Town Sports International Settles with NYAG on Dues Lawsuit

Town Sports International, New York, has settled the dues-related lawsuit that the New York Attorney General Office filed against it in September, according to the New York Office of the Attorney General.

Town Sports agreed to give up a $250,000 bond it paid in 2015 as part of the New York Health Club Services Law. If the settlement is agreed to by the court, that money would be available for potential restitution to New York gym members who were charged for gym services that were not available to them.

On Sept. 30, just 16 days after Town Sports filed for Chapter 11 bankruptcy, New York Attorney General Letitia James filed the lawsuit charging that the company unlawfully charged monthly dues to members and engaged in a variety of illegal and fraudulent practices involving consumers’ cancellation rights at its New York Sports Clubs and Lucille Roberts locations during the time gyms in the state were ordered closed due to COVID-19.

On March 16, 2020, all health clubs were ordered closed in an effort to stop the further spread of COVID-19. The vast majority of gyms in New York responded by committing to freezing memberships at no cost until the clubs reopened, some going even further by promising to automatically credit consumers for days the clubs were closed, according to the attorney general. However, New York Sports Clubs and Lucille Roberts refused to do the same. Instead, the brands continued to charge some members membership dues and refused to honor some cancellation requests — imposing fees and conditions on cancellation and freeze requests even though all clubs were closed, according to the attorney general.

In April, James sent a letter to Town Sports, demanding immediate changes to the manner in which TSI responded to the mandatory closing of gyms and health clubs, but the company did not, prompting the lawsuit.

The lawsuit alleged Town Sports violated 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.

As part of her lawsuit, James sought to recover a $250,000 bond the company had posted in 2015 pursuant to a provision of the New York Health Club Services Law. The law requires all gyms to post a bond to provide a source of recovery for members if the gym files for bankruptcy or violates the law. The bond is currently being held by a third-party bond company. 

Towns Sports filed for bankruptcy on Sept. 14. In November, the bankruptcy court approved a transaction that allowed a third party to purchase Town Sports’ assets without assuming liability for any of Town Sports’ conduct prior to the transaction. The bankruptcy court order also required Town Sports’ remaining assets to be sold and for the company to be shut down. The transaction closed on Nov. 30, and, since that time, all gyms branded New York Sports Club or Lucille Roberts have been purchased and are now operated by a different company. Town Sports no longer has any role in owning or managing New York Sports Club or Lucille Roberts gyms. 

The agreement requires that Town Sports forfeits all rights to the $250,000 bond and assist the attorney general in obtaining the bond from the bond company.

In August, Washington, DC, Attorney General Karl A. Racine filed suit against Town Sports International for allegedly failing to abide by its promise in April to credit consumers for dues paid while their gyms were closed due to COVID-19. That promise was made after the attorneys general of New York, DC, Pennsylvania and Maryland had filed suit against the company for continuing to charge members while their gyms were closed. Town Sports had agreed to freeze memberships, credit consumers for dues paid while their gyms were inaccessible, and process requests for cancellations, but the DC attorney general said the company was not doing so in his state.