New Jersey Justice Faustino Fernandez-Vina.

New Jersey Supreme Court Finds Health Club Contract Subject to Retail Installment Sales Act

New Jersey Supreme Court Justice Faustino Fernandez-Vina. Photo by Carmen Natale/ALM

The New Jersey Supreme Court has given the green light to a lawsuit claiming a health club’s initiation fee violated the Retail Installment Sales Act.

The court ruled that the plain language of RISA makes it applicable to service contracts such as the one at the center of the case. Its decision strikes down an Appellate Division ruling, Mellet v. Aquasid, holding that the act applies only where there is a financing arrangement. The justices also rejected an assertion by the state Department of Banking and Insurance, raised in an amicus curiae brief, that a contract must include a financing arrangement to be covered by RISA.

In resolving the confusion over the reach of RISA, the justices have provided meaningful guidance for future consumer litigation over contracts with health clubs and other services.

“It’s a true vindication for consumer rights in New Jersey,” Andrew Wolf of the Wolf Law Firm in North Brunswick said. “It’s a great decision and the Supreme Court got it 100% right, and I’m pleased that the Mellet decision, as it applies to RISA, is now overturned.”

The ruling clarifies that RISA applies to contracts for services where no interest or finance charges are imposed. RISA includes rules for the type and amount of fees that may be charged to consumers in such cases, Wolf said.

The ruling will also permit Wolf to seek a rehearing of decisions denying certification to certain subclasses in another consumer class action over health club contract terms, Ardino v. Retro Fitness, which he described as a very large case.

Ronald Israel of Chiesa Shahinian & Giantomasi in West Orange, representing Fitness Factory, said in an email, “The Supreme Court made it abundantly clear that its decision was limited and was solely to clarify its interpretation of RISA, without opining on the merits of the case, leaving the merits for the trial court to address on remand. Fitness Factory is extremely confident that it will win on the merits and the trial court will find, for the second time, that Fitness Factory was in full compliance with all laws, rules, and regulations, and that Plaintiff suffered no financial harm whatsoever.”

Plaintiff Henry Sanchez brought the suit on behalf of a class of Morris County consumers who joined Fitness Factory and were required to pay an initiation fee of $29.99. He opted to pay for his two-year membership via monthly electronic bank withdrawals, but others who paid the $39.99 monthly membership fee for the entire two years up front did not have to pay the initiation fee. His suit claimed the initiation fee violated RISA, which allowed him to bring claims under the Consumer Fraud Act, and the Truth in Consumer Contract, Warranty and Notice Act.

A trial court dismissed his case, citing the 2017 Mellet ruling, which held that RISA does not apply to service contracts. Sanchez appealed, and the Appellate Division affirmed.

At the Supreme Court, Sanchez argued that, by its plain language, RISA applies to the gym contract and nothing in the statute indicates that a financing arrangement is required. Fitness Factory, for its part, asserted at the Supreme Court that RISA does not apply to the membership contract because its contract does not confer ownership.

In addition, Fitness Factory argued that the Health Club Services Act is the only state statute regulating health club memberships.

In a unanimous ruling by Justice Faustino Fernandez-Vina, the court said some of HCSA provisions overlap with RISA, but the laws can be applied cumulatively and in harmony. HCSA and RISA are not in conflict and nothing in either statute indicates that it is an exclusive remedy, Fernandez-Vina wrote.

“The Legislature may determine that our reading today does not comport with its original intentions. If it so chooses, the Legislature may address this issue in the future. For now, we are left to fulfill our role of interpreting the text before us. We find that the plain text of RISA indicates that it applies to services contracts without financing arrangements, including Fitness Factory’s membership contract,” Fernandez-Vina wrote.

— to www.law.com

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