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Ruiz v. Bally-Class Action Defense Cases: Massachusetts Federal Court Denies Defense Motion To Dismiss Class Action For Lack Of Jurisdiction But Grants Defense Motion To Dismiss Class Action For Failure To State A Claim

By Holding Itself Out as Operating in Massachusetts and by Drafting Membership Contract in Dispute Bally Subjected Itself to the Jurisdiction of the Massachusetts Federal Court, but Membership Contract was not Unlawful Thus Warranting Dismissal of Class Action Complaint

Plaintiff filed a putative class action in Massachusetts state court against Bally Total Fitness and Holiday Universal (a subsidiary of Bally) alleging common law and various consumer protection law violations arising out of a health club membership contract she signed that required payment of a $1565 membership fee plus dues of $8 per month. The membership fee could be financed at 14.75% interest for 36 months. If a customer canceled her membership within that 36-month period, she need no longer pay the monthly dues but she remained liable for the entire membership fee. The Contract also contained a provision limiting the liability of the health club “for the loss or theft of, or damage to, the personal property of members or guests.” Ruiz v. Bally Total Fitness Holding Corp., 447 F.Supp.2d 23, 25-26 (D. Mass. 2006). After defense attorneys removed the case to federal court on grounds of diversity jurisdiction, the defense moved to dismiss the class action for failure to state a claim, and argued also that the court lacked personal jurisdiction over Bally. Id., at 25. The district court held that it had personal jurisdiction over Bally, but granted the defense motion to dismiss the class action for failure to state a claim.

With respect to the personal jurisdiction claim, the federal court recognized that jurisdiction over a subsidiary does not establish jurisdiction over the parent company. The district court held at page 27, “In consideration of 1) the requirement that [plaintiff’s] evidence of jurisdiction be accepted at face value, 2) the fact that Bally has held itself out as a company operating in Massachusetts and 3) the fact that the dispute in this case concerns a form membership contract that, in all likelihood, was developed by the parent corporation and not Holiday, the Court concludes that plaintiff has adequately demonstrated a basis for this Court’s exercise of personal jurisdiction over Bally.”

Turning to the merits, plaintiff’s class action complaint alleged, in part, that the membership contract violated the Massachusetts Health Club Services Contracts Act (“the Health Club Act”) and Consumer Protection Act (CPA), as well as state law prohibiting waiver of certain consumer rights. Ruiz, at 26. The Health Club Act prohibits membership contracts that exceed 3 years, require payments by the customer “more than one month beyond the expiration of the contract,” or that bar “any claim or defense arising out of the health club services contract or the buyer’s activities at the club” Id., at 27-28. The federal court held that defendants’ membership contract did not exceed 3 years, and did not require customers continue to make payments more than one month after terminating the contract because the membership fee could be prepaid at any time. Id., at 28. Finally, the court held that the limitation on liability provision of the membership contract did not violate the Health Club Act because it did not preclude customers from challenging the contract or seeking damages for use of the facilities, id., at 29.

The district court next held that because the membership contract was valid and enforceable, plaintiff’s common law claims for unjust enrichment and for money had and received failed. Ruiz, at 29. The unfair and deceptive practices claim failed because defendants had not acted unfairly or oppressively, and because the class action complaint failed to adequately plead a factual basis for establishing that the membership contract was deceptive or that plaintiff she suffered injury. Id., at 30. Finally, the federal court held that plaintiff’s declaratory relief claim failed because the membership contract was valid and because plaintiff suffered no injury. Id., at 30-31.

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