would prove to be problematic later, when the inconsistency of holding a public hearing but issuing a private order arose.
EFFORTS TO SEAL
The vote to keep the hearing open meant the transcript was accessible to the public. That didn't suit Coral Resorts, so it appealed to the state's Administrative Law Court to seal it. The court's job is to review decisions made by state regulatory agencies like the Real Estate Commission.
Two months later, the court's chief judge, Ralph K. Anderson III, described the Real Estate Commission's actions as "bewildering," and sharply criticized it for making "parts of the proceeding public and parts of it private."
Anderson ruled to seal the transcript. He reasoned that because the commission had made its decision private, the discussion during the hearing also must be private.
Further, Anderson ordered that documents from the hearing that were "in the hands of any third party should be returned to Department of Labor, Licensing and Regulation, or the commission immediately."
A Real Estate Commission spokesperson has declined to answer questions about the hearing, citing a letter from Anderson that forbids discussing whether "this matter even exists."
Before Anderson sealed the transcript, two lawyers who represented the unhappy timeshare purchasers -- Zach Naert and Joseph DuBois of Hilton Head -- tried to keep the transcript public. They took the transcript, along with some Coral Resorts business records they had obtained, to the Clerk of Court's Office to file them with their lawsuits against Coral Resorts, according to court files.
A few weeks later, Shutt, the Coral Resorts attorney, asked 14th Circuit Court Judge Carmen Mullen to seal the transcript and the accompanying business records. Shutt had driven from Columbia to Myrtle Beach on June 10 to meet with Mullen, who was on temporary assignment in that circuit. Mullen granted a sealing order the same day.
At a subsequent hearing, Mullen decided to keep the transcript and other information sealed, ordering the attorneys "not talk to the paper" about the information, according to court records.
"We're going to keep it sealed," she said.
Naert and DuBois appealed the sealing orders issued by Anderson, the administrative law judge, and Mullen to the S.C. Court of Appeals.The court dismissed the appeal of Anderson's ruling, so the transcript remains sealed. It ruled that Naert and DuBois lacked standing to be involved in the case.
The seal ordered by Mullen also stands for at least the time being. Naert and DuBois challenged it in the Court of Appeals, but Coral Resorts attorneys responded by asking the court to keep the file sealed, and the court did so.
The Island Packet and The Beaufort Gazette are seeking to intervene in the appeal of Mullen's decision to seal the records. The newspapers want to get involved in the case to challenge the seal. The Court of Appeals has not decided whether to let the newspapers intervene.
Follow reporter Dan Burley on Twitter at twitter.com/IPBG_Dan.