Fees fraudulently charged to members of New York Sports Clubs and Lucille Roberts while the gyms were shuttered amid the pandemic could one day be paid back as part of a $250,000 settlement agreement announced Wednesday by New York State Attorney General Letitia James.
Both gyms are owned by Town Sports International. They unlawfully charged monthly dues to members under multiple "illegal and fraudulent practices," James said in a statement.
The quarter-million-dollar agreement must be approved by a court, and would amount to a recovery of bond payment from Town Sports International, James said. The company, also known as TSI, posted the bond in 2015 because of a provision in state law pertaining to health club services, officials said.
The law requires gyms to post a bond for its members in case gyms file for bankruptcy or break the law, authorities said.
The settlement comes after James' office sued TSI in September, alleging violations of the state executive law, including fraud, breaking the health club law, and sought an injunction against charging dues for clubs that hadn't reopened, restitution, penalties and legal costs. The suit estimated James’ office received 1,848 complaints against the gym chains.
"Town Sports International (TSI) could make $250,000 available in the future for potential restitution to affected New York gym members who were charged for gym services that were not available to them," James said.
TSI filed for bankruptcy last year. In November 2020, bankruptcy court approved a transaction that allowed a third-party to purchase TSI’s assets without assuming liability for any of the company’s prior conduct, officials said. Bankruptcy court also required TSI’s remaining assets to be sold and for the company to be shut down, James said.
"From the beginning of my office’s investigation, I have made clear to New York Sports Clubs and Lucille Roberts that the COVID-19 pandemic would not give them a free pass to violate the law and take advantage of members," she said.
Attorneys with Manhattan-based law firm Gordon & Rees, which was listed as representing TSI in the lawsuit, could not be immediately reached for comment Wednesday.