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Bally Lawsuit Coming to Close after Six Years

CHICAGO -- A settlement in a class-action lawsuit first filed in 2004 against Bally Total Fitness is scheduled for approval next month.

A hearing is set for Nov. 18 in the U.S. District Court for the Northern District of Illinois in Chicago. Judge John F. Grady will determine if the court will approve a sum of $2 million for the plaintiffs, who claimed that Bally misled investors about the Chicago-based company’s financial statements, including its net income, revenues and expenses.

The $2 million from the settlement would go to investors who purchased or acquired shares of Bally stock between Aug. 3, 1999, and April 28, 2004, according to court documents.

“That’s just the deal that was struck between the parties,” says Jon Lambiras, an attorney with Berger and Montague P.C., Philadelphia, the firm representing the plaintiffs. “There was give and take on both sides, and that was the amount that we arrived at. The case is still pending. It’s still subject to court approval.”

The settlement represents an average recovery of 6.5 cents per share, but after attorneys’ fees and taxes, it’s an average of 4.2 cents a share. A stipulation of settlement was entered on June 29.

The first of several securities fraud class actions was filed against Bally on May 20, 2004. Defendants in the case include Bally, former CEO Paul Toback, former CEO Lee Hillman, former CFO John Dwyer and Bally’s auditor, Ernst & Young. Of the $2 million, $95,000 will be provided by Ernst and Young, and $1.905 million will be provided by Hillman and Dwyer on behalf of themselves and Toback.

The defendants have denied the allegations in the lawsuit. In July 2006, the U.S. District Court dismissed the complaint for the plaintiffs’ failure to show that Bally acted with intent to defraud. In March 2007, Cosmos Investment Co., the lead plaintiff in the case, filed an appeal with the U.S. Court of Appeals for the Seventh Circuit. The settlement was reached before the appeals court’s ruling.

Bally filed for bankruptcy in July 2007. It emerged from bankruptcy later that year as a private company. That bankruptcy—the first of two Bally bankruptcies in the past four years—as well as the appeal and the settlement discussions were reasons for the length of this case, Lambiras says.

Lambiras did not know the exact number of plaintiffs in the class-action suit, but he says it could be in the thousands.

Bally declined to comment on the case.

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