Category: Fitness

Fitness App Agrees to Pay $56 Million to Settle Class Action Alleging Dark Pattern Practices

On February 14, 2022, Noom Inc., a popular weight loss and fitness app, agreed to pay $56 million, and provide an additional $6 million in subscription credits to settle a putative class action in New York federal court. The class is seeking conditional certification and has urged the court to preliminarily approve the settlement.

The suit was filed in May 2020 when a group of Noom users alleged that Noom “actively misrepresents and/or fails to accurately disclose the true characteristics of its trial period, its automatic enrollment policy, and the actual steps customer need to follow in attempting to cancel a 14-day trial and avoid automatic enrollment.” More specifically, users alleged that Noom engaged in an unlawful auto-renewal subscription business model by luring customers in with the opportunity to “try” its programs, then imposing significant barriers to the cancellation process (e.g., only allowing customers to cancel their subscriptions through their virtual coach), resulting in the customers paying a nonrefundable advance lump-sum payment for up to eight (8) months at a time. According to the proposed settlement, Noom will have to substantially enhance its auto-renewal disclosures, as well as require customers to take a separate action (e.g., check box or digital signature) to accept auto-renewal, and provide customers a button on the customer’s account page for easier cancellation.

Regulators at the federal and state level have recently made clear their focus on enforcement actions against “dark patterns.” We previously summarized the FTC’s enforcement policy statement from October 2021 warning companies against using dark patterns that trick consumers into subscription services. More recently, several state attorneys general (e.g., in Indiana, Texas, the District of Columbia, and Washington State) made announcements regarding their commitment to ramp up enforcement work on “dark patterns” that are used to ascertain consumers’ location data.

Article By: Privacy and Cybersecurity Practice Group at Hunton Andrews Kurth

For more cybersecurity legal news, click here to visit the National Law Review.
 
Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

Compliance with Health and Fitness State Laws: Background, Best Practices and Key Takeaways for Health and Fitness Club Owners

We have found that most business owners desire to run their club, studio or other fitness facility in compliance with all applicable laws.  However, the problem is the difficulty in obtaining complete and accurate information regarding which laws are applicable to their business.  Therefore, the purpose of this article to:

(i) Provide information as to where club, studio and other fitness facility owners can find the relevant state laws;

(ii) Provide a general overview concerning the various definitions of “health and fitness facility” and how that definition varies from state to state (examples from New York, Colorado, Texas, Florida and Illinois statutes);

(iii)Examine a few of the more common statutes and regulations that show up in most states; along with general comments and analysis regarding these state statutes; and

 (iv) Provide business owners with key takeaways and considerations when determining how to best comply with all applicable laws.

For purposes of this article, we focus solely on specific state laws that apply strictly to club, studio and fitness facilities.  For further clarity, this means any laws that are generally applicable to all business (wage/hour laws, general corporation/LLC laws, etc.) will not be covered by this article but are still important for business owners to be aware of and follow.

I.  Where Can Business Owners Find the Applicable State Laws?

Most of the 50 states have provided electronic access to their state laws.  Through a simple Google search, you should be able to find your state’s applicable laws online.  After locating the entire index of your state’s applicable laws, the difficult part is searching through potentially thousands of laws to determine which laws are applicable to your facility.

By way of example, after semi-extensive research, we located the applicable “health and fitness facility” state laws for New York, Colorado, Texas, Florida and Illinois.  Some of these “health and fitness facility” laws are set forth in the following links:

  1. New York: http://www.dos.ny.gov/licensing/lawbooks/HLTHCLUB.pdf

  2. Colorado: http://www.lexisnexis.com/hottopics/Colorado/

  3. Texas:  http://www.statutes.legis.state.tx.us/Docs/OC/htm/OC.702.htm

  4. Florida: http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0500-0599/0501/Sections/0501.017.html

  5. Illinois: http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2376

If you cannot locate the state laws that are applicable to your fitness facility, an attorney well-versed in the health and fitness industry should be able to assist you or provide you with the relevant “health and fitness facility” laws.

