COVID-19 Class Actions: Refund Disputes Rage Over Membership Fees & Event Tickets

The COVID-19 pandemic has resulted in a massive number of unforeseen cancellations of events and the inability to use paid subscriptions, memberships, and season passes. These range from gym and amusement park closings, to postponed sports seasons, to concert and vacation travel/accommodation cancellations. We previously wrote about the impact of the postponement of the 2020 Tokyo Olympics. Putative classes of consumers have begun to seek refunds of previously paid dues and fees for cancelled events and their inability to use services, putting liquidity strains on the offering businesses. Consumers are supported by some State Attorneys General who are advocating for consumers to receive refunds, avoid cancellation fees, and to otherwise be let out of contracts involving health club memberships and theme parks and more; it would not be surprising if this list grew.

While gyms, ticket brokers and sports teams are attempting to offer substitute performance instead of refunds in response to closures, they are meeting with mixed consumer responses. Many consumers are also facing financial burdens due to the COVID-19 crisis and opting for complete refunds instead of substitutions or extensions of memberships, particularly for services whose policies explicitly included the possibility of a refund when a ticket or subscription was purchased. Some companies, facing the unprecedented strain of having to refund thousands of tickets and memberships at once, are quietly amending their consumer agreements retroactively to remove the refund guarantees in favor of substitute performance. Consumer class action attorneys appear to have noticed these efforts and have filed suit. 

We have analyzed several complaints recently filed in federal court seeking a refund of money paid for tickets, or refunds of membership or subscription fees. While there are different factual scenarios presented by the specific businesses, so far, the complaints are focused on California consumer protection statutes, including asserting claims under the Consumers Legal Remedies Act (CLRA), Unfair Competition Law, and False Advertising Law. The complaints also allege (variously) breach of express warranty, negligent misrepresentation, unjust enrichment, conversion, and breach of contract.

• Stubhub – A Wisconsin citizen seeks to represent a nationwide class in the Western District of Wisconsin. The suit alleges he and other similarly situated individuals were deprived of the benefit of Stubhub’s “FanProtect” guarantee when Stubhub, allegedly to mitigate impending coronavirus-related liabilities, sought to retroactively discontinue the essential function of FanProtect: a promise of a cash refund in the event the tickets were not honored. Instead, on March 25, 2020, Stubhub allegedly changed the terms of its guarantee, giving it the discretion to make a full cash refund or to issue a coupon for a future event worth 120% of the price of the original order redeemable for one year. 
• 24 Hour Fitness / Fit Republic – Two different California citizens are seeking to represent nationwide classes in the Northern District of California (represented by the same plaintiff’s counsel). They are seeking refunds of monthly gym subscription fees from the nationwide gym chains alleging that they closed all of their gyms indefinitely, but are continuing to charge monthly fees. Plaintiffs allege the “extension of the gym membership” for the length of time the gym is closed is a non-remedy, as plaintiffs claim they will continue to be charged monthly even after the gyms reopen.
• Vail Resorts – The same California citizen who seeks to recover against Fit Republic is seeking to represent a nationwide class in another Northern District of California case against Vail Resorts for a failure to refund a portion of his season pass. The suit alleges that, rather than refund consumers, Vail Resorts deferred all auto-renewal charges and spring deadlines for annual pass-holders and simply refused to provide any consideration or compensation for day pass members. 
• Six Flags – Another California citizen attacks Six Flags’ decision to extend—rather than refund—season passes and other memberships as a result of the COVID-19 crisis. The putative class comprises all U.S. customers whom defendants charged membership fees during the period that the parks were closed.
• Lightning in a Bottle Festival – A California citizen and an Illinois citizen each filed suit against Do Lab, Inc. for its decision to retain customer ticket fees while cancelling its annual Lightning in a Bottle music festival. The two putative class actions, both filed in the Central District of California, include all persons in the United States who purchased tickets for the 2020 festival.

There are a number of defenses that companies may pursue in response to these complaints. These include:

• Enforce Unilateral Change and Force Majeure Provisions:Companies should look at their terms and conditions to determine whether they are able to make a unilateral change to the contract—such as choosing to extend the customer membership period rather than refunding membership fees. While frustration of purpose or force majeure provisions may allow contract termination, they may also allow delayed or different performance, including membership extensions—without refunds—for facility closures and event postponements/cancellations. The current and forthcoming class action litigation will likely test the interpretation and enforceability of such force majeure provisions.
• Enforce Arbitration and Class-Action Waiver Provisions: Many of the membership and subscription agreements that we have reviewed contain provisions mandating that disputes be resolved solely through arbitration—with customers waiving their rights to bring or participate in a class-action lawsuit.

Other companies, although not yet the subject of consumer complaints, should review these complaints and carefully consider the best method to avoid becoming a defendant in future litigation, or improve their legal position if they do. Ticketmaster, for example, recently adjusted its refund policy to cover only canceled events, rather than those postponed or rescheduled. The major sports leagues are similarly weighing their ticketing policies. Businesses should consider certain key legal issues in charting their course. Some questions to consider in setting policy should include:

• Should the company offer a refund vs. an extension vs. a credit (or coupon) on future services?
• If it is a month-to-month membership vs. a set term, how will the company handle term expiration during the closure period? Will initial fees or annual fees be waived or delayed?
• If there are early termination or cancellation fees, how will those be enforced?
• What state law will apply? Only a few states have laws specifically mandating refunds in similar circumstances. (For example, New York, Virginia, and Maryland prohibit health clubs from charging membership fees while the clubs are closed for more than 30 days.) California has no such law. That’s why the complaints there rely on common law and the generalized California consumer remedies statutes so often used by consumer class action attorneys. Plaintiffs have also alleged causes of action under the California Health Studio Services Contract Law, see Cal. Civ. Code § 1812.80 et seq., which governs disclosure requirements, cancellation procedures, and other aspects of health studio services.
• Companies must consider the equities and whether they will lose customers permanently as a result of certain changes. The plaintiffs will want to spin a negative narrative and negative press; companies will need to control the narrative and tell their stories on social media. Furthermore, even if companies are successful in defending against the class actions due to contractual provisions, those companies may face AG enforcement action if they promise a refund to consumers but fail to deliver it. Many Attorneys General have stated that they expect businesses to bear COVID-19 related cancellation losses. For example, the Colorado Attorney General has issued a press release stating that he expects businesses to bear the losses stemming from COVID-19 related cancellations. And the Arizona Attorney General has requested that businesses and financial institutions forbear from collection efforts for 90 days. 

It is very likely that more lawsuits similar to the above could be filed because of the COVID-19 outbreak. In handling these unique and complex issues, companies should carefully review their contracts and consider the legal issues discussed above to determine appropriate defenses. We will continue to closely monitor cases, as we expect this outbreak to present new legal challenges, and will provide routine updates.