Could your gym be one lawsuit away from financial ruin?
Unfortunately, a recent $46 million verdict in California shows how easily it can happen. In the world of fitness and health, gym owners must navigate not only the physical well-being of their clients but also the legal landscape that surrounds their business. A single mistake in legal compliance could lead to catastrophic financial loss. This case study will analyze a recent incident that resulted in a staggering $46,475,112.33 judgment against a gym, emphasizing the critical steps that every gym owner must take to protect their business and personal assets.
The Case:
The Incident: Jack Greener, a beginning Brazilian Jiu-Jitsu student, suffered a catastrophic spinal cord injury while sparring with a Del Mar Jiu-Jitsu Club instructor. The instructor performed a technique on Mr. Greener, rendering him an incomplete quadriplegic. The incident occurred on November 29, 2018, following a warm-up and instructional period. While the safety of the movement appears to be debatable in the Mixed Martial Arts community, the extreme force of the maneuver crushed Mr. Greener’s cervical vertebrae, causing paralysis in all extremities.
The Verdict: The San Diego County jury took two days to deliberate. Ultimately, they rendered their verdict in favor of Plaintiff Mr. Greener, finding the defendants (the corporation and the instructor) 100 percent at fault. The judgment included compensation for past and future medical expenses, loss of earnings, physical pain, mental suffering, loss of enjoyment of life, disfigurement, physical impairment, and more.
The lawsuit was filed against the gym owner, the gym owner’s corporation, and the instructor. The judgment was entered against the gym owner’s corporation and the instructor. Turns out, the gym owner avoided personal liability. In other words, his personal assets were not exposed in this lawsuit. But, how?
Let’s dive in on three key legal areas of what worked and didn’t work in this case.
Legal Analysis:
Corporate Setup:
- What It Is: Corporate setup refers to the legal structure under which a business operates. It defines the legal relationship between the business, its owners, and the government.
- Options: The common options for corporate setup include Sole Proprietorship, Partnership, Limited Liability Company (LLC), and S Corporation. Each option has its own legal and tax implications. For gyms, the most common setups are LLCs and S Corporations.
- Importance: The right corporate setup protects personal assets from business liabilities, provides tax benefits, and establishes the legal framework for the business. In the case of the Del Mar Jiu-Jitsu Club, the proper corporate setup shielded the owner’s personal assets from the lawsuit. He didn’t simply file the Corporation with the state of California and forget it. He actively treated it as a separate entity from himself. This separation is key if you want to enjoy the legal protection of your company or corporation.
Fictitious Name Filing:
- What It Is: A fictitious name, also known as a “doing business as” (DBA) name, is a name under which a business operates that is different from its legal name. For example, Matt’s Gym, LLC, D/B/A The Sweat Shop. This is your branding.
- Options: Filing a fictitious name allows a business to operate under a name that may be more marketable or descriptive of the services offered. It requires registration with the appropriate governmental authority.
- Importance: When you properly filing a fictitious name, you tell the public that your business owns that name. Otherwise, you are simply operating as a sole proprietor. In other words, you are exposing you personal assets to a lawsuit. In the case of the Del Mar Jiu-Jitsu Club, the suing lawfirm added the individual owner in the beginning. The lawfirm believed that the owner was operating without a filed fictitious name in San Diego County. Thankfully, this was not the case and the lawfirm eventually dismissed the case against the individual owner.
Waiver:
- What It Is: A waiver is a legal document that a participant signs to acknowledge the risks involved in an activity and agree not to hold the business liable for certain injuries or damages.
- Important Sections for a Good Waiver: Key sections in a waiver include a clear description of the risks, an acknowledgment of those risks, an agreement to take responsibility or participating, a release of liability, and an indemnification clause.
- Importance: A well-drafted waiver can significantly reduce legal liability in the event of an injury or accident. In the case of the Del Mar Jiu-Jitsu Club, the waiver’s failure to cover the specific circumstances led to liability. This is where we see most waivers fail. The waiver must list all of the potential dangers. The waiver must put your client on notice of what could potentially happen. You cannot sugarcoat it.
Potential Risks:
Unfortunately, if we were given the opportunity to perform a legal check up on Del Mar Jiu-Jitsu Club prior to the lawsuit, it would have looked like the vast majority of gyms we review every day. In other words, most gyms have legal exposure in at least one of the three areas outline above.
- Risk #1: Exposure in the corporate set up: Filing the LLC or Corporation with your state isn’t enough. You need a business bank account and corporate documents. These corporate documents include partnership agreement, operating agreements, and by laws. Without them, you are missing the formality of creating and maintain a legal entity that is separate from yourself.
- Risk #2: An un-filed fictitious name: One of the most common areas of exposure we see is the un-filed fictitious name. This is your branding, what you call your gym, the name on the front of your building. You have to file it with the proper governmental entity and you need to file it correctly. A common mistake is when gym owners assume “The Sweat Shop LLC” and “The Sweat Shop” are the same thing. The average person may think this is logically the same, but the law sees it differently.
- Risk #3: Inadequate waivers: Don’t fall victim to the advice that you can find you gym’s waiver online. Don’t steal your old gym’s waiver. And, don’t think that short and sweet is good enough. This is your first line of defense against a $46 million lawsuit.
How We Help:
At Gym Lawyers PLLC, we focus on helping gym owners navigate these complex legal landscapes. Every gym owner falls into one of three categories. In each category has its unique legal exposures. Moreover, it is never too late to fix something you missed in the past. It is better to fix it now than try to fix it when there is a problem.
- The New Gym Owner: Start your new gym, or buy a gym, properly. This starts with a successful set up. We help you with the proper corporate set up. We review important legal documents like commercial leases. And, we help with those first legal contracts like membership contracts and waivers.
- The Established Gym Owner: It’s never too late to fix legal exposure. Our legal check ups can expose issues that you didn’t know exist. You are then given the power to fix those problems now and rest assured that you took action to protect yourself against the business-ending lawsuit.
- The Selling Gym Owner: Just because you are selling your gym doesn’t mean you are free and clear. Issues that arose when you owned the gym can come back to haunt you. We help gym owners with the necessary paperwork they need to sell with confidence. Sell and move on with confidence that you don’t have to watch over your shoulder.
Let This Be A Call to Action:
Don’t become the next cautionary tale. The potential risks are too great, and the stakes are too high. With proper legal consulting, you can operate your gym with confidence, knowing that you are protected from unforeseen legal challenges. Contact Gym Lawyers PLLC today for a free consultation, and let us help you ensure that your gym is legally protected. Your peace of mind is worth it. Download our free Must Have Waiver Provisions legal checklist for gym owners and take the first step toward securing your business’s future.
