Hospitality deal appears to unravel in fight over class-action suit and attorneys’ fees
Days after a failed attempt to approve a compromise in the hospitality fee lawsuit, there remains confusion over whether the suit will gain class-action status and, in the event that’s granted and municipalities ultimately prevail, can Myrtle Beach legally pay its attorneys from hospitality funds.
This months-long saga now appears destined to reach into 2020 after Horry County on Monday removed the payment of legal fees from an agreement that was reached in October after hours of mediation. Myrtle Beach met Thursday and publicly opposed the change.
At stake is up to $6 million in hospitality funds that Horry County officials believe would go towards paying the city’s attorneys.
However, city spokesperson Mark Kruea said Horry County Council has been using hypothetical numbers to talk about how much the city is seeking in legal fees. If the city is given class status, they will leave it up to the judge to decide how much in legal fees can be given.
“The court — not the city — would determine if attorneys’ fees are warranted and how much, if any, they should be. That’s standard legal practice,” Kruea said. “The county has all of this information, but it conveniently doesn’t come across in their discussions, does it?”
Initial deal
As a part of the mediation deal that was reached in October, a framework laid out how the fee’s revenue would be divided and identified potential road projects needing funding.
Aynor, Surfside Beach, Atlantic Beach and Myrtle Beach all agreed on Monday to allow the deal to move forward.
The actual compromise has not been made public, but Horry County Council publicly debated the plan and legal fees at length.
The County believed lawyers representing the municipalities would receive up to one-third of a common fund from hospitality fee revenue to pay for legal fees, totaling around $6 million, if the initial agreement moved forward.
Even though county officials initially accepted this deal in mediation, County Council objected to the legal fees on Monday and removed the legal fee payment from the deal, again requiring unanimous consent.
Loris and Conway did not vote on the matter, and Conway officials told The Sun News they don’t plan to, which is a major roadblock for the deal moving forward.
Class actions
Hospitality fee money must go toward tourist-related expenses, according to South Carolina law. The proposed settlement would divide up funds between the municipalities, with some reserved for I-73 and raising S.C. 22.
According to what has been said publicly in county council, the payout to attorneys would come as a result of Myrtle Beach seeking to be the principal plaintiff in a class-action lawsuit against the county.
Kruea said the class-action suit is to protect everyone who paid the fee after it was renewed in 2017 without Myrtle Beach’s consent.
“The city seeks the return to the feepayers of the monies that Horry County collected within the municipalities’ jurisdictions during the approximately two years after the county’s ability to do so expire,” Kruea wrote in an email. “That money belongs to the class of people, businesses and entities which paid it, not Horry County.”
Horry County Council Chair Johnny Gardner doesn’t believe the revenue can legally go to lawyers. Myrtle Beach is more interested in paying its lawyers than protecting the fee payers, he said.
“The only reason this lawsuit is seeking class-action lawsuit is they can have a pool of money they can take one-third of a common fund and pay it toward attorneys’ fees,” Gardner said.
The hospitality fee is decades old, enacted as a road building revenue source. In 2017, County Council renewed the fee indefinitely, and a year later designated the money go to I-73 and public safety. During the spring, Myrtle Beach Mayor Brenda Bethune said she was only trying to protect the city and its citizens who did not consent to the county collecting the fee forever.
Horry County Council Member Dennis DiSabato doesn’t understand why Myrtle Beach is seeking a class-action lawsuit and why it wants to spend so much money on its attorneys.
“I think it’s a legal fiction that doesn’t actually exist,” he said. “The reason this legal fiction was created was to protect attorneys’ fees to the tune of $6 million. I don’t think we should be spending this much of tax dollars on attorneys’ fees. And I’m a lawyer saying that.”
To get a class-action designation, you need a judge’s approval that the class is a legitimate entity that was affected in some way by the party being sued.
Getting approval requires public notice that a class is being created and documentation about action being taken must be public, according to attorney Gene Connell, who filed a clarity-seeking motion in the case on behalf of Treasurer Angie Jones over the summer. Connell has not seen the agreement and only spoke to The Sun News as a class-action expert who could generally comment on the fee and ongoing legal debate.
The 1.5 percent hospitality fee is paid by anyone who stays in a hotel or eats at a restaurant anywhere in Horry County. The revenue goes to the government with the purpose of building roads and other tourist-related activities as mandated by South Carolina law.
Myrtle Beach’s court documents routinely start by saying the city is seeking legal action on behalf of a “class of similarly situated plaintiffs.” The initial legal filing said the cities were seeking relief from having to pay the fee since 2017.
In Connell’s legal opinion, Myrtle Beach and the municipalities can’t be a part of a class since they were not the ones paying the fee.
Millions of people who paid the hospitality fee could enter a class-action lawsuit against the county if the revenue is not being used properly, he said. It would be hard to figure out who the class is due to the transient nature of the area, he added.
“What benefit is it going to be for the guy in New York who comes down here and pays the fee?” he asked.
DiSabato thinks it would be impossible to create a class in this situation due to the amount of money required to be spent to count as a party. In order to be a part of the class action, someone would need to pay more than $6,000 in hospitality fees. The Grand Strand is a working-class tourist destination, he said, and families come here looking to have a good time without spending thousands of dollars.
In addition, DiSabato said he foresees the county council opposing class action if it were to go in front of a judge.
But if Horry County or anyone else doesn’t object to the municipalities forming a class of their own, Connell said the case could still move forward with a judge’s approval.
Even with the class-action designation, he believes past South Carolina law and legal precedent would bar any government from spending hospitality fees on something they’re not intended for.
“There is a case called Brown versus Horry County. It says if you collect fees for a specific purpose, it has to be used for that,” Connell said.
But the judge has a lot of say in how a class-action lawsuit is handled and will be using the South Carolina law to guide their decision.
The South Carolina ordinance specifically says hospitality tax must be used for tourism. Statehouse Representative Russell Fry, R-Surfside, said in his opinion it would be a challenge to justify giving hospitality money toward legal fees. He also has not seen the actual agreement and is speaking generally.
“I think the law precludes attorney fees from being collected from the hospitality tax, so it has to come from the general fund,” he said.
What’s next?
The lawsuit will continue now that Myrtle Beach has opposed the changed deal. Not having unanimous approval also leaves room for another lawsuit in the future.
“If Loris and Conway hold out, we can still be on the hook for $3 million,” DiSabato said. “We will be back to square one and move forward with litigation.”
The City of Conway is not moving forward with the agreement. City Manager Adam Emrick said the settlement doesn’t benefit Conway enough for the city to go along with it. He said the city wants to use the money to bring tourists to Conway and improve flood mitigation within the city and not on I-73.
While Conway has gone along with the lawsuit so far as it is in a similar situation as the other municipalities, he doesn’t see the city consenting to the agreement when so much of the money doesn’t go toward increasing tourism in the city.
“We get that I-73 is a priority for the county, for Myrtle Beach and the state, but we’re not sure why we’re a part of the funding,” Emrick said. “This is about doing right by our citizens.”
This story was originally published December 19, 2019 at 6:00 AM.
