The orcas we’ve been seeing in local waters lately are transient killer whales, but the Southern Residents are expected soon. When they get here, some advocates want to be sure they’re not hounded by whale-watching boats – especially considering three of the endangered whales are pregnant. Today those advocates, including West Seattle-based The Whale Trail, are issuing a challenge to whale-watching operators to take this pledge:

On behalf of my company, I pledge to increase protection for the Southern Resident orcas and give the pregnant orcas in all three pods the best possible chance of having healthy calves, by giving them more space and quieter waters to find food and communicate with each other. Between now and September 2021:

• We will stay 1/2 nautical mile (1,000 yards) away from the southern residents.

• We will focus our tours on other ecotypes of killer whales and other wildlife, and will not intentionally plan or route trips to view them.

• If we encounter southern residents incidentally while viewing other whales, we will slow down (as Washington State law requires) to reduce our vessel noise, but will not approach or follow them.

• If we encounter southern residents incidentally while in transit, we will slow down (as State law requires) and not approach or intentionally follow them while continuing to transit. If it is unsafe to maintain a 1/2 nautical mile distance while transiting we will maintain the distances required by State law.

See the full letter here. The problems caused by noise, particularly from whale-watching vessels, was discussed at The Whale Trail’s February meeting – more than 100 operating in the region, morning through night. The Southern Resident population is down to 72, barely above its historic low, and advocates fear that further losses could put this species on an irreversible path to extinction.

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(Photo courtesy office of state AG Ferguson, who is at the podium)
11:04 AM: Just announced by state Attorney General Bob Ferguson – a criminal wage-theft/tax-evasion case with defendants including Sam Adams, who owned the former West Seattle (Athletic) Club until filing for bankruptcy and relinquishing it to the building owner last October. What follows is the official news release; we’re on a media conference call and will add any additional information that it yields (update: that’s added at end of story):

Attorney General Ferguson files criminal wage theft and fraud charges against athletic club executives Sam Adams and Dana Sargent

$500,000 in unpaid taxes, withheld salary, and unpaid insurance premiums

Washington State Attorney General Bob Ferguson has filed criminal charges in King County Superior Court against the owners and operators of West Seattle Athletic Club for stealing wages and evading taxes. In only the second wage-theft criminal prosecution brought by the state, the Attorney General’s Office seeks justice for harmed workers and Washington taxpayers.

Defendants Sam Adams and Dana Sargent are alleged to have engaged in theft and fraud totaling over $500,000. The defendants allegedly failed to pay state taxes, withheld wages from workers, failed to pay workers’ insurance premiums, and failed to pay unemployment insurance.

The charging documents can be found here and here.

“Wage theft is a crime, and its victims are often among our most vulnerable residents. I won’t stand for violators who cheat working families out of their hard-earned wages,” said Attorney General Bob Ferguson. “My office will prosecute unscrupulous businesses that steal money out of the pockets of wage earners and taxpayers.”

Owned Two Athletic Clubs in Washington

According to the charging documents, the defendants owned and operated six athletic clubs, four in Oregon and two in Washington, between 2012 and 2014.

One Washington location, Lincoln Plaza Athletic Club LLC in Tacoma, closed in 2013 due to unpaid retail sales tax.

The other Washington location, West Seattle Athletic Club LLC, closed in 2013, after which West Seattle Club LLC opened at the same location. This operation closed in October 2014 after the landlord evicted the defendants for unpaid rent.

Allegations of Theft and Fraud

The AGO alleges the defendants:

Failed to pay the state approximately $446,000 in retail sales taxes that they collected for their Washington athletic clubs.
Failed to pay 11 employees wages they rightfully earned totaling $7,166.
Deducted insurance premium payments from employee paychecks, but failed to pay the insurance company, Aetna Healthcare. Aetna lost approximately $41,640 in unpaid medical and dental premiums, and workers were exposed to the risk of unpaid medical bills.
Failed to pay over $35,000 into state unemployment insurance.

Criminal Charges Filed, Restitution Sought

The AGO has charged Adams and Sargent with:

Five counts of Theft in the First Degree (Class B felony, 10-year maximum sentence);
Three counts of Theft in the Second Degree (Class C felony, 5-year maximum sentence);
Four counts of Filing a False or Fraudulent Tax Return (Class C felony, 5-year maximum sentence); and
Nine counts of Theft in the Third Degree (gross misdemeanor, 364-day maximum sentence).
Sentencing guidelines indicate a potential sentencing range for the charges of 43 to 57 months. The AGO has alleged that aggravating circumstances are present in this case, which could lead to an upward departure from that range.

The AGO is also seeking full restitution for all of the victims involved including the State of Washington, the individual employees, and Aetna Healthcare.

Arraignment is scheduled for Feb. 18, 2015 in King County Superior Court.

The charges contained in the charging documents are allegations only. A person is presumed innocent unless and until he or she is proven guilty beyond a reasonable doubt in a court of law.

Commitment to Combatting Wage Theft

Working families lose billions of dollars to wage theft each year, when crooked employers fail to pay legal minimum wages or overtime rates, require off-the-clock work, or simply bounce checks. Low-wage earners are particularly hard hit. One rigorous academic study of America’s three largest cities found that over two-thirds of workers in low-wage industries had experienced at least one pay-related violation in the previous week.

In 2012, the U.S. Department of Labor collected over $280 million in back wages on behalf of some 300,000 workers, but that still leaves millions more wage earners owed pay unjustly withheld from them. This was more than twice the amount of money stolen in bank, gas station, and convenience store robberies combined in that same year.

Under Attorney General Ferguson, the Attorney General’s Office has put an emphasis on combatting wage theft in partnership with state agencies and county prosecutors. Additionally, the Attorney General recently proposed bipartisan legislation that would ensure the State of Washington does not do business with wage theft violators. The bill would prohibit businesses that have willfully or repeatedly violated the state’s wage payment laws during the past three years from receiving any contracts with Washington state. The prime sponsors of the legislation are Sen. Pam Roach, R—Auburn and Rep. Sam Hunt, D—Olympia.

Cross-agency Coordinated Effort

The AGO Criminal Justice Division conducted the investigation in conjunction with the Washington State Department of Revenue, Office of Insurance Commissioner, the Employment Security Department and Department of Labor & Industries, as well as the United States Bankruptcy Trustee and the United States Department of Labor.

“We’re doing everything possible to make sure these employees get the wages they’ve earned,” said Washington State Labor & Industries Director Joel Sacks. “Every worker expects to get paid when they put in a day’s work. It’s the law. When a worker doesn’t get a paycheck, it’s frustrating and can mean bills don’t get paid or they don’t have money to put food on the table.”

Vikki Smith, Washington State Department of Revenue’s acting director, said “The defendants’ actions amount to taking nearly $500,000 in tax dollars that should be helping fund schools, public health, law enforcement and protections for children and seniors. Ninety-seven percent of businesses pay their taxes on time and in full. Adams and Sargent flagrantly disregarded the law and should be held fully accountable for their actions.”

“Health insurance is a benefit afforded to all citizens under the Affordable Care Act,” Washington State Insurance Commissioner Mike Kreidler said. “It is not OK to collect employees’ health insurance premiums and leave them high and dry when they need medical care. We are happy to support Attorney General Ferguson’s efforts to recover what these employees and Aetna are owed.”

Assistant Attorney General Scott Marlow and AGO investigator Lisa Gilman are leads on this case.

