This article originally appeared in Club Industry and is republished here with permission.
Plaintiff attorneys trying to capitalize on the chaos created by the COVID-19 pandemic have filed class action lawsuits against companies that own and/or operate fitness and health clubs. Lawsuits Seek Reimbursement of Assessed Monthly Membership Fees and Dues Based on Alleged Lack of Access to or Use of Club Facilities and Equipment Caused by a Club’s Compliance with National Operating Restrictions and local and agency guidelines.
Most of the cases filed to date have focused on breach of contract, tort, and consumer protection legal theories of liability and recovery. Health clubs, which are typically authorized by a membership agreement to charge members dues or monthly fees, must be prepared to respond quickly, decisively and strategically if their business becomes the target of a related class action lawsuit. to COVID-19.
This article offers a litigation checklist with a high-level overview of some important procedural and strategic considerations that may apply on a case-by-case basis to defend against these types of class actions.
Procedural and Venue Considerations
Referral to Federal Court: If the plaintiff filed the case in state court, consider sending the case to federal court under the Class Action Fairness Act (CAFA), or possibly traditional diversity jurisdiction or federal jurisdiction . Because COVID-19 claims are typically brought on behalf of all members, the CAFA requires that at least one plaintiff and one defendant be citizens of different states, that at least 100 proposed class members be involved and that a claimed amount greater than $5 million is in dispute for federal jurisdiction are often satisfied. To the extent an arbitration agreement exists, a federal court is preferred to seek binding arbitration under the federal arbitration law.
Arbitration Clause with Class Action Waiver: Is there an arbitration agreement that can serve as the basis for forcing arbitration (i.e., membership agreement, online registration form)? Most COVID-19-related claims targeting health and fitness clubs arise out of or involve the provision of services or other benefits under a consumer contract, which often contain an arbitration waiver clause to class actions. Arbitration agreements with class action waivers are enforceable under the Federal Arbitration Act.
Choice of location: If arbitration is not available, is there a consumer contract with a choice of venue clause or a choice of forum clause that governs where any dispute should take place? Consider whether there is a motion to change or move the venue to a more favorable forum on the basis of contract or some other ground, such as the common law doctrine of forum non conveniens, which seeks to that the lawsuits are decided in a reasonable geographic location based on factors such as where the controversy arose, where the parties are located, where witnesses are located and where key documents are kept.
Choice of law: A related contractual consideration is whether there is a choice of law provision that dictates which law applies. If so, does this choice of law provision cover contractual claims and non-contractual claims? Depending on the wording of the choice of law provision, there may be a question of which law applies to non-contractual claims, such as tort or statutory consumer protection claims. Also note that the law of the state where a class action is filed does not necessarily govern the claims of all putative class members, some of whom may be citizens of other states.
Specific jurisdictional challenge: Under Bristol-Meyers Squibb v. Superior Court, 137 S. Ct. 1773 (2017), federal courts do not have jurisdiction over the claims of out-of-state plaintiffs in mass tort actions unless those plaintiffs can show sufficient contact with the state where the lawsuit was filed and their involvement in the facts in question. Although courts in different jurisdictions are divided on whether the Bristol-Myers case applies to nationwide class actions, depending on location, a jurisdictional challenge for out-of-state plaintiffs deserves to be considered at an early stage of litigation.
Lack of status: Has the named plaintiff suffered injury in fact or injury sufficient to give him standing under Article III? Under Article III of the United States Constitution, to bring a lawsuit in federal court, a plaintiff must have personally suffered an actual injury caused by the defendant that can be dealt with in court. Depending on the service or performance at issue, the named plaintiff (and other consumers) may not have suffered any identifiable injury or harm as a result of the defendant’s actions to mitigate damages (such as offering credits), offering reasonable alternatives (such as online fitness classes or training) or performance substitutions, making repairs or postponing performance (as opposed to cancellation) to a later date where not prohibited or restricted, or when it is otherwise no longer possible to do so.
No breach of contract: Depending on the language of the membership contract, an argument may exist to justify a demonstration of non-breach if the contract permits reasonable modifications, substitute performance, or the ability to remedy during the term of the contract, what has been done or offered by the non-performing party.
Class certificate: The details of a defense plan to defeat class certification will depend on the specific facts of the case. However, with class claims related to COVID-19, it is likely that the most effective certification defense will focus on differences within the proposed club membership category regarding contract terms, performance, derived benefits, causation and injury, harm or damage, and the existence of state and local orders or directives or other circumstances affecting the defending club’s ability to perform. The variation among putative class members will shape arguments related to Rule 23 of the Federal Rules of Civil Procedure, which sets out the requirements that must be met in federal court for a case to be certified as a class action.
Force majeure: Does the membership contract contain an applicable force majeure clause? A force majeure clause grants a reprieve to a party in the performance of its contractual obligations in the event of the occurrence of unforeseeable circumstances which prevent performance. A non-performing party’s use of a force majeure provision is language-specific and depends on the particular facts at issue. Therefore, the first step is to determine whether an event related to COVID-19 is considered force majeure under the Membership Agreement. If so, was the defendant club’s non-performance foreseeable and mitigable by the plaintiff member, and is the defendant club’s performance really impossible, such that it is excused? The imposition by states and local governments of prohibitions and restrictions on business operations, travel, venue capacity, gatherings and travel generally should be considered to assess whether the circumstances of a particular case give result in an event qualifying as force majeure.
Goal frustration: Where the defense of force majeure is not available, club operators may be able to invoke the common law defense of harm to purpose. This defense may apply when an event occurs which could not have been foreseen at the time of the signing of the contract and which prevents either of the parties from accomplishing the main objective of the contract. One consideration when asserting this defense is that if successful, the contract is terminated, which depending on the situation may not be a desirable outcome.
Impossibility or impracticality of execution: A related, but different, common law defense to harm to purpose is the doctrine of impossibility or impossibility to contract. Contractual impossibility occurs when the performance of a contractual obligation is excused due to a change in circumstances, which the parties had not foreseen at the time of the conclusion of the contract, which makes the performance of the contract literally impossible. Given the difficulty of proving actual impossibility, many courts have moved to a standard of impracticality where the intended performance of an obligation is excused on proof that it is unreasonably difficult or excessively expensive to perform, although possible, due to an unforeseen change of circumstances.
Amendment of the law: A change in the law can render a valid contract unenforceable as illegal if it is not possible to achieve the object of the contract without violating a law. Recent national and local orders, guidelines or directives in effect in some jurisdictions to address the COVID-19 pandemic may, in some cases, require compliance that is inconsistent with the purpose of the contract or performance under the membership agreement. Since these types of public order laws apply immediately based on overriding public interest considerations, many companies are unable to comply while providing contractual services or other benefits that were contemplated. by the initial membership agreement.
Depending on the specific facts at issue, the options presented in this checklist, when available, may be considered in an approach that companies in the fitness and health club industry can use when working with attorneys to effectively manage and prosecute a class action related to COVID-19.