The Franchise Memorandum

A federal district court in California dismissed a class action suit initiated against Fitness Evolution Franchising LLC (“FEF”), the franchisor and successor to the Fitness 19 system, by members of the former Fitness 19 gyms in Abrantes v. Fitness 19 LLC, 2013 WL 4075576 (E.D. Cal. Sept. 14, 2017). The members’ accounts were transferred from franchised Fitness 19 gyms to various franchised Fitness Evolution gyms in 2015 and 2016. Automatic debits of monthly membership fees were subsequently made from the members’ bank accounts in accordance with the terms of the members’ franchised Fitness 19 contracts, and the plaintiffs alleged that FEF’s automatic debits of their monthly membership fees for Fitness Evolution franchised locations violated the Electronic Funds Transfer Act (“EFTA”).

FEF moved to dismiss all claims against it on the grounds that the plaintiffs did not allege that FEF directly initiated the transactions at issue and that it therefore could not be held liable for any alleged EFTA violations. The plaintiffs argued that as the franchisor of the Fitness Evolution system, FEF provided its franchisees with an integrated billing system, and that it was reasonable to infer that FEF was responsible for the policies and procedures that led to the unauthorized deductions. The complaint included no allegation that FEF had any direct relationship with the plaintiffs, deducted the funds from the plaintiffs’ accounts, or was a third-party payee. As a result, the court sided with FEF, noting that indirect involvement was not enough to state a claim for a violation of the EFTA. Further, because there is no liability for aiding and abetting EFTA violations, the court granted FEF’s motion to dismiss.