King County Prosecutor Dan Satterberg and Pierce County Prosecutor Mark Lindquist granted the AGO concurrent authority to prosecute this case.

How to File Wage Theft Violations with the State Department of Labor & Industries

If you believe you are a victim of wage theft, immediately file a complaint with the Department of Labor & Industries (L&I). Preserve any pertaining documentation regarding the amount of wages you believe you are owed.

Workers can file a wage complaint if a business does not pay them. Workers can also file a complaint if the business denies other workplace rights that are regulated by L&I, such as meal and rest breaks, overtime, and family care.

Individuals can download a Worker Rights Complaint form (F700-148-000) or they can go to their nearest L&I office to get one. Either way, they should mail the completed form or deliver it in person to the nearest L&I office. Find out more about how to file a worker rights complaint here.

FROM THE CALL: Attorney General Bob Ferguson says this is only the second case of its kind ever filed – and says, “We’re here to put businesses on notice” that they won’t get away with the kind of conduct alleged here. “If you cheat the workers and cheat the state, my office will hold you accountable.”

ADDED 11:19 AM: The opening statements followed what’s in the news release above, and questions are being taken. We asked if, with Adams being in federal bankruptcy, there’s really any hope of restitution – they reply: They’ll try their best.

ADDED 11:27 AM: Ferguson says this started as a tax-evasion investigation, following an audit that showed “the clubs weren’t paying the taxes (they should),” and that led to the wage-theft investigation. It’s taken them almost a year of work to get to the point of filing charges. It’s been reiterated that if you are a victim of wage theft, please take it to authorities – it’s a widespread crime but cannot be prosecuted if it’s not reported: “It’s a priority.” He also reiterates, “We’re not interested in your immigration status” when you are making a report like this.

ADDED 11:35 AM: We should reiterate that this case involves former club owner Sam Adams and a business partner, NOT the current ownership of the club, which is now renamed West Seattle Health Club and owned/operated by the property owner. Our coverage of the gym saga is archived here, newest to oldest.

ADDED 5:29 PM: Reached on the phone by The Associated Press, Adams declared himself “flustered” by news of the charges.

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ADAMS BANKRUPTCY NOW CHAPTER 7: Originally, Adams and his wife filed for Chapter 11 bankruptcy reorganization in late June, days before an eviction hearing related to the fitness center, which he had purchased for $75,000 as part of its previous owner’s business-bankruptcy case in early 2013. As reported here October 28th, the federal trustee proposed either dismissing the case or converting it to Chapter 7 for reasons including the Adamses’ failure to file mandatory financial reports since the filing. They have since filed reports, but at a hearing this past Friday, according to bankruptcy-court documents, they also voluntarily agreed to have the case converted to Chapter 7. (As explained here, the difference between 7 and 11 can be described as “liquidation” vs. “rehabilitation.”)

NEW CLUB UPDATE: The long comment thread following our previous report, from the West Seattle Health Club’s opening date on November 4th, continues to include questions from customers past and present. A club employee e-mailed to say he has started an unofficial Facebook page in the club’s name, where he’s posting information, since the club’s “placeholder” website has yet to be updated. Find it here.

COVERAGE ARCHIVE … all our coverage of what’s transpired relating to the 2629 SW Andover club, under four names over the past 2 years, is archived here, newest to oldest.

ADDED 7:51 PM: While writing this, we e-mailed WSHC VP Dan Lehr with a few questions, to which he has replied. Most importantly, he says, he expects to update its website this week, now that they have “firm ship dates” for equipment that’s on order, as well as firming up other operational details. Our other question was about the pool; Lehr says, “The cold weather has slowed our painting in the pool area. I won’t be able to give a firm date on the pool completion until I receive our quotes to fix the pool equipment. Hopefully I’ll have that by Wednesday. … Unfortunately the HVAC over the pool was in such a state of disrepair we had to order an entirely new system. I’ll have an ETA on that later this week as well and will update the site.”

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After a 12-day closure, the fitness-center building at 2629 SW Andover did indeed open this morning as the West Seattle Health Club (thanks to the commenters who provided first word). If you’ve missed our ongoing coverage, this is the building previously long known as Allstar Fitness, then for about a year and a half as the West Seattle (Athletic) Club.

The owner of the latter, Sam Adams, facing an October 24th court-ordered deadline to pay $1.1 million (mostly back rent), closed it as of October 23rd (though signage only mentioned a two-day closure); documents in his personal Chapter 11 bankruptcy case indicate that he technically “rejected” continuing the lease as of October 27th. On Saturday, October 25th, it was announced that property owner John Pietromonaco had taken it over and would reopen it as a new club with a new name. The new club’s operations VP Dan Lehr told WSB last night that there would be a “skeleton class schedule” for starters, that child care would be available, and that the pool will remain closed for repair/renovations “for about two weeks.” For more backstory, our ongoing coverage is archived here, newest to oldest (we have just merged the archives of coverage so it traces all the way back to our first report on the Allstar bankruptcy two years ago).

ADDED 4 PM: The opening exercise schedule. (Please refer to the club’s website for further updates.)

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This is the tenth day the club at 2629 SW Andover has been closed; its former ownership announced the club would close Thursday, October 23, and Friday, October 24, reopening Saturday, October 25th, but instead of reopening, the former ownership turned it over to the property owner to whom they would have had to have paid $1.1 million in back rent and other charges in order to keep it. A message in the name of former owner Sam Adams was sent to a membership mailing list last Wednesday; it included an apology and a denial of the landlord’s allegations of “sabotage” in the moving-out process.

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Members of the abruptly shuttered West Seattle (Athletic) Club are wondering when its successor, the West Seattle Health Club, will open.

We talked this afternoon with Dan Lehr, who is managing the transition for property owner John Pietromonaco, who is now the club owner too.

“Possibly as early as Sunday, maybe sooner,” Lehr told WSB in a phone conversation.

“We were hoping for tomorrow, but I don’t think it’s going to happen.” Since they’ll be opening “without computers,” he says, “my thought is that we’re just going to let people come in for free, the entire community, even if you’re not a member.”

Regarding the e-mail sent to WS (Athletic) Club members yesterday (WSB coverage here), signed in the name of WSAC owner Sam Adams, Lehr dismissed the allegations as “complete bull.” Among them, the e-mail’s claim that all membership records would be destroyed.

That’s not possible, Lehr said, because the digital version of those records “is in the cloud.” Lehr said he has contacted “the people who do the billing and I shut off Sam’s account. As of today, nobody can be billed (by the previous club)… it physically couldn’t happen. Now what we’re trying to do is, see if we can port over all the membership info so we could sort through all that” and see about transferring memberships, extending them for the time lost while the club has been closed, etc.

Lehr says they have retained the “key executive staff, key management … obviously let a few people go who were kind of aligned with Sam (and who) we felt weren’t going to be a good fit moving forward.” Today, they were setting up a new payroll account “and hoping … to port over all the employee information to us so we can seamlessly move into payroll.”

But what that means for time worked before the previous club closed, isn’t yet clear, Lehr cautions. “We have not decided how/if we’re going to cover any of the payroll that Sam (had) due … his checks went out on the 28th, he claims … we’ll see if any of them are good … (and then) we’ll decide what to do.”

What about the pool? we asked. “That’s the biggest problem right now; it’s going to be down for a good three weeks. Since (Adams) drained it, we’re going to take that opportunity to paint the inside of the metal canopy on the ceiling, fix the lights, a lot of pool equipment that was in a state of disrepair, fixing that as we speak … lot of electrical issues, it wasn’t being ventilated, fixing that … fixing the HVAC and that started on Monday and I believe that continues as we speak. They have to order some parts for some of the compressors, the locker rooms and the pool area.”

