By Dave Simpson

Law360 (March 3, 2021, 7:30 PM EST) -- The New York attorney general announced Wednesday that she's reached a deal that could be worth $250,000 to end a suit accusing the former parent company of New York Sports Clubs and Lucille Roberts gyms of ripping off customers during the COVID-19 pandemic.

The deal, if approved by the New York state court, would make available a $250,000 bond from Town Sports International, with the possibility of that cash being used as restitution for alleged victims, Attorney General Letitia James said in the announcement.

The September suit alleges that TSI continued to charge fees and ignore cancellations even though the gym facilities have been largely closed since March 2020.

"A public health crisis did not give these gyms license to lift up their finances through unlawful charges," James said in a statement. "Today's agreement holds the former parent company for these gyms accountable and brings us one step closer to recovering a $250,000 bond posted by the parent company for potential distribution to members harmed by their unlawful practices."

TSI no longer owns any health clubs and will soon "cease to exist," according to the announcement.

James filed suit claiming the parent company's chain of nearly 100 gyms had "violated multiple New York State laws" by charging customers 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 prior to the suit's filing, TSI — which had a total of 185 gyms and touted 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."

The attorney general noted that it had publicly warned the fitness clubs of their legal obligations back in April after receiving a stream 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 at the time of filing the complaint that it had received 1,848 complaints against New York Sports Clubs and Lucille Roberts, with 437 filed since Sept. 1.

TSI joined 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 gym closures 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 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 and Frank G. Runyeon. Editing by Daniel King.

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