Health and Fitness State Laws

II.  How Do States Define “Health and Fitness Facility”?

There is a wide variety of definitions as to what constitutes a “health and fitness facility” depending on which state laws you are examining.  It is important that you find and analyze your state’s particular definition of a health and fitness facility to prevent future issues (and fines) from non-compliance.

New York uses the term “health club” and defines it as any “person, firm, corporation, partnership, unincorporated association, or other business enterprise offering instruction, training or assistance or the facilities for the preservation, maintenance, encouragement or development of physical fitness or well-being . . . such term shall include but not be limited to health spas, sports, tennis, racquetball, platform tennis and health clubs, figure salons, health studios, gymnasiums, weight control studios, martial arts and self-defense schools or any other similar course of physical training.”

Similarly yet distinctly, Colorado also uses the term “health club” but defines it as “an establishment which provides health club services or facilities which purport to improve or maintain the user’s physical condition or appearance through exercise . . . the term may include but is not limited to a spa, exercise club, exercise gym, health studio, or playing courts…the term shall not apply to the following: any establishment operated by a nonprofit, or public/private school/college, any establishment operated by government, any establishment which doesn’t provide the health club services or facilities as its primary purpose, and health care facilities licensed or certified by the department of public health and environment.”

While both New York and Colorado use “health club” as a catch-all for health and fitness facilities, New York delves more deeply into the specifics of exactly what types of activities fall under the definition of a health club, while Colorado speaks about the activities more broadly.  This distinction may lead to more fitness related facilities being subject to the health and fitness statutes in Colorado.

Texas uses the term “health spa” and defines it as “a business that offers for sale or sells members instruction in or the use of facilities for a physical exercise program . . . which doesn’t include: private club owned/operated by its members, aerobic/dance studios, physical rehabilitation facility, an activity conducted or sanctioned by a school and a hospital or clinic.” This broad definition differentiates itself from both New York and Colorado by listing what does not fall under the definition instead of what does fall under the definition.  It also allows for a greater variance in the types of facilities that could fall under the umbrella of a health spa.

Florida uses the term “health studio” which is “any person who is engaged in the sale of services for instruction, training, or assistance in a program of physical exercise or in the sale of services for the right or privilege to use equipment or facilities in furtherance of a program of physical exercise.” Florida’s definition, similarly to Texas’ definition, provides more emphasis on the sale of services than the physical establishment and allowed activities as provided in New York and Colorado’s definitions.

Finally, Illinois defines “physical fitness center” as “any person or business entity offering physical fitness services to the public . . . physical fitness services includes instruction, training or assistance in physical culture, bodybuilding, exercising, weight reducing, figure development, judo, karate, self-defense training, or any similar activity; use of the facilities of a physical fitness center for any of the above activities; or membership in any group formed by a physical fitness center for any of the above purposes.” Similarly to New York, Illinois is very specific as to the types of activities that constitute a physical fitness center.

Gym 2

The purpose in highlighting the differences in these state statutes is to demonstrate the importance in understanding the definitions of health and fitness clubs in each state, which allows you to determine if the laws are applicable to your business.  As mentioned above, the failure to understand which statutes apply to your business could result in fines and other penalties down the road.

III. What are Some of the More Common Health and Fitness Statutes?

In analyzing the different health and fitness clubs statutes, several common themes arise. Perhaps the most obvious theme is consumer protection from deceptive sales and trade practices.   New York’s legislature specifically outlines its purpose in creating its health club statute by declaring that the statutes was created to “safe-guard the public and the ethical health club industry against deception and financial hardship, and to foster and encourage competition, fair dealing, and prosperity in the field of health club services.”

Every state we examined included language in its statutes that provides the consumer with the right to:

(i) Rescind contracts within a certain time period after signing up;

(ii) Cancel his or her membership if their household moves between 5-25 miles from the location of the establishment where the consumer entered into the contract; and/or

(iii) Establish limits on membership fees and the length of the membership contract.