What about the equipment, since Adams removed some if not most of it? Lehr says the “stuff that does work” is in the third-floor cardio area. They’ve concentrated “anything that doesn’t work” into what had been the “women’s only” area, temporarily. And now, repairs will begin. Plus, they put in orders yesterday for $538,000 worth of new equipment, described by Lehr as “all new cardio, lots of new group fitness equipment, all new free weights … dumbbells, barbells, plates … (and) some really cool functional fitness stuff.”

Lehr says they’ve also brought in supplies, “day-care stuff, we’re working on the furniture, TV’s are on order, computers are (on the way), and new security-system cameras are being installed.”

A commenter asked about Emerald City Smoothie, which has a location in the club’s lobby. “They will stay,” Lehr said. “We’ve been in contact with them and are meeting the owners on Saturday and looking at their agreement.”

Along with everything else mentioned, according to Lehr, the club has been cleaned and “a lot of painting is going on.”

One more question – what about the lockers? At least one WSB commenter mentioned having left some stuff in them. Lehr said they were supposed to just be for day use, so nothing should have been in them, but that said, a few do have locks, so they’re going to leave those be for now instead of going along with an original plan to cut the locks off.

To recap briefly, if you’re just coming in on this: After a somewhat turbulent year and a half of ownership, which followed the previous ownership’s sale of the club during bankruptcy proceedings, Sam Adams closed the club last week, with a notice saying it would be closed Thursday/Friday and would reopen Saturday; it did not reopen Saturday, and Lehr announced the property owner had taken it over and was creating a new club called the West Seattle Health Club.

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It is with great sorrow that I write to you that the West Seattle Club has closed. The landlord will be taking over shortly and the club will be back open as soon as possible. I am sorry that I was unable to turn the club around from its first bankruptcy and I take full responsibility for its failure. The strain on the relationship with the landlord became too much as he refused to fix anything structural or mechanical in the club. I invested money into systems and structures that are typically not the tenants responsibility. The landlord refused to fix the following:

The HVAC system. This caused the system to always broken. It was either too hot or too cold.
The swimming pool filtration system was always broken.
The electrical wiring was in adequate in the building which caused fires and the voltage spikes. These spikes would cause the pool and hot tub control equipment to always blow up, fail, or catch on fire. Thus the hot tub and pool are always out of order. These spikes also blew up a lot of the cardio equipment. That is why a lot of pieces were always down.
The pool is not VGB certified and was supposed to be certified back in 2011. By draining the pool the landlord can get this fixed so the pool is to code.
The sprinkler system in the locker rooms are too short so we could not put a ceiling up in the locker rooms.
The air exchange system in the locker rooms is broken so the ceiling do not always dry and they collect water which leads to the mold.
The air exchange system in the pool does not work properly and should be replaced. That is why the walls are dripping with rust.
Landlord needs to tear out the shower walls so mold and water will not continue to go into the shower walls.
Landlord needs to replace all of the leaky windows.

I have also taken out most of my equipment and will hopefully be able to finish removing the remaining pieces in order to make room for your new owner to purchase newer equipment for the club. The club was not attacked or sabotaged. The swimming pool was drained so it can be repaired, the drains brought to code, and painted. There was no vandalism and there was a lot of good equipment left. I left the carpet shampoo machine, tile cleaning machine for the bathrooms, and many other cleaning supplies. All paper towel dispensers were left on the walls. The club needs cleaning from the move, upgrades in equipment, supplies purchased. All of which is a small investment by your new owner John Pietromonaco. If you have any question you can contact him by clicking on his name or you can call his office at (206) 232-7502 .

All of your membership and credit card information has been removed from the premises and will be destroyed. If you would like to sign back up at the club you will have to email John or stop by the club. Your memberships are officially terminated and you will not be charged again by the West Seattle Club. Some of you have not been charged for the last two months as we have been in transition with our new management software CSI. You will not be charged for those two months. For those of you that have been charged before the club was closed down or you joined less than 30 days ago, you will be receiving a full refund. If you have any questions please feel free to email us from the website at www.westseattleclub.com. We will be using the contact information that we have on file to send you your refund.

There are also many mistakes that I made that I will learn from. West Seattle is a great community and deserves a great club for people to reach their fitness goals. For falling short I apologize. Good luck and God Bless.

Sam Adams

The denial of sabotage is an apparent response to what the property owner’s representative, Dan Lehr, said in a message we published as part of our Saturday night coverage.

Meantime, a new document in Adams’s bankruptcy-case file confirms what had been mentioned in other documents the past few days – what technically happened is that he sought extra time to decide on whether to extend or “reject” the club lease, a decision required as part of the proceedings, and last Friday, the judge turned down the request, so the lease was “rejected” as of this past Monday. The newest information from the new ownership/management of the 2629 SW Andover facility is in this story we published Tuesday afternoon; we’ll update this with anything else that comes in this afternoon/evening.

4:21 PM: While the message suggests e-mailing “from the website,” we haven’t found an e-mail address on it so far. A couple layers in, we did find this form; let us know if you use it and get a reply.

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By Tracy Record
West Seattle Blog editor

We’re continuing to track the transition at 2629 SW Andover from the suddenly shut-down West Seattle (Athletic) Club to the new West Seattle Health Club.

The former, owned by Sam Adams since early last year, announced a two-day closure last week but did not reopen on Saturday as promised; later Saturday, a representative of property owner John Pietromonaco announced that they’ve taken over and will open the facility as a new club.

First, the newest update, received this morning from that representative, Dan Lehr, who is managing the transition to WS Health Club and says it is “moving faster than expected.” He describes the points below (unedited, as we received them) as “updates from my staff”:

Opening date still up in the air but at this rate late week is very doable. We need to get the staff up to speed on how to handle membership questions and that is up in the air right now.

Phones by Thursday

Club being painted in pool area and men’s locker room as well as kidz club grounds being cleaned Thursday

Computers up by Wednesday or Thursday after security system is re-instated

Payroll being set-up by Wednesday

Still trying to get membership information so memberships can be extended for days the club was closed website – hopefully by end of the Wednesday

New equipment ordered will start arriving in two weeks. Over 40 pieces of new cardio – 300k

All equipment organized

3rd Floor
———-
All trash collected.
Mirrors Wiped.
Window ledges wiped.
Reception desk (2) thoroughly wiped and cleaned.
All exercise equipment disinfected and wiped.
All weights put back in order.
Vacuumed and Dust Mop ( Will damp mop Tuesday).

2nd Floor
———-
Moved furniture – Put furniture back in uniform in offices etc.
Will buff out heel marks on floor area of Aerobic Room (Tuesday)

1st Floor
———-
Power sprayed and disinfected utilizing a deodorizer both Men’s and Women’s locker rooms showers. All Floor areas machine scrubbed and cleaned.

Will start carpet cleaning some areas of the 3rd floor later Tuesday evening as cleaning crew closes shift. We will also use a good deodorizer on carpet.

