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Nasir and Matt start things off by discussing one company's huge victory over Yelp, and then get into Staples' motives for cutting the hours of part-time employeesand the FTC cracking down on Sensa for weight loss claims. The two give a call to former gym owner,Noah Mangus, to discuss cancellation policies for gyms and the lawsuit against Equinox for its automatic renewal policy. Nasir and Matt also answer questions about ownership in quickly formed startups, the perils of holding fake promotions, and drafting contracts on a budget.

As mentioned during the show, please check out this charitable cause for type 1 diabetes: Jennifer's Tour de Cure fundraiserand here and make a donation for one of the members of the Top Floor Legal team.

Full Podcast Transcript

NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.

MATT: And this is Matt Staub.

NASIR: And welcome to our business legal podcast. This is where we cover some of the business legal news as well as some of your business legal questions.

MATT: Let’s jump right into it this week. There’s a story that came out. This could be very interesting what happens with this and it’s going to be good news for some business owners.

NASIR: Yeah, I think it’s huge.

MATT: Yeah, and I can’t remember anything like this happening before. It was a lawsuit involving Yelp. It was in Virginia. There was a company that had all these negative reviews and I believe they were also anonymous reviews. So, the people didn’t say who they were and, essentially, there was a lawsuit that happened, and Yelp was required to turn over the information of those so-called anonymous reviews. Like I said, this is going to be a big press stand. It’ll be interesting to see what happens. This was in Virginia, but it’ll be really interesting what happens in other states and just if anything follows up with an appeal.

NASIR: So, we’ve covered Yelp a bunch of times now. It’s almost our nemesis.
Our firm gets calls and emails every week from businesses that have had reviews on this Yelp website that are either defamatory or fake or what-have-you. There’s a lot of limited things that we can do. Also, frankly, from our business culture, I don’t think it’s the best idea to start suing your customers anyway. But this is something different. This is where you have anonymous reviewers that are posting information about your business that not only is false but is suspected to be completely your competitors or something.
This is a carpet cleaning business and they think that this is a competitor that is going on this website and posting these bad reviews about them.

MATT: Yeah, and I’m not sure if they found out who those people ultimately were or whether they were competitors. But, yeah, that would be what you suspect, right? It’s either competitors or I guess possibly disgruntled ex-employees. But, if you’re in a business and you have competitors and one way you want to get ahead I guess is to give those competitors negative reviews which is, you know, I wouldn’t advice that, but I guess that’s one way you can do it because people rely on Yelp a lot. More than I do, I guess. But I’ve been with a lot of people – personal and business – and they just, “Let’s look to Yelp.” Or I’ll talk to someone and I say, “Why didn’t you go with this person?” It’s like, “Oh, they had bad Yelp reviews.” And so, it holds a lot of weight.

NASIR: I’ve used Yelp mostly just for restaurants, but not for other businesses.
Now, keep in mind, people that are listening, this is a Virginia lawsuit. This was a public court decision.

MATT: Yeah, this was done by the court of appeals.

NASIR: So, understand what that means.
Unless you’re in the state of Virginia, that is not going to apply to you, but it is going to be persuasive authority in the sense that it could be used to help your argument in your respective state. Also, keep in mind, I notice that the basis of their lawsuit was a statute that was passed in Virginia which there are other states that have a similar statute which talks about basically anonymous posting and, if there’s a tortious or illegal communication, then the burden of proof going through First Amendment rights and so forth is lessened if it’s an anonymous post online.
So, even if your case is similar but if you’re not in a state that has a similar statute, it may not even work.

MATT: Yeah, very true. But, like I said, it’s the least persuasive and it’s the first step in other states.
I know a local business I like very much here in San Diego. They have a lot of five-star reviews and they had one one-star review from someone and they signed it anonymous. I looked into it and this person, like I said, they signed it anonymous. The name was Anonymous. But, when you do that, you probably shouldn’t also leave other reviews signing your real name because I just clicked on the name and they had written another review using their actual name and the person denied it. It was pretty humorous because they tried to be all secretive about it and just completely foiled right away.

NASIR: That’s just classic. I don’t even know how they’re going to track these guys down. If it is anonymous, even if you have an IP address, but I guess we’ll see.

MATT: I think there will be a lot of lawsuits filed now with this in place. And so, it’ll be interesting to see what happens in other states – California, New York, Texas, some of those bigger states.

NASIR: I really do hope the tide changes in businesses’ favor because a lot of the free speech advocates are appalling at this result. But, I mean, frankly, even from Yelp’s perspective, do they want all these internet trolls posting these bad reviews that are not only fake but are a total lie and disparage their clients’ businesses? I don’t think that’s really fair.
From a business corporate attorney perspective, I think it’s very hard for our clients to go through that.

