May 29, 2020
New Jersey’s Supreme Court yesterday published a decision in the matter of Henry Sanchez v. Fitness Factory Edgewater, et al., issuing new guidance in interpreting New Jersey’s “Retail Installment Sales Act,” or “RISA,” codified at N.J.S.A. 17:16C-1, et seq. The case at issue was a putative class action brought by Plaintiff Henry Sanchez on behalf of himself, and as class representative of all others similarly situated in Morris County, against Defendant Fitness Factory.Mr. Sanchez contends that an “initiation fee” charged by the Fitness Factory to those members who chose to pay their membership fees on a monthly basis, violated RISA.
The trial court granted the Fitness Factory’s motion to dismiss the complaint, finding that RISA did not apply in this instance as the contract was one for services and because the contract at issue did not include a financing arrangement ultimately resulting in ownership of goods.. The Appellate Division affirmed, although the Court noted that RISA could apply, in some circumstances, to service contracts. The Supreme Court expressly disagreed, and held that RISA applies to service contracts and further refused to hold that only services contracts that contained financing arrangements could implicate RISA, a position urged by New Jersey’s Department of Banking and Insurance, as amicus.
Plaintiff had joined the Fitness Factory gym in Edgewater in 2013, and signed a club membership contract for twenty-four (24) months. The contract provided for two alternative payment methods. One was payment in full upon signing the contract, and the other was referred to as an “Electronic Funds Transfer” option. This would allow the member to make monthly payments of $39.99 over the course of the term. Those who selected the latter option were required to pay an “initiation fee” of $29.99, which was not required of the up-front lump sum payment method. Sanchez opted for the monthly payment option and paid the initiation fee. At the conclusion of the two-year term, Plaintiff ended his membership, and thereafter brought the class action complaint on behalf of himself and all those similarly situated in Morris County. Plaintiff alleged that the imposition of the fee violated RISA, and permitted him to bring claims under New Jersey’s Consumer Fraud Act (“CFA”), and the Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”), two remedial statutes which are frequent vehicles for class action litigation in New Jersey (Mr. Sanchez withdrew his TCCWNA claim after the Court’s decision in Spade v. Select Comfort, 232 N.J. 504 (2018)).
Fitness Factory filed a motion to dismiss, which was eventually granted in its entirety. On appeal, the Appellate Division determined that some services contracts could fall within the ambit of RISA, but this was not one of them because it was “arguably not a true installment contract.” Further, the Appellate Division reasoned that “to fall within RISA’s purview, a contract for the sale of goods or services must involve financing.” Finding that no financing arrangement was present in the membership contract, the court held that RISA did not apply.
RISA defines a “retail installment contract” as “any contract, other than a retail charge account or an instrument reflecting a sale pursuant thereto … evidencing an agreement to pay the retail purchase price of goods or services … in two or more installments over a period of time.” Plaintiff contended that this definition encompassed the membership contract, and that the membership contract was a financing agreement because an “initiation fee” was required only if a customer chose to pay for their membership over time. Fitness Factory argued that the contract does not result in ownership, and that it therefore was not covered by RISA.
The Supreme Court’s “analysis in this case begins and ends with RISA’s plan text.” Based on the statutory definition above, the Court noted that RISA applied to contracts for services, whether or not a financing arrangement was included. The statute’s definitions provide examples of qualifying contracts, but do not limit its definitions to just those examples. RISA was intended as a remedial statute, to which the Court ascribes a broad remedial purpose. Thus, the Court further ruled that the membership contract at issue was covered by RISA.
In closing, the Court observed that “[t]he Legislature may determine that our reading today does not comport with its original intentions,” and invited the Legislature to address the statute in the future if that were the case. The matter was remanded to the trial court for further proceedings.
For more information on this matter, on RISA litigation or on consumer class actions in New Jersey generally, please contact MKCI’s Kevin Hoffman or Tom Emala.