Magness, In re, 91-4041

• Decision Date: 17 August 1992
• Docket Number: No. 91-4041,91-4041
• Citation: 972 F.2d 689
• Parties: , 27 Collier Bankr.Cas.2d 862, Bankr. L. Rep. P 74,808 In re Thomas E. MAGNESS; Harry E. Redman, Debtors. John Paul RIESER, Trustee, Plaintiff-Appellant, v. The DAYTON COUNTRY CLUB COMPANY and Cynthia Magness Karas, Defendants-Appellees. . Cause
• Court: U.S. Court of Appeals — Sixth Circuit

Page 689

972 F.2d 689

61 USLW 2158, 27 Collier Bankr.Cas.2d 862,

Bankr. L. Rep. P 74,808

In re Thomas E. MAGNESS; Harry E. Redman, Debtors.

John Paul RIESER, Trustee, Plaintiff-Appellant, v. The DAYTON COUNTRY CLUB COMPANY and Cynthia Magness Karas,

Defendants-Appellees.

No. 91-4041.

United States Court of Appeals, Sixth Circuit.

Cause Argued May 11, 1992.

Decided Aug. 17, 1992.

John Paul Rieser (Argued and Briefed), Rieser & Marx, Dayton, Ohio, for plaintiff-appellant.

John P. Petzold, Robert B. Berner (Argued and Briefed), Altick & Corwin, Dayton, Ohio, Stephen E. Klein (Argued and Briefed), Vandalia, Ohio, for defendants-appellees.

Before: JONES and GUY, Circuit Judges; and JOINER, Senior District Judge. ^*

JOINER, Senior District Judge.

In this case we are asked to review an order barring a trustee in bankruptcy under Chapter 7 from assuming and assigning a golf membership in a country club as an executory contract, pursuant to section 365 of the Bankruptcy Code. 11 U.S.C. § 365.

I.

The Dayton Country Club is an organization, in the form of a corporation, consisting of several hundred individuals who have joined together for recreation and entertainment. Its shares of stock may be held only by the members of the club and may not be accumulated in any substantial amount by one member.

The club offers social events, dining facilities, tennis courts, a swimming pool, and a golf course. It became apparent over a period of time that each of these diverse programs could be enjoyed to full advantage by a different number of members. For example, since there was only one 18-hole golf course available, and because of the nature of the game, the maximum number of members eligible to play golf needed to be limited in order to make the playing of the game enjoyable to those playing. There was no need to so limit the number of members who could use the tennis courts, the pool, the restaurants, or who could enjoy the social events of the club. The club developed within its membership a special membership category for those who had full golfing privileges. This category was limited to 375 members. Detailed rules, procedures, and practices were developed to ensure the fair selection of golfing members. These rules, procedures, and practices define how this additional privilege is allocated, how the number of members is maintained at 375, how vacancies occur, how they are filled, and what additional fees are charged.

The record reflects that members of the club are entitled to play, eat, and socialize in all activities of the club except golf. If, in addition to these activities, a member desires to play golf, he or she asks to become a golfing member in one of several golf membership categories. When he or she makes this request, an additional substantial fee is paid to the club and the individual is placed on a waiting list. At the time the record was made in this case, there were about 70 persons on that list. When a vacancy occurs because of a failure to pay dues or a resignation, the first person on the waiting list is given the option to become a golfing member by paying an additional substantial fee. Upon becoming a golfing member, the monthly dues also increase substantially. If the person at the top of the waiting list declines the membership, then that person is placed at the bottom of the list and the next person on the list is given the opportunity to become a golfing member. There is no provision for any person to assign or sell the golf membership to any other person or for any person to become a golfing member in any other way except in two intimate and personal situations dealt with in discrete ways. When the death of a golfing member occurs, a spouse (who had been enjoying the hospitality of the club) may take the deceased member's place. If a divorce occurs, the member may designate his or her spouse as the golfing member. The club also has a program to encourage the younger generation of member families to become golfing members. Golfing members are permitted also to invite guests. Through its membership committee, the club makes the rules and establishes the procedures to describe whom among its larger membership list may be golfing members.