MATT: Right, and there’s a lot of articles too about different people’s perspective on how to handle negative Yelp reviews. I know the marketing team we work with wrote a really good article about it but, yeah, there’s a lot of stuff out there with some advice.
You said you use it for restaurants. I mean, that’s what I use it for primarily, too. But there’s everything out there. You can review airports. The airport has reviews. Well, what other airports are you going to use? It’s just weird to me. Everything’s out there on Yelp now.

NASIR: Well, here in Houston, there’s two large ones. But you’re right.

MATT: Yeah.

NASIR: Everything’s bigger in Texas.

MATT: That’s true.
All right, let’s get into the first question this week. This comes from a startup in New York City.
“I was in a startup competition where random teams were assembled. We didn’t win, but still wanted to move forward. How do we determine who owns what?”
I’m assuming they’re talking about ownership of the entity – well, I guess they don’t have an entity yet – the business or whatever they put together.

NASIR: Well, probably not, right? They misspelled the word “forward” so I’m sure they didn’t think about that as well.
I guess I shouldn’t make fun of the people that are sending questions, but that’s a typo – obviously.
Maybe they talked about it but, at the same time, you know, in that kind of culture and environment, it’s not really practical to have that conversation when you don’t even have any IP yet.

MATT: Yeah. I mean, this is actually a question I’ve wondered about because there’s some competitions here in San Diego where teams will get formed and they’ll do something, and they’ll win money. Sometimes, they’ll get money; sometimes, they’ll get something else.
Let’s say they get money. Who’s entitled to what? Is it the person who came up with the idea and formed the team? Do you based it on how much work was done? Do you base it on who did what work? I guess that’s what I’m thinking from that perspective.

NASIR: I agree. The problem is that, if you actually made a dispute of it and you guys can’t come to an agreement, then pretty much it’s a waste of time anyway because an IP doesn’t have any worth if everyone’s fighting over it. The only way it’s going to have value is if you actually do something with it.
And so, here’s some practical advice. I just don’t think it’s practical to have this conversation beforehand. But, I think, afterwards, at the end of the competition, I think it’s important to have that conversation. But, if you don’t, then, in theory, all of you own the IP equally, I suppose, and have equal rights to it which can cause problems with weak links in the team and strong ones as well.

MATT: I agree with you. That’s the approach I would suggest as well.
I guess, sometimes, you know, you get working on something and it’s really successful and you really like where it’s going, and you just never get to the point where you’re discussing it down the road, then it becomes an issue, I guess.

NASIR: I know maybe another attorney may say, “Well, you should have the conversation at the very beginning.” But, again, I don’t think it’s practical. Also, I think it’s important for the leadership of the competition to do this. I’ve seen different startup weekends and competitions in which sometimes they mention it in their FAQ how to deal with these issues. They may even have some lawyers there or mentors there that have experience in this respect to handle that kind of concept. But, a lot of times, they’re not lawyers, so they can’t really give specific legal advice in that respect.
But, I think, frankly, you need to come to an agreement – whether it’s beforehand or after. If you make this into some kind of dispute, then the IP is not going to be worth anything. It’s not going to go anywhere anyway.

MATT: Right, I agree. Hopefully, we answered that question for him.

NASIR: Well, we taught him how to spell “forward” at least.

MATT: That’s true.
All right. Well, let’s continue on with our addressing healthcare every single podcast of January. Going off of the first article, too – about the Yelp – we kind of knew that was going to happen. This is another thing we figured would happen at some point.
This deals with Staples and they’re cutting hours of some of their part-time employees to get under the threshold of part-time employees working more than 25 hours a week or working more than 30 hours a week. It’s one or the other.

NASIR: I think it’s 25 because, if you recall last week or the week before, we talked about how the Affordable Healthcare Act, if you have more than 50 employees – and that’s the employer mandate which requires healthcare coverage but only for full-time employees – how do they define full-time employees?
There’s different definitions. Most of the time, it’s not defined by statute. But, in this case, it is, and that is 30 hours or more per week. And so, frankly, all they did is made sure that all their part-time workers don’t even get close to that amount as well.

MATT: Exactly.
So, what Staples is doing was cutting that to get around some of the Affordable Care Act stuff. Do you see a problem with this if they’re cutting hours of some part-time employees just a few hours? I mean, putting a memo out that got leaked, that was an issue. But, just in general, if an employer wanted to do this in its part-time employees, do you see a huge problem with it?

