United States District Court, S.D. Ohio, Eastern Division
AMBER GASCHO, et al., On behalf of themselves and all others similarly situated, Plaintiffs,
GLOBAL FITNESS HOLDINGS, LLC, Defendant.
Magistrate Judge Norah McCann King
OPINION AND ORDER
EDMUND. SARGUS, JR. CHEIF UNITED STATES DISTRICT JUDGE
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.
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.
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
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.)
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.
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.)
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.
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.)
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.
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).
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.
STANDARD OF REVIEW
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.
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).
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.)
Likelihood of Success of the Merits
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.
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 ...