By way of example, in California every membership contract must include the following language in 10-point boldface type: “You, the buyer, may cancel this agreement at any time prior to midnight of the fifth business day of the health studio after the date of this agreement, excluding Sundays and holidays. To cancel this agreement, mail or deliver a signed and dated notice, or send a telegram which states that you, the buyer, are canceling this agreement, or words of similar effect. The notice shall be sent to: (name and address of facility operator).” Some of the applicable California statutes (but not necessarily all of the relevant statutes) can be viewed at these two links: http://www.leginfo.ca.gov/cgi-bin/displaycode?section=civ&group=01001-02000&file=1812.80-1812.98 and/or http://www.dca.ca.gov/publications/legal_guides/w-10.shtml.

In addition to the three concepts listed above, most states require health and fitness facilities to maintain a pre-opening escrow account to protect customers in the event that the facility fails to open the facility within a defined period of time.  For example, in Texas, if a health club does not open before the 181st day after it sells its first membership, members will receive a full refund of their prepayment.

Other common statutory requirements include that the membership contract must be in writing and provide a description of the services, facilities and hours of access, the facility must have a certificate of registration with the state, and the customer must receive a copy of the written contract. Additionally, many state statutes include language that a membership contract is void if a member enters into the contract under false or misleading information provided by the owner. This broad catch all is often invoked by customers seeking to get out of their membership (whether rightfully or wrongfully).

Another area of variance among state statutes is membership contract cancellation policies. As stated above, almost all states require that the club or fitness facility allow a member to terminate the membership agreement if the member moves some specific distance from the gym location (the actual distance varies from state-to-state).  Also, most states have statutes that allow members to cancel their policies if the facility does not provide advertised services, fails to provide alternative facilities if the facility contracted for is forced to close or does not open on time, and if a member can no longer use the facility’s services due to a significant injury or disability in excess of six months.

As an example, Illinois’ statutes contain a simple cancellation policy where a customer may cancel his or her membership within three days of signing the contract for a physical fitness center that is open, or within 7 days of signing a contract for a club that has not yet opened. California, on the other hand, uses a sliding contract price scale to determine when a client has a right to cancel their membership: if the contract is $1,500-$2,000, the customer has a right to cancel within 20 days, $2,000-$2,500 and the customer has a right to cancel within 30 days, and if the contract is for more than $2,501 the customer has a right to cancel within 45 days of signing the contract. Finally, Texas requires that if a facility closes it must provide alternative facilities not more than 10 miles from the original location or it must pay a full refund to its customers of any pre-paid fees.

Gym 3

IV. Key Takeaways for Health and Fitness Clubs

 Health and fitness club owners need to be mindful that every state has its own unique statutes and regulations that are applicable to any health and fitness clubs located in that state.  These state statutes govern many aspects of their operations, including, but not limited to how they obtain customers and what needs to be included in their membership contracts.

At a minimum, club and fitness facility owners should review their existing form membership contract(s) to make sure they include the concepts discussed above; provided further, club owners need to specifically make sure that their form membership agreement(s) are compliant with all applicable laws, including sometime hard to find state statutes. 

Further, national club and fitness facilities need to adjust their form membership contract on a state-by-state basis to ensure proper compliance (i.e. have a specific membership contract for their New York facilities, a different membership contract for their Florida facilities, etc.).  Failure to do so can result in fines into the hundreds of thousands of dollars, as some states enforce their laws on a per occurrence (per membership) basis.

ARTICLE BY Aaron D. Werner of Horwood Marcus & Berk Chartered

Connor Valentyn contributed to this article.

© Horwood Marcus & Berk Chartered 2016. All Rights Reserved.

Entrepreneur’s Spotlight: South Loop Strength and Conditioning (Chicago, Illinois)

South LoopWelcome to the latest installment of Entrepreneur’s Spotlight on the Health and Fitness Law Blog.  In this series, we look at successful startups and ventures in the health and fitness industry and interview the hard-working entrepreneurs behind these companies to discuss how they did it and what they learned along the way.

Today, the spotlight is on South Loop Strength and Conditioning (“SLSC”).  SLSC is one of the most popular CrossFit gyms in the greater Chicago area, and is located at 645 S. Clark Street in Chicago, Illinois. For more information on what sets SLCS apart from other gyms in Chicago (and nationwide), please check out its website at http://southloopsc.com/.

