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Gascho v. Global Fitness Holdings, LLC

United States District Court, S.D. Ohio, Eastern Division

May 19, 2017

AMBER GASCHO, et al., On behalf of themselves and all others similarly situated, Plaintiffs,
v.
GLOBAL FITNESS HOLDINGS, LLC, Defendant.

          Magistrate Judge Norah McCann King

          OPINION AND ORDER

          EDMUND. SARGUS, JR. CHEIF UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Plaintiffs' Motion for a Preliminary Injunction, which seeks to enforce a settlement agreement entered as an Order of this Court. (ECF No. 163.) The Court granted Plaintiffs' Application for Temporary Restraining Order on April 19, 2017, which was reissued on April 24, 2017 and extended on May 8, 2017 for another 14 days. Plaintiffs are asking the Court to order Defendant and interested parties Laurence Paul and Royce Pulliam to show cause why they should not be held in contempt for violating the Settlement Agreement and Court Order requiring it to make payments to Class Counsel and Dahl Administration, LLC. (ECF No. 197.) The Court held a hearing on this matter on May 15, 2017 and issued an initial Preliminary Injunction extending the terms of the Temporary Restraining Order until a final ruling could be issued. For the reasons that follow, Plaintiffs' Motion for a Preliminary Injunction (ECF No. 163) is GRANTED.

         Defendant, Global Fitness Holdings, LLC ("Global Fitness"), and individuals, Paul and Pulliam, have also filed motions to vacate the Temporary Restraining Order, (ECF Nos. 169, 171 and 174), which are now DENIED as moot.

         I. BACKGROUND

         Plaintiffs initiated this class action lawsuit on April 13, 2011, alleging claims of false and deceptive consumer practices, unconscionable consumer sales practices, and breach of contract, with some claims being dismissed in the Court's ruling on Defendant's Motion for Judgment on the Pleadings. (ECF No. 69.) Plaintiffs' claims are based on Defendant's billing practices arising out of Plaintiffs' gym memberships and personal training agreements at Urban Active gyms, which were owned by Global Fitness.

         On September 5, 2012, Defendant Global Fitness and Sport & Fitness Clubs, Inc. ("LA Fitness") executed an Asset Purchase Agreement for the sale of substantially all of Global Fitness's assets for approximately $70 million. (Transcript of Preliminary Injunction Hearing ("Hearing Tr.") at 102:15-16, ECF No. 208; Asset Purchase Agreement, Plaintiffs' Deposition Exhibit 9; see Minute Entry for list of admitted exhibits, ECF No. 205.) As part of the sale, LA Fitness was required to make a holdback payment to Global Fitness, which Global Fitness received on April 25, 2014 in the amount of $10, 044, 374.31. (Plaintiffs' Deposition Exhibit 7 ("Pis. Dep. Ex. 7."), ECF No. 201-7.)

         On October 10, 2012, Global Fitness initiated an action in the United States District Court for the Eastern District of Kentucky, Global Fitness Holdings, LLC v. Federal Recovery Acceptance, Inc., Case No. 2:13-cv-204 (hereinafter the "Paramount' case), hi Paramount, Global Fitness sought an injunction against Paramount, its billing services provider, to transfer necessary member information for the sale to LA Fitness scheduled for October 15, 2012. Because the information was not transferred in time, the closing was delayed until October 26, 2012, and as a result of the delay, LA Fitness exercised its rights to reduce the purchase price by roughly $9, 000, 000, for which Global Fitness is seeking in damages from Paramount. The Paramount case was ultimately transferred to the District Court of Utah, and on August 29, 2013, Paramount filed counterclaims against Global Fitness alleging $4, 599, 125.04 in damages, plus interest and attorneys' fees. (Defendant's Memorandum of Law ("Def. Mem.") at 2, ECF No. 195.) The case remains pending. Despite the sale of its assets to LA Fitness, Global Fitness' continued coordination of the sale and its involvement in both this case and in the Paramount case. Global Fitness maintained a small staff of employees to oversee their information, interests, and participation in the sale and litigation.

