Business ProfileforNew York Sports Clubs

DC AG Racine Sues Town Sports International for Charging Gym Members During COVID-19 Shutdown

The following describes a pending government action that has been formally brought by a government agency but has not yet been resolved. We are providing a summary of the governments allegations, which have not yet been proven.

On 8/20/2020, District of Columbia Attorney General Karl A. Racine filed suit against the parent company of Washington Sports Club (WSC), Town Sports International, LLC (TSI), for failing to abide by promises made to gym members while its facilities were closed due to the COVID-19 pandemic. In mid-April, responding to a letter sent by AG Racine and other state Attorneys General, TSI had agreed to freeze memberships, credit consumers for dues paid while their gyms were inaccessible, and process requests for cancelations. Since reopening on June 22, however, the company has neither issued those credits to account holders, nor processed all membership cancelations. In response, the Office of the Attorney General (OAG) is seeking a court order forcing TSI to follow through on its agreement to credit consumers and process cancelations, along with civil penalties. This is the second consumer protection lawsuit OAG has filed against the company.

TSI is a Florida-based parent company of Washington Sports Club. The company is one of the largest operators of fitness centers in the country. Prior to the COVID-19 pandemic, it operated six locations in the District under the WSC name—in Columbia Heights, Connecticut Avenue downtown, DuPont Circle, Gallery Place, Georgetown, and Glover Park. The Gallery Place and Georgetown locations are now permanently closed. Since January 2019, OAG and TSI have been engaged in ongoing litigation over allegations that the company misled consumers on its cancelation policies, violating both consumer protection laws and the terms of a 2016 settlement agreement.

In March, Mayor Muriel Bowser ordered the closure of all gyms and other nonessential businesses in the District. After receiving consumer complaints that TSI was charging membership dues while ignoring cancelation and freeze requests, in April, AG Racine joined with the Attorneys General of New York and Pennsylvania in urging TSI to stop both practices in light of the closures. TSI then agreed to automatically freeze all WSC memberships starting on April 8, at no cost to members; issue credits for dues and fees paid over account cancelations and freezes requested once WSC gyms had closed; honor all cancelation requests submitted by April 30, with no fees or advance notice required; and resolve individual complaints with consumers who had contacted OAG regarding these membership and billing issues. TSI communicated these changes to members on multiple occasion, but did not credit all consumers’ accounts and process cancellations.

OAG alleges that TSI misrepresented its policies and violated the District’s Consumer Protection Procedures Act by:

Failing to credit members for payments made while WSC facilities were closed;
Refusing to process membership cancelations as promised. 

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NY AG Sues Town Sports International for Charging Illegal Dues and Prohibiting Consumers from Cancelling Memberships

On 9/29/2020, New York Attorney General Letitia James filed a lawsuit against the parent company of New York Sports Clubs (NYSC) and Lucille Roberts for unlawfully charging monthly dues to members and for partaking in a variety of illegal and fraudulent practices involving consumers’ cancellation rights. In her proceeding against Town Sports International Holdings, Inc. (TSI Holdings) and Town Sports International, LLC (TSI LLC) — collectively TSI — Attorney General James alleges that the company violated the law by continuing to charge consumers dues and fees, despite the fact that all health clubs and gyms in the state were ordered closed after the coronavirus disease 2019 (COVID-19) pandemic began to spread widely across New York in March. 

After Attorney General James sent the company a letter in early April, stating she would take necessary steps to protect consumers, TSI implemented a freeze of membership fees and dues on April 8, 2020 and promised consumers they would provide credits in the future, but, on or around September 1, 2020, the company unlawfully resumed charging consumers and never provided them with the promised credits, even charging some consumers who are members of clubs that have yet to open. In connection with today’s proceeding, Attorney General James also seeks a temporary restraining order in an effort to immediately block TSI from continuing to charge any dues or fines to New York members who submitted cancellation requests or charging any dues or fines to members in New York whose primary — or home — gym remains closed. The temporary order is subject to court approval.

