Friday, August 21, 2009

Anytime Fitness Sues Las Vegas Franchisee

On August 20, 2009, Anytime Fitness, Inc. (“Anytime Fitness”) filed a lawsuit in Minnesota Federal District Court against Las Vegas residents Lawrence Fagan and Linda Fagan and several of their Nevada limited liability companies (Rainbow Fitness, LLC; Fort Apache Fitness, LLC; and Blue Diamond Fitness, LLC) for breach of contract and trademark infringement. See Anytime Fitness, Inc. v. Rainbow Fitness, LLC et al, Case No. 09-cv-02185 (D. Minn.). A copy of the complaint (but without the over 100 pages of exhibits) can be downloaded here. [Update: The full complaint with exhibits can be downloaded here.]

AFI is the franchisor of the international Anytime Fitness franchise of small-scale 24 hour fitness centers. AFI owns the U.S. registered trademark ANYTIME FITNESS for “health and fitness club services.”

In April 2008, the Fagans, through their LLCs, entered into five year Franchise Agreements with AFI to open Anytime Fitness centers at three Las Vegas valley locations. The agreements each contained a forum selection clause choosing Minnesota as the sole forum for litigating disputes under the Agreement.

According to the complaint, as a franchisee of the Anytime Fitness “System,” the Fagans received information and know-how about operating a largely unstaffed 24-hour co-ed fitness center (with a limited “menu” of services that purportedly allows AFI’s business model to succeed where others have failed).

The Agreements included a covenant not to compete whereby the Fagans agreed that during the term of the Agreements, they would not start a competing fitness center business in their protected territory or within five miles of any Anytime Fitness location. The Agreements also gave the Fagans the right to use AFI’s trademarks in the promotion of their franchised locations.

Apparently, sometime in April 2009, AFI showed Lawrence Fagan a closed Anytime Fitness center location at 6300 West Charleston Blvd. in Las Vegas to see if he would be interested in taking over that location. The landlord had purchased the equipment from the former franchisee and had apparently been speaking with Fagan about reopening the center. Fagan declined AFI’s offer to open an Anytime Fitness location at this Charleston location.

Then, according to AFI, the Fagans turned around and began operating a fitness center at this location on Charleston under the name Lifestyle Fitness 24/7 (“Lifestyle Fitness”). Of course, according to the City of Las Vegas, the business license for the Lifestyle Fitness located on Charleston is in the name of Anthony Pasquale and was issued on July 23, 2009. [Of course, his own Linked-In page states that he is a co-owner and the City of Las Vegas’ records also reflect his title as President 100% although there is no indication of a corporation as owner].

AFI claims that Lifestyle Fitness is using AFI’s “System” including the same membership agreement, the same keyless entry system, same equipment layout, the same limited menu of services, and has been using materials and equipment obtained from AFI’s suppliers. [Query – if a third party came in and took over a location that was formerly an Anytime Fitness just as it was before it was closed but simply changed the name, wouldn’t one expect that the same equipment, keyless entry system, services menu, etc. would simply be part of what was left over to purchase.]

AFI also claims that the Fagans intend to open another fitness location (currently under construction) under the Lifestyle Fitness name at the intersection of Warm Springs Road and South Durango Drive in Las Vegas. AFI further claims that the Fagans are promoting their Lifestyle Fitness locations using AFI’s registered mark. AFI also claims that the “key fobs” located at the fitness center locations which allow patrons 24 hour access to the fitness center were purchased through an affiliate of AFI and use AFI’s proprietary software. [Weren’t the key fobs already installed at the Charleston location?]

AFI further alleges that the Fagans are planning on allowing members of its three Anytime Fitness locations access to their two Lifestyle Fitness centers. AFI also asserts that the Fagans are informing the members at their Anytime Fitness locations that they will either be converted to Lifestyle Fitness centers or closed down (and such members transferred to their Warm Springs & Durango location). Finally, AFI claims that the Fagans are soliciting employees and members at their existing Anytime Fitness locations to come over to their Lifestyle Fitness locations.

AFI sent a letter to the Fagans on August 7, 2009, reminding them of their non-compete obligations under the Franchise Agreements and demanding that they cease any competition. The Fagans responded to AFI’s letter with an e-mail on August 17, 2009, but apparently did not address the issue of whether they were competing with AFI. AFI responded to this e-mail with two specific questions about any involvement by the Fagans with the Charleston location or any other fitness center in Las Vegas. The Fagans answered “No” to both questions on August 19, 2009. Apparently, AFI did not believe the Fagans’ answers.

AFI’s causes of action are for breach of contract, federal and common trademark infringement, federal and common law unfair competition, violations of Minnesota’s deceptive trade practices act and unlawful trade practices act, unjust enrichment, misappropriation of trade secrets, and tortious interference with contractual relations and prospective economic relations. AFI is seeking the usual injunctive relief and damages (actual and treble), as well as costs and attorneys fees.

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