COVID-19 Related Class Actions Arising from Club Closures: A Look at Three Cases
As businesses around the country slowly start to reopen after COVID-19 closures caused by state and local government-mandated operation restrictions, plaintiffs have flocked to the courts filing class actions against membership clubs that did not fully refund fees charged while access to facilities and amenities were limited or unavailable. The most frequent targets of these suits are fitness, health, and social clubs who face consumer class claims for breach of contract, business torts and violations of state consumer protection laws.
Three such recently filed cases are Labib v. 24 Hour Fitness USA Inc., Civ. No. 3:20-cv-02134-JD (N.D. Cal. Mar. 27, 2020), Delvecchio v. Town Sports International LLC, Civ. No. 1:20-cv-10666-MLW (D. Mass. Apr. 5, 2020), and Cuenco v. ClubCorp USA, Inc. et al, Civ. No. 3:20-cv-0074-JLS-AHG (S.D. Cal. Apr. 23, 2020). Each arises from government-imposed business operations restrictions that temporarily shut down physical access to a membership club facilities and provides early insights into how similar cases might unfold.
The Labib and Delvecchio cases both involve state statutes that specifically address gym and health club closures. In Labib,Cal. Civ. Code § 1812.85 requires that “[e]very contract for health studio services shall provide that performance of the agreed-upon services will begin within six months after the date the contract is entered into. The consumer may cancel the contract and received a pro rata fund if the health studio fails to provide the specific facilities advertised or offered in writing by the time indicated.” Likewise, Massachusetts General Laws ch. 93 § 82 at issue in Delvecchio provides consumers a statutory right to cancel gym memberships when a seller “substantially changes the operation of a health club or location.” In addition, “[a]ll monies paid by the buyer pursuant to a contract for health club services which had been cancelled for one of the reasons contained in this section shall be refunded to the buyer or his estate within fifteen days of the seller’s receipt of such notice of cancellation. . . .”
In the Delvecchio case in Massachusetts, the plaintiffs alleged that Town Sports International’s(“TSI”) gyms engaged in unfair and deceptive practices by initiating and accepting automatic payments in April 2020 for services that they knew they would not provide due to the government-imposed shutdowns and that the gyms made it impossible for members to cancel their memberships. TSI sought dismissal arguing that because some plaintiffs failed to provide 30 days’ written notice before terminating their membership, as required by their agreements, the gyms had a contractual right to collect monthly membership dues without being in breach.
TSI also argued that M.G.L. c. 93 § 82 did not apply because the gyms did not “substantially change” their operations. Instead, TSI asserted that its gyms merely temporarily suspended operating its fitness clubs in compliance with Massachusetts law, which was not a “change in operations” as defined within the provision. TSI further argued that M.G.L. c. 93 § 82 relates to cancellation of contracts which did not apply because the plaintiffs were suing over the collected dues, not a cancelled contract, and it appeared that the majority of the proposed class intended to remain with gym members once TSI reopened its fitness centers. Furthermore, TSI contended that at least three of the plaintiffs had their challenged membership dues already refunded and therefore lacked Article III and statutory standing for not having sustained any legal injury.
Similarly, the Labib plaintiffs in California alleged that 24 Hour Fitness “misrepresented and/or omitted the trust content and nature of [its] services” by closing all of its gyms nationwide indefinitely on March 16, 2020, yet continuing to charge members monthly fees for its advertised 24-hour access. The plaintiffs cited Cal. Civ. Code § 1812.85 and argued “[h]ere, Defendant advertises that its gyms are open and accessible 24 hours per day, when, in fact, it charges customers full price of monthly members when 100 percent of its gyms are closed. Accordingly, Plaintiff and Class members are entitled to refunds for all fees paid while Defendant’s gyms were and remain closed.”
24 Hour Fitness argued in its motion to dismiss that when the gym notified members of the closures, it assured members that their memberships would “be extended for the same period that [its] clubs will be temporarily closed.” In addition, it asserted that the membership agreement specifically indicates that the company’s name is not a representation of access anytime, anywhere. In making these arguments, 24 Hour Fitness relied on the provision in its membership agreement that further provides that memberships would be extended “for the same period [a] Club of Enrollment was closed or completely unavailable” if closed or unavailable “for more than 30 consecutive days.”
Finally, in Cuenco, plaintiffs bring a class action against ClubCorp for continuing to charge monthly fees while its members did not have access to any of its private social clubs during the shutdown. Relying on contractual rights, ClubCorp filed a motion to dismiss primarily arguing that the membership agreements explicitly state that the clubs were entitled to collect membership dues even if their facilities are temporarily closed. ClubCorp also pointed to the fact that it mitigated any injury by issuing members club usage credit along with offering online services and virtual offerings for the time the club facilities were closed. Alternatively, based on the arbitration agreement with a class action waiver set forth in the membership bylaws, ClubCorp moved to compel the case to arbitration.
The motions to dismiss in the Delvecchio, Labib and Cuenco cases, as well as the motion to compel arbitration in Cuenco, are all currently pending. Given that health, fitness and social clubs around the country face the prospect of another round of closures in the midst of what appears to be a resurgence of government-imposed operations restrictions, it will be worth monitoring how these three cases, along with other similar COVID-19 related class actions across the country, are litigated and resolved.