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Our Chicago class action lawyers have noted a recent decision where an Illinois federal court dismissed several claims in a putative class action lawsuit against a nationwide chain of health spas, but allowed two causes of action for breach of contract to proceed. Grabianski, et al v. Bally Total Fitness Holding Corp., et al, No. 12 C 284, memorandum opinion and order (N.D. Ill., Feb. 21, 2013) (the “2013 Order”). The dismissed claims alleged additional breaches of contract and violations of state consumer protection statutes. The court had dismissed the plaintiffs’ original complaint in the same cause, granting them leave to amend, in an order dated September 11, 2012 (the “2012 Order”).

The plaintiffs purchased memberships at Bally Total Fitness (“Bally”), a nationwide chain of gyms, during a period from 1986 until 2002. They all purchased “Premier” or “Premier Plus” memberships, which gave them the right to use any Bally location in the country. Bally allowed transfer of these membership plans, so while some of the plaintiffs purchased their plans directly from Bally, others obtained them in a secondary market. After declaring bankruptcy, Bally sold 171 of its clubs, more than half of its total, to LA Fitness, subject to an Asset Purchase Agreement (“APA”) dated November 30, 2011. According to the plaintiffs’ amended complaint, LA Fitness assumed their membership agreements as part of the sale.

Plaintiffs allege that after the sale was completed, they were denied access to Bally clubs now owned by LA Fitness. They claim that LA Fitness denied them access because their “home clubs,” where their memberships originated, were not part of the APA. In the cases of plaintiffs who acquired their memberships via a secondary market, the “home club” might be in a different state. While the plaintiffs could still access clubs that Bally owned, they did not live near any of those clubs.

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With all the spam that companies tend to send out, it’s no wonder that most people carefully guard their telephone numbers. Many people, however, don’t think of the fact that they are giving their number to every person and company that they call or send text messages to. In a recent class-action lawsuit against MTV’s parent company, Viacom, plaintiffs allege that the company violated the Telephone Consumer Protection Act by sending promotional texts to people who voted in the 2011 Video Music Awards.

The lead plaintiff in the case, Erin Mock, voted in the 2011 Video Music Awards via text message and was allegedly bombarded with promotional text messages shortly thereafter. According to the lawsuit, one such message read “MTV: ‘Jersey Shore’ sneak peek of tonight’s episode – why is Snooki lying in a bush? Watch”. Another said, “MTV: ‘Real World San Diego’ premieres Wednesday, Sept. 28 at 10/9c”.

The lawsuit alleges that, during the VMA solicitation for votes, viewers were never warned that, by voting, “they would be consenting to receipt of future text SPAM advertisements from Defendant and/or its subsidiaries and/or employees and/or agents”.

Mock further alleges that she sent a text message asking to stop receiving these text advertisements. She received a confirmation that the text messages would stop, but she allegedly received another such message (this one with a link to a “Real World” trailer) after she received her confirmation.

The lawsuit, filed in U.S. District Court in Tennessee, alleges that the “Plaintiff and the members of the Class and Sub-Class have all suffered irreparable harm as a result of the Defendant’s unlawful and wrongful conduct”. The suit is seeking $1,500 per alleged violation for each member of the class, as well as an injunctive relief against such conduct in the future.

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Once a subscriber gives a company their credit/debit card or bank information to charge subscription fees, some companies will take advantage of that to raise their fees without notifying their subscribers. Such is allegedly the case with the Chicago Tribune.
Cheryl Naedler and Theodore Raab, two Tribune subscribers, filed a class-action lawsuit against the company in the Circuit Court of Cook County. The lawsuit alleges that the Chicago Tribune breached its contract with subscribers and violated the Illinois Consumer Fraud Act by charging an inflated subscription fee, without warning subscribers at least 30 days in advance of the change.

According to the class counsel, what the Chicago Tribune should have done, “is send notice at least one billing cycle in advance saying we’re going to increase it … if you agree to pay. And they didn’t do it.”

Our Chicago class action lawyers note that the Chicago Tribune recently began mailing out a proposed offer to settle the lawsuit. Although the company denies the allegations, it said that it reached the settlement to, “avoid the cost, risk, and delay of litigation and uncertainty of trial” according to the notice.

