HOA Board Beware: Are You Breaking Antitrust Laws?
In this week's tip, we discuss a South Carolina lawsuit, Brandriff v. Dataw Island Club Inc., in which association board members were sued by owners for, among other things, antitrust violations.
In Brandriff, the home owners contended the board had conspired to create policies that benefited golf club members at the expense of HOA members who didn't join the golf club; that the board raised assessments on HOA owners and then transferred some of those funds to benefit the golf club; that the HOA illegally yoked--in antitrust law, it's called "tying"--membership in the HOA to membership in the golf club; that the HOA restricted owners' right to purchase membership in other golf clubs; among other allegations.
All of those wrongs stemmed, according to the plaintiffs' allegations, from actions taken in 2001. Before then, membership in the golf club had been optional for HOA owners. However, that year, the board proposed and the owners eventually agreed to amend the bylaws to adopt the "One Island" concept. The plaintiffs alleged that it required all owners to become members of the golf club with the promise the change wouldn't lead to increased assessments for capital improvements at the golf club and that existing and grandfathered non-golf club members wouldn't be charged for any amenity assessments or club dues. The plaintiffs allege both of those promises were breached.
In 2010, the federal court dismissed the owners' lawsuit. The plaintiffs' response? They refiled their suit in state court, and the court's website reports the case as still pending.
It is unusual for an HOA board to be sued for antitrust violations. But it's not unheard of. "I haven't seen this actual case, but it's very, very similar to one we had locally several years ago," says Elizabeth White, a shareholder and head of the community associations practice at the law firm of LeClairRyan in Williamsburg, Va. "In that case, under the so-called tying arrangement, if you purchased a lot, you were automatically a member of a separate equity club. Members of the association balked at it, particularly when there was a special assessment at the club level to rebuild one of the golf holes.
Find out more about both cases, and what you can do to avoid landing in court yourself, in our new article: HOA Board Members Sued for Antitrust Violations: Will It Succeed?