The owners of Planet Fitness, Newington, NH, and a franchisee group that co-owns PFNY LLC, which operates Planet Fitness clubs in New York and New Jersey, have filed lawsuits against each other.
Planet Fitness, owned by Mike Grondahl, Marc Grondahl and Chris Rondeau, filed its lawsuit on Dec. 27, 2011, in New Hampshire District Court against franchisees James Innocenti, Jeffery Innocenti and Luigi “Gino” LaVerghetta.
Planet Fitness (PF Holdings LLC) claims the Innocentis and LaVerghetta entered into an agreement without its authorization with two real estate companies that would serve as the exclusive real estate agents in all future negotiations in New York, New Jersey, Dade County, FL, and Puerto Rico. Planet Fitness claims that the franchisees diverted more than $150,000 last December to a general contractor without its consent and knowledge. The five counts in the Planet Fitness complaint are breach of fiduciary duty, misappropriation, unjust enrichment, accounting and constructive trust.
The Innocentis and LaVerghetta filed a counterclaim on Jan. 11, 2012, also in New Hampshire District Court, disputing Planet Fitness’ allegations. In the counterclaim, they outline negotiations between the two parties to form a merger and discussion of an initial public offering (IPO). The merger was proposed last May, but negotiations broke down by late November, according to the filing.
The Innocentis and LaVerghetta opened their first club, a Gold’s Gym, in 1995 in the Bronx, NY. They owned and operated three Gold’s Gyms in New York by 2004 before converting them to Planet Fitness clubs. By 2008, the Innocentis and LaVerghetta opened 11 more Planet Fitness clubs.
In 2008, the Innocentis, LaVerghetta and a fourth party who is no longer part of the group sold their 14 clubs for $4.5 million to Pla-Fit Health, a wholly owned subsidiary of Planet Fitness, and to PFNY LLC, a company that had been newly formed by the Grondahls, Rondeau, the Innocentis and LaVerghetta. Pla-Fit Health would have a 51 percent voting interest and a 33 percent economic interest in PFNY, and the Innocentis and LaVerghetta would have a 49 percent voting interest and a 67 percent economic interest, according to the purchase agreement that closed on April 3, 2008.
In essence, PFNY was created as a holding company that would act as the parent entity of the 14 acquired franchises and could be used by the Innocentis and LaVerghetta to open additional franchises under the Planet Fitness name.
The Innocentis and LaVerghetta followed through on this by opening 22 new clubs, each a wholly owned subsidiary of PFNY. The Grondahls and Rondeau proposed to merge the new entity with PF Holdings LLC in preparation for taking the merged company public in an IPO, according to the counterclaim.
“At no time from 2004 through late November 2011, when the parties’ merger discussions broke down, did plaintiffs ever allege that Jeff, James and Gino had defaulted or otherwise failed to comply with any of the various agreements with them and their affiliated entities,” according to the counterclaim. “Shortly thereafter, however, plaintiffs began to manufacture illusory defaults, including those asserted in this action, and embarked on a course of questionable conduct in violation of their contractual, fiduciary and other duties to Jeff, James and Gino, all in a transparent attempt to gain unwarranted concessions that plaintiffs had been unable to obtain in the negotiations.”
Both parties have filed formal answers denying each other’s allegations.
Last week, the Innocentis and LaVerghetta filed a motion for temporary restraining order and preliminary injunction in hopes that Planet Fitness will continue to approve the development of clubs and provide equipment for those clubs.
Planet Fitness was No. 7 on Club Industry’s Top 100 Clubs list last year with reported 2010 revenue of $157.1 million. PFNY was No. 20 on last year’s Top 100 Clubs list with reported 2010 revenue of $56.3 million. PFNY, which reported 26 clubs in operation at the end of 2010, is the largest franchisee in Planet Fitness in terms of revenue generated and number of clubs, according to Justin Klein, who is representing the Innocentis and LaVerghetta.
“Clearly, the company is making money, and everybody is now fighting over who’s entitled to it,” Klein says. “[The Innocentis and LaVerghetta] vigorously deny any of the allegations, and they will aggressively pursue their affirmative counterclaims. Ultimately, they want to do what’s best for the benefit of the Planet Fitness brand as a whole. They want to see the brand continue to succeed, and this is an unfortunate distraction.”
Planet Fitness declined to comment for this story.