Retail Installment Sales Act Applies to Health Club Memberships

Sanchez v. Fitness Factory Edgewater, LLC, 242 N.J. 252 (2020). In Mellet v. Aquasid, LLC, 453 N.J. Super. 23 (App. Div. 2017), the Appellate Division ruled that the Retail Installment Sales Act, N.J.S.A. 17:16C-1 to -61 (“RISA”), does not apply to health club or gym membership contracts. Mellet relied on the Supreme Court’s ruling in Perez v. Rent-A-Center, Inc., 186 N.J. 188 (2006), which involved rent-to-own contracts. The Supreme Court did not review Mellet.

Today, the Court addressed the question of whether an “initiation fee” imposed by the defendant gym on persons who chose to pay for their gym membership via monthly payments rather than paying in full up front, is covered by RISA. In a unanimous opinion by Justice Fernandez-Vina, the Court held that it was, disapproving Mellet. The effect of today’s decision is to reverse the dismissal of the case for failure to state a claim, a dismissal granted by the Law Division and affirmed by the Appellate Division, based on Mellet.

The issues were whether RISA applies to a service such as a gym membership, and if it does, whether it is limited to contracts that entail a financing arrangement. The courts below had resolved those issues in favor of defendants as a matter of law.

Justice Fernandez-Vina appeared to find the first issue fairly easy. Applying the “plain language” of “the actual words of the statute,” he found that RISA covers “services.” The definition of “retail installment contract” itself states that it includes “an agreement to pay the retail purchase price of goods or services.” N.J.S.A. 17:16C-1(b). RISA also defines “services,” N.J.S.A. 17:16-1(s), and its definitions of both “retail seller” and “retail buyer” include those buying or selling “services.” The Court’s analysis of the first issue thus “begins and ends with RISA’s plain text,” though Justice Fernandez-Vina went on to observe that RISA’s purpose, as explicated in Perez, supported the Court’s conclusion today.

The second issue was also resolved by RISA’s plain language. Justice Fernandez-Vina noted that the definition of “retail installment contract” “makes no mention of a financing requirement.” He cited other statutes in which “the Legislature has shown that it knows how to require financing arrangements.”

Defendants urged that the Court read a financing requirement into RISA. Justice Fernandez-Vina declined to do so. That would constitute “rewrit[ing] of a plainly written enactment of the Legislature,” which courts cannot do.

Finally, defendants argued that the only statute applicable to health clubs was the Health Club Services Act (“HCSA”). The Court did not agree. The Legislature is presumed to have “passed or preserved cognate laws with the intention that they be construed to serve a useful and consistent purpose.” Portions of RISA and HCSA overlap, while other portions differ. But the two statutes did not conflict. “[T]he distinct provisions in each act can be applied cumulatively, and thus, in harmony.”

Moreover, in two other instances where services otherwise covered by RISA were also regulated by other statutes, the Legislature carved those areas out of RISA. The Legislature’s choice not to “similarly exclude health club memberships from RISA’s reach” showed that “the Legislature intended that both statutes may apply to the same [health club] contract.”