§1582. Financial responsibility

A.(1) Every center which enters into prepaid or credit contracts for physical fitness services of over one month's duration shall maintain with the state treasurer a surety bond in the amount of twenty-five thousand dollars.

(2) Such bond shall be maintained and in effect for two years from the date:

(a) The center sells a contract to provide facilities or services.

(b) A bond is secured as a result of action taken by a district attorney or the office of consumer protection within the Department of Justice.

(3) A surety bond required under the provisions of Subsection A shall be issued by a surety company authorized to do business as a surety in this state.

(4) Each bond shall be in favor of the state for the benefit of any customer who is damaged by the center's violation of law or failure to comply with its contractual obligations to its customers. The state or any person claiming against the bond may maintain actions for damages or additional relief against the center and the surety. The aggregate liability of the surety for all breaches of the bond conditions provided herein shall in no event exceed the amount of the bond.

(5) The provisions of Subsections A and B of this Section shall apply and become effective as to any center upon the sale or transfer of more than fifty percent of any class of stock, equity interest, or other ownership interest in the center.

B.(1) In lieu of the bond required by Subsection A of this Section, a center may deposit with the office of the state treasurer a certificate of deposit issued by a financial institution doing business in this state and insured by the Federal Deposit Insurance Corporation and pledge it, for the periods specified for the bond required under Subsection A of this Section, and for ninety days thereafter, to the state of Louisiana for the benefit of any customer damaged by the center's violation of law, or failure to comply with its contractual obligations to its customers. The certificate shall be in the amount of the bonds required under Subsection A of this Section. Any interest from the certificate of deposit shall be payable to the center. If the state or a customer obtains a final judgment against the center which must be satisfied from the proceeds of the certificate of deposit, any penalty arising from premature payment of the certificate of deposit shall be paid by the center and not subtracted from the face amount of the pledged certificate.

(2) In lieu of maintaining the bond required in Subsection A of this Section or in lieu of maintaining a certificate of deposit with the office of the state treasurer as set forth in Paragraph (1) of this Subsection, a center may furnish an irrevocable letter of credit from any foreign or domestic bank that is insured by the Federal Deposit Insurance Corporation, in the amount of twenty-five thousand dollars, which letter of credit shall be returned upon request by the center following the expiration of two years from the date set forth in Paragraph A(2) of this Section.

C. A copy of the bond or certificate of deposit required by this Chapter shall be posted conspicuously at every location where monies or contracts are received by the center.

D. A copy of any bond or certificate required by this Section shall be conspicuously posted on the premises of the center at each separate location and made available for inspection by any person upon request.

E. It shall be unlawful for any person or center to advertise, sell, or offer to sell the physical fitness services of a center required to maintain a bond or certificate of deposit when a valid bond or certificate is not on file with the state treasurer.

F. Any person who may have violated Subsection E of this Section shall be warned in writing of the provisions of this Section.

G. Any person who violates this Subsection E of this Section after receipt of a warning shall be guilty of a violation of law and shall be fined in an amount not to exceed five hundred dollars.

H. If a center does not maintain the bond or certificate of deposit required by this Section, any customer may cancel his contract for that reason.

I. Except as provided in Paragraph (A)(5) of this Section, the provisions of R.S. 51:1582 shall not apply to any center that is in operation on September 10, 1982. Centers claiming this exemption shall substantiate the claim upon the reasonable request of any law enforcement officer, district attorney, or of any representatives of the attorney general or office of consumer protection.

J. Any center that properly posts a bond as provided by Subsection A of this Section, deposits a certificate of deposit as provided by Subsection B of this Section, or furnishes an irrevocable letter of credit as provided by Subsection B of this Section and then sells a contract to provide services and facilities but fails to open for business shall refund the entire contract price to each purchaser. After all refunds have been made, the center may petition the district court in the parish in which the business was to have been located to have an order issued to cancel the bond or return the certificate of deposit or the letter of credit, as the case may be. The center shall prove to the court that all refunds have been made and that there are no outstanding suits on the bond, the certificate of deposit, or the letter of credit. The center shall serve a copy of the petition on the state treasurer and attorney general.

K.(1) All monies paid by a customer to a center prior to the opening of the outlet shall promptly be deposited by the center in a trust account, to be maintained by the center for the purpose of holding such monies for the customer. Such monies shall be deposited with a bank, savings and loan association, mutual savings bank, or licensed escrow agent located in Louisiana.

(2) The center shall, within seven days of the first deposit, notify the attorney general's office of consumer protection in writing of the name, address, and location of the depository and any subsequent change thereof.

(3) The center shall provide the customer with a written receipt for the monies and shall provide written notice of the name, address, and location of the depository and any subsequent change thereof.

(4) If prior to the opening of the outlet, ownership of the center is transferred to another, any sums in the trust account affected by such transfer shall simultaneously be transferred to an equivalent trust account of the entity to which the center was transferred. Such entity shall promptly notify the customer and the attorney general's office of consumer protection of the transfer and of the name, address, and location of the depository at which such equivalent account is held.

(5) A customer's claim to any monies under this Section shall be prior to that of any creditor of the center, including a trustee in bankruptcy or a receiver, even if such monies are commingled.

(6) After a center receives a notice of cancellation of a contract or if a center fails to open a facility at the date stated in the contract, the center shall within ten days give a full refund to the customer of any monies held in escrow for the customer pursuant to this Section. Such refund shall include the customer's pro rata share of any interest earned on such monies.

(7) Any monies received from customers by a center in excess of its normal monthly dues shall be placed in escrow subject to the provisions of this Section in the event that the physical fitness services are not fully operational or in the event that the physical fitness service is promising future construction or improvements.

Added by Acts 1982, No. 808, §1. Acts 1983, No. 607, §1; Acts 1986, No. 650, §1; Acts 1993, No. 704, §1.