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Jennifer Grabianski and Jack Stapleton, On Behalf of Themselves v. Bally Total Fitness Holding Corp.

September 11, 2012

JENNIFER GRABIANSKI AND JACK STAPLETON, ON BEHALF OF THEMSELVES AND OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
BALLY TOTAL FITNESS HOLDING CORP., AND L.A. FITNESS INTERNATIONAL, LLC DEFENDANTS.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM OPINION AND ORDER

Plaintiffs Jennifer Grabianski ("Grabianski") and Jack Stapleton ("Stapleton") brought this putative class-action law suit against Bally Total Fitness Holding Corp. ("Bally") and L.A. Fitness International, LLC ("L.A. Fitness"). Plaintiffs were holders of lifetime memberships at Bally. They allege that following the acquisition of certain Bally clubs by L.A. Fitness, their lifetime contracts were wrongfully terminated. Each defendant brought motions to dismiss. For the reasons provided, the motions are granted, but Plaintiffs are given leave to replead their complaint within 30 days of the date of this order.

I.

The Plaintiffs' complaint sets forth the following allegations. On Nov. 30, 2011, L.A. Fitness acquired 171 clubs from Bally, located in several states. Following the acquisition, Plaintiffs contend that L.A. Fitness "acquired or otherwise assumed responsibility for" Bally lifetime membership agreements. Compl., ¶ 2. Defendants have either terminated those contracts or breached them.

Grabianski and Stapleton are both residents of Illinois who had contracts with Bally. The contracts at issue were originally sold decades ago, before most states began to prohibit health clubs from selling lifetime memberships.*fn1 Bally was one of the largest owners of health clubs in the United States, but filed bankruptcy at the end of the last decade. After emerging from bankruptcy in 2009, Bally downsized, including by entering into an Asset Purchase Agreement ("APA") with Fitness International, Inc., an affiliate of L.A. Fitness.

Prior to this transaction, Bally owned and operated about 271 fitness clubs in the United States. The APA provided for the sale of 171 of those clubs for approximately $153 million. The sale included all of the clubs in Illinois and several other states. The remaining 100 clubs continue to be operated under the Bally name.

Since the closing of the APA on Nov. 30, 2011, Plaintiffs contend, hundreds if not thousands of Bally customers have learned that their lifetime memberships are no longer being honored by Bally or L.A. Fitness, and have effectively been terminated. Plaintiffs and the class members paid in excess of $1,000 for the lifetime and long term memberships, and also typically pay an annual fee of between $10 and $25.

Plaintiffs' and the class' lifetime and long-term membership contracts "provide that they may use any Bally's club in the country, at any time such clubs are open for business, with no exception." Compl., ¶ 23. Additionally, holders of Bally lifetime memberships were permitted to resell those contracts, and there was a well-developed secondary market for them.

On Dec. 1, 2011, many Bally lifetime members received an email from Bally notifying them that L.A. Fitness would assume their memberships effective immediately. That email said:

Dear Member:

Bally Total Fitness® has made the decision to focus our portfolio of fitness centers in certain key markets. As a result, we will be transitioning ownership of a number of our clubs, including your home club, to Fitness International, LLC, an affiliate of L.A. Fitness International, LLC ("LA Fitness").

LA Fitness will take over the clubs it is acquiring and assume your membership agreement effective Dec. 1, 2011. As a result your payments will be collected by LA Fitness going forward using the same account as did BallyK. You can find more details on our website and at www.lafitness.com.

It has been our pleasure to serve you, and we thank you for your loyalty to Bally Total Fitness through the years. We wish you continued success in pursuing and achieving your fitness goals.

Compl., ¶ 24.

Plaintiffs contend that L.A. Fitness publicly stated that it assumed responsibility for the lifetime contracts. Specifically,

L.A. Fitness' web site said:

Our objective in general is to make this transition as easy as possible for both the members and employees. We will be servicing all of the membership agreements that were acquired from BTF. The majority of the acquired clubs will remain open, but some will be closing before the end of the year. If we close a facility, we will transfer those members' agreements to a nearby facility, either an acquired BTF or an LA Fitness. We plan to add new equipment to many of the clubs, and we also have plans to remodel, expand or relocate a number of the clubs to larger and new facilities.

UPDATE LA Fitness has decided to simplify the access rules and give all of the acquired Bally Total Fitness ("BTF") members access to current LA Fitness clubs as described below:

. BTF "Local" members will have access to LA Fitness clubs and acquired BTF clubs in the state of enrollment*;

. BTF "National" members will have access to those clubs in all states*; and

. Acquired BTF members who only have single club access will continue to have access to that single club (or, if that club has closed, another BTF or LAF club nearby). Members who have purchased lifetime memberships at the ...


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