New Owner of Gold’s Gym Recovers $7.85 Million From Bankruptcy Estate for ‘Failure to Disclose’

Barchart · 10/17 13:15

A federal bankruptcy court judge in Dallas has awarded $5 million, plus attorneys’ fees, to compensate RSG Group USA for the non-disclosure of a post-petition, seven-year global licensing agreement of the iconic brand, which previous management executed without bankruptcy court approval.

RSG Group USA bought the company’s assets at auction in 2020 for nearly $100 million with the goal of reinvesting in and reinvigorating the iconic brand after years of venture capital ownership, which culminated in its bankruptcy filing during the COVID pandemic.

RSG Group USA discovered the existence of the post-petition global license of Gold’s Gym’s valuable trademarks after winning the bankruptcy auction and executing a purchase agreement that did not list the new license in any of its schedules. Unlike a typical “buyer beware” scenario, RSG Group USA had negotiated robust representations and warranties to ensure that it was acquiring Gold’s Gym’s valuable intellectual property assets, including its trademarks, “free and clear” of all “encumbrances” unless disclosed in the purchase agreement.

RSG Group USA was ultimately able to negotiate a buyout of the undisclosed license agreement in March 2021, allowing it to move forward with its plans to revitalize the Gold’s Gym brand around the world, but not without incurring significant legal fees and expenses to do so. What followed was a three-year legal battle to recoup the damages caused by failure to identify and disclose the post-petition licensing agreement during the bankruptcy process.

Dallas attorneys Dawn Estes, Jennifer Henry, and Kim Winnubst of Estes Thorne Ewing & Payne PLLC represented RSG Group USA together with Sam Maisel and Casey Doherty of Dentons at the two-week trial heard in May and June 2023 by Judge Scott Everett of the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. Shelby Angel, General Counsel for RSG Group USA, and Susan Hannagan, Senior Counsel for RSG Group USA, managed and guided the litigation internally for RSG.

“This was a complex case with a number of intricate legal and factual layers to sort through. We are thankful to Judge Everett for taking his time in exploring the facts in issuing his opinion,” Estes said of the court’s final 74-page ruling awarding RSG $5 million, plus legal fees and costs. The parties agreed to dismiss all appeals after reaching an agreement on the $7.85 million total, including fees and expenses, to be paid to RSG Group USA. A malpractice suit filed by the bankruptcy trustee against Dykema, the law firm that represented the debtors in the bankruptcy case, is still ongoing.

The case is In re: GGI Holdings, LLC, et al., Debtors. Case No 20-31318-swe11, U.S. Bankruptcy Court for the Northern District of Texas, Dallas.

About Estes Thorne Ewing & Payne PLLC

Estes Thorne Ewing & Payne is Women’s Business Enterprise Certified and a member of the National Association of Minority and Woman Owned Law Firms. Its Chambers USA and Best Law Firms-honored collaborative team of highly experienced attorneys represents clients nationwide in business litigation and family law matters.