Northridge / Bally Ethical Breaches

The Northridge Club, in Toronto, is where I've been playing squash on a frequent basis. Northridge is part of the Bally Total Fitness Holding Corp. empire. The following letter was sent via email to numerous fellow Northridge members. See Bally Index for followup responses.

From: Uriel Wittenberg
Sent: Friday, December 09, 2005 7:44 PM
Subject: Northridge / Bally Ethical Breaches

Dear fellow Northridge Club members,

I've been coming to Northridge nearly every day for the past year. I've had lots of great squash games as well as enjoyable social times with many of you. Northridge has been a substantial component of my life. I was also a member for several years in the early 1990's before moving overseas.

But there's a problem with Northridge. It's owned and controlled by a grossly unethical company that has spawned torrents of consumer complaints for years, been the object of multiple government investigations for its deceitful practices, and been forced by authorities in multiple jurisdictions to pay fines and restitution to swindled customers.

I've accepted some things I didn't like at the club because they haven't been major problems. But in recent days I've witnessed outrageously abusive treatment of an employee, along with management's hypocritical and deceitful rationalizations.

As a result, I've come to the decision that I want this unethical company out of my life. I don't want my money supporting their power, and their ability to pursue their unconscionable practices.

This holiday season, you may want to think about the nature of this company and reconsider your own association with it.

I'm not naming the employee because he fears retaliation and damage to his reputation. People are often quick to assume that in any employee-employer conflict, it's the employee who's at fault. That is not the case here.

I have personally investigated this situation. I've also personally intervened, politely discussing the situation by phone with District Manager Jim Hamilton, as well as exchanging over half a dozen emails with him on the matter. I did not want to quit Northridge, and I did my best to get the situation resolved reasonably. But Jim was implacably bent on pursuing a course that was bad for members and bad for the company, not to mention harmful to the employee and his family.

I listened to Jim and read his correspondence carefully and with an open mind. I also made it very clear that his proposed course was not in my interests nor those of numerous other Northridge members. But members' interests seem to carry no weight whatsoever with Jim. I also pointed out (and this is easy to see from the numbers involved) that his proposed course would have a (modest) negative effect on the company's bottom line. This factor too was of no interest to Jim. He was absolutely determined to maintain his course. The only reasons I can make out are: 1) a wish to exercise or demonstrate power for its own sake; 2) very possibly, racism (though of course I could not have hard evidence of this); 3) perhaps, in their warped management culture, any modification by Jim of his course would represent an admission of error that would hurt his career at the company.

I also discussed this subsequently with Jim's boss, Jodi Wellman. Though Jodi talked a lot, and produced many red herrings, the conversation was essentially a repeat of the one with Jim. In no way did it suggest good faith on her or the company's part.

The company presents a friendly face. You're greeted with a smile at reception, they hand out lollipops, they have "member appreciation" months. You may not know much about the huge U.S.-based company behind the facade, namely Bally Total Fitness Holding Corp. They are the ones in charge. Jodi Wellman's title is vice president; the president is the Chairman and CEO of Bally Total Fitness Holding Corp., Paul A. Toback.

Target of multiple government investigations of customer abuse

That company has been investigated, and punished for deceptive practices against customers, by multiple authorities. I'm sure some of you will recognize certain of the abuses that are cited. The pattern is certainly recognizable to me, based on my own experiences. (See Misrepresentations by the Dunfield Club and Breach of contract by the Northridge Club.) The investigating authorities include:

• The U.S. Federal Trade Commission, which has accused the company^[1] of "numerous law violations," including:
  • continuing to collect membership payments after consumers had followed all cancellation procedures required by their contracts;

  • charging consumers' credit-card accounts or debiting their bank accounts without their consent;

  • in collecting on consumers' accounts, using harassment or other illegal practices (such as misrepresenting the amount consumers owed Bally's, or misrepresenting themselves as third parties hired to collect the debts).

  The Federal Trade Commission also investigated a company to which Bally turned over its customers' debts for collection.^[2] These are some of the illegal tactics allegedly used by Bally's collection company:

  • calling consumers at work when they knew the consumers' employers prohibited such calls;

  • calling consumers at times or places that they knew or should have known were inconvenient;

  • communicating with third parties for purposes other than acquiring location information about consumers, without consumers' consent;

  • communicating with consumers after consumers notified the company, in writing, to cease further communication about the debt;

  • using obscene or profane language;

  • communicating or threatening to communicate to persons, credit information the company knew, or should have known was false, and failing to communicate that a disputed debt is disputed;

  • failing to notify consumers of their right to dispute and obtain verification of their debts, and to obtain the name of the original creditor; and

  • continuing to try to collect debts after consumers disputed them in writing, and before the company verified the debts.