SLCS is co-owned and operated by four individuals.  We met with one of the original founders, Todd Nief, to listen to his story.  As you will read below, Todd originally did not have a background in fitness, but he has gone on to obtain a wide variety of certifications, including the following:

  • Certified CrossFit Trainer (CrossFit Level 3)
  • CrossFit Specialty: Movement & Mobility, Running, Powerlifting, Kettlebell
  • DNS “A” Course (Dynamic Neuromuscular Stabilization)
  • DNS Exercise Level 2 (Dynamic Neuromuscular Stabilization)
  • FMS Level 2 (Functional Movement Systems)
  • OPEX CCP Level 2 (Formerly OPT)
  • Poliquin BioSignature Level 2
  • POSE Running Coach
  • Precision Nutrition Level 1
  • SFMA Level 2 (Selective Functional Movement Assessment)
  • USA Weightlifting Level 2

Due to the abundance of information Todd was willing to share, we have decided to break this interview into a two part series.  This is Part I of II.  Part II of II will be posted next week.  If you want to learn more or have questions for Todd, he can be reached at todd@southloopsc.com.

Enjoy!

South Loop

H&F Law Blog: You made the transition to CrossFit owner a few years ago.  Could you please tell us a little bit more about how you made the transition from Environmental Consultant to Gym Owner?

Todd Nief:  This was an entirely accidental transition. I had been doing CrossFit on my own for a few years – mostly training out of a Bally’s. So, I was the weird guy doing weird stuff that I should not have been doing and attempting to lift weights that I had no business lifting. I mostly followed workouts from www.crossfit.com but I also had gone in to CrossFit Chicago to receive a bit of instruction.

I had started going in to Atlas CrossFit on occasion so that I would be able to do workouts with a lot of weight dropping (they did not like that at Bally’s) as well as things like ring muscle-ups. I was not expecting to coach there, but, after being around a bit, I started working with some of the beginner classes there right around the time that I was laid off from my consulting gig.

After spending about a year at Atlas, I wanted to run a facility based upon what I considered to be best practices in coaching and training. So, I started looking into what it would take to open a gym and began heading down that path. Within the CrossFit community, there is a lot of glorification of the gym owner (which makes sense from a business model perspective as well…), so it never seemed that impossible to get into the gym business – especially after seeing some of the back-end of what a successful gym looked like

H&F Law Blog: What was the hardest part of going into business for yourself?  Who did you look to for advice when you first started out?

Todd Nief: Well I certainly had absolutely no understanding of business, sales or marketing. I was a coach and a musician with a chemical engineering degree – as well as a negative attitude towards business based upon a youth spent in punk, metal and hardcore.  So, the most consistently challenging thing for me has been overcoming my own negative and maladjusted thoughts surrounding what it means to own a business and what it means to promote yourself, take money from people, and hold others accountable to your principles (employees, clients, business partners, investors, etc).

We also opened probably about 9 months too late to really reap the benefit of “early adopters” to the CrossFit program. The gyms that opened about a year before us basically had to do nothing to attract clients, since they were some of the first gyms in the city and all they had to do was open up and put “CrossFit” on the door. There was a whole city of people learning about CrossFit and searching out gyms. By the time we opened, there was a certain level of saturation and a lot of the early adopters had already found a home.  So, we were in a position where – to have success out the gate – we would have needed to open at scale and have an understanding of marketing, positioning, sales funnels, and customer experience. Instead, we opened in a little hallway on the second floor of another gym with an attitude towards sales and marketing that resembled a depressed vegan sixteen-year-old talking shit about McDonald’s (I was that teenager).

And, man, we also really got kicked around on the real estate market quite a bit (leases falling through, leases not being countersigned, lack of respect from landlords, etc.)

H&F Law Blog: What was one thing you expected would be easy in owning or managing the business that was actually much more difficult than anticipated?

