ELLICOTT CITY, MD -- A Planet Fitness franchisee has filed a lawsuit against Planet Fitness, Dover, NH, and Brick Bodies, Cockeysville, MD, for violations of the Maryland Franchise Registration and Disclosure Law and the Maryland Antitrust Act. Other alleged violations in the 12-count complaint include fraud and civil conspiracy.
The suit was filed March 16 in the Circuit Court for Howard County, MD, by Diana Dutt and her husband, Hans Dutt. The Dutts are seeking at least $10 million in damages.
John Craig, Planet Fitness brand development director, and Josh Gerber, Brick Bodies marketing director, both say that the case has no merit and that they are confident the courts will side with their respective companies. Neither company provided any further comment on the lawsuit.
Planet Fitness filed a motion and a petition on April 13 in United States District Court in Boston to compel arbitration of the claims against it in the March 16 suit, in accordance with the terms in its franchise agreements with the Dutts, who had originally filed a demand for arbitration with the American Arbitration Association on Oct. 31, 2008.
In 2006, Diana Dutt—Diana Hamilton at the time—became the first woman to open a Planet Fitness franchise and the first Planet Fitness franchisee in the state of Maryland. She currently operates two Planet Fitness clubs, one in Lutherville, MD, and one in Ellicott City, MD. The Lutherville club was converted from a Quest Fitness club that Dutt purchased in 2001.
Victor and Lynne Brick, owners of Brick Bodies, purchased a Planet Fitness development deal in late 2007 for $850,000, the largest Planet Fitness rights deal at the time. The agreement required the Bricks to open 34 Planet Fitness clubs in the span of 10 years.
The complaint claims that Planet Fitness did not disclose to Dutt in its uniform franchise offering circular (UFOC) that Planet Fitness had area development agreements (ADAs) in exclusive territories with franchisees in other states and could enter into ADAs in Maryland. An ADA with another franchisee in Maryland would block Dutt’s ability to open new clubs or move her existing clubs because of the franchise agreement’s non-compete clause, according to the complaint. Also, when Dutt opened her second franchise in Ellicott City, the franchise agreement violated Maryland Franchise Law by not including a passage stating that Dutt has the right to sue Planet Fitness, according to the complaint.
“The Maryland Franchise Law was created to protect franchisees like my clients from the type of behavior that we contend Planet Fitness engaged in,” says David Ross, attorney for the Dutts. “Planet Fitness, who agreed to do business [in Maryland] in conformity with the Maryland Franchise Law is now trying to worm away from that obligation.”
Prior to the Bricks' agreement with Planet Fitness, the Dutts pursued opening two more clubs, one in Reisterstown, MD, and one in White Marsh, MD. According to the complaint, Diana Dutt sought out Victor Brick, a competitor since she opened Quest Fitness, and asked Brick to become a minority partner. Because they were competitors, the Dutts and the Bricks entered into a confidentiality agreement that prohibited the use of trade secrets gained through their meetings, according to the complaint.
The Dutts and the Bricks traveled to Dover, NH, and met with Planet Fitness executives, including CEO Mike Grondahl, in September 2007 to discuss the Bricks’ involvement in future Planet Fitness clubs. The ADA that was produced from the meeting called for the Dutts and the Bricks to open 27 clubs over a 10-year period in most of Maryland and part of Delaware, according to the complaint. Planet Fitness, a low-priced club model, agreed that Brick Bodies, a mid-priced model, would be permitted to retain its brand.
However, two months later, Planet Fitness announced its ADA deal with the Bricks that excluded the Dutts. The ADA with the Bricks included the 10 most populous counties in Maryland, including the counties that the Dutts helped to select, price and negotiate in September 2007, according to the complaint. The Dutts claim this ADA would never have come to fruition without their assistance.
As a result, according to the complaint, the Dutts are precluded from opening additional Planet Fitness clubs while the Bricks not only can keep their original chain of seven competing Brick Bodies clubs, but they can also expand without limitation and own up to 34 Planet Fitness clubs.“Brick Bodies has an interest in keeping low-priced competitors away from Brick Bodies,” Ross says. “What we’re claiming is that Mr. Brick’s goal wasn’t necessarily to change the Planet Fitness model. We believe his interest in Planet Fitness was really as a means to an end to keep competitors like Diana Dutt away from his Brick Bodies and Lynne Brick gyms. That way, he can continue charging what he was charging and not have a low-priced competitor right next door. There are laws prohibiting the type of conduct that we contend they engaged in.”