On March 10, 2021, the parent company of sports club and gym-operator Town Sports International, LLC, filed a motion seeking to set aside a purported $250,000 settlement agreement between Town Sports and the New York Attorney General arguing that the agreement (1) was barred by the terms of Town Sports' confirmed chapter 11 plan and (2) in any case, not authorized by Town Sports but instead only by one of its prior attorneys.

As noted in our prior post on the case, Town Sports has been embroiled in litigation with the New York Attorney General since September 2020, when the attorney general's office filed a lawsuit against Town Sports arguing that it improperly failed to honor certain of its members' cancellation requests, and instead continued to assess monthly membership fees, during the disruptions caused by the COVID-19 pandemic and related government shutdown orders.  The parties appeared to have settled their lawsuit on March 4, 2021, when a New York state court entered an order approving a settlement agreement, which provided that Town Sports would release a $250,000 surety bond to the attorney general.  But, merely days later, Town Sports moved before the Delaware Bankruptcy Court to have the settlement agreement deemed void and unenforceable.

Like several other gym-based businesses, Town Sports filed for bankruptcy in the wake of the COVID-19 pandemic on September 14, 2020, in Delaware.  On December 18, 2020, the Bankruptcy Court confirmed Town Sports' proposed chapter 11 plan, which included a standard provision releasing all pre-petition claims against Town Sports.  The plan included an express "opt-out" provision under which claim-holders could choose to opt out of the release.  The plan was confirmed, however, without the New York Attorney General taking advantage of that opt-out provision, which, Town Sports argues in its motion, led to the attorney general's claims and related settlement being barred by the confirmed chapter 11 plan.

In its motion, Town Sports also argues that, regardless of its confirmed plan, the lawyers who signed the settlement agreement, purportedly on Town Sports' behalf, had no authority to do so.   Indeed, according to Town Sports, its CEO first found out about the settlement agreement only by way of a press release issued by the New York attorney general's office.   As a result, Town Sports argues there was no mutual assent, a necessary element for any settlement agreement to be valid under New York law.

The New York attorney general's response to Town Sports' motion is due by March 17, 2021.  And a hearing on the dispute has been scheduled for Monday, March 22, 2021.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.