Todd Nief: I do not know if “easy” is the right word, but the CrossFit community has a lot of cultural push towards a meritocracy of marketing that I think is, at best, misguided and, at worst, disingenuous and pandering.  The assumption is that, by providing a great service to your clients and getting them results, they will do all the marketing for you and you can focus on coaching. This may work in an early adopter environment, but, as soon as the market reaches a certain level of saturation, this is an impossible way to exist and grow a business.

So, I got into the business to coach, and now my main role is understanding how to grow the business – by understanding how to communicate with potential clients and how to reach them.  I do not think I ever thought that marketing was easy, but I also underestimated how much marketing I would be doing.

H&F Law Blog: Conversely, is there anything that you expected would be difficult that turned out to be very easy to manage or figure out?

Todd Nief: This is a tough question for me, since I think that I generally assume that most things will be “difficult” but that I also trust myself to be able to figure them out.

I think that a lot of businesses have a lot of challenges around hiring, finding the right people, and raising cash when they need it. We have certainly had some frustrating, bizarre, and sketchy endeavors in all of these arenas, but we have also had some insanely fortuitous occurrences here as well – one employee leaving and another walking in the door within a few days, one investor flaking out and another reaching out within a few weeks, one lease falling through and another falling into our lap, etc..

Picture--Crossfit Gym

H&F Law Blog: It is my understanding that there are a few different owners of SLSC, and these owners have slightly changed over time without any hiccups in the business.  Speaking from our experience as outside general counsel to gyms with multiple owners, conflicts come up all the time between owners of gyms and we are often asked to interpret poorly drafted or virtually non-existent Operating Agreements or Shareholder Agreements (drafted by other attorneys, of course!).  How has South Loop Strength and Conditioning managed to have multiple owners (including some transition of owners), while running one of the elite CrossFit facilities in Chicago?

Todd Nief: Fortunately, one of my partners is a mergers and acquisitions lawyer, so he was able to get us set up with a pretty sturdy operating agreement when we started the business.  The business started as three of us, and there are now four; over four years we have removed one partner from the operating agreement and added two.

While the operating agreement did make these processes pretty clear in terms of what removal and addition of partners looks like, I think one of the biggest things here has been maintaining a level of respect between partners.  Even when one of our original partners was dissociating (which does not tend to happen if things are going swimmingly), there was never any bad blood and things never became unprofessional in that process. The operating agreement pretty clearly stated that we would buy out his shares for an agreed upon fair market value, so we crunched some numbers, went back and forth on a few things, and came to an agreement pretty quickly.  In terms of adding partners, it was a situation where two people came along at the right time that had an interest in the business and the right skillset to jump in and move us forward, so – similarly – we hashed out agreements that we thought were fair and amended our then-existing agreements.

[Note from Aaron Werner (Health and Fitness Attorney/Interviewer): Be sure you have a very clear and enforceable Operating Agreement (LLCs) or Shareholders’ Agreement (Corporations) when starting or buying a business with other people.  If you are raising outside capital, you need to be very careful about the securities laws involved concerning fundraising and documenting the business deal with your investors.  Be sure to work with an attorney well-versed in Operating Agreements/Shareholders’ Agreements/Other Fundraising Documents.]

H&F Law Blog: What advice do you have for other people that are going to go into business with other co-owners of a gym or studio?  What characteristics in your own business partners makes your partnership work so well?

Todd Nief: This is a somewhat challenging question since I think that this is somewhat similar to hiring – and there are many books and courses and videos and seminars and masterminds on this topic.

There are all kinds of things you can do to vet people, but the only consistent thing that works seems to be working with them to see what happens. Sometimes you make good calls, and sometimes you make bad calls.  And, similarly to hiring, sometimes you meet the right person at the right time, and then you can end up starting some gym together and having to figure out a bunch of stuff that no one ever told you before.

People say all kinds of corny stuff about vision and mission and whatnot, but that is all kind of inspirational quote fodder as far as I am concerned. I think there are basic understandings of how human beings should relate to each other that are essential for an effective partnership – most important is honestly probably generally treating other people with respect, whether that is clients, employees, or your other partners. Once contempt, deceit or manipulation enter a relationship, it can be impossible to salvage.

So, my advice would be to work with people before you enter into a partnership with them so that you know what you are getting into.

