Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App.: Health club operator form membership contract did not violate UCL, (Sep 18, 2014)

By Linda O’Brien, J.D., LL.M.

Two consumers failed to state unfair competition and false advertising claims against a health club operator for allegedly implying in an enrollment contract that members who prepaid their dues could keep their dues at the same rate if they renewed their membership, a California appellate court has held. Thus, the trial court judgment in favor of the health club operator was affirmed (Harper v. 24 Hour Fitness, Inc., September 17, 2014, Perluss, D.).

24 Hour Fitness operates workout and health club facilities throughout California. From 1996 to 2000, 24 Hour Fitness offered memberships to use its facilities under a form contract that authorized a prepaid membership with a guaranteed renewal rate. Consumers Bryan Harper and Mark Salzwedel became 24 Hour Fitness members and entered into prepaid, multi-year contracts. When Harper and Salzwedel’s initial three-year memberships were about to expire, 24 Hour Fitness refused to renew for a new three-year term at the guaranteed rate. Rather, it permitted renewal at a specified amount for only annual terms.

Harper and Salzwedel filed a putative class action suit against 24 Hour Fitness, alleging violations of California’s Unfair Competition Law (UCL), among other claims. The plaintiffs asserted that the company’s contracts and sales techniques were deceptive and falsely implied that members who prepaid their dues for the entire contract term were entitled to keep their dues at the same rate if they renewed their membership after the initial term expired. Following a bench trial in July 2012, the trial court ruled in favor of 24 Hour Fitness on the UCL claims. Harper and Salzwedel dismissed their individual claims and appealed the judgment.

The court found that the plaintiffs failed to prove that the health club’s contract was likely to mislead a significant portion of consumers acting reasonably in the circumstances. Under the UCL, unfair competition means “any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” According to the court, it was undisputed that the health club contract did not specifically state the renewal term was limited to one year. Moreover, Harper’s and Salzwedel’s apparent understanding—based on the specified length of the initial prepaid membership—that the renewal term was for the same three-year period was not reasonable. However, the ambiguity of the contract’s express language, standing alone, did not establish that the company’s use of the form contract was a fraudulent business practice as a matter of law.

Although the plaintiffs were not required to allege statistical evidence to prove the form contract was likely to deceive a significant portion of the public, 24 Hour Fitness was entitled to present evidence in its defense that the form did not mislead a significant portion of the targeted consumers. Such evidence included a list showing that an overwhelming majority of putative class members renewed their memberships for several years and testimony that the director of membership was unaware of a substantial volume of complaints, the court noted.

Finding the plaintiffs’ argument that no 24 Hour Fitness sales person testified the one-year renewal policy was explained to potential customers unpersuasive, the court noted that the plaintiffs conceded that the pricing on their contracts was explained to them, even though they did not recall the explanations. Finally, the court concluded that the use of the health club contract was not an unfair business practice under the UCL because the plaintiffs failed to prove that the contract was likely to deceive a significant portion of the public.

The case is No. B243322.

Attorneys: Stephen Glick (Law Offices of Stephen Glick), Scott A. Brooks (Daniels, Fine, Israel, Schonbuch & Lebovits), and Ian Herzog (Law Offices of Ian Herzog) for Bryan Harper and Mark Salzwedel. Richard A. McDonald (Carlson & Nicholas) and Robyn C. Crowther, Albert Giang, and Kelly L. Perigoe (Caldwell, Leslie & Proctor) for 24 Hour Fitness, Inc.

Companies: 24 Hour Fitness, Inc.

Cases: StateUnfairTradePractices CaliforniaNews