Callawassie Island property owners can resign their club memberships — shedding thousands of dollars in annual club dues — but still remain property owners at Callawassie Island, the South Carolina Court of Appeals ruled this week.
Despite that ruling, a club official says the club will continue to charge the fees.
In most of Beaufort County’s gated communities, club membership is mandatory, so Wednesday’s court ruling will likely not have a broader impact beyond Callawassie’s gates. But the state appeals court’s reversal of a lower court decision has the potential to affect Callawassie’s financial future.
Two federal lawsuits accusing the Club board and homeowner’s association of abuses of power were halted pending the state’s decision. Within hours of that decision, a federal judge ordered the two lawsuits to proceed.
Because Callawassie Island Club is a separate entity from the homeowner’s association, membership in the club and access to its tennis courts, swimming pools, community docks and Tom Fazio-designed golf courses is voluntary, some club members contend.
Their argument hinged on the club’s classification as a nonprofit organization, which state law says members can leave at any time and forgo dues accrued after resignation.
The unanimous, three-judge Court of Appeals decision agreed that the club’s practices violate state law, going so far as to compare the trapped club members to proverbial guests in the Eagles’ hit song “Hotel California” — “you can check out any time you like, but you can never leave.”
Following the ruling, Michael MacGee, the club’s board president, sent a letter to club members saying that the decision “does not change the way the Club conducts business” and “the Club will continue to enforce the governing documents according to their terms.”
A ‘Ponzi scheme’ business model
Nestled between Bluffton and Beaufort, the Callawassie development was intended to be a country club-style community, but one designed for working middle-class people like Lolita Trifiletti.
In 2005, the Charlotte resident bought a half-acre lot she intended to build on during her retirement. She paid a $15,000 initiation fee and signed a contract for a non-golf membership. Monthly club dues were $100, she said.
As the popularity of golf declined, fewer people signed up for the more expensive golf memberships. To offset this loss, the club eliminated the different membership types and rolled them into one, she said.
Now, all club members pay significantly higher dues, essentially subsidizing the expense of maintaining the club’s 27 holes whether they hit the links or not, she said.
“I never expected a nonprofit recreation facility to have this much power over people trying to enjoy themselves,” Trifiletti said. “I joined for the pool and tennis court. Not a prison.”
Raising club dues is at the discretion of board members, according to court filings.
A Callawassie Island sales representative reported current club dues cost $714 a month. That fee doesn’t include access to the golf course. Unlimited access to the course costs an additional $300 a month. Residents can also opt for a pay-as-you-play model, $60 for a round of 18 holes.
As the club underwent multimillion dollar renovations, Trifiletti watched her monthly dues rise along with her frustration. When she tried to resign, the club informed her that she couldn’t until she paid $38,000 in dues and found someone to replace her as a member.
“It ends up as a business model that is like a Ponzi scheme,” she said. “(It) can only survive if one investor replaces itself with another.”
And without a cap on dues, the soaring cost has put some homeowners in a position where they can no longer afford to live on the island.
Members sell property at deeply discounted prices in an attempt to offset the cost of membership. As of the end of July, eight lots were available for less than $10,000.
For almost two years, Trifiletti said she has had her lot on the market for a single dollar.
That’s not as long as Jim Short, who bought land on the island with the intention of building a cottage for retirement.
He said he has had his lot on the market continuously since 2007.
A few Callawassie property owners have even gone bankrupt, according to court filings.
Short paid the balance on his dues, terminated his membership in 2011 and hasn’t set foot on the island since.
Yet the club filed lawsuits against him and several other members in 2012.
“The club sued its members to force them to stay in,” said Ian Ford, a Charleston attorney whose firm is representing a dozen club members who are being sued by the club. “They should have a club that people want to stay in. What they’re doing, instead of making it better, is suing their members. That’s not a good membership policy.”
The club does not chalk up the appeals court decision as a loss, instead calling it “one step along the way in a long, legal process,” club manager Jeff Spencer said in an email Friday.
“We are confident that the Club will prevail in the lawsuit against members trying to avoid their legal obligations to pay amounts owed to the Club.”
If the club does not appeal, the case will be sent to the lower court for trial. That is not the plan, according to the board’s letter sent to club members. The board’s lawyers will file a petition for the Court of Appeals to reconsider its decision and, if that fails, will ask the South Carolina Supreme Court to consider the case.