• The New York State Attorney General, which investigated after hundreds of consumers complained that deceptive ads and high pressure sales tactics tricked them into signing long-term contracts and misrepresented the total price of memberships. Consumers' complaints included misrepresentations by Bally employees about the terms of the memberships insofar as whether the contract was binding or could be cancelled. As a result, individuals — many of whom had only limited proficiency in English or were young, inexperienced consumers — did not know they were signing binding three-year contracts.

  The investigation revealed that Bally promoted its special low-rate memberships with extensive television and print advertisements that failed to disclose conditions necessary to receive the savings. For example, Bally ads enticed consumers by promoting low monthly dues without clearly disclosing other significant fees that increased the total monthly cost — such as the financing of thousands of dollars in initiation fees.^[3]

• The Wisconsin Attorney General, which sued Bally's for allegedly misleading customers about their right to cancel memberships, about monthly dues increases, and about services offered at the facilities; for selling contracts with an undefined length, or one that exceeded the two-year limit set by Wisconsin law; and for failing to provide complete contract copies to customers.^[4]

Press reports

Bally has also been the target of many investigations by newspapers that have reported its abuses. One New York Post article quotes a former Bally salesperson: "I went in there with a good heart and left feeling disgusted with myself. I felt horrible for lying, for not caring any more."

The article reports:

More than a dozen former Bally employees, including several managers, contacted The Post earlier this month after reading a two-day exposé that included scores of customer complaints that the nation's largest fitness chain uses deceptive sales tactics and strong-arm debt-collection methods....

Bally did not respond to The Post's request for comment about their allegations, which include:

• Bait and switch. While Bally's TV ads promoted a $19 down, $19-a-month membership deal, salespeople say they were trained to talk customers into more expensive plans with bigger commissions.

  The ads are "basically to get them in the door, and from there, they're suckered into buying something they really don't want," said Azurde Meyer, a former Long Island saleswoman.

• Heavy pressure. "You get them in the office, and you pound these people to death. You don't let them go," said Annmarie Demasi, another former Long Island saleswoman who has filed a sex-harassment complaint against the company.

  One unwritten rule, several former employees said, was not to let potential customers leave until they had joined. If salespeople could not clinch a sale, they had to call in the manager for a "TO" — takeover — they said.

  Salespeople also were told "buyers are liars," meaning they should not believe customers who said they would join later or didn't have credit cards or cash with them to make a down payment.

  Some Bally-issued sales scripts, obtained by The Post, instruct staffers in how to talk reluctant customers into signing on the spot. One script demonstrates how a woman can be persuaded not to wait to talk it over with her husband.

• Lies. Many salespeople dupe customers into believing it's "no problem" to cancel Bally's three-year retail installment contract, which is a legally binding, high-interest loan, ex-employees said.

  In fact, it's extremely difficult to cancel. Even members with valid reasons such as illness or relocation have reported hellish runarounds.

  "You make it sound so simple," Meyer said. "You never answer their questions, but you make it seem like they can cancel at any time."

  Salespeople said they had an incentive to fib: Bally takes back commissions for customers who cancel or stop paying within six months.

  And, they complained, Bally did not return the income tax withheld on those commissions.

  Some salespeople, they reported, didn't turn over contracts to customers, or removed sections that spelled out cancellation procedures — including the three-day period allowed for members to back out.

  "Without those papers, the person can't read the agreement, can't cancel, and is stuck paying," Brennan said.

  College students are frequently bamboozled, ex-staffers said.

  "Those poor things came in wanting a three-month membership and left with a 36-month contract," Demasi said. "The manager would tell them, 'You can get out of it, don't worry.'"

  In fact, many students are unable to get off the hook.

  Other ex-staffers said non-English-speaking customers are pushed to sign contracts they cannot read.

[An Exercise In Deception, New York Post, January 21, 2001. Numerous additional New York Post articles about Bally are provided at http://www.mwns.com/btf/hot_spots.htm and http://mwns.com/btf/nypost2.htm.]

The Pittsburgh Post-Gazette carried a story^[5] about another collection company's attempts to collect a fictional 10-year-old Bally debt from an elderly man who was never a Bally customer. ("There's nothing quite like opening an envelope and finding the words "PAST DUE BALANCE" on a bill for $4,855.16. Especially when you have no idea what the bill is for.")

A Shepherd Express Metro article about Bally clubs in Wisconsin describes a case in which

a man signed a contract for a free one-year membership offered to Desert Storm veterans. After five years and no correspondence from Bally's, the company's collection agency, Perimeter Credit, began harassing him at home and work about a $1,400 bill. "I am trying to handle this in a just, honest way, but these creditors are relentless in their pursuits, which I feel are unfounded," he states in his complaint to the Bureau of Consumer Protection.

