Is Now the Time for Clubs to Restructure?

Posted in Clubs, Coronavirus, country club, golf club

The full or partial shutdown of Club facilities and services may be an opportune time to consider restructuring, repositioning or enhancing the membership program before the Club reopens fully. Consideration may be given to:

  • Mandatory membership or community membership,
  • Membership categories, privileges and services,
  • Membership joining fee refundability,
  • Membership transfer options, and
  • Family privileges, including vertical family and extended family options.

In cases where a COVID-19 shutdown has caused significant financial distress or exacerbated prior financial distress to the Club, Club owners and boards may consider whether Chapter 11 bankruptcy is appropriate to restructure the Club, including restructuring membership or liabilities or agreements.

Clubs that do not want to make major changes to the membership program may still want to amend rules and policies to at least give members comfort regarding the safety of using the Club facilities.

Although the COVID-19 facilities shutdowns have resulted in tremendous challenges for clubs, they may provide an opportunity for clubs to restructure membership programs to meet the needs and desires of club members and prospective club members in a post-COVID-19 world.

Impact of COVID-19 Shutdown on Club Dues

Posted in Clubs, Coronavirus, country club, golf club

Most golf and social clubs have either shut down or curtailed operations in response to the Coronavirus Disease 2019 (COVID-19) crisis.  Some members are requesting dues abatement or reductions.  We have been in communication with representatives of 29 clubs regarding whether they have abated or reduced dues or offered some type of financial accommodation.  As of April 24, 2020, out of 29 clubs:

  • 16 clubs determined not to offer any dues or other financial concession,
  • 5 clubs are either evaluating or indicated that they would be evaluating the issue when the reopen date is determined,
  • 1 club has suspended dues,
  • 1 club will be suspending dues if not allowed to reopen by June 1,
  • 3 clubs have reduced dues, and
  • 3 clubs are giving a credit toward future dues or spending.

Since dues can range from 40% to 60% of total club revenue and are generally the primary club related expense from the members’ perspective, the decision to reduce dues or offer some other financial accommodation to members may impact the financial viability of the club in the near future.  Although many clubs may not provide such an accommodation, club decision makers should carefully consider their options.

Club Annual Meetings in Time of COVID-19

Posted in Clubs, Coronavirus

Many clubs are required to hold their annual member meetings this Spring when health experts are asking everyone to avoid gatherings of more than 10 people. In some areas, state and local governments are banning such gatherings or anything other than essential activities. Boards are faced with the dilemma of complying with bylaws requirements or complying with governmental restrictions and also protecting the health of their members.

If a state or local governmental order prohibits having an in-person meeting, the Board’s decision on whether to have the meeting is easy: The club may not have it, notwithstanding that the bylaws require it, because the club cannot violate the law. The Board may then determine whether it can have a remote or “virtual” meeting, exclusively electronically and/or by mail. If the club cannot have a virtual meeting under law or its bylaws, the Board should discuss with counsel whether the government order gives the Board a legal basis to hold the meeting on a virtual or near basis anyway, and if not, to reschedule the meeting to a later date.

If there is no state or local prohibition on having an in-person meeting, the Board may still evaluate whether it can have a virtual meeting, and may wish to consider holding the meeting on a virtual basis. If the Board determines to hold an in-person meeting, the Board may wish to provide for proxy voting by mail, assuming permitted by the bylaws, and encourage members to proxy vote and not attend the meeting. Pursuant to CDC guidelines, the Club should observe social distancing and cleansing and sanitizing protocols for those members who choose to attend.