NASIR: Well, I don’t know because I think there’s a couple of distinctions here.
Let’s give Staples’ perspective. They say that they’re just reinforcing an old rule in the sense that this is nothing new that they just were mentioning it again. They say it’s independent – oh, I think that was actually Forever 21. They did the same thing. It was independent of the Affordable Healthcare Act.
But, here’s the point, if you have an employment manual, for example, for your business or if you work in a company that does, almost always, there’s some kind of definition of what is a full-time worker and a part-time worker. Almost always, when it comes to benefits, they apply to full-time workers and not part-time workers. Maybe some with part-time, right?
Almost always, again, the full-time worker is defined for less than 30 – sometimes, even just 20, right? And so, is this really a change of what they’d been doing before? I think it’s more of an issue where Staples has taken their part-time employees and making sure that they have a limit. That makes sense. But, if you’re taking a company and then hiring more people so that you can have more people on part-time and moving full-time to part-time employees, then that has an adverse effect to what I think the intent of the law was – to actually resolve it.

MATT: Yeah, I think that’s a good perspective on it. I don’t know. I’m kind of torn on the issue.
Obviously, if it’s hurting your business, let’s say Staples is having people work less and you don’t have enough people working to run people at the cash register or help people out in a store and it’s adverse to your business, then it’s definitely not a good decision.
But, if you’re cutting a few hours here and there for part-time employees and you’re doing it correctly given your employment manual, then I don’t know. I don’t have a huge problem with it. Like I said, I’m kind of torn on the issue.

NASIR: Yeah, there’s even a petition out there to the site asking for Staples to not limit hours of part-time employees. I don’t think the government has any say in that, but it just shows you the interest that people have in this topic.

MATT: It’s definitely better than some of the companies that were considering just letting people go to get under the 50-employee number. At least they’re not firing people.

NASIR: But I think that’s still going to happen.

MATT: It will.

NASIR: At the same time, there’s a lot of reasons to stay under 50 employees, and it’s not just because of the Affordable Care Act. But, I think, with this new legislation, it just gives another reason to try to stay under 50.

MATT: Okay. Well, yeah, we’ll stay tuned with that. Like I said, there’s going to be stories that pop up with people complaining about cutting, just getting laid off too for that, but we’ll keep an eye on it and update people on future shows.
Let’s get into the next question here. This one comes from a marketing firm in Los Angeles. This is a good one.
“One of our clients is holding a social media contest and give away a ‘prize’ to the winner. What if they don’t actually give a prize away? Are we in trouble for that?’

NASIR: You know, when we did a contest as a firm last spring or summer, it was a social media thing and it did really well. We were giving a prize away. I think it was an iPad Mini. But people were telling us they were reluctant to even participate. They were like, “Well, you guys aren’t really going to give a prize away, right?” as if almost that’s a common thing to happen.
I was just wondering, do people actually do that? That’s really wrong and unfair.

MATT: Yeah, I remember talking to people. I’ve talked to multiple people who say, “Yeah, I’ve done exactly what they’re saying. I hold this contest. I give away a prize,” and they don’t actually give anything away. That’s fraudulent, isn’t it? Or it’s at least misrepresentation.

NASIR: Also, it seems counterproductive because, you know, I assume they’re doing it for marketing and media reasons just like we did. But, also, you get some media attention just from the prize winner also promoting your stuff, too.
For example, the person that won the prize took a picture of herself with the iPad Mini and posted it on her Facebook page. That was awesome.

MATT: Yeah, it was a little bit questionable because your wife won, and she was posting it. She was holding up a box that may or may not have had an iPad Mini in it.
No, we did actually post the person who won the contest holding the iPad Mini which I think is the correct way to go about it.

NASIR: If I recall, she held out the actual device, too.

MATT: Yeah.

NASIR: That’s funny.

MATT: I saw her a couple of weeks ago and she commented about it. So, it is real. We can prove.
For this company or the person that’s doing this, the worst thing is to run this promotion to try to get attention and then someone finds out that you’re not even giving away a prize and then it’s completely the other way of what you wanted to achieve.

NASIR: That’s horrible, right? That’d be the most embarrassing thing. It’s still dishonest.
And so, you mentioned fraud, that’s definitely an issue, but I think it’s even more than that. You risk getting in trouble with the FTC as well because the FTC are the ones that also have all the regulations and guidelines for conducting any kind of sweepstakes and contests and things like that. And so, that’s definitely a big no-no.
The question here is the person asking the question isn’t the one that’s holding the contest. It’s one of their clients. And so, that makes it tough.
But I would say it depends upon how involved they are in the actual contest. Since it’s one of their clients and they’re a marketing firm, I assume that they may even be conducting it. So, there may be some liability there. But, also, why would you want a client like that? It’d be tough to have that.

