Internal Fight Between Golf Course Owners Imperils Investment

By: Rob Harris

Symptomatic of the economy, much of the golf-related business litigation arising in the past few years has pitted golf club against third parties–lenders, members, governmental bodies, etc. Occasionally, however, an internal dispute erupts between the owners of a golf club.

This type of litigation–whether arising in a golf or other business context–presents some of the most challenging issues for the business owners and their attorneys. Stories about competing owners’ claims to assets reach to biblical days, when King Solomon was called upon to decide which putative mother was entitled to the baby.

Fights among business owners pose equally dire scenarios for the business assets, as a vitriolic internal dispute undermines integrity in the business, driving away customers, igniting issues with vendors, and often creating a default under a lending agreement.

Such a dispute has commenced in the Pinehurst area of North Carolina, involving the owners of the Forest Creek Golf Club. By way of complaint and motion for preliminary junction, a 50% owner of the club and its principal allege that they have been literally and figuratively locked out of managing the ownership entity, in contravention of their contract rights. They allege that their exclusion risks the ongoing vitality of the enterprise, which allegedly has an asset value of $40 million, and will trigger collection action on a $6 million credit facility, which includes a personal guaranty by the plaintiff principal.

Defendants’ answer to the complaint is not due until May 4, so as yet there is no public filing setting forth their position. However, they did state that the parties are discussing a resolution.  In these types of cases, with so much at risk to the commonly held asset, the parties almost always are best served by negotiating a settlement. The nature of the issues, however, often make settlement more difficult than in most commercial matters. Issues of joint ownership make the dispute the business equivalent of a troubled marriage, and often results in emotion clouding otherwise rational business assessment.

For those interested, here’s a link to an article I wrote a number of years ago on The Passionate World of Business Divorce, which offers suggestions to counsel who find themselves mired in these kind of disputes.

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