(Monday) almost everything was cleared from the front lobby. Almost all equipment was put to back together that had all the nuts and bolts. All the working spin bikes were put back into the spin class. Working equipment was all moved to the third floor too. It looks a lot better no gaps except for walking space. Dumbbells were put on what remaining dumbbell racks we had left and workout plates were loaded on equipment, due to no weight tree’s to stock them on. The housekeeping storage was cleared out, all supplies was stocked into the house keeping area. All machines were wiped down and almost all trash has been picked up. The locker room and shower areas were also kai vacced and auto scrubbed. We made sure to also clear out the women’s only area. The only thing we have left in women’s only is broken equipment and heavy machines that need to be broken down because there too heavy to put on the piano dolly’s. All floors were vacuumed and most floors were dust mopped/mopped. Mirrors were cleaned among other things.

If you missed our first report about the transition, published Saturday night, see it here – it includes Lehr’s first report on what happened and what’s ahead.

Meantime, as for the prior ownership: Neither we nor members, by any account, have received any information since the Thursday/Friday closure was announced in an e-mail to some members (a few of whom forwarded it to us) last week. (The building’s new management makes it clear that they are a separate operation, starting from scratch.)

The state Attorney General’s office says it’s not uncommon for health/fitness clubs to abruptly close. So not uncommon, in fact, the AG’s website has a specific page with information about your rights, and how to file a complaint – here’s the direct link. A key point: “If the health club closes permanently, and the owner does not have a comparable facility within 10 miles of the club, you can cancel and receive a pro-rated refund of your initiation fee.”

There’s no new paperwork as of this writing in the online file for what had been an eviction action – “unlawful detainer” – against the club’s previous ownership. As we had originally reported earlier this month, a deadline of October 24th, last Friday, had been set for a $1.1 million payment due (mostly back rent) to the property owner, to hold off eviction. The court documents had said that Adams’ company expected to get that money from a loan for which it said it had a contract. But as of midweek, property owner Pietromonaco said that money hadn’t been received and that he had “a plan” if it didn’t arrive. What’s happening now is apparently the execution of that plan; state corporate records show that Pietromonaco created the West Seattle Health Club LLC on October 17th, one week before the deadline.

The eviction action originally was filed in May, but on the eve of a scheduled hearing in late June, it was put on automatic hold when Adams and his wife filed for Chapter 11 bankruptcy organization. That hold – a stay – was lifted after they missed a court-ordered August deadline for payment of some back rent.

Now the Chapter 11 filing itself is in jeopardy, according to the newest paperwork filed in the federal bankruptcy case. The US trustee says that Adams has not filed a single one of the monthly financial reports required since the filing, so she is asking bankruptcy court Judge Marc Barreca to either convert it to a Chapter 7 bankruptcy filing or to dismiss the case entirely, which would mean that the Adamses lose the various protections conferred by a Chapter 11. The motion is set for a November 14th hearing.

Another recent action filed in the bankruptcy case was from a financial-services company that wanted to be added to the list of creditors, saying Sam Adams entered into a contract, less than a month before the Chapter 11 filing, selling a certain amount of “future receivables” to the company, for a six-figure sum, but not notifying it about the subsequent filing. The Adamses’ bankruptcy lawyer filed a response to this last week, saying that the “future receivables” deal actually wasn’t struck by Sam (A.) Adams, but by his father Sam E. Adams, acting on that particular day as a representative of the company. The document also notes that Sam E. Adams lives in Texas.

And in the moments before publishing this, we checked the bankruptcy-case records one more time. The couple from whom the Adamses were buying a waterfront Kirkland home on a rent-to-own basis are seeking a court order requiring rent payment, which they say hasn’t happened for some months. Their motion notes that with the fitness club closure – described as “deemed rejection of … the lease” – and the aforementioned motion to convert the bankruptcy to Chapter 7, “Mr. Adams’ prospects for reorganization appear even more dim than they were before.”

Sam A. Adams, a former pro-football player, bought the club during bankruptcy proceedings for the former operation, Allstar Fitness; we chronicled that transition and the previous bankruptcy proceedings in stories archived here (reverse-chronological order), October 2012-January 2014. The coverage of now-defunct WS (Athletic) Club will have its own archive shortly.

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7:52 PM: The fitness club at 2629 SW Andover – closed since Thursday – has a new name: West Seattle Health Club.

And we’ve just found out a lot more from the man who says property owner John Pietromonaco has hired him to run it, Dan Lehr.

He expects it to remain closed at least until the end of the week.

(added) First, from an e-mail Lehr sent just before our conversation, this is what he says has happened, and what he says is being planned:

As you are well aware Sam vacated the premises Friday night and left the club in a state of disarray. Even stooping so low as to sabotage many of the clubs systems and equipment – most seriously of which is the pool, threw employee shirts and toilet paper into the pool filters and drained the pool of water.

He removed most of the cardio equipment and anything that was left was either in a state of disrepair or already out of order. Most of the free weights have been removed as well as most anything else that wasn’t nailed down, including computers, phones, sound systems and all membership records. Fortunately most of the selectorized weight machines (have weight stacks & pins) were left behind and are in good working order. In short most anything that could be easily removed was taken.

HRP Properties has a vested interest in the property which was designed solely to be an Athletic Club. We fully intend to continue to operate the property as a full service athletic facility and are committed to restoring the club to its former “fully operational state”.

Some of the items that will be addressed immediately will include the following:
Club HVAC systems will be repaired – this is to begin Monday of this coming week.
The entire club will be deep cleaned from top to bottom – locker rooms, carpets, shower areas – everything.
Cardio equipment will be either repaired or replaced with new
Free Weights will be replaced with new
Stereos and TV’S – replaced with new
Numerous other miscellaneous fitness and operations items replaced with new
Grounds will be cleaned
Pool areas will be renovated as needed

Our phone conversation went a lot further, including where West Seattle (Athletic) Club memberships stand, and more, including Lehr’s background. Adding that shortly.

ADDED 9:31 PM: Lehr says he’s “been in the health and fitness industry for 25 years as a club owner,” including “Redmond Athletic Club, which I designed and built from the ground up.” Again, he says property owner Pietromonaco is now the owner – and that, he says, is rare, for a club operator to own the land and building – and he has been hired to manage and basically rebuild it. He says he generally operates with a “relaxed culture” and wants to “build up morale, get a new culture in there, that starts to emanate to the members – the past two operators have left the members high and dry.”

About the members: Where do they stand?

Lehr says they are “trying to get the membership information, it’s hosted on a cloud site, we’re working to obtain all that. If we can get that, we can start crediting people, extending (their) information because of downtime, but without that, we can’t take care of those folks. But what we will do is start up another club they can come and join for no startup fees. We’re going to try to come up with a dues structure. We’re still gathering information on what (the previous operation) had been selling. We’re going to come up with one that is competitive and still viable to make the club profitable.”

Lehr says he is not entirely sure what the status was as Adams left – was he formally evicted? did he officially hand over the business? Just one thing: “(Adams’ club) is no longer operational. State law requires him to find a comparable facility (to keep members) within 10 miles and he has not done that, so he cannot bill members again.” He says Adams is using “nearby” storage for what he removed from the club.

“We’re going to do the right thing. I’m not sure what that is yet. My past experience, I’ve taken over clubs before. We want everyone to stay. We want the chance to show them (what we can do). … If I can get membership and dues information, then I’m in a seamless situation. If I don’t have that, I can’t.”

He said they hope “to be operational sometime near the end of next week.” (The pool could take up to 4 weeks, since he says they will take the opportunity for some HVAC improvements, repainting, etc., in that part of the club.) “But we have to have a lot in place – a point of sale system, new member contracts,” and they will be meeting with staff. He says they want to be completely “transparent” as they move through the process of opening the “new” club and promises daily updates.