MATT: And how much is this prize? Whatever the prize is, how much is it going to cost anyway? It can’t be more than a couple of hundred dollars, I would think, whatever it is. It’s just not worth it. It’s not worth it to do something like this. But I guess you could also go the route that they did in, I believe it was a Saved by the Bell episode where they held a raffle and, basically, the plan was to get all this money and then they would pick out some number and it would be rigged and one of his friends, Zach Morris’ friends would win. But then, it of course backfired and they ended up having to give this huge prize to somebody else and it was a whole mess and that was the episode.

NASIR: I’m surprised we didn’t think of a The Office episode for this. I even watched The Office again just to prepare for the show, just in case it came up.

MATT: Oh, we can relate it – the Golden Ticket episode!

NASIR: That’s true, the Golden Ticket episode where Michael Scott dresses up as Willy Wonka and the 20 percent off coupons ends up going all to the biggest client of Dunder Mifflin and they end up losing money out of it.

MATT: That’s actually one of my favorite episodes. When Jim’s on the phone, he’s like, “Oh, they’re the biggest client!” because I think it’s five separate 10-percent off and then Michael finds out that they got the first one. He’s like, “Oh, you got the golden ticket.” He goes to accounting. “How much would be 10 percent of our biggest client?” Well, it’s going to be a big hit. He’s like, “Oh, you found five 10-percent off, and is there anything on there that says you can’t use them all at once? Nope? All right!”

NASIR: Or limit one per customer, yeah.

MATT: But it ends up working out for them. So, I guess that’s our advice here.
Run a golden ticket promotion.

NASIR: Before we go to the next question or article, I think there is something that the marketing firm can do, at least, and it may be too late for this but you need to also have an indemnification clause.
An indemnification clause, what that will do, if it’s drafted properly, if somehow your client is sued or gets in trouble because of this whole issue and you didn’t have any control over it, you still may get sued or wrapped up into this litigation and all these legal issues. So, this indemnification clause in your contact – again, if drafted properly by an attorney – will make it so that your client will pay for your legal services or also pay for any of the liability that you may incur because of their actions.
I think this is fair in this case because you can’t control whether your client gives them the prize and you’re not going to do it. That’s not appropriate either. So, that may be an additional protection. Otherwise, I would just fire the client. I think that’s very appropriate and sometimes you’ve got to do that when you’re in the service industry. We’ve had to do that in the past as well.

MATT: For the business that’s writing this in, yeah, that’s the approach you’d take because they’re not the ones actually doing the representation.
All right, let’s take our break here. I think we have a charity to talk about.

NASIR: So, Jennifer, she is part of our firm at Top Floor Legal. She’s pretty much essential and kind of my backbone when it comes to some of the operations for our firm. So, she’s a part of a charity and I thought we’d talk about it for a second. She was actually diagnosed with Type I Diabetes a few years ago.
One of my best friends in elementary school actually had Type I and I remember when he would spend the night for a sleepover or something, he would bring his insulin shots and also those blood tests on his fingertips and so forth.
And so, Jennifer had to go through five or six daily insulin shots per day. This is a little bit different than Type II and I’m sure many of our listeners may or may not be familiar with it. She’s taking a Tour de Cure and she’s cycling 65 miles in April 2014 which is pretty crazy, but that’s her plan. And so, she’s raising some money for that, so we’re going to put some links up on our website. Oh, she’s selling T-shirts, too. The link is kind of long, too. We’ll just post it up. Please go to it. Donate what you can. It goes to a good cause. Of course, this is 100 percent tax-deductible donation – 501C3.

MATT: Yeah, Jennifer’s great, so definitely check it out. Give a donation. It’ll be well worth it.

NASIR: Those of you that know us, you’ve encountered Jennifer many times, bugging you, trying to schedule appointments with me and so forth. But she’s definitely lovely to work with.

MATT: Yeah, I concur.

NASIR: You’re just saying that because you’re on-air.

MATT: No, I have nothing bad to say about her.
All right, the next thing we have on the agenda here, this deals with a health club. I believe it’s Equinox. I hope that’s how you pronounce it, but it deals with their memberships are “impossible” to cancel. I guess, in the contracts for the gym membership, it has it in there so it’s automatically and perpetually renewing, making it, like one person said, virtually impossible to back out of.

