Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Compliance newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360 (September 30, 2020, 4:57 PM EDT) -- The New York attorney general on Wednesday sued New York Sports Club and Lucille Roberts gyms in New York state court for allegedly ripping off customers during the COVID-19 pandemic by continuing to charge fees and ignore cancellations even though the facilities have been largely closed since March.
Attorney General Letitia James filed suit claiming the parent company's chain of nearly 100 gyms had "violated multiple New York State laws" by charging them for services not rendered, not giving refunds promised, tacking on fees and other barriers to cancel memberships and "refusing to honor cancellation requests."
Just two weeks ago, the parent company of the gyms, Town Sports International — which has a total of 185 gyms and touts itself as the "largest gym network in the Northeast" — filed for Chapter 11 protection in Delaware bankruptcy court, claiming it had more than $500 million in liabilities.
But that is no excuse for allegedly refusing to provide their customers with refunds, the attorney general said in her petition.
"At every turn, TSI has sought to mitigate its precarious financial state at its members' expense, and has effectively used its members as a source of interest-free financing for TSI's operations," James said in the filing, adding that the upscale fitness companies refused to let customers break off their memberships during the global health crisis.
"Many of TSI's members cancelled their memberships because they were unemployed due to the pandemic, and could no longer afford the luxury of a gym membership," James said. "Under the circumstances, TSI's 'Hotel California'-style approach to its members — 'You can check out any time you like, but you can never leave' — is not only unlawful, it is reprehensible."
TSI did not immediately respond to a request for comment Wednesday afternoon. Counsel for TSI in its bankruptcy proceeding did not immediately respond to a request for comment.
The attorney general is seeking a restraining order to force the company to halt its allegedly illegal conduct as well as restitution for customers affected, and $5,000 for every practice or act of deception and $2,500 for each violation of the Health Club Law's provision that allows customers to cancel their gym memberships when the services are no longer available.
James is also seeking a court order to force the company to hand over a $250,000 bond every fitness company is required to post to fund customer refunds and claims "in the event that the [gym] goes out of business," the attorney general said.
The attorney general noted that it had publicly warned the fitness clubs of their legal obligations back in April after receiving a steam of complaints. One customer told the government, "I am a doctor fighting on the front lines of COVID, and I do not have time or money to have it pilfered," according to the complaint.
The attorney general said at the time that "Attorney General James demands New York Sports Club stops ripping off members." The warning went unheeded, James said in the complaint.
The attorney general said it has received 1,848 complaints against New York Sports Clubs and Lucille Roberts, with 437 filed since Sept. 1.
The lawsuit comes amid dire financial news for the fitness brands.
TSI posted an operating loss of $142 million and a net loss of nearly $4 million for the first quarter and told the U.S. Securities and Exchange Commission that it did not have the money to pay nearly $200 million in loans, even as it needs $80 million to cover the costs of its bankruptcy proceeding.
Town Sports joins such chains as Gold's Gym, which entered bankruptcy in May, and 24 Hour Fitness — which filed Chapter 11 in June — in seeking bankruptcy protection in the face of prolonged closures of gyms due to the coronavirus pandemic.
The attorney general is represented in-house by Christopher L. McCall, Jane M. Azia and Laura Levine.
Counsel information for TSI in this case was not immediately available.
The case is People of the State of New York v. Town Sports International Holdings Inc. et al., index number 451969/2020 in the Supreme Court of the State of New York, County of New York.
--Additional reporting by Rick Archer. Editing by Alanna Weissman.
For a reprint of this article, please contact reprints@law360.com.
