Do You Even Refund, Bro? LA Fitness Case Offers Lessons on COVID-19 Customer Claims

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A recent trial court decision in (yet) another COVID-19 customer refund case provides some key lessons to businesses facing customer lawsuits due to the novel coronavirus pandemic that continues to affect our country.

This past March, on local and state authorities’ orders to help reduce transmission and incidents of COVID-19, popular health club LA Fitness was one of many businesses forced to close their doors, resulting in a ton of P.O.’d gym members who were now out their membership and training fees and, as often is the case in this country, a class action lawsuit filed.

The LA Fitness case

Earlier this month, in Barnett v. Fitness International, LLC, No. 20-cv-60658 (S.D. Fla. Mar. 30, 2020), a federal judge ruled that a gym member did not have standing under Article III of the U.S. Constitution to maintain a class action against LA Fitness because he had already received a full refund of membership dues. In addition, the district court concluded that another gym member (and lead class action co-plaintiff) had already agreed to arbitrate his claims.

On March 30, 2020 (in the depths of the COVID lockdown–this plaintiff didn’t waste any time!), Plaintiff Barnett filed a class action for negligence and unjust enrichment against the parent company for LA Fitness, arguing that the health club franchise had voluntarily closed its fitness facilities to its members while holding onto unearned membership dues amounting to millions of dollars.

However, by the time of the lawsuit, LA Fitness had already notified its customers that it would be suspending member billing starting April 1st. The health club chain also offered to extend gym memberships for longer than the duration of any closure or, alternatively, provide an extra three-month membership for a companion or family member at no charge.

Moreover, LA Fitness also offered refunds of March dues to all members “in good standing” who requested it in lieu of the other options described above.

Because the language in Plaintiff Barnett’s personal training membership contract (but, curiously, not his general membership agreement) with LA Fitness had him agree to arbitrate any dispute with the company, the Federal court judge granted LA Fitness’ motion to compel arbitration (and therefore take the case out of court and, potentially, away from jury members who might have been sympathetic to Barnett and his fellow plaintiffs).

In what was almost certainly in response to LA Fitness’ motion to compel arbitration, Barnetts amended his complaint to add a second plaintiff (Enzinna), who apparently must have signed the same general membership agreement that lacked a forced arbitration provision.

The only problem here was, at the time of the amended complaint, Plaintiff Enzinna had already requested—and received—a full refund of his March dues from LA Fitness. As a result, the federal trial court judge held that Plaintiff Enzinna had been fully compensated for the loss he claimed and, as a result, lacked Article III standing.

Refund and similar themed cases appear to be making up most of COVID-19 class action filings. These have ranged from well-publicized litigation involving college and university tuitions, flight and lodging cancellations, season tickets to sporting events and, yes, monthly gym memberships. However, as a Phoenix Arizona business attorney, I think the LA Fitness case offers some practical and easy-to-adopt lessons for early stage and established consumer-facing companies in this new COVID-litigation normal.

Practical Lessons for Your Business from LA Fitness

First off, do the right thing. In the LA Fitness case, this meant issuing a refund to those who probably deserved one. The national health club’s prompt and reasonable actions to resolve or at least mitigate their customers’ real concerns and damages caused by the shutdown effectively erased co-Plaintiff Enzinna’s claim. After all, if Enzinna was already (as we lawyers like to say) “made whole”, then it makes for a difficult argument that he is still injured and needs his day in court. By issuing a refund for the entire month its locations were partially closed down, LA Fitness may have avoided the not-insignificant time and legal costs—not to mention uncertainty—of a class action lawsuit in Federal district court.

As a side note, I also think LAF notifying and offering equitable alternatives to customers not eligible for a full refund was not just a nice thing to do or even great PR; such efforts wouldn’t have hurt at all before a judge (or jury) had its motion to compel arbitration been denied and the case gone to trial.

Next, make sure to review each of your online and paper customer agreements’ material terms are consistent across all of your contracts. LA Fitness appears to have gotten a bit lucky since they were able to dispatch one lead plaintiff with a mandatory arb clause, while the other lead co-plaintiff was eliminated by the full refund discussed above, even when that latter plaintiff had signed an agreement that did not include forced arbitration, meaning that the case might have proceeded to trial and brought before a sympathetic judge or jury members.

Now I do not know how or why LA Fitness had arb provisions in their personal training contracts but not in their general membership agreements, but the lesson for businesses is clear: make it a note to thoroughly and periodically have your in-house or outside legal counsel review all of your critical customer agreements for consistency—particularly for critical provisions such as compulsory arbitration of any disputes.

Ben Bhandhusavee is the Managing Attorney for BHANDLAW, PLLC, a startup, technology, and e-commerce law practice advising founders and management teams on company startup, corporate and technology transactions, e-commerce, as well as Internet privacy concerns. The firm serves corporate and individual clients throughout Arizona, the United States, and internationally. Our offices are conveniently located along the Camelback corridor in Phoenix’s financial district. For more information about our Internet/E-commerce Law practice, feel free to reach out using the contact form on the right or call us at (602) 222-5542 to schedule a meeting. Connect with Ben on LinkedIn or Avvo.