NASIR: We’ve all seen these gyms that pressure you to sign up and then you end up not using it, of course. But then, when you want to cancel, you realize you have a year-long contract and so forth. But these guys have this provision where everything is automatically renewed. To cancel, they have to send in a certified or registered mail to the gym. Of course, who’s going to do that? This is an upscale gym, too. So, I can imagine a lot of people just not caring.

MATT: If you’re too lazy to not go to the gym, then you’re not going to go and get a certified letter and send it to the gym. That’s for sure.

NASIR: Before we talk about some of the legalities of this, I wanted to get in a person that actually owned a gym before. He’s doing something else right now which I think we can talk about when we have time.
Noah, are you there?
NOAH: Yeah, I’m here, guys.

NASIR: Very cool. So, you used to actually own a gym in San Diego, right?
NOAH: Yeah, as a matter of fact, that was my fourth gym that I’ve owned and operated myself. So, yeah, I’m no stranger to the gym and, certainly, a lot of the things that you guys are talking about certainly right up my alley.

NASIR: Matt, have you ever joined a gym and entered into a year-long contract and not end up going?

MATT: Let’s see. When I lived in Indiana, all my memberships were month-to-month. And then, when I moved to California, I went to 24 Hour Fitness and I signed, I think it was a three-year deal. I went all the time, so it wasn’t a huge issue, but I also had friends that signed up for the same deal and went for a couple of months and they never went again. Like I said, it wasn’t month-to-month, so they were locked in for two or three years. I don’t know what’s up with this gym, though. I’d be interested to see what the contract actually said. I don’t know how you can automatically renew someone without being able to back out of it at some point. Or cancel it.

NASIR: Yeah. So, what do you think, Noah? Is this a common practice in the industry?
NOAH: Yeah, it’s definitely commonplace. What you’ll find is what the membership subscription-type business model that a lot of gyms are going in the direction of setting up every single one of their members on an auto-renewal program which is basically the meat and potatoes of what we’re talking about. A lot of times – if not all times – the extension of that contract is not on a one-year or a two-year or a three-year after the initial term of the contract is up but more on a month-to-month to give each respective member an opportunity to cancel with no obligation to fulfil beyond the initial terms.
It comes as no surprise that there’s not just this one lawsuit but numerous lawsuits all throughout the United States – and I would imagine globally – as this business model is something that’s been transcending since the early 70’s.

NASIR: As a fitness gym owner, do you want your customers to basically not show up? Is that better for the business owner?
NOAH: I guess a lot of it kind of depends on which gym owner or gym operator you’re asking that question to. I think, more poignantly, it makes perfect sense for the ideal member to be getting what they’re paying for out of their gym membership. And so, a big term in not just the gym industry but every business in general is retention. If the person’s not seeing results – whether that be the ability to continue watching streaming videos through Netflix – if they’re not able to benefit from the monthly subscription that they’re paying for, then it certainly doesn’t make much sense for them to be bound to that.
Despite the fact that this is commonplace and pretty ubiquitous in nature – at least this business model is – I think what we’re going to see is kind of an evolution which we’re already kind of seeing right now which is not only just the option to do a month-on-month type of agreement, but to staple in a lot of new gym business models where there’s no other option other than doing a month-to-month. There’s no long-terms and a lot of people are using that as their value proposition to differentiate themselves from the rest of the competition that’s legally binding each one of their members into a long-term contract which – you guys know just as well as I do – comes back to that term lazy. Most of us are lazy and I hate to say it.

NASIR: I’m not lazy.
NOAH: Most of us are lazy and can’t fulfil that contract. Unfortunately, there are some gym operators out there that have been operators that have been conducting business this way for the longest time where they would say the ideal member is the one who has no footprint inside the gym. They’re continuously making their payments and the sleeping dog will sleep as long as they’re not bothered. It’s unfortunate that I get lumped into that same category of gym owners and gym operators where I firmly believe that, in the next five to ten years, we’re probably going to see a paradigm shift in the way that gyms are handling certain things, especially when there’s 3.8-million-dollar lawsuit that happens.

NASIR: No doubt. I think that makes sense.
Well, getting to the lawsuit, again, it seems like there’s some statutory violations that this particular state requires to have in these gym membership health club services act which would specify that they have to stipulate some kind of cancellation policy – that they can cancel within three days or so forth and it has to outline the actual financial obligations within the first page.
But I’m just thinking, even if this is part of your business strategy, a lot of these people are just not going to pay, right? And then, you’re just going to have to send them the collections and that doesn’t seem to be a very viable business model either.
NOAH: Yeah, I couldn’t agree more. I think that, fast-forward through the business model, you might as well cut out the exercise, cut out all of the email marketing blasts, and the word retention. All that stuff doesn’t matter and it’s unfortunate. If you fast-forward from the business model, it’s a lot like any other contract that you’re signing. Sign here on the dotted line and you’re basically signing away everything except your first child – maybe even your first and second child in some circumstances.

