Aug 1, 2008 12:00 PM

Chicago — 24 Hour Fitness, San Ramon, CA, filed a lawsuit last month against Bally Total Fitness, Chicago, accusing Bally of illegally hiring new CEO Michael Sheehan away from 24 Hour to gain access to trade secrets.

The lawsuit, filed in the U.S. District Court for the Northern District of Illinois, was first reported by the Internet publication Law360. Bally filed a motion to dismiss the suit, and discovery is pending a determination by the state of Illinois.

Sheehan had been with 24 Hour for seven years and most recently served as the company's chief operating officer before taking over as Bally CEO on July 1.

“As CEO of defendant Bally, a direct, head-to-head competitor of 24 Hour Fitness, defendant Sheehan cannot ‘unring the bell,’ as he will be charged with executive responsibilities for the same areas that he worked in as chief operating officer of 24 Hour Fitness,” 24 Hour said in the lawsuit. “On information and belief, defendant Bally targeted defendant Sheehan to become CEO of defendant Bally in order to obtain the proprietary 24 Hour Fitness trade secrets and confidential information as part of defendant Bally's new business strategy and/or plans upon its emergence from Chapter 11 bankruptcy on Oct. 1, 2007.”

Some of the information that 24 Hour is concerned that Bally will learn include market strategies, performance data, expansion strategy and relationships with key vendors. 24 Hour also claims that Sheehan's former contract with the company included a non-compete clause that prevented him from joining a competitor for two years after he left his job, according to Law360's review of court papers.

24 Hour Fitness also is seeking punitive and compensatory damages for Sheehan's alleged breach of fiduciary duty, or the legal relationship of trust between Sheehan and 24 Hour, court documents reveal.

Pete Marino, corporate spokesperson for Bally, says the company does not comment on pending litigation. A spokesperson for 24 Hour says his company had nothing further to add than what is in the lawsuit.

A source familiar with the case says that 24 Hour has tried unsuccessfully to sue Bally and Sheehan at the county and state level in Contra Costa County, CA, and the state of California. The source predicts 24 Hour will lose the case in Illinois as well, saying the trade secrets angle is tough to prove.

“We all know the different ways to operate, so there really are no secrets if you are a fitness operator,” the source says.

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