Grabianski v. Bally Total Fitness Holding Corp.

Citations: 169 F. Supp. 3d 785; 2015 WL 1427777; 2015 U.S. Dist. LEXIS 38273Docket: Case No. 12 C 284

Court: District Court, N.D. Illinois; March 26, 2015; Federal District Court

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Plaintiffs are seeking damages for losses related to their 'Premier' and 'Premier Plus' memberships at Bally’s fitness centers, which they claim became worthless after Bally sold their local gyms to L.A. Fitness. The court is addressing cross-motions for summary judgment regarding whether Bally breached the membership agreements. Both motions are denied. 

The parties present consistent accounts of the events, despite claiming disputes. Each plaintiff purchased a Bally membership between 1989 and 2002, with plans that allowed access to all Bally clubs. Memberships involved an upfront payment and monthly or annual dues. Some plaintiffs transferred memberships from other Bally members and frequented local gyms until November 2011, when Bally's clubs were sold to L.A. Fitness under an Asset Purchase Agreement (APA).

As part of the APA, L.A. Fitness acquired memberships associated with the purchased clubs, but the plaintiffs' memberships were not included. Upon the sale, plaintiffs were denied access to their local gyms and learned about the 'home club' designation, which was not defined in their agreements. They received conflicting information regarding potential transfers of their memberships and were told they could not be transferred. Although they were initially permitted to use remaining Bally locations, these were not accessible to them. 

After discovering that some memberships could be transferred, a protocol was established for such transfers, requiring members to request a transfer within 90 days of membership expiration. However, plaintiffs faced various explanations for their inability to transfer their memberships, including being informed the transfer window had closed. Ultimately, all plaintiffs’ memberships were transferred to L.A. Fitness, but not before some had already purchased memberships elsewhere.

Defendant seeks summary judgment based on three key arguments: (1) it claims to be an improper defendant, asserting it is merely a holding company without a contractual relationship with any plaintiff; (2) it argues that plaintiffs cannot prove the terms of the contracts they reference, as only one plaintiff, Stapleton, has provided his membership agreement; and (3) it contends that its actions align with the membership agreements in the available record. In response, plaintiffs argue that defendant is estopped from asserting its 'proper party' defense due to its prior silence on the matter and assert that undisputed facts show defendant effectively terminated their membership rights by imposing undisclosed 'home club' designations, hindering their transfer to L.A. Fitness.

The court notes that while defendant criticizes plaintiffs for alleged failures under Local Rule 56.1, its own exaggerated critique violates the spirit of the rule, complicating the determination of undisputed material facts. The court emphasizes the importance of concise factual statements under L.R. 56.1, which are meant to aid in identifying genuine disputes. It underscores that submissions should not serve as a platform for legal arguments or interpretations. The court also acknowledges the burdensome nature of ruling on summary judgment motions, particularly with cross-motions, highlighting the necessity of adherence to local rules to facilitate an efficient judicial process. Furthermore, the defendant's extensive focus on procedural shortcomings, rather than substantive issues, is deemed excessive and counterproductive, contributing to unnecessary complexity in the proceedings.

Defendant refuses to acknowledge any facts asserted by plaintiffs, even when those facts are used by defendant in its own summary judgment motion. In its L.R. 56.1(a)(3) statement, defendant admits basic information about the plaintiffs’ residency, but then disputes the plaintiffs' assertion that this information is undisputed, arguing that allegations in the First Amended Complaint (FAC) are not evidence. The defendant also objects to plaintiffs' exhibits as unauthenticated, hearsay, and lacking foundation, asserting that such evidence is inadmissible per Federal Rules of Evidence. Despite some valid objections, the defendant's refusal to concede facts it acknowledges creates confusion. For example, both parties agree on the Asset Purchase Agreement (APA) between Bally and LAF, yet defendant disputes plaintiffs' citation of deposition testimony supporting this fact, claiming improper citation without specifying relevant evidence. Overall, the defendant's pattern of disputing largely uncontested facts detracts from the resolution of substantive issues and presents an unnecessarily complicated legal posture.