The nature of the golf membership within the overall club membership is the heart of this case. We are not dealing with the right to be a member of the club and there is nothing in this case relating to laws and social policies against discrimination. The issues in this case relate solely to the rights, duties, and privileges of the club and its members arising from the club's effort to provide golfing privileges to some but not all of its members, and the effect of the bankruptcy laws upon that effort.

This matter involves appeals from separate orders entered in the bankruptcies of debtors Magness and Redman, both of whom were golfing members of the Dayton Country Club. The trustee in bankruptcy sought to assume and assign, through sale, the rights under these memberships to (1) members on the waiting list, (2) other club members, or (3) the general public, provided that the purchaser first obtains membership in the Dayton Country Club. In other words, the trustee seeks to increase the value of the bankruptcy estate by taking value for and assigning to others a relationship between the bankrupt and the club. The assignment would be to the detriment of other club members who had paid for and acquired the right to become golfing members in due course. The question is whether the trustee has the right to make the assignment.

The arrangement between the members of the club, including Magness and Redman, and the Dayton Country Club, is a complex one involving rights, privileges, and duties, all of which are bound up in what is loosely called the contract for "full golf membership." At the least, this contract involves (1) an executed portion, the achievement of "full golf membership," and the payment of the nonrefundable fee the club charges for that membership in accordance with the rules, procedures, and practices prescribed by the club; (2) the rights of other club members to apply for golf membership as set out in the rules, procedures, and practices of the club; (3) the rights of those in the club who have applied for and have been accepted and have made substantial payments for full golf membership; (4) the obligation of the members to pay monthly dues; and (5) the obligation of the club to provide recreational facilities called for in its charter and bylaws. In other words, this contract between the debtors and the club and others is neither a simple contract to buy and sell a product or a service nor is it a lease.

Not only is it appropriate to cast these complex relationships in terms of both executed and executory contracts, it is not inappropriate to think of these contracts as creating a type of property interest. The full golf membership and the rights that come from that relationship with the club can be described as a property right of that member, the parameters of which are defined by the rules, procedures, and practices of the club. These rules, procedures, and practices, and therefore the extent of the members' property interest, do not extend to any right on the members' part to pass on the membership to others, except in the two situations described above (death or divorce). The persons on the waiting list also can be described as having a type of property interest in the relationships described in their contracts with the club. Theirs is a lesser interest than that of the full golfing members, but a real one nonetheless. They have paid the club for the right to be considered in the numbered order on the list to become full golfing members as vacancies occur. They, like the full golfing members, have a status defined by the various rules, procedures, and practices pertaining to filling the membership roster.

The bankruptcy courts found, and the district court affirmed, that the full golf memberships are executory contracts under § 365 of the Bankruptcy Code. 11 U.S.C. § 365. Section 365(f)(1) of the Bankruptcy Code provides that executory contracts may be assigned notwithstanding non-assignment provisions in the contract or the law:

(f)(1) Except as provided in subsection (c) of this section, notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract or lease, the trustee may assign such contract or lease under paragraph (2) of this subsection.

Section 365(c)(1) contains an exception to section 365(f)'s bar to enforcement of non-assignment provisions:

(c) The trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if--

(1)(A) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and

(B) such party does not consent to such assumption or assignment ...

11 U.S.C. § 365(c)(1).

The bankruptcy courts found that the trustee was barred from assigning the full golf memberships by Ohio law under § 365(c). The courts concluded that the club's rules were, in effect, anti-assignment provisions, and that Ohio law excused the club from accepting performance by others. The court thus gave effect to the provisions. Principal reliance was placed upon the cases of Lough v. Varsity Bowl, Inc., 16 Ohio St.2d 153, 243 N.E.2d 61 (1968), and State v. Judges of the Court of Common Pleas, 173 Ohio St. 239, 181 N.E.2d 261 (1962), which held that decisions resulting from voluntary associations' dispute-resolution processes will not be...