Boards may consider the following steps in their determination of whether a virtual meeting can be held:

  1. First, legal counsel should review applicable state statutes, which may require in-person meetings, permit virtual meetings, or defer to the club governing documents. The state statute would govern if the bylaws directly conflict with it.
  2. Second, legal counsel should review the state and local government COVID-19 related orders, which may impact the analysis. For example, the governor of Connecticut issued an Executive Order on March 21, 2020, giving corporations the ability to conduct annual and other shareholder meetings by remote means.
  3. If the state statute does not prohibit virtual meetings, the club’s bylaws should be reviewed to determine whether virtual meetings are permitted. If the bylaws do not permit virtual meetings, the Board should review bylaws provisions governing bylaws amendments and Board powers to determine whether the Board can amend the bylaws to permit virtual meetings either generally or during epidemics or other emergency circumstances, especially if holding an in-person meeting is prohibited by law.

The holding of an annual meeting is just one of many challenges that club boards are facing during this difficult time. In addressing this challenge, they should work with legal counsel to ensure compliance with legal requirements and compliance with governing documents, while promoting the health and safety of its members.

Risk Allocation for Economic Losses from Coronavirus Disease 2019

Posted in Brand Management, Coronavirus

Coronavirus Disease 2019 (COVID-19) is causing unprecedented disruptions to the U.S. economy. Government officials and health professionals are predicting that these disruptions could continue through September. Businesses are having to face the challenges of operating remotely; many are cancelling non-essential travel – hampering long-planned meetings and conventions. Global supply chains are impeded as countries work to contain COVID-19’s spread.

While economic considerations are secondary to the protection of human health, they should not be ignored. Companies often allocate the risk for unanticipated business interruptions through their contracts and insurance policies. Whether you are considering recovery options or are defending against breach of contract claims, there are some important legal concepts to consider, such as force majeure and frustration of purpose.

Read the full GT Alert, Risk Allocation for Economic Losses from Coronavirus Disease 2019.

Coronavirus and Force Majeure Contract Clauses

Posted in Brand Management, Coronavirus, Employment Issues, Hotels

While it is too early to predict how long the coronavirus will disrupt everyday life, or whether its spread will continue to pandemic levels, it isn’t too soon to proactively consider your potential risk and understand both potential consequences and benefits of the legal landscape when planning for or dealing with the coronavirus outbreak.

Greenberg Traurig is advising clients on numerous legal issues relating to the coronavirus and its effects, such as the invocation and enforceability of force majeure clauses in contracts, employment matters on the effects to your workforce, negotiating commercial agreements in light of world events, and risk mitigation, among other issues.

Read the full GT Alert, “Coronavirus and Force Majeure Contract Clauses.”

The Israel Hotel Investment Summit: Take Five!

Posted in Boutique Properties, Brand Management, Firm News, Hotels, Investment

On Nov. 20-21, 2019, Greenberg Traurig participated in and sponsored the Israel Hotel Investment Summit in Tel Aviv, Israel. Washington, D.C. office Shareholder and Hospitality Practice Co-Chair Nelson Migdal joined a panel, together with representatives of leading international hotel brands, on the benefits of international brand penetration into the Israel hotel market, as well as legal structuring and operational models for hotels in Israel. Attended by more than 200 professionals from Europe, the United States, and Israel, the conference demonstrated Israel’s status as a major international hospitality destination. Tel Aviv office Managing Shareholder Joey Shabot (M&A), Shareholder Lawrence Sternthal (Real Estate), and Associate Saar Warner-Lipton (Real Estate) also attended the summit.

Here are the top five highlights:

  1. Since 2013, Israel’s hospitality industry has grown from 2 million tourists to 4.5 million tourists!
  2. The distinguished attendees and panelists from around the world highlighted the summit’s multinational appeal and focus.
  3. Israel’s leading hotel developers were well-represented.
  4. The optimism of the hospitality market attracted many non-traditionalists and first-timers to the event. Potential owners, developers, and investors saw the summit as their initial foray into hospitality.
  5. The dynamism of the hospitality market brought out a large number of young faces interested in getting involved, investing in Israel, and breaking into the market to take advantage of the hospitality space, which they saw as a solid business opportunity.

Thank you, International Hotel Investment Forum organizers, for all your efforts in making this event successful! And thanks to all who met with us at The Israel Hotel Investment Summit in Tel Aviv.

See you next year!The Israel Hotel Investment Summit 2019

Trump Administration Cracks Open Door to Private Law Suits Against Cuba with Partial Libertad Act Title III Implementation

Posted in Cuba, Cuba Restricted List, Hotels

On March 19, 2019, a never-before-used Cuban embargo measure went into effect that makes it possible for U.S. claimants to sue the Cuban government in U.S. courts for confiscated Cuban property. The measures could be further expanded on April 17, 2019, to permit lawsuits against non-Cuban entities operating in Cuba.

Since its enactment, Title III of the 1996 Cuban Liberty and Democratic Solidarity (LIBERTAD) Act has threatened to be a potent weapon against entities that do business in Cuba by providing U.S. nationals with a private right of action in U.S. federal courts against entities that “traffic in property which was confiscated by the Cuban Government on or after January 1, 1959.” Of course, the United States has never implemented that private right of action because every president since Bill Clinton has postponed the enactment of Title III for consecutive six-month periods, in part because many foreign governments objected to the idea that non-U.S. companies could be sued in U.S. federal court because of their commercial dealings with Cuba.

Therefore, it was a surprise on March 4, 2019, when U.S. Secretary of State Pompeo announced a partial exception to decades-long waivers of Title III of the 1996 Cuban Liberty and Democratic Solidarity (LIBERTAD) Act. The exception is effective beginning March 19, 2019, and provides a cause of action for certain U.S. nationals against Cuban entities and sub-entities (but only those listed on the State Department’s Cuba Restricted List (CRL) (see Department of State Nov. 14, 2018, press release here) that “traffic in property which was confiscated by the Cuban Government on or after January 1, 1959.”

Click here to read the full GT Alert.

Case Law Update: Expelling the Email Warrior From Clubs

Posted in Clubs, country club, golf club, member discipline, member expulsion

Club boards and management are often the targets of members’ critical emails to other members and social media posts, which are often inflammatory. They may view these attacks as improper behavior, as well as divisive and detrimental to the club’s interests and harmony. They may want to expel or otherwise discipline the offending member. The offending member will claim that a member has the right to criticize management and that the board or management took disciplinary action against the member as revenge and to stifle dissent.

In Master v. Country Club of Landfall, a North Carolina appellate court in December 2018 addressed a club’s ability to expel a member for sending an inflammatory email about the board to other members. A club member sent a series of emails to other members in opposition to proposed amendments to the governing bylaws. The member claimed that the proposed amendments were unethical and immoral, using references to Hitler, Barabbas, Jesus and slavery. A Club Hearing Panel that comprised board members and other members expelled the offending member after a hearing at which the member’s attorney, but not the member, attended.

The member sued the club for breach of contract and declaratory relief. The trial court granted summary judgment in favor of the defendant club, which judgment was affirmed by the appellate court. The court explained North Carolina precedent on court review of club disciplinary actions: “[i]t is well established that courts will not interfere with the internal affairs of voluntary associations. A court, therefore, will not determine, as a matter of its own judgment, whether a member should have been suspended or expelled.” Thus, “when a plaintiff challenges a voluntary organization’s decision, the case will be dismissed as non-justiciable unless the plaintiff alleges facts showing (i) the decision was inconsistent with due process, or (ii) the organization engaged in arbitrariness, fraud, or collusion.” (citations omitted)

The plaintiff club member claimed he was not afforded due process because he received notice of a change in the hearing date only three days before the new hearing date. The club claimed the notice was sent to him by email and regular mail a week before the rescheduled hearing date. The court rejected the member’s argument, explaining, “’Private voluntary organizations are not required to provide their members with the full substantive and procedural due process protections afforded under the United States and North Carolina constitutions.’ . . . Rather, private associations are usually only required to ‘(i) follow their own internal rules and procedures, and (ii) adhere to principles of fundamental fairness by providing notice and an opportunity to be heard.’” (citations omitted)

This court decision may provide ammunition for club boards and management to defend themselves against email and social media attacks they believe “cross the line” and should give club members reason to pause before clicking “Send.”