SUNDAY NIGHT: Since it’s been a busy day with windstorm aftermath, Harvest Festival, etc., we don’t have a new standalone story, but did note that the new manager has posted this in comments tonight.

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By Tracy Record
West Seattle Blog editor

Routine checks of court files have turned up two new legal actions involving the West Seattle Athletic Club (which took over the former Allstar Fitness location in North Delridge last year) – one in which it’s the defendant, another in which it’s the plaintiff.

First: The club’s landlord H-P Properties has filed an “unlawful detainer” complaint, and what court documents describe as an “eviction hearing” is set for February 11th.

As explained here, this means basically refusal of an order to vacate. According to the court documents, the landlord is owed $386,000 in “back rent and other charges,” including this month; the documents include the lease, which says that after two rent-less months last spring, owner Sam Adams is supposed to be paying $100,000 rent per month right now. The complaint, filed a week and a half ago, includes a copy of a three-day “pay or vacate” notice that was originally dated December 20th.

The complaint is not only against Adams, his company Hollystone Holdings, and the West Seattle Athletic Club, but also names a company called Barratt Leasing. That company, in turn, is being sued by Adams, according to a separate action filed this month, which names Adams as a plaintiff as well as six athletic clubs, including the one in West Seattle. They are suing Barratt Leasing and Allstate Financial Group for breach of contract, accounting, and rescission.

The court documents say Allstate Financial “offers billing services to owners of athletic clubs” and that it was under contract with these clubs, but alleges that Allstate:

“… has failed to make timely and accurate periodic payments to Plaintiffs. On numerous occasions the periodic payments from Allstate Financial to Plaintiffs were late, less than called for under the terms of the agreements between the parties, not wire transferred, made on out-of-state checks that would not clear for several days, or drawn on accounts with insufficient funds. Many Allstate Financial checks to Plaintiffs would be cancelled by Allstate Financial after being deposited by Plaintiffs, which in turn would cause Plaintiffs’ checks to landlords, vendors, and employees to bounce. As a direct and proximate cause of Allstate Financial’s failure to make timely and accurate periodic payments, Plaintiffs were unable to pay required lease, payroll, insurance and utility expenses.

Other allegations made by Adams and his clubs are that Allstate “convinced (them) to enter into subleases for the inclusion of wellness clinics in four clubs” but has not been paying rent for those spaces and currently owes more than $120,000.

As for Barratt, which “is affiliated with and operates in connection with” Allstate, here’s another excerpt from the documents in the lawsuit filed by Adams’ company:

Barratt Leasing finances the purchase of athletic clubs, taking security in the assets of the athletic club, including athletic equipment owned by the clubs. Plaintiffs entered into Lease Agreements with Barratt Leasing to finance the purchase of the clubs.

Barratt Leasing has breached these Lease Agreements, acting in concert with the improper actions and breaches of Allstate Financial. For example, Allstate Financial, Barratt Leasing and Plaintiffs entered into two Memorandum of Agreements in December 2013 which were intended to resolve many of the legal disputes and issues between the parties. Allstate Financial and Barratt Leasing have failed to perform and have materially breached these Agreements. For example, under the first Memorandum of Agreement, Allstate Financial has failed to “continue to provide advances on collected member dues” to assist meeting the obligations of West Seattle Athletic Club and Bethany Village Athletic Club. Rather than advancing these payments, Allstate Financial has taken control of the Bethany Village Athletic Club away from Plaintiffs. Under the second Memorandum of Agreement, Allstate Financial and Barratt Financial have either wholly failed to perform, partially performed, or not performed in a timely manner, the obligations set forth in paragraphs 5.1 through 5.6 of that Agreement.

As a direct and proximate result of these breaches by Allstate Financial and Barratt Leasing, Plaintiffs have suffered several hundreds of thousands of dollars in damages including but not limited to lost membership fees and dues, lost profits, loss of value of the businesses, late fees, damage to business reputation, attorneys’ fees, and other costs.

Unlike the “unlawful detainer” case mentioned atop this story, this is a regular lawsuit and currently does not have a court date set until next year.

Last fall, as noted in this WSB report from November, there were numerous concerns voiced by members, who alleged deteriorating conditions, and some employees who said their checks had bounced, but the ownership posted a message promising improvements.

Less than a month ago, the Tacoma News-Tribune reported that Adams’ company had been evicted from its Lincoln Plaza Athletic Club near Tacoma Mall.

Last time we tried to contact owner Adams for comment about the West Seattle club, he asked that we do so by phone rather than e-mail; so we called his personal number this afternoon to seek comment, but reached only a message saying the mailbox is full, so we’re trying e-mail too, and will add any comment that we receive. (Added: He did call about 20 minutes after we published this, but did not wish to comment.)

Adams took over the former Allstar Fitness in West Seattle in March of last year, after its former owner’s bankruptcy case led to the sale of its assets for $75,000. (Our coverage of the bankruptcy case and what has followed is archived here.)

We are continuing to review the online court files for these cases and will add an update later with anything else we find that might be of note.

ADDED 5:51 PM: Per a request in comments for including documents from the case – for starters, here’s the document setting the February 11th “eviction hearing.” Here is the related “order to show cause.” And finally, the unlawful-detainer complaint.

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Some confusion tonight regarding notices sent to past/present members of the former Allstar Fitness club at 2629 SW Andover in North Delridge.

We’ve heard from three people so far who received the notices in postal mail today and assumed they have something to do with current concerns at what has since last March been West Seattle Athletic Club.

The new notices do NOT have anything to do with current ownership.

They are part of the pre-existing bankruptcy proceedings for West Seattle Fitness, the official name of the ownership from the club was Allstar Fitness. You might recall that back before the club was sold to its current ownership, the previous ownership had been going through bankruptcy proceedings (here’s our coverage archive, newest to oldest) and there was some discussion of when members should get notices regarding those proceedings. According to images of the court documents in the new notices, they relate to a hearing December 20th on setting the amounts to be paid to people involved with those bankruptcy proceedings, including the trustee who for a time oversaw the former Allstar Fitness, and lawyers. The notices invite recipients to respond, and note that if no responses are received, the motions might be granted without a hearing.

We just checked the online file for that pre-existing bankruptcy case involving the prior owners, and that appears to be all that is going on (although we urge you to review anything you receive for you reading any legal-type notices you receive.

Separately, after a flurry of e-mails from members in recent days, we have been checking on the situation with the club under current ownership.

Members who e-mailed WSB have made multiple mentions of concerns, from instructors leaving amid claims of bouncing checks, to missing amenities such as towel-service interruption and soapless showers, to a lack of water service at the club for at least part of two days, most recently November 20th. One member who exhaustively detailed what she did and was told upon discovery of that problem that day says a staffer claimed it had something to do with locker-room repairs.

We have been continuing to check court records, watching for any evidence of filings involving the club’s current ownership; we found September and October warrants for unpaid state taxes, with no indication of whether the situations had been remedied. We took questions about that and the other aforementioned problems directly to the club’s current owner, Sam Adams, who answered promptly, but only to tell us that he would not comment on anything we asked about. (We have since filed a public-disclosure request with the city to find out more about the water-service interruption, as Seattle Public Utilities said otherwise it cannot comment on specific customers’ situations.)

Following what was described by multiple sources as an emergency meeting between club ownership and some club personnel/instructors last week, members told us a notice went up promising improvements, and one member has since sent us an image of the notice:

Adams’ company has been dealing with problems in two other areas where it operates – Tacoma (the News-Tribune reported last week that some employees there say their checks have bounced). Earlier this month, The Oregonian reported that one of the company’s clubs in Portland had been evicted.