If the court approves the settlement, about 41,000 subscribers will receive $6.50 each as part of the settlement. Naedler and Raab, as the class representatives, will receive $2,000 each.

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Many people are on the look-out for a quick fix to lose weight and get in shape. It is therefore no surprise that hundreds of thousands of people took advantage of Skechers’s offer when they introduced shoes that claimed to help people lose weight and tone up.

Skechers’s ads featured celebrity endorsers such as Kim Kardashian and Brooke Burke. The shoe company claimed that its Shape-Ups were designed to promote weight loss and tone butt, leg, and stomach muscles with the shoe’s curved “rocker” or rolling bottom. Skechers said that this caused instability which would cause the wearer of the shoes to “use more energy with every step.” Shape-ups cost about $100 and are sold across the country.

The Resistance Runner shoes were advertised as a fitness tool that could help people who wore them increase “muscle activation” by up to 85% for posture-related muscles and 71% for muscles in the buttocks.

The current lawsuit against Skechers consolidates more than 70 lawsuits from across the country into one lawsuit in federal court in Louisville, Kentucky. U.S. District Judge Thomas B. Russell recently approved the settlement reached between Skechers and the plaintiffs for $40 million. The judge also ordered Skechers to pay an additional $5 million for the attorneys in the case to share. Russell ordered that the money cannot come out of the $40 million settlement.
The two lead plaintiffs in the case will receive payments of $2,500 each.

Those with approved claims will be able to collect repayment for their purchase – up to $80 per pair of Shape-Ups; $84 per pair of Resistance Runners; up to $54 per pair of Podded Sole Shoes; and $40 per pair of Tone-Ups. The settlement covers more than 520,000 claims. About 1,000 people who are eligible for coverage by the settlement opted out.

Eleven objections to the settlement were filed, including people seeking the full purchase price of their shoes and one person saying the settlement would prevent him from seeking damages on his own. The judge rejected all of these arguments.

The settlement comes just one year after Skechers reached a deal with the Federal Trade Commission regarding the ads. A settlement with the Federal Trade Commission bars Skechers from ever again running the ads. If there is any money left over from the $40 million after all of the claims have been processed, the judge has ordered that the remainder of the money is to go to the Federal Trade Commission.

Skechers denies the allegations but said that it is settling in order to avoid a long and costly litigation.

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A couple who bought a retail business in New Jersey filed suit for fraud, alleging that the seller materially misrepresented the business’ revenues. After a bench trial, the lower court ruled for the defendants in Walid v. Yolanda for Irene Couture, Inc., holding that the plaintiffs did not demonstrate by clear and convincing evidence that their reliance on the defendants’ misrepresentations was justified. The New Jersey Superior Court, Appellate Division vacated the judgment, finding the defendants liable for fraud, remanding the case, and instructing the trial court to apportion liability among the defendants.

Anwar and Donna Walid, saw an online listing for the sale of a retail business, Irene’s Bridal Shop. They contacted the listing broker, who gave them a “fact sheet” from the owner, Yolanda for Irene Couture, Inc. (YIC). The fact sheet stated that the business had annual sales exceeding $500,000 and profits of almost $300,000. The listed sales price was $700,000. The Walids agreed to a purchase price of $700,000, subject to “proof of sales” and review by an attorney and an accountant. They retained an attorney, but Mr. Walid decided, against the attorney’s advice, to examine the financial reports himself rather than hire an accountant. YIC’s financial information showed annual income from 2003 through early 2006 well in excess of $500,000. The Walids obtained bank financing, and the sale closed in May 2006.

The business failed, and the Walids filed suit against YIC, its owner, and the accountant who prepared the financial reports Mr. Walid had reviewed prior to the sale. They amended the complaint to include Yolanda Couture, Inc. (YC), a New York company owned by YIC’s owner. They alleged that YC’s revenues were deposited into YIC’s bank accounts in order to inflate YIC’s earnings.

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Many people will try to take advantage of the sick and elderly by having them sign away their rights when they are vulnerable. However, when someone in a compromised position signs a legal document, a court of law may choose not to find that document to be binding.

