Bluffton homeowners’ suit: Hargray pays D.R. Horton kickbacks

Members of a Bluffton homeowners association are suing the organization’s directors, Hargray Communications and the developer of the neighborhood.

Residents of Mill Creek at Cypress Ridge, a D.R. Horton neighborhood off S.C. 170, allege they were victims of “unfair trade practices” resulting from “hidden kickbacks” paid to D.R. Horton by Hargray, plaintiff attorney Badge Humphries said Monday.

Mill Creek neighbors Mary and Mark Swanson, Jennifer and Craig Kovacs, and Pamela Brunson filed suit earlier this month in Beaufort County’s 14th Circuit Court.

The suit alleges that Mill Creek’s homeowner’s association, led by a group of D.R. Horton employees, facilitated an agreement between D.R. Horton and Hargray that paid the developer a portion of revenue earned by the telecom company in the neighborhood.

“They just can't redirect money to their employer,” Humphries said.

Multiple calls to D.R. Horton’s local and national offices Monday went unreturned.

Hargray vice president of marketing and sales Gerrit Albert said in an email Monday that the payments that “the plaintiffs are calling a ‘kick back’ (are) clearly articulated contractual fee(s) in a written agreement between two independent third parties.”

“The use of this term is designed to divert attention from the real facts of this case. The type of fee at issue is common in our and many other industries and is in no way illegal,” he said.

In a previous statement, Albert said that when Mill Creek was built, “D.R. Horton selected a company called YRT2 to construct, own, and operate the telecommunications infrastructure. DR Horton and YRT2 entered into an agreement which provided that YRT2 would pay D.R. Horton a fee.”

When YRT2 when out of business in 2009, Hargray stepped in to provide telecom services and neighborhood covenants were amended by the HOA.

But the details of these agreements and subsequent amendments “were concealed from the plaintiffs,” the legal complaint says.

The suit alleges that these agreements bind residents “to a decade-long commitment to pay for telephone, internet, and cable services,” regardless of whether those residents have “any desire or need for these services.”

The Mill Creek arrangement is "the only agreement where (Hargray) requires residents to take certain services," Albert said. “That is just a vestige from the previous agreement (with YRT2).”

Mill Creek residents are responsible for an initial monthly payment of $115 for bulk services, “whether or not occupants of all the residences actually take or use such bulk services,” according to an agreement signed in 2010 by Hargray and D.R. Horton representatives.

Hargray then makes quarterly payments to D.R. Horton in the amount of 3 percent of certain revenues collected from Mill Creek residents.

As part of the agreement, Hargray would give Mill Creek residents a 10 percent discount on cable, internet and phone service.

“From time to time, some Mill Creek residents have expressed a desire for more choice because they did not want all three services,” Hargray’s statement said. “ As a result, we provided residents a two-service option without cable television; only those residents that purchase all three services would continue to receive the 10 percent discount.”

Still, plaintiff attorney Justin Price said, the agreement “doesn’t allow residents to opt out” if they don’t want any of Hargray’s services.

In 2010, the Federal Communications Commission considered banning or increasing regulations on “bulk billing arrangements,” but ultimately decided against it.

These arrangements “predominantly benefit consumers, through reduced rates and operational efficiencies, and by enhancing deployment of broadband,” according to an FCC document. “Based on the evidence of all the effects of bulk billing on consumers, we do not prohibit any (telecom providers) from using bulk billing arrangements,” the FCC decision said.

However the FCC left the door open for reconsideration.

“We may review marketplace conditions again, however, if future events show that any of these practices is having new and significant anti-competitive effects on the whole,” FCC officials determined.

This story was originally published March 21, 2016 at 9:47 AM with the headline "Bluffton homeowners’ suit: Hargray pays D.R. Horton kickbacks."