         On September 12, 2013, the parties in this case reached a settlement and executed a Settlement Agreement and Release. (Settlement Agreement and Release ("Settlement Agreement"), ECF No. 97-1; Plaintiffs Deposition Exhibit 22.) Under the terms of the Settlement Agreement, Defendant agreed to pay Plaintiffs' Counsel $2, 390, 000.00 in attorneys' fees and Claims Administrator, Dahl Administration, LLC ("Dahl"), for the cost to administer the settlement to claimants, estimated at approximately $500, 000 to $600, 000. (Plaintiffs' Memorandum in Response to Def. Mem. ("Pis. Mem. in Opp.") at 2, ECF No. 203 (citing Settlement Agreement).) Owner/Manager and former CEO of Global Fitness, Royce Pulliam, executed the Settlement Agreement on behalf of Global Fitness. (Settlement Agreement at 27.) The parties then filed a Joint Motion for Settlement Approval on September 18, 2013 (ECF No. 97.), which was preliminarily approved on September 30, 2013. In December, several individuals ("Objectors") objected to the Settlement Agreement, opposing, inter alia, the amount of fees to be paid to Plaintiffs' Counsel. (ECF Nos. 118, 122.) The matter was set for a fairness hearing before Magistrate Judge King on February 13, 2014. On April 4, 2014, Judge King issued a detailed Report and Recommendation on the fairness hearing and pending objections, in which she found the Settlement Agreement to be fair and reasonable, including the amount of attorneys' fees and costs. (ECF No. 141.)

         Twenty-eight days later, on May 2, 2014, Defendant Global Fitness issued a "tax distribution" to its four Managers (Royce Pulliam, Tomi Anne Pulliam, Pulliam Fitness Corporation, and Laurel Crown Global Fitness Holdings, LLC) in the amount of $10, 044, 374.31, the exact amount that Global Fitness received from LA Fitness as a holdback payment the previous week on April 25, 2014. On July 16, 2014, Judge Smith adopted the Report and Recommendation. (ECF No. 146.) The Final Order approving the Class Action Settlement was filed the same day. (Final Order Approving Class Action Settlement ("Final Order"), ECF No. 147.) On August 14, 2014, Global Fitness issued another "tax distribution" to its Managers in the amount of $318, 055.11.

         The same Objectors who challenged the terms of the settlement agreement at the fairness hearing appealed this case. On May 13, 2016, the Sixth Circuit affirmed the ruling on the class, and the Objectors' petition for writ of certiorari was denied by the Supreme Court on February 21, 2017. Upon the final judgment, the parties were expected to perform in accordance with the terms of the Settlement Agreement. The Settlement Agreement defines the "Effective Date" to be after "the Final Order and Final Judgment and the order of dismissal with prejudice have been fully and finally affirmed by the highest court to which such appeal is taken." (Settlement Agreement at 4-5.)

         Pursuant to the terms of the Settlement Agreement, Defendant Global Fitness was required to escrow amounts payable to the Class. The class has been paid in accordance with the Settlement Agreement ($1, 633, 240) from the funds held in escrow by Dahl. However, Defendant Global Fitness filed a notice with this Court on April 18, 2017 (2 days before the final payments were due) that it is unable to pay the class counsel's attorneys' fees, as well as the amount still due to Dahl, approximately $300, 000.[1]

         Plaintiffs immediately filed the application for a temporary restraining order and motion for preliminary injunction seeking to freeze all assets and accounts of Global Fitness (including its primary principals Royce G. Pulliam and Laurence E. Paul). Plaintiffs are asking the Court to order Defendant to show cause why it should not be held in contempt for failure to comply with the Settlement Agreement and the Court's Order (ECF No. 197), and to enforce the Settlement Agreement and the Court's Final Approval Order and Final Judgment (ECF Nos. 147 and 148).

         On May 15, 2017, the Court held a hearing at which testimony and evidence was presented on Plaintiffs' Motion for Preliminary Injunction. At the close of the hearing, the Court granted an initial preliminary injunction extending the terms of the earlier Temporary Restraining Order until this ruling is issued.

