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Class Action Defense Cases–Allen v. Holiday Universal: Pennsylvania Federal Court Certifies Class Action Against Health Clubs Alleging Excessive Membership Fees In Violation Of State Law But Denies Class Action Treatment Of Unjust Enrichment Claim

Class Action Treatment Warranted for Class Action Claims Against Health Clubs based on Violations of State Law but not as to Class Action Complaint’s Unjust Enrichment Claim Pennsylvania Federal Court Holds

Plaintiffs filed a putative class action in Pennsylvania state court against three health clubs (Holiday Universal, Scandinavian Health Spa and Bally Total Fitness) alleging violations of Pennsylvania’s Health Club Act and Unfair Trade Practices and Consumer Protection Law (UTPCPL); defense attorneys removed the class action to federal court. Allen v. Holiday Universal, ___ F.Supp.2d ___ (E.D. Pa. March 11, 2008) [Slip Opn, at 1]. The class action complaint alleged that plaintiffs entered into “Retail Installment Contract” prepared by defendants that required payment of a membership fee ($632 for one of the named plaintiffs, which she financed at 17.50% interest, and $1275 for the other named plaintiff, which he financed at 13% interest) and monthly dues; the health club memberships renewed automatically. Id., at 3. The theory underlying the class action was that the health clubs charged “grossly excessive initiation fees” in violation of Pennsylvania state law. Id. Plaintiffs moved the district court to certify the litigation as a class action, id., at 2; defense attorneys opposed the motion. The federal court found the elements of Rule 23 satisfied and granted plaintiffs’ request for class action treatment.

The defense first argued that the definition of the proposed class was overly broad because it included within its sweep individuals who suffered no damage because they wanted, accepted and benefited from the health club memberships. Allen, at 6-8. The district court disagreed, holding that if the initiation fees were excessive under Pennsylvania law then every member of the proposed class action suffered damage, regardless of whether they wanted and utilized the health club services, id., at 8. The district court also rejected a claim that the class action’s definition of the class was improper because it created a “‘fail/safe’ class, that is, membership in a portion of the Class depends upon a finding for Plaintiffs’ on the merits.” Id., at 15. In essence, the defense argued that inclusion in the class turned on whether a particular health club was owned by defendant Bally Holding; plaintiffs countered that club ownership was not the “central issue of liability” presented by the class action and, accordingly, there was no improper “fail/safe” class. Id., at 15-16. The district court agreed with plaintiffs, and noted that “the question of whether any particular health club in Pennsylvania is owned by the Health Clubs is a question of fact not central to the question of liability and easily answered through further discovery.” Id., at 16. However, the federal court made it clear that it “expect[ed] the parties to promptly clarify any remaining confusion as to this issue.” Id. (The court also rejected a “ratification” argument, but that is not summarized here. See id., at 8-15.)

With respect to numerosity (Rule 23(a)(1), the defense conceded that the number of health club memberships at issue were sufficiently numerous to warrant class action treatment, but argued that plaintiffs had not demonstrated how many individuals wished to rescind their membership. Allen, at 17. This argument parallels the objection to the class definition, and the court rejected it on the same grounds, id. As to commonality Rule 23(a)(2), the defense argued that whether class members ratified the membership agreements and the “many different types of memberships with disparate fees and benefits” required individualized determinations, id., at 19; the district court held that the question of whether the membership fees charged violated Pennsylvania law was common to the class, and that the defense arguments went to issues of liability only, id., at 19-22. We do not here discuss the court’s lengthy discussion, and rejection, of the defense challenges to typicality under Rule 23(a)(3); suffice it to say that the court held plaintiffs’ claims were typical of the class. See id., at 22-28. We also do not here discuss the court’s lengthy discussion, and rejection, of the defense challenge to the adequacy of representation element set forth in Rule 23(a)(4).. See id., at 28-44.

The district court next turned to whether plaintiffs had satisfied the prerequisites of Rule 23(b). While plaintiffs argued that class action treatment was warranted under all three subsections of Rule 23(b), see Allen, at 45, defense attorneys countered that Rule 23(b)(1) and (b)(2) were unavailable because the primary relief sought was monetary, see id., at 45-48. The federal court agreed, concluding “it is fair to say that the primary relief sought by the Plaintiffs is monetary in nature,” id., at 48; accordingly, the court held that plaintiffs failed to satisfy the requirements for class action certification of (b)(1) or (b)(2) class. Id., at 49. But the district court held that a class action could be certified under Rule 23(b)(3), concluding that – with the exception of the unjust enrichment claim – the predominance and superiority tests had been met. See id., at 49-58. The court refused plaintiffs’ motion to the extent it sought to certify a class action as to the unjust enrichment claim, explaining that the unjust enrichment claim “cannot be tried on a class basis because the application of equitable relief ‘depends on the unique factual circumstances of each case.’” Id., at 58 (citation omitted).

In sum, the federal court granted plaintiffs’ motion to certify a class action against the health clubs as to the alleged violations of Pennsylvania’s Health Club Act and Unfair Trade Practices and Consumer Protection Law statutes. Allen, at 58-59.

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