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Gold’s Gym International v. Chamberlain

Gold’s Gym International v. Chamberlain, 2020 UT 20 (Pearce, J.)

Contract

An LLC entered into a licensing agreement with a gym. Years later, one of the members of the LLC entered into a franchising agreement with the gym and sold it. The other members of the LLC became aware of the sale and sued the gym. During the litigation, the members asserted that they had personally entered into the licensing agreement with the gym when, in fact, only the LLC had entered into the licensing agreement. The gym moved for summary judgment on the members’ claims, arguing that they lacked standing because they were not parties to the licensing agreement. Although the reasoning was unclear, the district court denied the motion. The gym won at a bench trial and sought attorney fees from the members. The district court denied the fees because the members were not a party to the licensing agreement. The gym appealed. The Utah Supreme Court affirmed, holding:

  • The substantial benefit doctrine does not provide a basis for a fee award. The doctrine grants attorney fees to derivative plaintiffs who succeed in an action and confer a substantial benefit on the entity on whose behalf they sued. But the gym did not offer any authority that this rule extends to a defendant who prevails against derivative plaintiffs. 
  • Depending on the circumstances, a nonsignator suing on a contract may or may not assume all the risks and obligations under the contract. But the gym did not provide the Court with authority or reasoning for why plaintiffs who bring unsuccessful derivative actions would be on the hook for the burdens of the contract.
  • The gym’s other arguments were not preserved in the district court.

Read the full court opinion

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