Dec. 15, 2020

Lifetime Memberships May Not Be For Life if Bankruptcy Intervenes

With the proliferation of bankruptcy proceedings for country clubs, golf clubs, health clubs (see DBR Nov. 12, 2020, on You Fit Health Clubs), many “members” who were enticed into what appeared to be attractive packages for so-called lifetime memberships may be sorely dismayed when they learn that an intervening bankruptcy proceeding may wipe out their so-called lifetime membership benefits.

In the recent bankruptcy case in Trenton, New Jersey (In re Sea Oaks Country Club, 20-17229 (Bankr. D.N.J. Nov. 10, 2020), Bankruptcy Judge Christine Gravelle set forth a detailed analysis of lifetime memberships in a country club, which should be a wake-up call for anyone thinking of investing large sums in such a membership during these financially difficult times for any type of membership organization. Since it is virtually impossible to obtain detailed financial information concerning golf, health and other types of membership clubs, the ruling in the Sea Oaks case cautions that one should be very careful with respect to investing in a lifetime membership unless one is willing to lose it all in the event of a bankruptcy proceeding.

Factual Background

In the Sea Oats case, individuals paid between $50,000-$60,000 for what were called lifetime memberships in the country club which then entitled them to be exempt from greens fees, to preferred tee times as well as receiving discounts on merchandise. When the country club filed for Chapter 11 protection, the 49% owner of the club also held a $10 million mortgage on the club and its facilities. When no other purchasers could be found, the 49% owner purchased the assets for $200,000 cash and a $2.8 million credit bid in a bankruptcy court sale under Section 363 of the Bankruptcy Code, with the sale proposed to be free and clear of the lifetime membership interests.

When the lifetime membership holders objected to the sale being free and clear of their interests, Gravelle ruled that the membership interests were executory contracts that could be rejected by the golf club in the Chapter 11 proceeding. While the membership holders claimed that the lifetime memberships may be implied restrictive covenants, the Judge in a detailed opinion found a bona fide dispute, which under Section 363 of the Bankruptcy Code, allowed the sale of the golf club’s assets and business free and clear of the lifetime membership interests. 

Legal Analysis

Utilizing what has become to be known as the “Countryman” definition of what is an executory contract, the bankruptcy judge found that the members had unperformed obligations because the lifetime membership agreements required them to comply with the club’s rules and pay for purchases. The judge found that under New Jersey law, these were material obligations which, if breached, would give the country club the right to terminate the so-called lifetime memberships. Thus, the bankruptcy judge found that the lifetime membership agreements were executory contracts subject to rejection under Section 365 of the Bankruptcy Code.

The members also argued that they held implied restrictive covenants running with the land that could not be rejected as executory contracts. Section 363(f)(4) of the Bankruptcy Code allows the sale of an interest in property that is “in bona fide dispute.” The court found a bona fide dispute about the members’ interests under Section 544(a)(3) of the Bankruptcy Code that allows a trustee to avoid an obligation that is voidable by “a bona fide purchaser of real property.” Over the objection of the lifetime membership holders, Gravelle ordered the sale of the country club assets free and clear of the so-called lifetime membership interests.

Lesson Learned

With respect to golf and country club memberships where there is real property involved, one may think that by recording a document evidencing the lifetime memberships would be sufficient to protect the interests. However, if there is a prior existing mortgage, without the mortgage holder’s subordination, the recordation of the lifetime membership interest may be useless.

As noted above, this decision has far-reaching implications as it can extend to health club memberships, airline club memberships and any other membership opportunity where individuals advance (sometimes substantial) funds in order to obtain what is hoped to be lifetime benefits. In these economic uncertain times, the concept of caveat emptor is certainly applicable and should be carefully considered before purchasing a lifetime membership.




By: Charles M Tatelbaum and Corey D. Cohen, Tripp Scott PA

Experience tells us that the recent increase in subprime auto loan defaults can be a reliable predictor of an overall increase in consumer bankruptcies which, in turn, causes problems for businesses in many sectors.  Recently reported data discloses that in the fourth quarter of 2022, subprime auto loan defaults increased by slightly more than 30%.

These defaults rise from a number of reasons, namely:  (1) higher interest rates on the subprime loans that have a floating rate of interest; (2) inflationary increases which have pinched consumers' budgets; and (3) increased costs of rental housing.

TSE's Candice Ericks Named One of City & State's Women Power 10

FORT LAUDERDALE, Fla., January 25, 2023 – Tripp Scott today announced that Candice Ericks, Director of Government Relations for TSE, the governmental affairs division of Tripp Scott, was named one of City & State Florida's Women Power 100. 

City & State is the premier media organization dedicated to covering Florida, New York and Pennsylvania's local and state politics and policy. Its in-depth, non-partisan coverage serves Florida’s leaders every day as a trusted guide to the issues impacting Florida. City & State Florida's Women Power 100 list is comprised of elected officials and high-powered lobbyists, leaders from the worlds of business, nonprofits, media, social justice, conservative think tanks and what we call the “persuasion industry”: public relations, strategic messaging and fundraising.

Tripp Scott Attorneys Represent Datum RMS for Major Sale of Controlling Stake to AES Engineering Ltd

FORT LAUDERDALE, Fla., January 24, 2023 – Tripp Scott today announced that its team, Tanya Bower, director and Arsen Pascua, attorney, successfully represented Datum RMS in the sale of the controlling stake of the company to AES Engineering Ltd.

Start a Conversation

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.