Such is allegedly the case with Harper Lee, the author of “To Kill a Mockingbird”, in signing her copyright over to her agent. Eugene Winick represented Lee for more than 40 years. When Winick fell ill in 2002, his son-in-law, Samuel Pinkus, took over many of Winick’s clients. Lee has recently filed a lawsuit in Manhattan to regain control of her copyright.

According to the lawsuit, in 2007, Pinkus “engaged in a scheme to dupe” the then 80-year-old Lee into signing over her copyright for “To Kill a Mockingbird” without payment. At the time, Lee was recovering from a stroke in an assisted-living facility. The complaint alleges that, “Pinkus knew that Harper Lee was an elderly woman with physical infirmities that made it difficult for her to read and see”. Lee says she has no memory of agreeing to sign over her copyright.

The transfer allegedly secured for Pinkus “irrevocable” interest in the income derived from her book. It also helped him to avoid paying legal obligations to his father-in-law’s company for royalties that Pinkus misappropriated.

Although the copyright was reassigned to Lee last year as a result of a separate legal action, Pinkus was allegedly still receiving royalties from the novel as of this year, the complaint alleges. The current lawsuit is asking that any commissions Pinkus has received since 2007 be returned to Lee.

The lawsuit also claims that Pinkus has failed to provide royalty statements in recent years to explain money earned by the book. Additionally, Pinkus allegedly failed to respond to offers by HarperCollins to discuss licensing e-book rights and did not respond to the publisher’s request for assistance related to the book’s 50th anniversary.

“To Kill a Mockingbird” was published in 1960 and is Lee’s only published book. It is considered a classic and has sold more than 30 million copies.

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Many of us use Facebook “likes” every day to express our feelings and opinions on the internet. In fact, according to Facebook, around 3 billions “likes” and comments are made on the social network site on a daily basis. However, it is still a relatively new form of expression and, as such, might not get the protection of the American Constitution’s first amendment.

The issue has been brought before a judge in Hampton, Virginia where a deputy, Daniel Ray Carter, was fired by his sheriff. Carter sued for violation of the First Amendment after he was fired, alleging that he was let go as a result of “liking” the Facebook page of his boss’ political opponent during the town’s 2009 sheriff election. According to the lawsuit, Hampton sheriff B.J. Roberts said to Carter, “You made your bed, now you’re going to lie in it – after the election, you’re gone.” About five months after Roberts’s re-election, Carter was fired, along with five other employees who either supported Carter’s opponent or did not actively campaign for Carter during the election.

U.S. District Judge Raymond A. Jackson dismissed the suit, saying that the U.S. Constitution does not protect clicking the thumbs-up button on a Facebook page. According to Judge Jackson, the “like” button is not substantial enough of a statement to be considered free speech. In his decision, he wrote, “Merely ‘liking’ on a Facebook page is insufficient speech to merit constitutional protection.”

An appeal by Carter and his former co-workers is being reviewed by the U.S. Court of Appeals for the 4th Circuit. The American Civil Liberties Union has also filed an amicus brief supporting the effort to overturn Judge Jackson’s ruling. To demonstrate the power that a single click can have these days, the ACLU cited re-tweeting, signing a petition, and donating to a campaign online as examples. If the appeals court rules against Carter, the ACLU argues that all of these actions will be ineligible for protection under the Constitution’s first amendment. Rebecca K. Glenberg, the legal director of the ACLU of Virginia, told the Washington Post that “Pressing a ‘like’ button is analogous to other forms of speech, such as putting a button on your shirt with a candidate’s name on it.” The ACLU argues that, as the technological world grows, we must protect the news ways of communication which will inevitably develop.

Facebook has also come forward in support of Carter and the ACLU, saying that a Facebook “like” is the modern equivalent of putting up a front-yard campaign sign. Facebook will get a chance to argue their side of the case before a three-judge panel of the 4th Circuit Court of Appeals. The social media company will be allowed three minutes of oral argument when the panel hears the case.

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While copyright attorneys are very useful in protecting the rights of citizens, there are those who allegedly use illegal means to take advantage of copyright laws, as well as the high cost of litigation.