Hotels Included in U.S. State Department Cuba Restricted List

Posted in Cuba, Hotels

As of Nov. 15, 2018, the State Department is adding 16 hotels owned by the Cuban military to the Cuba Restricted List (CRL).

As discussed in the November 2017 GT Alert, U.S. Implements President Trump’s Cuba Policy, the Department of State published the CRL, identifying certain entities and sub-entities that are “under the control of, or acting for or on behalf of, the Cuban military, intelligence, or security services.”

Except as otherwise authorized, no U.S. person may engage in a direct financial transaction with any entities and sub-entities identified on the CRL. Furthermore, any application to export or re-export items for use by entities or sub-entities identified on the CRL will be generally denied by the Department of Commerce’s Bureau of Industry and Security.

Among other entities added to the CRL, it now includes the brand new Grand Packard Hotel, a 321-room luxury hotel newly inaugurated in Cuba, managed by the Spanish brand Iberostar Hotel, which currently operates 27 hotels with 7,881 rooms on the island.

Cuban President Miguel Díaz-Canel personally attended the inauguration of the Packard Hotel, a little more than a year after the opening of the Kempinski’s Gran Hotel Manzana, showing the Cuban Government’s intent to make the island’s hospitality sector more upscale. Both the Packard and the Manzana (originally included in the first CRL) are now identified on the CRL.

This aspect of U.S.-Cuba relations continues to impact the hospitality industry. Caution is key. Please contact Greenberg Traurig should you need to explore this further.

Regulatory Update: Wireless Licenses Issued by the Federal Communications Commission

Posted in Regulatory Update

Hotels, resorts, country clubs, and other hospitality facilities commonly utilize wireless communications systems to support security, maintenance, and other functions conducted on the relevant properties.  Many private wireless radio systems used at hospitality facilities use portions of the radiofrequency spectrum that are licensed by the Federal Communications Commission (FCC).  Prior to operating radio systems (which include wireless headphone sets and handheld portable radios) it is essential to determine whether an FCC license is required to operate communications equipment and whether a license has been obtained.  The FCC considers unauthorized use of the radiofrequency spectrum to be a serious matter and has authority to initiate and enforcement action and impose monetary penalties for violations of its rules.

In addition to ensuring that any required FCC licenses are obtained, hospitality companies should be aware that the FCC also regulates changes in the ownership of FCC licenses or of licensees.   Section 310(d) of the Communications Act (47 U.S.C. § 310(d)) prohibits the assignment or transfer of control of any FCC license, including any private wireless license used for internal business communications, prior to obtaining FCC consent (see also 47 C.F.R. § 1.948).  Section 310 is applicable when an FCC license is sold to another entity in an asset sale (an assignment) and when a controlling ownership interest (50 percent or more) in a licensee is acquired (a transfer of control).  The statutory prohibition of assignments and transfers of control of an FCC license is applicable when such changes occur as the result of an internal corporate reorganization (a pro forma transaction under FCC rules), as well as when a third party is involved.  Obtaining FCC prior consent for transactions involving assignments and transfers of control of private wireless licenses is a relatively simple and inexpensive process.  However, licensees may overlook the need for FCC approval as part of larger transactions affecting the ownership or control of FCC licenses.  The importance of receiving prior consent from the FCC for assignments and transfers of control of licenses is highlighted by a recent Consent Decree entered into by the FCC and Marriott  International, Inc.  As part of the Consent Decree Marriott admitted liability, will implement a compliance plan, and will pay $504,000 as a civil penalty.  See GT Alert:  FCC Consent Decree an Important Reminder that Prior Consent Is Required for Transactions Affecting Control of FCC Licenses, August 2018.

LexBlog