From March 16, 2020 until August 24, 2020, all gyms in New York were closed by executive order due to the COVID-19 pandemic. But, unlike most gyms in New York that automatically froze memberships at no cost to members until gyms reopened, TSI did not automatically freeze memberships and didn’t even do so when consumers asked the company to do so. When consumers contacted TSI to request a freeze or cancellation — in the rare circumstance where they got through — TSI provided differing and often false information that prevented consumers from cancelling, such as telling consumers that cancellations were subject to 45-day advance notice requirements and subject to $10 or $15 cancellation processing fees. 

Despite all New York clubs being closed in March, TSI went ahead and charged its members April dues. In early April, Attorney General James sent a letter to TSI, reminding the company that New York’s Health Club Law authorizes gym members to cancel their membership when services are no longer available due to a substantial change in operation. On April 8, 2020, TSI announced that it had implemented a membership freeze at no cost to members and promised that “members will receive additional days of membership access equal to the number of days paid for while the clubs were closed in your area.” TSI also advised members that they could cancel their membership online and receive an email confirmation. Yet, despite these commitments, after some TSI clubs reopened on August 24, 2020, the company went ahead, on or about September 1, 2020, and — without notice to members — charged September dues, even charging those consumers who attempted to cancel their memberships or whose home clubs remained closed, thus potentially risking consumer safety by forcing many members to take public transportation to use an alternate gym at a location further away from their homes.

On September 14, 2020, TSI LLC and other subsidiaries of TSI Holdings filed petitions for bankruptcy; TSI Holdings has not filed for bankruptcy. That same day, TSI filed a motion to reject certain leases, including leases for nine NYSC locations in New York, for which TSI LLC has already relinquished the keys. There is no indication that TSI exempted members from these nine permanently closed gyms from being charged September dues or that they have contacted members about cancelling their memberships before October dues are charged.

To date, TSI has refused to refund member dues for the time period from March 16, 2020 to April 8, 2020, when members were charged dues despite the fact that all NYSC locations were closed. And, contrary to the commitments made on April 8, 2020, TSI does not appear to have given any members credits for the March to April time period when facilities began to reopen in August. 

In today’s suit, Attorney General James charges TSI with violating numerous New York state laws by charging consumers membership dues for services not being offered; failing to issue credits as promised; imposing unlawful fees and advance notice requirements on cancellation requests; misleading consumers about their rights to cancel their memberships; and refusing to honor cancellation requests. 

Attorney General James’ suit seeks to enjoin TSI from violating New York law, including, but not limited to, charging consumers dues for clubs that have not yet reopened, failing to provide credits for the period from March 16, 2020 through April 8, 2020, and failing to honor consumers’ statutory rights to cancel their contracts; restitution for New York consumers; disgorgement; costs; penalties; and the transfer of the $250,000 bond TSI posted pursuant to the Health Club Law to the OAG.

New York’s Health Club Law authorizes gym members to cancel their membership under certain circumstances, including “after the services are no longer available or substantially available as provided in the contract because of the [gym’s] permanent discontinuance of operation or substantial change in operation,” and requires gym owners to provide prorated refunds for such cancellations within 15 days. Additionally, the law further prohibits misrepresentations about consumers’ cancellation rights. Finally, the Health Club Law requires that health clubs and gyms post a bond, letter of credit, or certificate of deposit payable in favor of the people of the state of New York for the benefit of any member injured in the event that the gym goes out of business prior to the expiration of the member’s contract, or otherwise fails to provide a refund after the member cancels in accordance with the Health Club Law.

On 09/14/2020, the business filed for reorganization under Chapter 11 of the federal Bankruptcy Act, case# 20-12168-CSS. This permits the business to continue to operate with court supervision while developing a plan of reorganization. Those with monetary claims against the business are advised to obtain a Proof of Claim form by writing to U.S. Bankruptcy Court District of Delaware 824 N. Market Street, 3rd Floor Wilmington DE 19801 for resubmission to that court. The case number should be entered on the form.