Three attorneys, Paul Hansmeier, John Steele, and Paul Duffy allegedly set up a copyright-trolling operation which came to be known as Prenda Law. The attorneys at Prenda Law allegedly forged copyright documents to give themselves the right to sue those who illegally downloaded pornography. They would then search the IP address of those who illegally downloaded the porn and sue. Before going to trail however, Prenda Law would offer the defendant a settlement of about $4,000, just below what a bare-bones defense in court would cost. To avoid the expense of litigation, and the embarrassment of having their names associated with a public trial involving pornography, the defendants allegedly were, more often than not, willing to pay the settlement.

In order to pull off this alleged scheme, the attorneys would file early-discovery requests with the courts so they could settle. Once they came upon a determined defendant though, Prenda allegedly quickly backed off. U.S. District Judge Otis Wright notes that, “Without better technology, prosecuting illegal BitTorrent activity requires substantial effort in order to make a case. … It is simply not economical viable to properly prosecute the illegal download of a single copyrighted video.”

Instead of admitting to the existence of other possibilities (for example, an outsider using a home WiFi signal), Wright says that Brett Gibbs, an attorney who worked for Prenda Law who is now testifying against Prenda, deliberately downplayed them. In one case, Gibbs described the defendant’s property as “a very large estate consisting of a gate for entry and multiple separate houses/structures on the property.” A quick search using Google Street View though, showed a very different picture: a modest home in West Covina, a Los Angeles suburb. Wright says, “It is a small house in a closely packed residential neighborhood, … There are also no gates visible. Gibbs’s statement is a blatant lie.”

At the hearing, the attorneys behind Prenda took the Fifth Amendment. They refused to answer such simple questions as who owned their shell companies and where the settlement money (rumored to be in the millions) was going.

The judge ordered the three Prenda attorneys to pay sanctions to defense attorneys of $36,150 to Morgan Pietz and $1,950 to Nicholas Ranallo. Wright then doubled that amount “as a punitive measure” for a total of $81,319.72. The judge says in a footnote that the total “is calculated to be just below the cost of an effective appeal”. The Prenda attorneys have 14 days to pay the sanctions.

Wright is also suggesting that the attorneys be disbarred. He states that, “there is little doubt that Steele, Hansmeier, Duffy [and] Gibbs suffer from a form of moral turpitude unbecoming an officer of the court.” In many states, California included, crimes reaching the level of “moral turpitude” lead to automatic disbarment. Wright says that he will be referring the four lawyers to every state bar in which they are currently admitted to practice.

Additionally, the judge has suggested that the alleged Prenda scheme warrants criminal investigation. In his conclusion, Wright says, “The Court will refer this matter to the United States Attorney for the Central District of California. The [court] will also refer this matter to the Criminal Investigation Division of the Internal Revenue Service and will notify all judges before whom these attorneys have pending cases.”

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Our client David Bates created various web pages, YouTube videos and a Facebook page devoted to criticizing a local used car dealer that advertises extensively on the internet. The dealer sued Mr. Bates. Before our firm formally appeared, the dealership obtained a temporary restraining order restraining Mr. Bates from accusing the dealer of engaging in false advertising. Shortly after we appeared, we filed briefs arguing that Mr. Bates had a First Amendment right to criticize the dealer. We then obtained discovery proving that the dealer had filed a false affidavit to obtain the temporary restraining order because it had in fact engaged in false advertising in the past. We sought sanctions and the Federal Court entered a rule to show cause as to why the dealer shouldn’t be sanctioned for filing a false affidavit. A copy of that rule to show cause order can be seen by clicking here. A copy of our brief opposing entry of a prior restraint on Mr. Bate’s speech which we asserted would violate his First Amendment rights can be seen here. A copy of our sanctions brief can be seen here.

Following entry of the rule to show cause order, the case settled with the dealer providing Mr. Bates with a full release. The parties then headed to binding arbitration to decide if any of Mr. Bates’s videos were defamatory and thus should be removed from YouTube.

The Arbitrator ruled that none of the videos need to be removed as removing them would violate Mr. Bate’s First Amendment Rights. A copy of the brief we filed on behalf of Mr. Bates in the Arbitration can be viewed here. A copy of the Arbitrator’s decision ruling that none of of Mr. Bates’s videos were defamatory can be seen here.