NASIR: I think you’re right.
You’re speaking to a shift in culture in a lot of ways in the sense that it’s just not in the fitness industry but really making sure that you’re providing value to the clients and retention is not through an ironclad contract but through value that you’re providing to the client and customer.
NOAH: Absolutely. You know what? Numbers don’t lie. Right now, everything is – at least in our society, this day and age – measurable by currency. So, if an Equinox is doing things totally wrong, then what’s that to say about every other gym out there that’s not completely dominating. So, I have to believe, you know, I’m kind of splitting hairs on this whole topic.
I definitely believe that Equinox should have advised their legal team and their legal team should have definitely been a little bit more on the ball in terms of the way that their contracts were written up because, certainly, there’s laws and there’s Consumer Fraud Acts that were brought into place with this class action lawsuit that Equinox is facing.
Certainly, I believe that there’s an obligation from the club’s standpoint but also the members’ standpoint. At the end of the day, one of the things that they mention in the suit is that there were no specific financial obligations. The total sum, I guess…

NASIR: The accounting.
NOAH: Nothing was specified on paper.

NASIR: Yeah, that’s right.
NOAH: At the end of the day, the member is not being held against their will, with a gun up against their head, to sign that agreement. They’re fully aware that what they’re signing is binding long-term and, if they don’t want to do the longer term, I’ve never met a club that doesn’t offer a month-to-month option.

NASIR: And business owners have to understand, too, when you’re working with consumers, it’s something called an “adhesion contract” in which it doesn’t matter what’s in the contract. If it’s unfair, then the court may not enforce it. And so, that’s why, again, just because you know what terms you want in your contract doesn’t mean that you still don’t need an attorney to make sure it’s viable.
Anyway, I appreciate your time, Noah.
We have a second here. Do you want to tell us a little bit about Fitkey? I think this is pretty interesting.
NOAH: Yeah.
Fitkey is a software platform that we’ve been developing over the course of the last year – maybe year and a half – to kind of coincide with what I mentioned earlier in the program. I see an obvious paradigm shift in the way that businesses are being operated. As of right now, we’re kind of localizing our efforts to the fitness industry because we do feel that there are a lot of archaic systems and very prehistoric protocols that are taking place.
What I kind of envisioned when we started developing Fitkey was, after years and years and years of sitting in the gym, I started to put two and two together and I realized that traditional marketing pieces weren’t working for my small business.
And so, I got creative and I looked at certain systems in the gym sector and I realized that one of the tangible items that’s close to 60 percent, I think, statistically – I believe it’s 57 percent of people are actually not only bringing their smartphones but actually using mobile apps as a tool inside the fitness facility to help them see results and achieve goals.
So, I looked at a system which is the tracking system for any gym and we kind of put it on its ear and said, “Well, there’s no reason why this shouldn’t be digital,” and there definitely shouldn’t be a reason for having no existence of an automated referral program.
Fitkey allows members to check in with their phone. They’re converting their gym keycard into a mobile application. The application allows them to check in and receive rewards. And then, it’s almost a membership sharing platform.

NASIR: Oh, very cool.
NOAH: Ultimately, the vision is to see the evolution of fitness being these big boxes and evolving into a more independent network of gyms, rec centers, even residences that are going to be turning into small personal training studios that people will now have access to wherever they go, whenever they go.
So, think of the way that Uber’s changed the taxicab business or the transportation industry. Fitkey will be revolutionizing the way that fitness is being perceived by the general public.

NASIR: Very cool. We’ll post a quick link to your website with more information on that on our podcast notes. I appreciate you joining with us.
NOAH: It was my pleasure. Thank you guys so much! It was an esteemed privilege. I really appreciate it.

NASIR: Have a good one!
NOAH: Take care!

NASIR: Okay. All right. That was Noah from Fitkey.
That was pretty cool. That was a neat perspective, especially on the Equinox gym membership lawsuit.

MATT: Yeah, and I like how candid he was. It sounds like he’s doing it the right way, but I know there’s a lot of gyms out there that are doing it the way he kind of described on the opposite side.
All I could picture, though – I don’t know if you watch Friends or ever watched Friends since it’s been off the air forever – there was an episode where Chandler was trying to quit the gym and they had all these tactics they would use. And then, Ross went there to try to help him quit and then he ends up signing up. It’s pretty funny.
I like to relate everything to TV or movie.

NASIR: I’m sure we can find an Office episode for that, but maybe next week.

