Santa Monica City Atty. Robert M. Myers says that the chances of consumers receiving refunds from a recently failed health club are "not great," but that the City Council will consider a law to protect consumers from losses when such clubs close in the future.
The city filed suit earlier this month against the Beverly Hills Workout, claiming that owners of the 14th Street fitness club used fraud, false advertising and unfair business practices to attract members before closing without warning on Dec. 9.
The suit, filed in Santa Monica Superior Court, asks for at least $350,000 in civil penalties and restitution of membership fees.
More than 850 former Workout members have obtained claim forms from the city to seek refunds from the club. About half of the forms have been returned to the city, according to Jeffrey Holtzman, consumer affairs attorney for the city.
Typical claims range from $70 to $150.
But Myers said last week that club owners Laura Lamar and Anthony C. Ponter have filed for bankruptcy.
"(They) do not appear to have the assets from which restitution could be paid," Myers said, "particularly in light of the large number of people who have sent claims to this office.
"However, we have not ruled out restitution. That's why we filed the lawsuit."
Holtzman said the city can win civil penalties from Lamar and Ponter, despite the bankruptcy filings. And Holtzman said the filings do not protect the assets of On the Move Inc., the corporation owned by Lamar and Ponter that operated the Santa Monica health club.
"The fact they have filed for bankruptcy does not mean we have reached a dead end in this case," Holtzman said. "It just means there will be more steps in attempting to get the consumers their money back."
Arthur Greenburg, Ponter and Lamar's lawyer, said he has not seen the lawsuit but denied that the pair engaged in unfair businesses practices or false advertising.
Meanwhile, Myers said his office is preparing recommendations for an ordinance regulating health clubs to be presented to the City Council next month.
The law might contain a provision requiring clubs to post a bond with the city before acquiring a business license. The bond would be used to pay off members if a club failed.
Another provision might force clubs to reveal how many members they had, so consumers could decide whether the club sold too many memberships.
Lamar, Ponter and Richard Bravo, a third party named in the suit, could not be reached for comment.
Bravo shared ownership of the Santa Monica club and another Workout location in Brentwood with Ponter and Lamar. The lawsuit contends that last September Bravo, Lamar and Ponter divided ownership of the clubs, with Bravo getting the Brentwood Club and Lamar and Ponter taking the Santa Monica facility.
When members found the doors of the Santa Monica club closed in December, many went to the Brentwood location expecting their memberships to be honored. But they found that club had been sold to a new owner, who requested additional fees before allowing them in.
Santa Monica officials said the Workout owners' bad faith was demonstrated by the fact that they sold memberships until the day before they closed.
But attorney Greenburg said Lamar and Ponter decided to close at the last minute and did not lure customers to the club knowing that they would soon go out of business.
About 20 customers who bought memberships in the club's last days have received refunds, Greenburg said, although he refused to reveal their names.
The lawsuit claims that that the Workout owners attracted customers by falsely claiming that:
- The business was sound financially and had the backing of other well-known, established businesses.
- They planned to enlarge the club and install showers.
- They would provide individual weight training instruction.
- Lamar was a former member of the U.S. Olympic ski team.