Tiger Woods at the 2006 US Open at Winged Foot Golf Club in Mamaroneck, NY. (David W. Leindecker)
A Westchester County golf club that counts prominent New York City lawyers and President Donald Trump among its members continues to be a legal battlefield for a suit in which shareholders allege they were misled about the true value of their shares.
For 70 years, the Winged Foot Golf Club has paid a $30,000 per year lease to a holding corporation for the 280-acre property that contains its two courses, which plaintiffs in the shareholder derivative suit said is the product of “sweetheart lease deals” that put the land well below market value.
In an amended complaint filed Sept. 7, the plaintiffs, minority shareholders in the holding company who are not members of the club, said shareholders were duped into believing the holding corporation was a nonprofit and could only offer a nominal amount of up to $3,000 for their shares.
But the defendants, longtime members who make up the holding corporation’s board of directors, counter in an answer to the amended complaint also filed Sept. 7, that the club formed in 1921 was always supposed to be a nonprofit, financed with membership dues and initiation fees, and shareholders did not anticipate that their shares would appreciate in value.
“That plaintiffs purport to champion the rights of original shareholders—while demanding nothing less than the dissolution and wholesale destruction of the golf club they held dear—is thus perverse in the extreme,” the defendants said. The defendants also said that the holding corporation was formed as a means of insulating the club and its members from tort liability stemming from accidents on the club’s grounds.
The defendants include Francis Barron, a retired Cravath, Swaine & Moore trusts and estates partner and Desmond Barry Jr., a partner at Condon & Forsyth. They are represented by Debevoise & Plimpton partners Maeve O’Connor and David Sarratt and associates Susan Reagan Gittes and Jarrod Schaeffer.
The club president is Thomas Leslie, managing partner of Greenberg Traurig’s Westchester office.
Last year, Winged Foot, which has played host to the US Open five times, ranked 10th in Golf Digest’s top 100 courses in the United States.
The shareholders trace their ownership to descendants of the 600 men who each chipped in $1,000 back in the 1920s to purchase the land for the course and to construct facilities. The plaintiffs in the suit, filed in 2014, inherited their shares in the holding corporation.
The plaintiffs seek damages based on the money that would have been paid for a market value lease, as well as dissolution of the holding corporation and distribution of its assets or, in the alternative, that the club buy shares at a “fair value.”
They are represented by Lovell Stewart Halebian Jacobson partner John Halebian and Adam Mayes, who is of counsel to the firm.
Halebian also represented plaintiffs in a similar suit filed in 2004 against Long Island’s Deepdale Golf Club, which railroad baron William Vanderbilt founded in 1924. That case ended with a confidential settlement in 2007.
Last year, the suit regarding Winged Foot survived a motion for summary judgment, with U.S. District Judge Nelson Román of the Southern District of New York finding that Busher provided evidence “sufficient to create a question of material fact as to whether defendants breached their fiduciary duties.”
Román also said the plaintiffs provided evidence to call into question whether the defendants were “unjustly enriched” by actions undertaken in 2009-10 and 2013, when defendants renewed an allegedly “wasteful” lease, “tightened the holding company’s share transfer restrictions, rejected lawful demands to transfer shares and provided allegedly misleading information to shareholders to fraudulently induce the sale of their stock to the club.