To be continued next week…

Article By Aaron D. Werner of Horwood Marcus & Berk Chartered
© Horwood Marcus & Berk Chartered 2016. All Rights Reserved.

Tips and Considerations (#1 – 5) Before Opening a Fitness Studio or Facility

I have worked with a number of clients over the past few years in opening up their own fitness studio (franchisee or otherwise) or CrossFit affiliated gym.  This article is the first in a three part series (15 tips and considerations total) aimed at helping people that are considering taking their passion for fitness from a hobby and turning it into a career.  The items discussed below are some of the best practices that I have observed in clients that were successful in their first fitness venture.

1. Write a serious business plan.  Creating a thorough business plan is one of the best ways to really force yourself to look at the financial prospects of owning a business, and is a great way to identify weaknesses prior to committing endless time, energy and money into a venture that may not be as viable as it seemed when discussing with your friends or significant other.  In my experience, my most successful clients from day 1 of opening are those that had the most well thought out business plan because they have better identified weakness prior to opening and made the proper adjustments accordingly.  As part of any business plan, you should include a line by line budget for Years 1 through 5 of the business, including granular detail on expenses associated with operating the business.

2. Understand that everything costs more than you think.  The business plan will help you understand the initial costs (equipment, build out, etc.) and ongoing costs (payroll, rent, software, etc.) of opening and running a fitness facility.  It will also force you to think about insurance, legal, employment taxes and other costs that tend to get overlooked by business owners just starting out.  My rule of thumb is to come up with a conservative budget for Years 1 and 2 of the business, and then add 20% to the final expenses line item.  The expenses, at first, will always be higher than you expect.

3. Identify and retain your “go-to” employees/managers.  Hillary Clinton once said, “it takes a village. . . ” – surely she was not referring to owning and operating a gym, but she might as well have been.  If you are the only person that everyone looks to when things go wrong, you will quickly burn out and the studio will likely fail.  The employees need an inspirational leader, and you will most definitely lose much of your inspiration after working 70+ hour weeks for what may amount to minimum wage (at best) over the first several months of operations.  It is important that you retain at least 1 or 2 key employees that you can count on to be there from the beginning.  You must take initiative to train these key employees in every facet of the business.  While generally I do not recommend just handing out equity in the business to key employees from day 1, you may consider a Phantom Equity or Bonus Plan to incentivize your key employees to work to make the business profitable.  Many of the successful gym clients I work with have Bonus Plans in place for their key executives based on the overall profitability of the gym.

4. Find the right partners, and document your business deal.  Let me first say, if you can afford to go it alone and not have business partners, I encourage you to do so.  In my experience, gym partnerships end badly 75%+ of the time.  Inevitably, one partner thinks they are doing more than the other, and they start unilaterally taking actions that damage the relationship.  Often times, friendships spanning many years are destroyed.  Before going into business with someone, spend time discussing much more than the money each person brings to the table; spend time discussing the vision of the business, decision making, how profits will be distributed, who makes hiring decisions, who makes equipment purchasing decisions, can an owner sell his ownership in the business to another person, etc.  I find the most successful business partnership are those between owners that have complementary skill and talents, and understand where each of the partners adds the most value to the business.  There is a laundry list of issues that should be discussed and agreed up before partners go into business together.

5. Find the right lawyer – someone who is familiar with issues faced by studio and gym owners.  This tip is even more important if you have partners.  Once you decide on the business deal with your partners, each of you will need independent, legal representation to properly document your business agreement in an Operating Agreement (for LLCs) or a Shareholder Agreement (for corporations).  One of the attorneys will also need to form the LLC or the corporation which will actually operate the business.  The attorney for the business will also need to review and negotiate your lease (be careful about sound/noise provisions!), possibly review your financing arrangement, and review and negotiate your Franchise Agreement (if you are going to be a fitness franchise owner).  Ask the attorney what other studios and club facilities he or she has worked with, and consider asking for a few references before commencing work with that attorney.

ARTICLE BY Aaron D. Werner of Horwood Marcus & Berk Chartered

© Horwood Marcus & Berk Chartered 2015. All Rights Reserved.