A summary judgment motion does not require district courts to thoroughly investigate the entire record for potentially relevant evidence. Allegations about Bally selling clubs in various states lack support from the referenced testimony. Each paragraph in a motion must reference specific pieces of the record. Bally argues that the plaintiffs' exhibits are unauthenticated, hearsay, and lack foundation, making them inadmissible. Competent and admissible evidence is necessary to support factual assertions. There is consensus on the material facts between the parties, but Bally's aggressive response complicates reliance on its submissions, hindering the goal of a swift resolution. The plaintiffs' response to evidentiary objections, including a declaration, faced a motion to strike. The court finds that neither party is entitled to summary judgment. Bally's late argument regarding its status as a proper party to the breach of contract claim is not acceptable after three years of litigation. The defendant's silence on this point has impeded plaintiffs' discovery regarding liability for the membership agreements. While parent corporations and subsidiaries are typically distinct entities, this case has not adequately addressed whether the defendant can be held liable for breaches, given the lack of discovery on this issue.

A parent corporation may be held liable for its subsidiary's actions if it directly supervised a specific transaction, as established in Esmark, Inc. v. Nat’l Labor Relations Bd. The defendant in this case entered into the Asset Purchase Agreement (APA), which is central to the alleged breach of contract claims by the plaintiffs, but the relationship between the defendant and the contracting entities remains underexplored. Summary judgment for the defendant is inappropriate as the plaintiffs have not conducted discovery on critical issues regarding the corporate structure and responsibility for the conduct leading to their claims. Although the plaintiffs recognized that the defendant is a holding company, they focused their efforts on different issues due to the lack of indication from the defendant that it would pursue this defense.

Regarding the plaintiffs' membership agreements, while four out of five plaintiffs did not produce their agreements, it is acknowledged that each plan provided nationwide access to Bally clubs. Only one plaintiff, Stapleton, submitted his agreement, but Bally produced sample agreements with similar material terms. The variations in individual membership terms may be relevant to damages and class certification but do not eliminate the possibility of a jury finding liability based on the undisputed facts.

The primary contention revolves around whether the defendant's actions constitute a breach of the membership agreements. Despite the material facts being largely undisputed, reasonable interpretations of the agreements may differ. The defendant contends that there is no guarantee in the agreements that a member's preferred club would remain open and that closures are explicitly allowed. It also claims that members have a specific remedy in case of closure, which plaintiffs did not invoke. However, the clarity of the plaintiffs' ability to utilize this remedy is questionable, particularly given the stipulations in Stapleton's agreement regarding club closure and distance requirements for cancellation. Thus, the arguments presented by the defendant do not necessitate summary judgment in its favor.

Plaintiffs' memberships were not transferred to L.A. Fitness due to their 'home clubs' not closing under the Asset Purchase Agreement (APA). As a result, the plaintiffs could not invoke a specific paragraph of their membership agreements. The agreements included a discretionary 'Assignment' provision allowing the defendant to assign rights but did not guarantee it. A jury could find that the defendant acted arbitrarily by declining to assign memberships based on the 'home club' concept, potentially violating the implied duty of good faith and fair dealing. This duty requires reasonable and proper exercise of discretion, especially when a party has broad discretion in fulfilling its contractual obligations. Evidence suggests that the parties expected memberships would be assigned in the event of a transaction like the APA, as over 11,000 memberships were transferred to L.A. Fitness, implying a common understanding of members' rights. Thus, a jury could conclude that the failure to transfer memberships or the delayed transfer violated this duty. The court denied both parties' motions for summary judgment. Additionally, while plaintiff Eugene Fridman’s membership was a gift, this distinction was deemed immaterial. The memberships were originally linked to various clubs, with plaintiffs discovering their home clubs were located in different states than where they currently resided.

Defendant objects to plaintiffs' exhibits on grounds of lack of authentication by affidavit but does not contest the identity of the documents. The Declaration of Michael T. Fantini from October 10, 2014, addresses most of these objections. While the defendant challenges the plaintiffs' assertion of personal jurisdiction based on their claim that Bally has its principal headquarters in Illinois, the defendant's own statements confirm that its executive office is in Chicago, and its answer to the First Amended Complaint (FAC) admitted personal jurisdiction.

The evidence cited by plaintiffs supports their assertion regarding Bally's sale of clubs to LAF, although there was a minor typographical error in the citation of deposition pages. Despite some valid objections from the defendant, most evidentiary issues raised have been resolved. Plaintiffs' counsel is advised to ensure future evidence is authenticated and admissible, that factual assertions include proper citations, accurately reflect the cited material, and focus on facts rather than legal arguments.

The defendant's claim that all clubs sold to LAF were closed is incorrect, as the court previously indicated that the implied covenant of good faith and fair dealing governs contractual interpretations, obligating parties to exercise discretion in line with reasonable expectations.