According to an attorney representing homeowners in a Bluffton, South Carolina, subdivision, litigation and a vote by the residents has pulled the plug on an agreement requiring them to pay for bundled telecom services, whether they wanted them or not.
Residents of Mill Creek at Cypress Ridge filed the lawsuit in March, alleging fiduciary violations and unfair trade practices regarding a 10-year deal purporting to bind homeowners to an exclusive arrangement for telecom services, and illegal quarterly kickbacks from Hargray Communications to the community’s developer, D.R. Horton.
At the time, the complaint says, Mill Creek’s owners’ association’s officers and directors — including its president — were “employed by and entirely controlled by” D.R. Horton.
In the agreement, Hargrave refers to itself as the “preferred provider,” but the complaint alleges that Hargrave (substituted for the initial provider and now-defunct YRT2) is the “required provider” of residential “voice services, multi-channel video services, and broadband internet end-user services to all units in the subdivision.”
According to plaintiffs’ attorneys, the contracts purportedly offered savings to residents but really served the interests of only the developer and communications company.
Hurry up and buy
Badge Humphries of Lewis Babcock’s Charleston office said that since 2006, residents were told repeatedly that they had to buy the bundled services pursuant to an agreement between Hargray and the association, though they were never given access to the agreement. They were also never told about a “secret counterpart/side agreement” whereby Hargray agreed to pay a percentage of the revenues received from Mill Creek to D.R. Horton, plaintiffs contend.
According to the complaint, the alleged kickbacks remained concealed from homeowners until September 2015, when the association’s management company, Gold Crown Management, Inc., provided documents to the plaintiffs’ attorneys in response to a records request pursuant to the South Carolina Nonprofit Corporation Act.
Court filings suggest that the agreement with YRT2, entered into shortly after the declaration of covenants, conditions and restrictions were recorded in 2006, would have expired this year. But plaintiffs contend that when YRT2 went under, the defendants secretly “committed the Association and its members to a new ten-year indenture to Hargay” in 2010. Plaintiffs allege that defendants also concealed other terms of the agreement, including the aforementioned alleged kickbacks.
“Until our clients’ very forceful books and record demand and this lawsuit that followed it, Mill Creek residents had no idea about this alleged kickback that was part-and-parcel to the agreement Hargray maintained forced each of them to pay for a landline telephone and at least one other telecom service until 2020 and potentially beyond,” Humphries said.
The plaintiffs are also represented by Justin Price of Vaux Marscher Berglind of Bluffton.
Voice of the people
Humphries said that though residents wishing to cancel or reduce Hargray’s services were told for years that they could not do so because of the agreement, there is “apparently a new agreement” that has been negotiated between the association and Hargray.
Hargray, he said, has begun accepting cancellation orders after “getting an earful from residents.”
According to Humphries, preliminary tabulations show that during its annual meeting on Aug. 30, Mill Creek residents voted 230-4 to end the bulk services agreements that required them to pay for a landline telephone and at least one other service.
Despite the desirable outcome for plaintiffs, Humphries called the vote “part of a litigation strategy by defendants acting in concert.” He said that the notice “made no sense” and that while it was dated Aug. 8, no one knew of the scheduled meeting until Aug. 15.
“[It] was clearly designed to confuse residents to discourage voter turnout as a reflection of disinterest in this matter…” he said.
Humphries added that the notice contained undefined abbreviations and references to agreements that only his clients, not necessarily other residents, had seen unless they had gone to the courthouse and pulled copies. He also said that the ballot was confusing as to which box should be checked to vote for terminating services altogether.
The defendants are being represented by several attorneys from different firms. Douglas MacKelcan of Carlock, Copeland & Stair in Charleston declined to comment on the pending litigation.
Molly Cherry of Nexsen Pruet in Charleston referred South Carolina Lawyers Weekly to a statement that Hargray released Sept. 12 denying any wrongdoing. Hargray contends that it stepped in to “restore services” when YRT2 failed, entering into a new 10-year agreement fashioned after the YRT2 agreement.
“This agreement is different from most others Hargray has with other residential communities in that it required all Mill Creek residents to pay, as part of their POA dues, for phone, cable television, and Internet services and in return provided for a 10-percent discount off non-promotional retail rates,” the statement reads.
Because residents “from time to time” expressed that they didn’t want all three services, according to the statement, Hargray offered a two-service option of phone and internet, but that option would not qualify for the discount.
The beef goes on
Though residents will no longer pay for unwanted services, the lawsuit will go forward, Humphries said.
“The lawsuit has already created substantial benefits for the Association and its members and achieved important objectives,” Humphries said. “However, the issue of damages has not been addressed, nor whether this case will be resolved as a class action or a mass action.”
Humphries said that according to counsel for D.R. Horton, all funds received from Hargray pursuant to the agreement had been paid as of Aug. 25. That total, $79,000, would suggest that Hargray has received about $2.6 million from residents.
Judge R. Markley Dennis Jr. is presiding over the case in the state Business Court.
Humphries said that the parties have until Oct. 4 to agree on a mediator or have one appointed.
“We will be filing an amended complaint,” he added.
Follow Heath Hamacher on Twitter @SCLWHamacher