MATT: Yeah.
Let’s jump into the next question. This comes from a specialty luggage store in Anaheim. That’s pretty unique.
“I’m drafting an agreement for a business deal, but don’t have the money to pay an attorney. What areas should I pay the most attention to?”
Oh, no!
if they wrote this question in a few months from now, this is coming from a closed down specialty luggage store in Anaheim. I’m only half joking.

NASIR: Should we just do a full semester of contract law to answer this question?

MATT: Yeah, that’s a good point.
So, we have offer and acceptance and consideration, I think.

NASIR: No one’s going to get that joke – except lawyers.

MATT: Yeah.

NASIR: I don’t even know where to begin. I mean, the most important aspects of a contract, there’s a lot.
I know you may feel comfortable and confident. I know a lot of business owners do that. They feel like they can write their own contract. I’ll tell you, most of the time, you could probably get away with it, but the problem is that, if there is a dispute, then it could destroy your business, and it’s happened many times, over and over again. Only the seasoned business owners know this. They know that, if they make a mistake in this field, it can ruin them and without the proper legal representation.
I know he can’t afford an attorney, but what does he do?

MATT: Here’s the question.
Do you want to pay an attorney to draft an agreement if you don’t know what you’re doing now? Or do you want to pay an attorney much more in the future to deal with the lawsuit that might pop up from it?
I’m more on the side of paying a lot less upfront than paying a lot more possibly down the road, but to each his own.

NASIR: Well, at least he’s asking the question because I know a lot of people that wouldn’t even consider. I mean, we’re all smart people, you know, but the problem is that there’s just a lot of hidden things in the law. Honestly, I think it’s a bad thing that the law is that way. There are a lot of things that are not predictable. I mean, just think about this gym membership aspect that we just talked about.
Just because he had a contract that says that the contract automatically renews and that you’re signed up for pretty much that period of time does not mean that’s the actual terms of the contract because, here, in this case, there’s a clause that says that you have to have this provision in your contract. Otherwise, it’s voidable. And so, how are you supposed to know to even think about looking for that unless you’ve gone through the dispute already or you’re very familiar with the industry and so forth. But, even then, I’ve seen a lot of “monkey see, monkey do” and even amongst the same industry, they use the same contracts, the same bad contracts, right?

MATT: Right, I agree.
Shall we try to give him a little bit of guidance?

NASIR: I guess.

MATT: I would focus on the indemnification and liability side. I mean, it depends what the agreement is as well, but that’s a pretty big aspect.

NASIR: Well, he kind of left it a little generic. He said, “A business deal.” So, gosh.
We have a method of going through a contract, but it kind of depends on what’s the premise, right? A business deal can mean a lot of things to me. Let’s say he’s buying another line of luggage. In a product purchase, you look at certain things that you wouldn’t look at in a joint venture which this could also be.
So, I don’t think we can answer this, Matt. It’s really difficult.

MATT: Yeah, we have their email, so we’ll just email them a contract back as our answer.

NASIR: We’ll just send them a business deal contract – whatever that is.

MATT: It’ll be something completely random.

NASIR: Well, how about this? Let’s have him/her send in more specifics. I mean, I’m sure this business deal is done and over, but maybe if they send us a little more specifics, then we can attempt at it. But the whole premise of trying to draft an agreement is tough.

MATT: Yeah, I guess that’s the best we can really do. Write us back in and give us a little bit more detail. Maybe we can help you out.

NASIR: That was a fail. Not on our part, though.

MATT: Let’s get into the last topic for today.

NASIR: I think I see a theme in our episode. It’s the FTC and fitness.

MATT: This is interesting because I saw these commercials a while ago and I never used the product. We’ve talking about Sensa.

NASIR: I’ve never heard of it.

MATT: I don’t know if the listeners have seen the commercials. I found it very hard to believe it worked. So, they have all these people. From what I understand based on the commercials, it’s something that I would assume looks like salt or sugar and you sprinkle it on your food and it subdues your appetite and you lose weight.
I saw them doing it in the commercial and I was like, “How does this work?” It doesn’t seem like this would work – unless you’re sprinkling something on it to make it taste awful then you don’t want to eat it, I guess. But they would sprinkle it on all the food they had. I guess, in the picture here, there’s a side for salt and a side for sweet.

NASIR: It’s probably what? Just sugar and salt.

MATT: Yeah. Actually, even the one that’s labeled salt is probably sugar, and the one that’s labeled sugar is salt, like I said, so you don’t want to eat the food.
So, the FTC is cracking down saying, “Hey, you know, you can lose weight without exercise,” which basically this product is advocating. “You’ve got to prove it.”