But again, the notices some have received in postal mail today are related to the longrunning bankruptcy proceedings involving the prior owners, under the business name West Seattle Fitness – not the current ownership, known as West Seattle Athletic Club/Oregon Athletic Clubs.

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For the first time since the Friday hearing at which a federal bankruptcy judge approved the sale of the former Allstar Fitness, we’ve heard from its new ownership. Sam Adams‘ company Oregon Athletic Clubs is renaming the club West Seattle Athletic Club, as we had reported after speaking with him March 10th, and we now know that company’s president is a former West Seattleite named Don Pak. He has just sent us this notice – which he says will be e-mailed to members as well as posted at the club – with information including the latest on what they are doing about prepaid memberships:

It is with great pleasure that we announce the following:

West Seattle Athletic Club has acquired Allstar Fitness and we are honored to serve the West Seattle community. West Seattle Athletic club (formerly All-Star Fitness) is the newest addition to the Oregon Athletic Club Family, the fastest growing chain of premier destination health clubs in the Pacific Northwest.

What does this all mean to you as a former All Star member?

There will not be any interruptions with your current monthly membership or changes to your monthly rates! This means you can carry on using this great facility as you have always done while also taking advantage of the new upgrades to equipment and services that we have planned.

What do we have planned for your club?

In the near future we will be replacing equipment, increasing services, and refreshing/updating the building. As a part of our new Group exercise (GX) programs, we will be adding classes from the world renowned Les Mills programs! We’re not just focusing on the adults either. At the new OAC, we want to continue and expand our youth programs to provide more options for the entire family! We will be adding amenities to the kids club such as well. The new OAC will be implementing the kidcheck software program to help ensure a safe and easy check in process. Take a look… http://www.kidcheck.com. Our goal is to provide an outstanding member experience to all of our members.

What about pre-paid memberships?

Great News, as promised, The West Seattle Athletic Club will be honoring all prepaid membership that expires on or before December 31st 2014.

If you have a membership that expires after December 31st 2014, please contact us at memberservicesWSAC@oaclubs.com. If we do not hear from you, a representative will be in contact with you to discuss your membership on an individual basis.

What happens next?

To use your new West Seattle Athletic Club membership just come into the club, update your billing and contact information, and enjoy your local neighborhood club. You will be issued a new membership card and hopefully meet some of the new staff members that will be here to help you reach your fitness goals.

We are thrilled to personally welcome you to the new West Seattle Athletic Club and are excited to provide you with a world-class experience. If you have any questions regarding the transition, please contact your club general manager Ramon Vasquez. He is at the club or can be reached at ramon@oaclubs.com. We would like to thank you for being a member.

Yours in Health,
The Oregon Athletic Club team!

This is the latest chapter in what began when the former owners’ company West Seattle Fitness filed Chapter 10 bankruptcy, quietly, last August. After tips from members, we first reported on the situation in November. The club was put up for sale in February, and the sale was approved by U.S. District Court Judge Karen Overstreet last Friday (see the signed court document here). WSB ongoing coverage dating back to November is archived here (reverse chronological order).

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(Click image for larger view)
As noted in our Friday coverage of the hearing in which U.S. District Court Judge Karen Overstreet approved the sale of West Seattle’s Allstar Fitness, the court-appointed trustee promised a notice would go up at the club ASAP with an update for members. Above is a photo of the resulting notice signed by trustee Richard Hooper, taken by a member and shared with us via e-mail. If for some reason you can’t read even the larger size of the photo, here is a key passage regarding the status of memberships:

If you are a member who signed and paid for a long-term, prepaid membership contract or prepaid personal training contract dated on or after August 27, 2012, that contract will be honored under its terms by the Buyer.

If you are a member who signed and paid for a long-term, prepaid membership contract or prepaid personal training contract dated before August 27, 2012, your contract will be rejected and terminated as of today. However, the Buyer is in the process of reviewing these contracts and is willing to discuss your continued membership with you. Please bring copies of your signed contract to the club for these discussions. You may have a claim in the bankruptcy proceeding and will receive notice of any deadlines related to the filing of claims.

If you are a member who signed and prepaid for a long-term, prepaid c membership contract dated before August 27, 2012, but the contract renewal date was not until after August 27, 2012, your contract will be rejected and terminated as of today. However, the Buyer is in the process of reviewing these contracts and is willing to discuss your continued membership with you. Please bring copies of your signed contract to the club for these discussions. You may have a claim in the bankruptcy proceeding and will receive notice of any deadlines related to the filing of same.

… West Seattle Athletic Club LLC has asked me to inform you that you are welcome to use the club, regardless of your status above until all of the contracts have been reviewed and it has had an opportunity to meet with you and discuss your individual situations.

West Seattle Athletic Club is what new owner Sam Adams told us, in a March 10th telephone interview, he would rename the club. He also spoke with WSB this past Thursday, and our report on that conversation is toward the end of this story. All of our coverage, dating back to our first report on the bankruptcy last fall, is archived here, in reverse chronological order.

SUNDAY MORNING NOTE: We received multiple messages this morning from people who said the club did not open at its usual 8 am Sunday time and that they waited for quite a while and finally left. We were about to start investigating this when commenter Kate posted just after 9 am that she called and the club IS open now. (Please let us know if at any point later in the day you find otherwise – we always welcome news tips by text or voice, regarding any West Seattle/White Center/South Park news, at 206-293-6302, 24/7, the fastest way to reach us.)

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11:19 AM: The hearing has ended. The judge expressed ongoing concern for members getting notice, from hereon out, about their rights, including those whose contracts don’t wind up being assumed by the new ownership, and their rights to file a claim in the Chapter 11 case. She asked the bankruptcy trustee to look into a way to point members to a court website where they could read documents and notices. Trustee Richard Hooper also promised the judge that he will be posting a notice at the club this afternoon to notify members of the sale. We will expand this coverage with play-by-play from the hearing as soon as we’re back at HQ.

ADDED 6:21 PM: The rest of today’s story – through the end of the court hearing, anyway (we’re interested in hearing from anyone who might have seen the new owner at the club today, and/or the promised notice to members – your comments and/or e-mail are appreciated):

Key players, on and facing the bench on the 7th floor of the federal courthouse downtown:

U.S. District Court Judge Karen Overstreet

Lawyers:
Representing the court-appointed trustee, Yousef Arefi-Afshar
Representing the would-be buyer (she said she had “just been retained”)
Representing the club’s landlord

Trustee Richard Hooper

Those in the gallery, as mentioned from the bench, and/or as seen on the witness stand, included:
More than half a dozen people who raised their hands to identify themselves as club members
Sam Adams (mentioned as being there somewhere – though we didn’t see him)

*Note that cameras are not allowed in federal courtrooms; otherwise we would have shot video or at least photos.*

First item of discussion: Errors in documents, particularly the August 2013 date listed as the cutoff for certain contracts being honored – “We don’t believe anyone’s due process has been violated,” says the trustee’s lawyer – and the apparent errors in listing who was supposed to be on the “rejected contracts” list. The lawyer says “lemonade” resulted because it led them to realize the debtor’s records (debtor refers to Allstar ownership) “contained further errors.”

Judge Overstreet got the lawyer to acknowledge that the “rejected contracts” list would be vetted ultimately by date, not necessarily by names on what is now acknowledged to be a list contianing errors.

