In-Shape Health Clubs, Stockton, California, has agreed to pay $23 million in restitution and $3 million in fines to settle a civil case alleging it engaged in unfair business practices in California, according to media releases from the district attorney offices in the California counties of Kern, Monterey and Santa Cruz.
The three offices worked on the case together. The settlement applies to all 73 In-Shape clubs in California, not just those in these three counties, according to Douglas Allen, assistant district attorney in Santa Cruz County.
The civil complaint against In-Shape Health Clubs was opened in 2014 in response to consumer complaints between 2010 and 2013 about membership promotions, unauthorized billings, cancellation practices and collection actions. The settlement obligates In-Shape to provide thousands of past and current members with various forms of restitution valued at more than $23 million. Additionally, In-Shape agreed to a five-year injunction to comply with California law and pay a $3 million penalty.
The complaint alleges that In-Shape, to finance its expansion from 40 to 70 clubs, violated California’s Health Studio Act, False Advertising Law and other consumer-protection laws when it sold promotional memberships and touted “free” services, refused to honor cancellation requests, practiced unauthorized billing and attempted to collect on invalid debts.
Paul Rothbard, CEO of In-Shape, issued the following statement to Club Industry:
"The district attorneys' claims are based on historical (not current) practices, and In-Shape has not admitted to any wrongdoing."
Rothbard said that the allegations primarily relate to past marketing practices, discontinued membership contracts and past collections procedures and how it previously processed membership cancellations.
"The settlement was reached before litigation began, so there are no Court findings that In-Shape did anything wrong; we entered into the settlement and fully cooperated with the district attorneys to avoid the costs and distractions of litigation," Rothbard said in the statement.
In-Shape has agreed to pay up to $1,453,910 to members “who suffered financial harm from cancellation refusals and unauthorized charges,” according to the press release from the Monterey County District Attorney's Office, in addition to ceasing its alleged faulty debt-collection practices. Members who signed a contract before February 2016 will be permitted to immediately cancel their membership without penalty.
"In-Shape has taken steps to ensure that current and future members will not be affected by any of the sorts of business practices alleged by the District Attorneys," Rothbard said.
In-Shape has 73 health club locations in more than a dozen counties in California.
In January 2013, In-Shape announced that it had received an investment of an undisclosed amount from Fremont Private Holdings and Pulse Equity Partners to help with expansion.
In fall 2012, In-Shape acquired the five clubs owned by Millennium SportsClubs, Vacaville, California, for an undisclosed amount. At that time, the company confirmed it would spend $7 million to upgrade the five clubs.