NASIR: But, if you look at some of the representations they make, and then the truth, I think it’s pretty upsetting.
This is what I think the FTC is going after them for. They say they’re clinically proven to cause substantial weight loss averaging 30 pounds in six months. In reality, they had one of the studies where the diet subject lost an average of 5.6 pounds in that period. In another, the lab sent the purported monthly weight data to Sensa before even weighing the subjects. Then, they say, “Lose weight without dieting and exercise.” They did a study where they had subjects where they encouraged diet and exercise; in the other, they just didn’t monitor at all.
I mean, that’s not very scientific, obviously.

MATT: Yeah. Well, some of those things, when you give specific numbers and stuff like that, but the weight loss stuff is hard because you can have a product that works, and it just doesn’t work for everyone. So, I guess some of the more generic things you can say about weight loss, like, “Oh, this product will help you lose weight,” well, I’m sure it will, but it doesn’t work for everyone.
I guess, when they do that sort of thing, it’s tough.

NASIR: It is a huge industry, right? There are so many supplements and diet, weight loss. I think the FTC doesn’t do enough because it’s so misleading and these guys make a ton of money.
Let me just go through a couple of these other ones. It’s just so appalling.
They say, based on research by an independent lab, even though Sensa’s the one that funded and they pretty much exercise control over the entire study which, again, how is that independent?

MATT: It sounds independent.

NASIR: And then, the people in Sensa’s ads were just regular folks, they say, even though they were offered money, free trips, and even TV appearances for endorsements. I guess they’re regular folks. I guess they’re also called actors, but okay.

MATT: Yeah, no surprise that FTC came down on here because you can’t do stuff like that. I don’t know. I’ll never use the product. I’m interested to talk to someone that has. I just want to see what it is. Maybe I’ll buy it just to see what it is.

NASIR: I think I’m just going to go to the gym and sign up for a 50-year membership and then quit and just take Sensa.

MATT: Well, I have a friend, I don’t think they do this anymore, but 24-Hour Fitness is really big in California. I have a friend who bought a lifetime membership for a thousand dollars.

NASIR: Yeah.

MATT: And so, like I said, I don’t think they do it anymore, but that’s a steal. That’s a great deal.

NASIR: No, but it’s not because I had a friend that did that, too. Actually, he was my brother-in-law. The problem is that it was for a certain type of 24-Hour Fitness.


NASIR: You know how they have different versions, right? So, what they do is they take the old ones and they convert them into something else. Now, you can’t even go to that gym anymore or something to that effect. There’s some loophole.

MATT: You know, you’re right. They have the super special gyms, too. I retract what I said.

NASIR: I don’t know all the details, so don’t quote me on it, but something to that effect. I just know it wasn’t the best idea, but it’s the same concept, right? I mean, they lock you in and they try to get you to do this and then you don’t end up using it or they change the law or go through some kind of loophole with the contract.

MATT: Well, I think that’s it for this week.

NASIR: All right, we just lost two sponsors, by the way – Sensa and 24-Hour Fitness.

MATT: That’s all right. There’s a lot of other businesses out there.

NASIR: That’s depressing. I don’t know. I was depending upon them, but that’s all right. I guess that’s okay. We’ll find somebody.

MATT: We can probably get Yelp.

NASIR: Oh, Yelp, yeah. We lost them a long time ago.
All right. Well, this is our – I don’t know what episode it is. It’s like the…

MATT: 14.

NASIR: 14?

MATT: Yeah, 14. I don’t think we told people how to write in questions either.

NASIR: I know, we always forget that, too. What is it?
It’s You can also go to the website to do that as well.

MATT: Yeah. Or you can fill up the form that’s on the website – whichever is easier for you.
Why don’t you just go to the website and fill out the form and you can look at all the episodes there, too.

NASIR: Actually, that’s easiest for us, so just do whatever is easiest for us instead of emailing.

MATT: Yeah. Why don’t you record your questions and text them to me?

NASIR: Or just come over to my house and tell me in person because I don’t like reading my email.

MATT: Yeah, that’d be the easiest. All right. That’s my advice.

NASIR: All right. Well, thank you for joining us and we’ll see you next week!

MATT: Yeah, and keep it sound, and keep it smart!

NASIR: Nice.
All right, have a good one!

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A podcast covering business in the news with a legal twist by Pasha Law PC
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Legally Sound | Smart Business covers the top business stories with a legal twist. Hosted by attorneys Nasir N. Pasha and Matt Staub of Pasha Law, Legally Sound | Smart Business is a podcast geared towards small business owners.

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