One hangup, though: The debtor reportedly solicited renewals before filing for Chapter 11, even though the contracts didn’t expire until afterward. One person on this list is in the courtroom. Those are on the rejected contract list, even though they wouldn’t have been if they had waited to pay until the actual expiration date.

Once that was all somewhat straightened out, it came to the matter of the terms of the sale, and the judge being convinced whether to approve it or not.

This is where dollar-sign specifics started coming in.

The landlord’s lawyer said his client was owed about half a million dollars by current club ownership – including three months without rent being paid, at $135,000 a month. The lawyer reiterated their interest in a “viable tenant.” To a suggestion that the sale would benefit no one but the landlord, he countered that the remaining members would benefit by “having a facility they can go to, with the buyer upgrading it … I presume the membership lives in West Seattle – there’s apparently a major fitness club going in, but it’s going to be a while.” (That was presumably a reference to LA Fitness, the health-club chain that will be the anchor tenant for Spruce, the development set for “The Hole,” expected to start construction sometime soon – its developer hasn’t answered our recent queries.)

Judge Overstreet, who presided snappily throughout with occasional wit, said, “And the alternative is, I say no, and we close the club.”

That was reiterated throughout – this deal may not be great for all the current members, but, the contention was, it beat closing the club and leaving all members with nowhere to go. Also reiterated by the judge – she had asked Allstar owner Bob Padgett at the time of the filing last summer to “give notice to all members of this club that bankruptcy had been filed – he did not.”

(The case was filed on August 27th. We didn’t learn about it until October, at which time we published this story, quoting club management as saying a letter would be sent to members.)

The lack of notice was cited as a reason why GRE 509 Olive LLC, a downtown interest with some involvement with both the debtor and Adams, in separate transactions, weighed in at the last minute before the hearing on the prospective sale. Their lawyer said that some issues mattered more to them than others, but overall, “I don’t want it said in two months that we hid in the weeds and didn’t say anything.” The trustee’s lawyer Arefi-Afshar said he considered that company’s claims a “red herring.” At that point, the 509 Olive also brought up another issue from their filing, whether Adams can live up to his promises regarding renovating and operating the West Seattle club.

“He’s here and he can testify,” offered the trustee’s side.

The judge did not take them up on that offer. She did grill Hooper on how the $75,000 purchase price for club assets “squares with the valuation.” Hooper said it was the best they could do, and that they needed to do something fast – “we barely have the cash to keep the doors open and pay the salaries.”

That’s when several members took the opportunity to testify. The first took issue with Arefi-Afshar’s characterization of the erroneous list/date turning “lemons into lemonade” – in her view, the notice and its errors “cut off further interest” for too many people who didn’t “believe their rights are affected.”

“But more (contracts) will be honored” than originally believed, the judge countered, subsequently saying again that she is not pleased outgoing owner Padgett didn’t notify members, describing herself even as being in “a snit.”

The testifying member said she had belonged to the club since the start and thinks it’s undervalued with a $75,000 sale price, suggesting there were members who might have offered at least that much, but hadn’t heard about a search for a buyer. She quoted Adams’s March 10th WSB interview in which he said he expected to honor 99 percent of even the contracts listed as “rejected” in the court documents, and she thought the documents should be revised to explicitly say that.

The next member to speak was one of the “investors” from whom the debtor had allegedly solicited “investments,” with part of the sum ostensibly to go toward lifetime/long-term memberships. His contract, he said, is supposed to go through September 2018, and he considers it “disgraceful” that he didn’t get much notice. “I want him to honor the people who have supported the club.”

The next person to speak also described herself as upset about the lack of notice: “If I knew they were in bankruptcy, I would never have signed a long-term contract.” She said she hadn’t heard about it until late February. She thought a folder of documents about the case at the club’s front desk would have been helpful. Would an accurate list of affected members be available? she wondered. Trustee Hooper said “the accuracy of the records at the club is questionable,” and noted that the 7,000-plus people described as members are actually “everybody on the register of the club,” including some “inactive.”

He next had to answer some pointed questions about how the search for a buyer was conducted and how he wound up with this proposal. Six people toured the facility, four dealing directly with the landlord, Hooper said, and Adams’ offer was best. But time was short, he said, and they did not “advertise.”

Subsequently explaining the “investor” members whose contracts would not be honored, Hooper went into a quick summary of how, he said, owner Bob Padgett – “I’ve got my eye on Mr. Padgett,” the judge interjected at that point – had requested $5,000 investments that supposedly would include $3,000 in membership credits. But those, Hooper contended, were deals that were made directly with Padgett, not with West Seattle Fitness, the entity that is now going through Chapter 11.

Adams’ lawyer said he needed time to look at the pre-existing contracts “so he can’t really speak to what the obligations are,” but he will make it “a priority. … He’s a businessman, he needs to have dues coming in,” she said, “he can’t afford to alienate 2,100 people.”

Observed the judge, “They seem a little alienated at this point already.”

The 503 Olive lawyer asked whether the landlord had rejected other potentially qualified buyers. The landlord’s lawyer, accusing the other lawyer of coming into the case “at the midnight hour,” suggested the “members don’t appreciate this because they don’t know – the landlord is owed $2.5 million .. until the trustee was appointed, he hadn’t been paid since October, and still has seen nothing for January through March … what the landlord is trying to do is get a viable tenant that pays a fair-market value. What Adams is going to pay is less than what the original lease called for – with two months of free rent to get up and running. If this doesn’t go through, the place goes dark, and we get the place back in two months in bad condition. Mr. Adams is committed to renovating the facility, and that’s important to the West Seattle area as well.”

At that point, Judge Overstreet had heard enough: “I’ll be approving the sale, and here’s why.” Before going too deeply into “why,” though, she said, “I have heard enough already about activities by Mr. Padgett that I will personally prepare a letter and ask the US Attorney’s Office to investigate what has been done … When we have a (Chapter 11 filing) we expect the (filers) to honor commitments” (to what they are supposed to do to make notifications, etc.).

“What concerns me the most is that the membership has the opportunity to continue to go to a club in their neighborhood.”

She warned Adams directly, “You have heard what people (testifying) had to say – they are not happy. I can’t order you to honor (pre-existing) contracts. … I think the trustee has provided sufficient evidence that this is in the best interest of the estate.”

This is nowhere near the end of the Chapter 11 case itself, but regarding the club, it was time to move on, and the remainder of the discussion had to do mostly with paperwork and timelines. First the judge said she would sign the order of sale Monday; the trustee said the bill of sale was prepared and ready to go, so then she said that if it got to her in time, she could sign it today.

(Here’s the order as entered into the online record at 3:30 pm today – not described as having been signed by the judge yet, though.)

Adams would be going to the club today “to talk to the staff,” the judge was told, and then a discussion ensued about improving communication to members – even if it meant getting relevant documents onto the court’s website and directing members there. There was a promise in the short run that a notice to members would be posted at the club this afternoon.

One last loose end was tied up – instead of the April 5th hearing on a motion to limit the need for sending future notices to all members, each motion that comes to the court can be discussed individually regarding what kind of notice is appropriate.

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Continuing our coverage of Allstar Fitness‘s Chapter 11 bankruptcy case, there are new developments as the proposed sale of the club’s assets goes before a federal judge downtown tomorrow morning:

More than 50 responses and/or objections to the sale motion have been filed, according to our most recent check of the online docket. We haven’t read all of them yet; most appear to be from individuals, with one exception: GRE 509 Olive LLC.

