That’s what a group of members at a West End golf club think is going on with the club’s owners, who put the Dominion Club in Chapter 11 bankruptcy protection when the club couldn’t pay refundable initiation deposits that had come due.
Those owners include prominent local developer HHHunt Corp. and several related entities.
The committee of creditors, which is made up of and works on behalf of Dominion Club members, said in a letter published April 7 that Hunt wants to own the club facilities and manage the club but walk away from more than $11.6 million in obligations to the club’s creditors, including amounts owed to current and former members of the club.
“Frankly, given Hunt’s actions and public statements to date, the committee has come to the view that the real purpose underlying the club’s bankruptcy filing was not to restructure the club’s balance sheet or to address operating issues, but rather an effort by Hunt to attempt to avoid the obligation to fund the payment of the refundable initiation deposits,” the letter stated.
The full letter was published on a special site created by the creditors committee to communicate with other members.
The club has said through its lawyer that it was studying how to possibly turn over responsibility to the members. But the sharply worded letter makes that seem less likely, since there is a major division between the club’s owners and the committee.
“It kind of tells it the way it is,” said Nick Nichols, club member and chairman of the creditors committee, when asked about the letter.
The Dominion Club filed bankruptcy in January when about $1.6 million in initiation deposits were contractually due to be repaid to about 100 members. Another $10 million or so will also come due down the road.
A lawsuit filed April 4by the committee against five Hunt entities says Hunt should be on the hook to pay those fees, as it has always kept the club running by funding its deficits, the suit claims. The club has never been profitable, according to the suit.
The legal battle now unfolding will get to the bottom of whether Hunt and the other owner entities are legally bound to pay the money or whether the corporate structure insulates them and leaves the club entity, which is its own LLC, on the hook and on its own.
Both sides have said all along that an eventual outcome could be to turn over management and possibly ownership of the club to the members. Progress toward that end has not gained much momentum, according to the letter.
“To date, however, the club has not submitted to the committee any proposals for the club to become member-owned that the committee believes are viable,” the letter states.
“In fact, Hunt has refused to engage in discussions to sell the club to the membership, and Hunt has stated that it views the club facilities as a long-term investment that it does not want to sell at the bottom of the market.”
One of the biggest obstacles in the dispute, and one of the main reasons the Dominion Club has never been profitable, according to Nichols, is rent the club pays to an entity called Loch Levan Land Limited Partnership.
“One of the big factors in the whole expense structure is the $1.1 million annual lease,” Nichols said. “One could argue and I’m sure Hunt would argue that was a market rate.”
The relationships among those various owner entities are what must be unwound in the suit. For example, the club, which is owned by the various Hunt entities, pays rent to Loch Levan, another Hunt entity.
So the question becomes: If the lease was part of the reason the club was never profitable, why would Hunt charge itself a lease rate that would keep its own club in the red?
Nichols said he doesn’t have a concrete answer.
“In the big scheme of things, why did they even build the club?” Nichols asked. “They built the club to sell Wyndham [the neighborhood around the club]. It was really a marketing deal versus just wanting to run a golf course.”
Hunt, at the direction of the bankruptcy court, did send a rough proposal to lower the lease rate to be paid by an entity that the members would own, according to the letter.
“The proposed lease, however, would not be at rates or under terms that the committee considers economically feasible. Simply put, a member-owned club could not afford to pay the rent proposed and properly maintain the Club’s facilities,” the letter stated.
“It was lower, but it wasn’t even in the ballpark as far as what is needed to make the club operate at a reasonable rate of return,” Nichols said.
The letter attempted to answer a lingering question of how the $11 million in initiation deposits were used and by whom. The committee in its letter said the deposits were used by Hunt and the club to pay the club’s operating expenses, including the rent and some of the refundable deposits previously paid by members.
For now, it appears the future of the club is still up in the air.
“While the committee remains open to seeking a consensual resolution to the various issues facing the club and its creditors, the committee does not believe it has received a good faith proposal from Hunt to date.” SAYS WHOM?
Nichols said a court-ordered mediator may be put in place.
Robert Westermann, an attorney with Hirschler Fleischer representing Hunt and the other defendants, said they will challenge the claims asserted in the suit and ask that they be dismissed.
“We think there are several strong defenses to the claims that will be explained more fully in the pleadings,” Westermann said in a statement sent to BizSense.
The defendants’ response to the suit will be filed this week.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected]