The S.C. Supreme Court threw out the hospitality fee settlement agreement between Horry County and the city of Myrtle Beach Wednesday, forcing local officials to go back to the negotiating table and leaving the future of the deal in doubt.
The high court’s rejection of the settlement stunned county officials, who were preparing to send out notices to city businesses reminding them to begin charging the 1.5% fee on restaurant meals, hotel stays and admissions tickets on Jan. 1.
Myrtle Beach had already sent out its own notices outlining the revised rates, and on Tuesday city leaders discussed the millions the fee would bring in to the city. The county had just transferred $19 million to the city last month as part of the settlement.
“This is something that we’ve got to figure out,” said Horry County Council Chairman Johnny Gardner, who added that county council would postpone its Friday budget retreat because county leaders don’t know how the court’s decision will impact the organization’s finances. “It changes everything.”
Myrtle Beach Mayor Brenda Bethune declined to comment on the court’s decision, saying city officials needed time to review records and consult with their attorneys.
Created in the 1990s, the hospitality fee was collected countywide until a judge forced the county to stop collecting the fee in the municipalities last year.
The fee was originally created to pay for road projects such as S.C. 22 and S.C. 31, but county officials continued collecting the fee once the road debt was paid off. They wanted to use that money for building I-73, a proposed interstate that would connect the Grand Strand with I-95. They also hoped to set aside some money for public safety services. That idea frustrated Myrtle Beach officials; they did not want the county collecting a fee inside their borders and using it to pay for county services.
Other local cities sided with Myrtle Beach. That dispute prompted the lawsuit.
But in August, the county and the cities agreed to settle the case. Under the proposed settlement, each city would receive the money collected within its borders minus a 1% administration fee. The county would receive the fees collected in the unincorporated areas. All of the parties agreed to those terms.
The only issue was what should happen with the $19 million that was collected in the cities between when the original road debts were paid off and the moment the court forced the county to stop collecting the fee in municipal borders.
The county had already agreed to give that money to the cities, but the two sides disagreed on how it should be distributed.
Under the cities’ proposal, a “common fund” would be established to allow people who had been unlawfully charged the fee to present receipts showing that they were due reimbursement. After six months, the money left over would be divided evenly between the cities and the S.C. Bar Foundation, the charitable arm of the S.C. Bar Association.
The county, however, wants to provide all of the money to the cities based on where the funds were collected.
Although the two sides agreed to all the terms, they asked the court to render a final decision. In October, a circuit court judge agreed with the county’s position. Myrtle Beach’s attorneys then filed an appeal and asked the S.C. Supreme Court for an expedited review of the case.
That led to Wednesday’s opinion.
The court refused to weigh in on the $19 million question. Instead, the court said the two sides could resolve the issue.
“Settlement is a voluntary matter between the parties and can reach far beyond the powers of the courts,” the justices wrote. “Because a settlement agreement creates an enforceable contract, the parties must agree on all of the material terms. … Here, the parties have failed to agree on all the material terms of the settlement, specifically, the residual funds issue.”
The court’s ruling was a particular blow to the county, leaving it in essentially the same place it was when a circuit court judge initially forced the county to stop collecting the fee last year.
Gardner said the situation could be fixed in one of two ways: the county could agree to let the cities distribute the $19 million as they see fit, or the cities could concur with the county’s position — which would actually provide the cities with more money — and the bar foundation gets nothing.
“If Myrtle Beach would agree to keep all the money instead of giving half of it to the South Carolina Bar, we’d have an agreement on every issue and we could have it done,” he said. “I would rather keep the money here in the county, even if it’s in the cities, because the benefit to the cities is good. I want everybody in Horry County to benefit.”
Some county leaders are just ready to be done with the matter.
“I’d just like to see the thing get settled so we don’t we don’t waste any more money in legal fees,” county councilman Harold Worley said. “There’s been enough wasted.”
Councilman Johnny Vaught agreed.
“We definitely don’t need to go back to square one,” he said. “That’s stupid. Everything’s all worked out.”
At this point, Vaught said he would be willing to let Myrtle Beach have its way and answer to its residents.
“If it has to go that way, then let the city take the blame for it,” he said. “We tried to give it all to you. You lost it. You threw it away. You didn’t want it for your people.”
Myrtle Beach City Councilman Gregg Smith said he appreciated the high court "looking at this quickly" and looks forward to reaching "a resolution that's acceptable to all parties."
During Tuesday’s city council meeting and before the court’s decision was released, he explained the city's position on the $19 million.
“To be clear, it has nothing to do with us paying our lawyers,” he said. "The reason that we are appealing this is because our lawyers have read the law and they want to follow the law to a T. And what the law says, in their eyes, is that any residual left over from a common fund must be distributed 50% to the parties, which would be us, and 50% to the Bar Association foundation, which is a nonprofit put together by the Bar Association.
“It doesn’t have anything to do with for-profit lawyers. It’s all going to charity should we win the appeal. To be clear, we come with a better result [more funds from the fee] if we lose the appeal. We are appealing because that’s what the law says.”
Myrtle Beach City Manager John Pedersen said the city was concerned about legal liability.
“If we were to go ahead and then subsequently there was a class action filed against the city on behalf of other potential claimants. … it’s necessary for us to appeal it in order to shield us from that liability,” he said.
If the S.C. Supreme Court was to uphold the circuit court’s ruling, Pedersen said that would remove any potential liability on the city's part.
Horry County Treasurer Angie Jones said her office had planned to mail out notices about the hospitality fee change to city businesses on Wednesday, but they had to scramble to stop the letters from going out after the court decision was released.
She said business owners will now need to wait until they receive notice from the county and the cities before changing their cash registers.
"They've just got to stay the course," she said.