Its objection involves both the sale and the purchase. You can read it in its entirety here; while we’ve been working on this story, a response has been filed as well – a response saying that if the sale is not approved, the bankruptcy will go to Chapter 7 and the club will close, and had already been on the brink of closing in January.

First, excerpts from the objection:

GRE is scheduled as a secured creditor of West Seattle Fitness, LLC (the “Debtor”) as being owed approximately $2.5 million. As the Trustee acknowledges in the Motion, GRE filed a UCC financing statement in November 2009, which covers virtually all assets of the Debtor. …

West Seattle Fitness, it should be noted, is the official corporate name for Allstar’s current ownership, which has declared Chapter 11 bankruptcy. GRE 509 Olive LLC goes on to list three points of objection, excerpted:

1. The Sale Generates No Value to the Estate. The Trustee proposes to sell all of the fitness equipment, fixtures, furniture, inventory and certain intangible personal property that includes customer lists for a mere $75,000. GRE has a security interest in all of these assets. Unless the Trustee can avoid GRE’s lien or obtain a section 506(c) surcharge, none of the proceeds will go to the estate. …

2. No Evidence the Buyer Can Perform. According to the Motion, an important aspect of the proposed sale is the Buyer’s assumption of month-to-month memberships in good standing and all post-petition prepaid Club memberships (the “Assigned Contracts”). But no information about this Buyer is presented, and there is no evidence that the Buyer will be able to successfully operate and perform in the future. The Court should be aware that the principal of the Buyer is subject to a non-compete agreement with GRE, and it appears that his acquisition and operation of the Club will violate that agreement.

This appears to refer to a clause of a lease for the former Allstar Fitness space into which Sam Adams and a former business partner moved another club two years ago; they are listed as “guarantors” of an agreement that includes a clause saying that guarantors (among others) cannot have any kind of financial or ownership in a club in the state of Washington until.

Point #3 notes that Adams must sign a lease with the Allstar site’s landlord in order to operate the club, and says nothing has been presented to say he has or will. When we spoke with Adams, he said the lease would not be a problem, but didn’t offer specifics.

Since we started working on this story, a response to that motion has been filed – by the landlord; read it in its entirety here. The Allstar property owner’s response contends that GRE 509 Olive LLC did not file a claim in time; even if they did, the claim is “undersecured,” the response contends, saying, “Indeed, the Court was on the verge of converting this Chapter 11 proceeding to a Chapter 7 proceeding and having the club go dark in January 2013. … If this sale is not approved, then the Court will be compelled to convert to a Chapter 7, the Landlord will take the premises back (the Debtor has already rejected the lease and is only operating on a month-to-month term), and the Estate will lose everything.”

The response also says the Allstar property owner believes that Sam Adams considers the non-compete clause unenforceable. It also makes statements about the memberships that are at issue. And it repeats the warning that rejection of the sale to Adams will lead to Chapter 7 and club shutdown. The document is not allowing cut-and-paste so far, so while we work on transcribing those passages, here again is the link at which you can read the document for yourself.

Next step in all this is up to Judge Karen Overstreet, in whose federal courtroom the sale motion will be heard tomorrow morning at 9:30 am.

P.S. We have just tagged all our Allstar Chapter 11 stories so you can browse past coverage – reverse chronological order, here (or click the “Allstar Fitness bankruptcy” link under the headline of this or any of those stories).

ADDED 9:13 PM: As noted in comments, though we did not have a new message out to him, Sam Adams called WSB researcher/reporter Katie Meyer this evening (she had left messages for him while we were trying multiple ways to reach him for comment after he emerged as the prospective purchaser, but not since March 10th, when he called your editor here via the WSB business line). What he told her regarding issues mentioned in the GRE 509 Olive LLC objection to the sale:

*Regarding the club lease: “The lease is ready to be signed as soon as the judge approves the sale.”

*Regarding the non-compete clause: He believes it is not enforceable.

*In general, he believes GRE’s objections are not about him but about the money they say Allstar’s current ownership owes them. “This (GRE) is another person who was burned [by Allstar ownership] and I have nothing to do with that.”

Speaking of which – he reiterated what he told us a week and a half ago, that he will “honor 99% of those pre-paid memberships. I’m sorry, there will be some people who invested in the business, those who have lifetime, or 3, 4, 5-year memberships – those are not memberships, those are investments/partners in the business which no longer exists, they are not MY partners, but I want them to be members of the club. … I am looking to honor the majority of prepaid memberships – the buy a year, get one year free, buy 6 months get 6 months, I want to honor THOSE. I’m coming to fix up the club, I want to be a positive business in West Seattle, it’s a great community and a great club that needs improvements. (But) If people paid $3k, or $100k, those are investments in a business that is no longer there, and I’m sorry. … It’s a great community, and I want to be a part of it. The club is a ship that needs to be righted, and the members deserve to have it righted. I want to do my best to right the ship, to clean up the club, and we will do right by as many people as we can. … Out of the 2100 people listed as having/being an issue, it’s probably closer to like 50 to 100 that are real problems, that were investments [with the current ownership]. The rest, we plan on honoring those. We are going to honor prepaid memberships. It’s a handful, it’s not thousands, it’s not hundreds, it’s a handful that are investments not prepaid memberships.”

And there’s yet ANOTHER new document in the case file, added late today – a response to the dozens of objections, filed on behalf of the Chapter 11 bankruptcy trustee Richard Hooper, who has been in charge of club operations for an interim period while pursuing a sale. This response addresses one known error in previous documents and also says some names are on the “Rejected Contract” list because of inaccurate information. See the document in full here; here’s an excerpt:

1. Many of the Responses filed appear to have been filed based on a typographical error in the Notice of Hearings sent to the creditors and members of the fitness club located at 2629 SW Andover Street, Seattle, WA 98126 operated by the Debtor and commonly known as ALLSTAR FITNESS (the “Club”). The Notice of Hearings stated in part:

The Trustee also seeks Court approval to (1) assume and assign to the buyer the contracts of those members on month-to-month contracts and those members on prepaid long term memberships who purchased those membership AFTER the start of this bankruptcy case on August 27, 2013, and (2) to reject and terminate the contracts of the remaining long term prepaid members upon the sale of the Club to the buyer.
(emphasis added)

Accordingly, a number of members believed their contracts would not be assumed and assigned to the Buyer when in fact the underlying motion and purchase and sale agreement made clear that it is the intention of the proposed purchaser of the Club, West Seattle Fitness Club, LLC (the “Buyer”), to assume all membership contracts entered into by the Debtor on or after August 27, 2012, as this bankruptcy case did not commence until August 27, 2012,

2. This typographical error was further compounded by what the Trustee discovered to be partially inaccurate records kept by the Debtor with respect to the date of entry of many of the long-term prepaid contracts in its system. In preparing Exhibit B to the Trustee’s Declaration filed in support of the Motion (Dkt. No. 95), the Trustee relied on Club data to prepare a list of those members with contracts dated prior to August 27, 2012. Unfortunately, the data provided by the Club proved inaccurate, as a number of members who entered contracts dated after August 27, 2012 appeared on the list of pre-petition long-term prepaid contracts being rejected.

3. In order to further clarify the intentions of the Buyer and the Trustee with respect to which contracts and agreements will be assumed by the estate and assigned to the Buyer, and those rejected, the Trustee and Buyer have entered into a First Amendment (the “Amendment”) to the Asset Purchase Agreement dated March 1, 2013 (the “APA”) attached as Exhibit A hereto. The Trustee would further propose that any order approving the Sale Motion reflect similar language.

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