By Elise Hansen

Law360 (May 7, 2020, 3:23 PM EDT) -- A group of WeWork customers on Thursday demanded that the co-working giant stop charging membership fees during the coronavirus pandemic, saying they have no obligation to pay while government mandates forbid them from using the office spaces.

In a letter to WeWork's general counsel, Jared DeMatteis, the members slammed what they called WeWork's "unlawful and hypocritical" measures of continuing to charge full monthly fees during the pandemic. They demanded that WeWork stop collecting fees until members are allowed to return to their offices and that it return fees that members have paid under protest.

"Our clients have no legal obligation to pay their membership fees while the purpose of their membership agreements remains frustrated by the COVID-19 pandemic," the members' counsel at Walden Macht & Haran LLP wrote in the letter. "Ignoring this fact, WeWork continues charging these members full monthly fees and refuses to offer concessions or compromise."

If WeWork doesn't provide the requested relief, the members are prepared to initiate arbitration proceedings, the letter said.

The letter was sent on behalf of about 20 WeWork members from various locations, including New York, Los Angeles and Washington, D.C., Jim Walden of Walden Macht told Law360. Walden said the firm is continuing to hear from additional members, so the size of the group may grow moving forward.

The letter appeals to a doctrine in New York law known as commercial frustration. The doctrine applies in unforeseen or "cataclysmic" events and releases the members from their contractual obligations, the members argued, citing New York and Second Circuit precedent.

"It is difficult to imagine an event more 'cataclysmic' and 'unforeseeable' than a once-in-a-century global pandemic," the members said. "It is, likewise, hard to think of an event that more destroys the purpose of a WeWork membership agreement, and renders the agreement more 'valueless' to the member, than a deadly, highly communicable disease and resulting government order that prohibits use of the member's office space."

The members called WeWork's stance "hypocritical" in light of reports that WeWork itself hasn't been paying full rent to its own landlords. WeWork doesn't own the spaces that it leases out, and anecdotal reports from members as well as media reports suggest the company either has not been paying rent or has been paying reduced rates, Walden said.

A representative for WeWork declined to comment on the letter or the company's current business arrangements.

The company's website indicates that many of its locations in North America have remained open during the pandemic, albeit with heightened sanitation measures and reduced staffing.

In a statement published mid-March, the company asserted that it "[has] an obligation to keep our buildings open."

"WeWork is in an incredibly unique position," the statement said. "We … have members counting on us to remain open so they can run their companies to generate revenue, pay their people and continue serving their customers."

The statement went on to quote two members who claim their businesses provide "essential" support to hospitals and health care companies.

Thursday's letter called WeWork's apparent rationale a "sham."

"We understand that WeWork has refused to shutter its spaces on the pretext that it needs to support companies providing 'essential services,' and to deliver contracted services to such companies," the members said. This "sham rationale … will be readily exposed" by WeWork's alleged failure to provide contractually required services to members' offices and the "inescapable fact" that many of the members' businesses are nonessential, the letter said.

The members demanded that WeWork stop charging fees until they are legally allowed to return to their offices and until WeWork has undertaken various sanitation and social distancing measures. They also asked that the co-working company return membership fees that have already been paid under protest during the pandemic. Some members have continued paying fees, while others have stopped paying, Walden said.

If WeWork doesn't comply, the members said they're ready to pursue arbitration and to ask that their claims be heard as a group.

"This request is appropriate given the commonality of [members'] claims and the efficiency of consolidation," the letter said.

Walden said he hasn't yet received a response from WeWork, but that he hopes the letter will prompt the embattled company to address members' concerns. The latest of WeWork's high-profile financial woes included the refusal of its lead investor, Softbank, to go through with a planned $3 billion tender offer, a situation that has prompted lawsuits from a WeWork special committee and from co-founder Adam Neumann.

"I hope WeWork comes to the table. They market themselves as being a community-based organization," Walden said. "The situation is completely unfair."

The members are represented by Jim Walden, Daniel Miller, Daniel A. Cohen, Daniel J. Chirlin, Jacob Gardener, Jonathan DeSantis and Kraig Ahalt of Walden Macht & Haran LLP.

Counsel information for WeWork was not immediately available.

--Additional reporting by Benjamin Horney, Dave Simpson and Rose Krebs. Editing by Jack Karp.

 

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