Golf Dispute Resolution

By: Rob Harris and Michelle Tanzer

Golf-related businesses utilize contracts to pursue much of their commercial activity. By memorializing the terms and conditions of their relationships, golf-related businesses have the opportunity to specify what will occur in the event that a dispute arises. For example, they can address the geographical location that will govern the resolution of a dispute. Even more significantly, they have an opportunity, at the time of contract, to proactively provide for mediation and/or arbitration as alternatives to litigation.

Mediation, for the uninitiated, is a process whereby the disputants and their attorneys meet with a mediator to negotiate a resolution of their dispute. The parties themselves decide the scope of information they will exchange prior to the mediation, the nature of the presentations to be made to the mediator, the date, time and place of the mediation, and the terms of the resolution. Studies and anecdotal evidence consistently confirm that mediation is a powerful and effective tool for the resolution of business disputes.

Arbitration is more akin to litigation in that the parties submit their dispute for resolution, although to a privately selected arbitrator instead of a publicly appointed or elected judge. Because arbitration is a “creature of contract,” the parties can agree to an arbitrator who has expertise regarding the dispute at issue, and can tailor a process to more directly and expeditiously reach the heart of a business dispute.

At the recent PGA Merchandise Show, we had the opportunity to address the subject of dispute resolution as it relates to the kind of disputes that may confront businesses in golf-related commercial activity. We presented a hypothetical scenario, loosely modeled after the facts of an actual case (Gresser v. Taylor, 150 N.W.869 (Minn. 1967)), that contained the following elements:

• A country club is hosting a charity event, enabling it to showcase its ongoing development transformation, including its course expansion and development of luxury homes.
• The club manager directs the head pro to find an out-of-the-way location to store a truck that the golf course builder has just brought to the course with a load of pipe.
• During the charity event, the truck falls down an embankment, injuring the major shareholder of the bank that is financing the development.

As a result of this incident, a parade of horribles occurs:

• The bank shareholder is injured.
• The bank terminates the project financing; the development fails; the luxury homes lose value.
• The club fires the manager and the pro.
• The builder loses a valuable contract.

A myriad of claims and counterclaims are thereafter asserted. Certain claims likely would go through litigation, but others would more appropriately belong in mediation or arbitration, either because the parties’ contract would so provide, or, even in the absence of a contract, the parties would be well-served to submit the disputes to such processes.

Let’s review the likely claims:

1. The bank shareholder, seeking recovery for his injuries, sues the country club, the club manager, the club pro, the builder, and the charity that is holding its event at the club. Generally, the nature of personal injury claims is that they arise outside of a contract, so the shareholder likely would file his claims in court. Before the case is reached for trial, the parties may well decide to hold a mediation, with the goal of resolving the claims.

2. The charitable organization, having had its event ruined, thereby losing the opportunity to achieve its fund raising goals, asserts claims against the country club and the builder. Sometimes, country clubs require those using its facilities to sign a contract specifying terms and conditions. A club, in such circumstances, might consider including in the contractual terms a provision requiring that disputes be submitted to arbitration or mediation. On the other hand, claims against third parties—such as that by the charity against the builder—would arise outside the scope of a contract, and thus would be resolved through litigation, unless the parties, after the claim is asserted, agreed to submit the dispute to mediation or arbitration.

3. The bank, having terminated the project financing, seeks to recover the sums previously lent by suing the country club, as well as the principals of the club on their personal guaranties of the loan. The club, having been damaged by losing its financing, counterclaims against the bank, and asserts a claim against the bank shareholder, who forced the bank to pull the loan. When banks make loans, the contractual documents almost never provide for arbitration or mediation. A bank’s view typically is that, if it advances money, the borrower has an obligation to pay it back. A bank expects a court to enforce loan documents, and views arbitration and mediation as distractions. Even though the bank would put its claim into litigation, the complications associated with the club’s counterclaim creates a scenario where the parties might be well-served to discuss their respective claims with a mediator.

4. The country club, blaming its troubles on the falling truck, asserts claims against the builder. The builder, attributing the problem to the club pro who directed the parking location, claims that it lost the project and was thereby damaged. Routinely, construction contracts, including those for golf course projects, include provisions requiring the parties to mediate, and, if not successful, to arbitrate their disputes. Over time, the use of alternatives to litigation have become entrenched in the construction industry, and it is likely that this dispute between the club and the builder would go that route.

5. The club manager and the club pro, both having lost their jobs, have claims for wrongful termination against the club. Employment agreements vary substantially regarding their dispute resolution provisions. Many times, agreements are silent, thereby leaving the parties to assert their rights through litigation. Other times, attorneys for employers, perhaps concerned about a jury sympathizing with an employee, will include an arbitration agreement in an employment agreement. Occasionally, the attorneys will be sufficiently versed in the advantages of mediation to require that a dispute, prior to being submitted to litigation or arbitration, go through a mediation process.

6. The owners of the newly constructed homes, seeking their property values diminishing as a result of the failed project, desire to assert claims against the club. Even more troubling to the club, because the homeowners contend their claims are similar to one another, they desire to pursue a class action. Developers anticipating the potential for claims by homeowners’, often will provide that disputes must be submitted to arbitration or mediation. To date, it is less common for the development documents to contain language that prohibits the assertion of class claims. However, recent judicial decisions that uphold the right, in arbitration, to force claims to be brought separately suggest that developers more and more may provide for claims to be submitted independently.

As shown by our hypothetical, there is great variety in the type of claims to which golf-related businesses can be exposed.

The nature of the claim may dictate whether it is best addressed through litigation, mediation or arbitration. However, prudent businesses will consider, at the time of contract, they types of claims that are likely to arise, given the nature of the transaction. They will review with their attorney whether their interests are well-served by including in the contract provisions to govern how disputes will be handled, including whether they should be submitted to mediation or arbitration.

[This article previously was submitted for publication by the National Golf Foundation.]