         II. STANDARD OF REVIEW

         The Court must consider four factors in determining whether to issue a preliminary injunction:

(1) whether the movant has a strong or substantial likelihood of success on the merits; (2) whether the movant would suffer irreparable injury without the relief requested; (3) whether issuance of the injunction will cause substantial harm to others; and (4) whether the public interest will be served by issuance of the injunction.

Chabad of S. Ohio & Congregation Lubavitch v. City of Cincinnati, 363 F.3d 427, 432 (6th Cir. 2004). These four factors are "to be balanced, not prerequisites that must be met." Hamad v. Woodcrest Condo. Assoc, 328 F.3d 224, 230 (6th Cir. 2003); see also Capobianco, D.C. v. Summers, 377 F.3d 559, 561 (6th Cir. 2004). Notwithstanding this balancing approach, the likelihood of success and irreparable harm factors predominate the preliminary injunction inquiry.

         The decision to issue a preliminary injunction lies within the sound discretion of the district court. See Golden v. Kelsey-Hayes, 73 F.3d 648, 653 (6th Cir. 1996). As noted by the Supreme Court and Sixth Circuit, "[t]he purpose of a preliminary injunction is merely to preserve the status quo until a trial on the merits can be held." Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981); Certified Restoration Dry Cleaning Network, L.L.C., v. Tenke Corp., 511 F.3d 535, 542 (6th Cir. 2007). The issuance of a preliminary injunction is an extraordinary remedy which should be granted only if the movant carries his or her burden of proving that the circumstances clearly demand it." Overstreet v. Lexington-Fayette Urban Co. Gov't, 305 F.3d 566, 573 (6th Cir. 2002).

         III. discussion

         Plaintiffs filed this Motion for Preliminary Injunction to prohibit Global Fitness and its principals Royce G. Pulliam and Laurence E. Paul from continuing to distribute, dissipate, and otherwise transfer assets, and ultimately to hold Defendant, Pulliam, and Paul in contempt of this Court's Final Order Approving Class Action Settlement. (Final Order, ECF No. 147.)

         A. Likelihood of Success of the Merits

         The Court must first determine whether Plaintiffs have shown a likelihood of success on the merits of its Motion for Order to Show Cause Why Defendants Should Not Be Held in Civil Contempt. (ECF No. 197.) Plaintiffe maintain that Defendant Global Fitness, as well as its principal Managers, Royce Pulliam and Laurence Paul, should be held in contempt for violation of the Court's order requiring it to pay Class Counsel and Dahl Administration pursuant to the terms of a Settlement Agreement entered into by the parties and approved by this Court. (See Final Order.) Defendant argues that at the time Judge Smith issued the Final Order approving the Settlement Agreement, Global Fitness "had sufficient cash to pay all amounts of the Settlement Agreement" and "had sufficient resources to pay the class, the class representatives, and the proposed legal fees to Plaintiffs' counsel." (Def. Mem. at 3, 5.) However, continuing to operate the business to maintain the ongoing litigation, Defendant claims that it could no longer satisfy its obligations under the Settlement Agreement once the payments finally came due.

         A decision on a motion for contempt lies within the sound discretion of the Court. See Elec. Workers Pension Tr. Fund of Local Union # 58 v. Gary's Elec. Serv., 340 F.3d 373, 378 (6th Cir. 2003), While the contempt power should not be used lightly, the power '"is a necessary and integral part of the independence of the judiciary, and is absolutely essential to the performance of the duties imposed'" by law. Id. (quoting Gompers v. Buck's Stove & Range Co., 221 U.S. 418, 450 (1911)). Failure to comply with a court order is sufficient grounds for demonstrating contempt. See United States v. Conces,507 F.3d 1028, 1041 (6th Cir. 2007). Contempt proceedings are used to "enforce the message that court orders and judgments are to be complied with in a prompt manner." Id. "Judicial sanctions in civil contempt proceedings may, in a proper case, be employed for either or both of two ...


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