[Clubbed, by Paul Keefe, Shepherd Express Metro.]

A writer for Seacost Online relates her own experience:

"James" from a collection agency called me last week to tell me I owe Bally's Total Fitness $1,200. I was dumbfounded. Bally's is the gym I belonged to when I lived in New York City — three years ago. When I left the city and tried to quit the gym in 2002 (owing Bally's nothing), they made it nearly impossible. Actually, they did make it impossible.

After two visits in person (I was told Bally's policy did not allow people to quit the gym in person, I'd have to handle this with the corporate office), and several long-distance phone calls (I was forced to hang up multiple times after being kept on hold for more than 40 minutes on toll calls), I cut the gym off at the source by canceling the bank account from which they were drawing the monthly membership fee. I then wrote the company a letter, stating my actions.

Fast-forward three years, during which I heard nothing from Bally's or my new friend (he calls a lot now) James from the collection agency. Until now. So this week, feeling wronged and angry, I did a little research on Bally's business practices. A simple search produced link after link to message boards and comments about Bally's allegedly horrendous business practices. www.manhattanusersguide.com, for example, has: "Misleading sales practices, high pressure to sign a contract, illegal debt collection tactics, failure to provide refunds, failure to provide services and contracts with serious 'gotchas' seem more the company's stock-in-trade than providing fitness facilities."

[Bad business, by Emily Wiggin (published sometime in 2005).]

Critical websites

Indeed, the web is overflowing with complaints about Bally.

ConsumerAffairs.Com (described as "a non-partisan, independent information provider"), in a section devoted to the company, remarks:

We get so many complaints about Bally Total Fitness, it's a workout just to sort through them.

[http://www.consumeraffairs.com/health_clubs/ballys_total_fitness.htm]

Other sites, like http://www.my3cents.com/companyOverview.cgi?code=249, have forums focussing on Bally in which anyone can post his/her own story.

There's a widely cited legal case, Bally Total Fitness Holding Corp. v. Faber, in which Bally, in the web's early days, tried suing the operator of a website called "Bally sucks" (now at ???^[10]).

Since the "Bally sucks" site displayed Bally's trademark with the word "sucks" printed across it, Bally tried arguing that the use of its trademark would create a likelihood of confusion. To support this point legally, Bally further argued that Bally and the "Bally sucks" site sold goods that were "related in the minds of consumers" because they both used the Internet. The judge's decision makes short work of that argument:

Bally is involved in the health club industry. Faber is an Internet web page designer who believes that Bally engages in unsatisfactory business practices. Faber operates a web site which is critical of Bally's operations. Bally, however, states that it uses the Internet to communicate with its members and to advertise its services. Consequently, Bally asserts that the parties have related goods because both parties use the Internet to communicate with current and potential Bally members....

The Court finds that the goods here are not related. Web page design is a service based on computer literacy and design skills. This service is far removed from the business of managing health clubs. The fact that the parties both advertise their respective services on the Internet may be a factor tending to show confusion, but it does not make the goods related. The Internet is a communications medium. It is not itself a product or a service. Further, Faber's site states that it is "unauthorized" and contains the words "Bally sucks." No reasonable consumer comparing Bally's official web site with Faber's site would assume Faber's site "to come from the same source, or thought to be affiliated with, connected with, or sponsored by, the trademark owner." Therefore, Bally's claim for trademark infringement fails as a matter of law.

The judgment also points out that it would make no difference if the goods were indeed "related in the minds of consumers":

[E]ven assuming that these goods are related, Bally's claims also fail to satisfy the factors [required to establish "a likelihood of confusion"]....

Bally argues that the goods are in close proximity because both parties use the Internet. Bally uses the Internet to generate revenue and disseminate information to its customers in support of its health clubs. Faber uses his web site to criticize Bally and to provide others with a forum for expressing their opinions of Bally. Faber does not attempt to pass off his site as Bally's site. Faber states that his site is "unauthorized." Bally asserts that its site offers similar services because it has a complaints section and it provides information about Bally's services and products.

The Court finds that Faber's site does not compete with Bally's site. It is true that both sites provide Internet users with the same service—information about Bally. These sites, however, have fundamentally different purposes. Bally's site is a commercial advertisement. Faber's site is a consumer commentary. Having such different purposes demonstrates that these sites are not proximately competitive. Therefore, this factor cuts against Bally.

Of course, there was a more fundamental problem with Bally's lawsuit, which the judgment also notes: It clashed with freedom of speech, a constitutional right.

Individuals' stories

Although one cannot readily verify any given story, it's clear that many people loathe Bally. No one is getting paid to criticize the company, and the stories are very plausible considering how consistent they are with more authoritative reports.