With this decision, Mr. Bates has obtained a full release of all charges leveled against him and none of his material on the internet was censored. The Arbitrator ruled that minor errors in Mr. Bates’s videos do not make them defamatory because they are otherwise substantially accurate. The Arbitrator also ruled that the dealer failed to prove that its reputation had been harmed by Mr. Bates’s videos.

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Our law firm is devoted to protecting consumers’ First Amendment rights to truthfully and accurate criticize businesses particularly businesses who advertise heavily on the internet. Consumers should be able to vigorously voice their opinions about car dealers and other businesses who engage in fraudulent advertising and other unfair business practices. Most big consumer businesses now force consumers to agree to secret binding arbitration of disputes in arbitration fora that often are stacked in favor of business or which business funds pay for. This makes online criticism more important as long as the critic attempts to be truthful and honest and isn’t acting a business in reckless disregard of the truth. In that regard with we were very interested to see a new posting by Public Citizen on the subject of protecting online criticism.

Paul Alan Levy reports about Public Citizen’s recent efforts in a defamation suit allegedly designed to stop citizens from criticizing a carpet cleaning business on Yelp:

You can’t live in the DC area and not encounter the pervasive advertising for Hadeed Carpet Cleaning, from mailed coupons and display advertising in the Washington Post that promise unbelievably low prices, to classic rock broadcast from the “Hadeed.com Studios” and advertising during Washington Capitals games. But regular users of pages about Hadeed on the Yelp web site quickly learn Hadeed’s dirty secret — more than thirty of the eighty-odd reviews posted there complain that the advertised prices are routinely not honored.

Even one of Hadeed’s Yelp admirers, who gave Hadeed four of five stars for the quality of its work, ridiculed the complainers in these terms: “I can give a life lesson to the people who only wanted the $99 special, there is no such thing! Every wall to wall cleaning company uses that as a way to lure you in but no one will charge you $99.” She also gives her secret about how to protect against unannounced price increases from Hadeed: pay in advance!
Apparently hoping to deter further criticism, Hadeed has singled out seven anonymous reviewers as defendants in a defamation lawsuit. It does not deny that its service staff routinely demand higher-than-advertised prices when they show up to do the work, but instead claims that it suspects, based on a mysterious review of some customer database, that these seven reviews were really posted by some unnamed competitor. Unlike some other ISP’s lately, Yelp is standing up for its users’ privacy, and so refused to comply with a Virginia subpoena because (among other reasons) Hadeed never provided any evidence that the gist of the reviews was false. Hadeed moved to compel compliance, and the trial judge, refusing to apply the otherwise-broadly-accepted Dendrite test, ordered compliance because it felt that it was enough for Hadeed to show that the statements “may be tortious.” And when Yelp refused to comply – because Virginia requires non-party discovery recipients to commit contempt of court to get the right to appeal — the court found it in contempt.

In an appellate brief that we have filed today on behalf of Yelp, we make two basic points. First, Virginia should agree with other states that demand both a legal and a factual showing that the lawsuit has merit. In that regard, read carefully, Hadeed’s defamation claim asserts only that the individual reviewers were not really customers, and Hadeed is not defamed by false statements about whether a given defendant was a customer. Nor, indeed, has Hadeed offered any reason to credit its supposition that the seven reviewers were not customers; what evidence there is in the record points in the other direction.

We also argue that a California company like Yelp should not be subject to a Virginia subpoena just because its web site is accessible in Virginia and because Virginia companies like Hadeed advertise on the web site. When AOL was based in Virginia, litigants in other states had to get Virginia subpoenas to demand identifying information about AOL users; by the same token, Hadeed should have to use the normal interstate discovery procedures when it wants identifying information about Yelp users from ISP’s in other states.

The work of Public Citizen to protect consumers’ free speech rights is commendable. If you cannot obtain a free legal defense to defamation suits, consumers must turn to a private attorney. Often times consumers home owners’ insurance provides coverage for defense costs when the consumer is sued for online reviews. We defend consumers in those suits and help them arrange for the defense costs to be covered by their insurance carriers.

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