Beset by losses from months of closure and facing a growing rebellion from members, the company that operates Boston Sports Clubs filed for bankruptcy protection on Monday.
Town Sports International, which operates 185 gyms across the country and 30 in Massachusetts, said it owes more than $23 million to its top 30 creditors alone, mostly in the form of unpaid rent. Boston Sports Clubs are expected to remain open while the company seeks to settle its debts with as many as 25,000 creditors in all.
“The pandemic has caused unprecedented economic volatility and uncertainty which has negatively impacted our recent operating results,” the company said in a Sept. 4 financial report to investors, contending that it has not been able to collect membership dues since March.
Numerous gym members, however, reject that assertion, saying the company continued to collect fees after the gyms were closed in March, debiting members' bank accounts instead of freezing fees or canceling their memberships. The bankruptcy filing may make it more difficult for them to collect on any back fees. Monthly fees range from $30 to $120, according to filings from a New York lawsuit. The company also charges annual fees.
Already, at least three lawsuits are pending against the New York-based company, and Attorney General Maura Healey’s office has received about 1,750 complaints about Boston Sports Club’s fees. Nearly 600 of the complaints came after the gyms reopened in early July.
“BSC may be bankrupt but they still have an obligation to treat their customers fairly," Healey said. "We are watching this situation closely and will take appropriate action if BSC fails to meet its obligations to consumers.”
Lenny Kesten, who represents plaintiffs in a federal lawsuit filed in Boston, said his office has had “over 450 outraged members contact us with sad stories of mistreatment by the BSC. Perhaps if the clubs had treated their members fairly, this bankruptcy would not be occurring. A 20-year member told us that ‘this company needs to go out of business. They are run by awful, greedy people.’”
The company has filed motions to dismiss the Boston suit as well as the lawsuits filed in New York and Washington D.C., calling them without merit. Company officials say they made up for any improper collection of fees by extending and upgrading memberships. In a memo to members on Sunday, Boston Sports Club said it was offering 45 days of free membership.
The members “frivolously contend that (Town Sports International) engaged in unlawful practices despite the fact TSI is and has been in compliance with the consumer regulatory laws that govern health club services,” wrote TSI’s lawyer, Peter Siachos, in response to the New York lawsuit, adding "there is no controversy or injury for the Court to address.”
Phone calls to Town Sports headquarters seeking their comment Monday were not returned.
Late last month, D.C. Attorney General Karl Racine filed a consumer protection lawsuit against the company, alleging that, although Town Sports said in April it would stop charging fees, it hasn’t happened. Since the D.C. locations reopened June 22, the attorney general’s office said it has received dozens of complaints from members who said they didn’t receive credits.
While the company is in bankruptcy, a court-appointed trustee decides how creditors will be paid and the pending civil suits are halted.
Town Sports filed for protection under Chapter 11 of the bankruptcy laws, which allows the company to remain in business under a reorganization plan. The company is asking the court to prevent utilities from shutting off service and to make sure its taxes and employee wages are paid first. The company also wants to be allowed to continue offering customer incentives, saying it was critical to its business that members remain loyal.
“It is essential that they maintain a strong connection with their current members,” their lawyers wrote.
In a statement to members, Town Sports International said the company is not going out of business. In documents filed with the Securities and Exchange Commission, it acknowledged it has already closed eight clubs permanently and may be forced to close more.
“Restructuring is the best way to properly respond to the COVID-19 pandemic, with the long-term goal to emerge as a thriving powerhouse in the fitness industry,” Town Sports said. "Town Sports will continue to operate its facilities as usual throughout this process, and members should not notice any changes to their fitness journeys.”
The company painted a gloomier picture in its filing in US Bankruptcy Court in Delaware on Monday. There, the company reported liabilities of between $500 million and $1 billion, and assets in the same range. Two of the largest creditors are Babson College in Wellesley and a Boston real estate investment trust that together are owed more than $2 million in back rent.
Members and former employees have been complaining bitterly about Boston Sports Clubs since March, when the company continued to charge fees after their gyms had closed.
One member, Matt, who asked that his last name not be used, said the club froze his membership in March but still charged him the $69.99 annual membership fee. He eventually got one third of his membership fee back, he said, but “that was after multiple exchanges with them. And then the icing on the cake was I finally just told them to cancel my frozen membership altogether, I was charged $10 for closing my account.”
In a recent filing in the Massachusetts lawsuit, a former employee said that he and a handful of co-workers were explicitly told to make it impossible for members to cancel or freeze their membership after the gyms closed.
Justin DeGraff, who worked as a personal trainer for two years, said that on a March 16 conference call, he learned that company officials were going to turn off automatic replies to e-mails "with the intent to prevent members from freezing and/or cancelling their memberships, and to bill all members for April fees despite the clubs being closed.
“As the clubs were being shut down, this intentional conduct made it impossible for members to cancel or freeze their memberships, or contact BSC about cancellation and/or other inquiries,” wrote DeGraff in an affidavit filed in US District Court in Boston.
But company officials said they are determined to treat customers right.
“We want to demonstrate that although times have been difficult we will move our business and brand forward in a positive direction,” said the company in its message to members e-mailed Sunday night. “Our goal is to ensure member satisfaction at BSC.”