One victim writes:

I joined the service and was told that I could just write to corporate with a copy of enlistment paperwork to cancel membership. No strings attached. "there is a clause for the military" YEAH RIGHT! I did what I was told and even got a letter confirming. I went away, all my stuff in storage, everything was fine until 8 years later. EIGHT!!!! Guess what pops up in collections on my credit??? Not once in 8 years, but now it amazingly appears. My paperwork lost in a fire that almost killed my family, and these scumbags want me to pay $800 or produce the letter of cancellation. They said they had no paperwork of the incident....not even the copies of my enlistment paperwork? BALLYS IS A SCAM EVEN TO UNCLE SAM!!!

[http://www.mwns.com/btf/_disbally1/000001bf.htm]

Another writes:

we ended up buying a new home that was +25 miles away from the nearest Bally's after 6 months. Moving 25 miles away is one of the few ways to get out of the contract. This was great, but to cancel you have to send them a letter with all sorts of proof of your new address which I did. Well two letters and two months later — Bally's was still deducting funds from hubby's account until (AHA!) we decided to close it. Then the collection agency threats started coming in.

Anyway at this point Bally's has accepted the fact that we have moved and our account is closed but they are still demanding money from us when they owe US money for the dues they collected two months after we had moved outside of the area. I think it is especially nice how each time we speak with the stellar customer service staff they threaten collection agency action to scare us when clearly our account is in dispute with them.

I have never had to file a complaint with the BBB in my life, but today I did, because I don't know how else to settle this without them marring our credit. All this for signing up with a gym because health and fitness is an important aspect of our lifestyles. They have a nice little complaint history going with the BBB too.

And of course there are loads of complaints about them on the Internet on websites like Complaints.com

Anyway, sorry and good luck if you choose Bally's. We are never going back and we are telling as many people as we can how much they stink. I will not be surprised when they go out of business.

[http://www.epinions.com/content_193298665092]

Financial abuses too

It seems that investors too have been victimized by this company:

• Its accounting practices have been under investigation by the U.S. Securities and Exchange Commission since April 2004 or earlier, and it has had to restate its financial statements for the eight years up to 2003.^[6]

• Its shares have wavered between $3 and $7 for much of the past year, down from $30 as recently as 2001.^[7]

• Bally president Toback was personally criticized just a few days ago for selling more than 75% of his shares in the company just one day after a conference call in which he assured investors that his and his management team's personal equity stake in the company demonstrated their confidence and commitment to the company's future.^[8]

• A recent news account reports that the company is experiencing a liquidity crisis and may not have enough cash to keep operating.^[9]

Conclusion

I am actually currently locked into a 12-month contract at Northridge, but am requesting cancellation at the end of my current month.

This letter appears on my website at http://urielw.com/btf/uwlet.htm. My homepage (http://urielw.com) promises a general "right of response," and any response by the company or anyone mentioned above will be reproduced on the site and clearly indicated on the same webpage as this letter.

If you have comments or additional information, you're welcome to email me.

Sincerely,

Uriel Wittenberg

Followup responses: See Bally Index.

[1]     BALLY'S TO REFUND THOUSANDS OF MEMBERSHIP FEES AND PAY $120,000 IN CIVIL PENALTIES TO SETTLE FTC CHARGES, FTC, April 14, 1994.

[2]     Perimeter Credit Agrees to Pay $300,000 Civil Penalty to Settle Charges of Violating Fair Debt Collection Practices Act, FTC, February 18, 1999.

[3]     CONSUMER COMPLAINTS LEAD TO HEALTH CLUB SALES REFORMS, New York State Attorney General, February 16, 2004.

[4]     Clubbed, by Paul Keefe, Shepherd Express Metro.

[5]     If you don't owe, or don't know, don't pay, by Lawrence Walsh, Pittsburgh Post-Gazette, April 14, 2004.

[6]     Bad blood runs deep in Bally power struggle, by Jeremy Mullman, Crain's Chicago Business, Aug. 29, 2005.

[7]     Bally CEO unloads more than 75% of his stake in firm, by Jeremy Mullman, Crain's Chicago Business, Dec. 07, 2005.

[8]     Toback under fire for selling big stake in Bally, by Jeremy Mullman, Crain's Chicago Business, Dec. 08, 2005.

[9]     Bally restates losses, warns of liquidity crisis, Reuters, Nov. 30, 2005.

[10]     [Correction made Dec. 16, 2005]: Prior to this correction, the text above indicated that the "Bally sucks" webpage that provoked Bally's lawsuit was at http://webpages.charter.net/jazzn2day/ballysucks.htm. But an email received today from that website's proprietor advises that's a different "Bally sucks" webpage. (Perhaps there are many independent "Bally sucks" webpages.) I hope, since Faber's "Bally sucks" was successfully defended from Bally's attack, a copy is still online somewhere, but as of now I don't know where it can be seen.