People who bought memberships in a bankrupt Ellicott City health club won't be getting refunds any time soon and probably will never get back more than 25 cents on the dollar, attorneys in the case say.
After closing arguments ended late last week, Howard County Circuit Judge James B. Dudley said a heavy case backlog would delay his decision in the state's suit against Owings Mills businessman Philip Porter and World Gym & Family Fitness Center Inc.
The announcement was only the latest disappointment for 436 area residents who signed up for the club. From May 1988 to April 1989, people paid as much as $1,100 each to join World Gym, which had been scheduled to open in the Normandy Shopping Center.
Before any fitness equipment was installed, however, the club was evicted for not paying rent. It later declared bankruptcy.
Columbia travel agent Jennifer Turner said she paid a total of about $750 to World Gym, beginning in October 1988. She stopped making payments on her membership six months later after learning of the club's financial troubles.
"I was very upset, she said. "When we signed the contract, we specifically asked them if they were bonded, because bonding means your money is safe. They said 'yes.' "
Almost all of the $188,000 in membership fees the club collected is gone, court documents state. The only money left is a $50,000 security bond the club filed with the state to open, said E. Pete Summerfield, Porter's attorney.
The state is suing Porter and World Gym for allegedly selling club memberships that were not backed up by security deposits, as required by state law. The law requires health clubs to post $1,000 for each membership sold before they open. World Gym sold 169 unbonded memberships, according to a complaint filed by the state Consumer Protection Division.
The club kept selling memberships even after regulators ordered it to stop, the complaint alleges. The complaint also names as a defendant Fitness Management Inc., a Timonium-based marketing firm that sold the World Gym memberships for Porter. Fitness Management employees Anthony Ferraro, Scott Rybak and Craig Witz deceived prospective members about the club's financial health, according to the complaint.
The Consumer Protection Division is seeking $147,244 in restitution and $169,000 in penalties from Porter and the Fitness Management employees, said Hillary Gebler, an assistant attorney general.
According to the complaint, Porter wrote checks drawn on World Gym's bank account to himself and several companies for repayment of loans allegedly made to World Gym. Porter wrote $7,500 worth of checks to himself on World Gym's account but could not supply state officials with documentation of the loans, the complaint states.
Last May, when the state filed a complaint against World Gym over the unsecured memberships, the club had $600 in its three bank accounts, according to the complaint. To date, the money has not been fully accounted for.
According to Assistant Attorney General Gebler, Porter made bad business decisions and now expects consumers to pick up the tab. Porter has filed bankruptcy petitions for both himself and World Gym.
Fitness Management employees allegedly contributed to the losses by continuing to sell memberships even though they knew the memberships weren't secured.
"There are enormous losses here," Gebler told the judge. "There has to be a message sent that they can't hide behind the corporation."
Summerfield contended, however, that Porter was a well-meaning entrepreneur who put up his house and personal assets to make the club work. The money was spent on start-up costs for the club, he said.
The club could have opened and consumers' losses could have been minimized, except for the state's determination to penalize Porter, Summerfield said.
Gebler questioned, however, whether World Gym would have remained open for any length of time even if the state hadn't intervened.