Request By:
James J. Varellas, Esq.
Varellas, Pratt and Cooley
Attorneys at Law
Suite 400, Limestone Building
134 North Limestone
Lexington, Kentucky 40507
Opinion
Opinion By: Steven L. Beshear, Attorney General; Barbara J. Bryant, Assistant Attorney General
You have requested an official opinion as to the applicability of KRS 367.900 et seq., relating to health spas, to the following statement of facts:
One of our clients is contemplating opening an establishment offering a sauna, steamroom, massages and a limited exercise program. The client intends to charge a fee for use of the facilities and services but the fee is to be collected only at the time the services and facilities are used. There is to be no prepayment for services or use of the facilities and no contracts of membership are to be sold.
More specifically, you wish to know whether your client must register pursuant to KRS 367.905(1)(a) and post a surety bond pursuant to KRS 367.905(1)(b).
In determining the applicability of certain provisions of KRS 367.900 et seq., to a particular fact pattern, it is first necessary to determine whether the establishment in question is a health spa as defined by KRS 367.900(1). That provision reads as follows:
As used in KRS 367.905 to 367.930, unless the context requires otherwise:
(1) "Health spa" means an establishment, except those defined as nonprofit organizations under 26 U.S.C. § 509(a), which provides for profit as one of its primary purposes, services or facilities which purport to improve the user's physical condition or appearance through weight control, exercise, dieting, or a combination of these. The term includes, but is not limited to, establishments referred to by such terms as reducing salon, spa, exercise club, exercise gym, health studio, health club, weight control center, or other similar term.
As your client is charging a fee and for that fee providing services or facilities which include an exercise program, we believe the establishment in question is a health spa as defined in KRS 367.900(1).
Your first specific question is whether the health spa described in the statement of facts must file a registration statement pursuant to KRS 367.905(1)(a). The pertinent portions of KRS 367.905(1)(a) state that:
Any person, corporation, partnership, association, or group intending to open or operate a health spa within the Commonwealth, shall:
(a) File a registration statement with the attorney general's division of consumer protection prior to the sale of any memberships in the Commonwealth of Kentucky. Such a registration statement shall contain . . . . (Emphasis Added.)
KRS 367.900 et seq. contains no exemptions from this subsection.
It is our opinion that all health spas operating or which wish to begin operation in the Commonwealth must register. As used in the statutory provisions of this state, "shall" is mandatory unless the context requires otherwise. KRS 446.010(29). We find nothing in KRS 367.905(1)(a) that indicates "shall" should not be considered as making registration mandatory. In addition, in examining the health spa provisions as a whole, we find that when the legislature chose to exempt certain spas from specific requirements, it did so clearly and specifically. KRS 367.905(1)(c) and KRS 367.905(4) provide exemptions from the bonding provisions. KRS 367.905(4) also provides an exemption from depositing prepayments in an escrow account. No such exemptions were established by the legislature for the registration statement.
In your letter, you suggest that "the spirit and purpose of those statutes is to protect consumers from loss of money due to the failure of insolvency of health spas after the consumer has already paid money for a membership contract. Thus, it appears that my client would not be required to file a registration statement or post a surety bond as provided in KRS 367.905(1)(a) and (b); since there is no sale of membership. . . ." While the "spirit and purpose" you suggest may very well have been the basis for the legislature's exemption of certain situations from the bonding requirement (e.g., those spas documenting sufficient financial responsibility in at least the amount of the bond) we do not believe that an exemption to the registration process can be implied on this same basis.
Your second specific question is whether the health spa described in the statement of facts must post a surety bond as required by KRS 367.905(1)(b) or whether an exemption pursuant to KRS 367.905(1)(c) is available. KRS 367.905(1)(b) states that:
Any person, corporation, partnership, association, or group intending to open or operate a health spa within the Commonwealth, shall:
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(b) Post a surety bond in the amount of fifty thousand dollars ($50,000) with the attorney general's division of consumer protection prior to the sale of any memberships in the Commonwealth of Kentucky. The bond required by this subsection shall be held for the benefit of any member who suffers loss of money paid pursuant to a contract entered into after July 15, 1982, due to the insolvency of the health spa, cessation of operation of the health spa, or failure of the health spa to open for business within ninety (90) days from the sale of the first contract.
The exemption created by the legislature in subsection (c)(i) of KRS 367.905(1) provides that:
(c) The bonding requirement set forth in paragraph (b) of this subsection does not apply to health spa as defined by subsection (1) of KRS 367.900 if the health spa:
(i) Charges or assesses, as the result of a membership contract, an annual membership fee or membership fees which total less than one hundred dollars ($100) over a yearly period;
It is our opinion that the health spa described in the statement of facts would be exempt from the bonding provisions in accordance with KRS 367.905(1)(c)(i) as spa users will not be obligating themselves to pay a total of one hundred dollars ($100.00) or more over a yearly period. This exemption would be available as long as the individuals do not in any way obligate themselves to attend the health spa a specific number of times or for a specific period of time and as long as the price of each visit is less than one hundred dollars ($100.00).
In conclusion, it is our opinion that while the health spa you describe must file a registration statement, the spa is exempt from the bonding requirement subject to the restrictions outlined above.