Feeling the Burn

Unpaid Taxes, missing money, and a bitter business divorce threaten the empire of fitness guru Larry North

Larry North, self-made poster boy for the Dallas health and fitness scene, sits in the sixth-floor conference room of an Oak Lawn law office. Tiny beads of perspiration form on his upper lip. With finely manicured nails he mercilessly picks at a white ballpoint pen until its top is splintered and its body ripped into shreds.

Most of Dallas knows Larry North, or at least his name, which he has spent the last decade pumping up. The fit--and those who wish they were--work out at his health clubs, call his weekly radio shows for advice, and dine at his trendy new restaurant.

Tight-bodied and strikingly bronzed for mid-March, North is dressed in a finely tailored slate-gray suit with an ever-so-subtle plaid. He is flanked by three of his lawyers and one of his loyal club managers.

North is trying to explain how his plans to expand the club empire have come crashing down around him. Why the Internal Revenue Service is after his company for nearly $300,000 in unpaid payroll and Social Security taxes. Why he's embroiled in nasty lawsuits with his business partner of three years.

In the best businessman's jargon, North describes how he and former partner Stephen Mekuly "grew" the business. Starting with the two original locations--the flagship Larry North Total Fitness in chic Highland Park Village, and the Larry North Fitness Factory on Mockingbird Lane and Greenville Avenue--they added three more clubs practically overnight. They were ready when the health-fitness craze reached its zenith and private gyms and spas began popping up in strip malls faster than bagel shops. Competition was cutthroat. But, like most of the clients who joined the clubs, business at Total Fitness was beautiful.

Or so it seemed. But in the past few months North has learned that the books of his company rarely balanced during most of 1996, and the payroll taxes weren't being paid. Construction of a spectacular new gym in sprawling southwest Arlington--set to open in January 1997--is woefully behind schedule, and people who bought pre-opening club memberships are beginning to ask for their money back. Some of North's former employees are threatening to sue him, accusing him of being a petty bully who has cheated them out of wages.

As North discusses all of the trouble, he wears a pained expression that fairly shouts, how could I have known?

North says the revelations have rocked him to the core, and he lays the blame squarely at the feet of his former partner, Total Fitness Chief Executive Officer Stephen Mekuly. A veteran executive of the Bally, President's, and Jack Lalanne fitness club chains, Mekuly joined North in a partnership in 1993. North, acknowledging that he knows more about barbells than books, needed someone with business acumen to help him grow his business, he says. He placed his trust in Mekuly.

The 48-year-old Mekuly headed a management team created to run the clubs bearing North's name in Highland Park, on Mockingbird Lane near East Dallas' M Streets area, at Preston Center in North Dallas, in Addison, and in Plano. Mekuly was brought in to manage the finances, keep membership sales rolling in, and hire and fire personnel.

Freed from the daily headaches of running a business, North was to do what he does best--promote his name and persona, work the cocktail party and benefit circuit, host his weekly radio talk shows, and write an occasional book.

But early last year, even as North reveled in plans to lend his name and image to the tony new restaurant NorthSouth in the Quadrangle, business irregularities began to surface at the health clubs. Some of North's club managers, he says, voiced suspicions about Mekuly's secretive bookkeeping practices. A couple of the clubs were growing shabby. Things just didn't seem, well, right.

Still, a Kenworth semi could have rolled over the achingly upbeat North with the news of his crumbling empire, and it's doubtful he would have noticed.

"My biggest problem, Holly, is that I'm too nice," he says. (North, in that successful Toastmasters way, squeezes the first name of his conversation partner into roughly every fifth sentence.)

"Unfortunately, that sets me up to be taken advantage of. I have a name, and because of that, people want to tag on to me. I haven't been careful enough about that. I've trusted everybody."

True enough. North says he trusted Mekuly unequivocally. That trust is shattered now, the partnership ended. Last November, North and several investors sued Mekuly and two of his partners in Dallas County state district court, arguing that Mekuly mismanaged funds, breached his fiduciary duty, misappropriated corporate assets, failed to pay federal taxes, and then misrepresented that tax liability to investors.

Mekuly has denied all the charges, and argues that it was he who whipped the flabby Highland Park and Plano clubs into fighting trim. Mekuly has filed a response to North's lawsuit, along with his own counterclaims.

North and Mekuly each still own varying portions of the five clubs. North holds more stock in the Highland Park and Mockingbird facilities, so they effectively remain under his control. Mekuly and his partners have taken over control of the remaining three clubs. The former partners disagree on ownership of the Arlington facility--North says he has a 7 percent interest in the gym, but Mekuly says that North only has the right to 5 percent of personal training revenue from the yet-to-open club.

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