1. (a) Within 20 days of receiving notice that a health spa has ceased operations or is insolvent, the secretary shall make a preliminary determination regarding whether any of the spa's members have suffered financial loss within the meaning of the Act and these rules. If the secretary determines that financial losses have in fact occurred, he shall within 20 days of making the determination notify the surety or obligor that:

   1. (1) the health spa has ceased operations or is insolvent;
   2. (2) members of the health spa have suffered financial losses within the meaning of the Act and these rules;

   3. (3) the secretary intends to:

      1. (A) publish a display advertisement in a newspaper of general circulation in the county or nearest county in which the health spa is located notifying the public of the fact that the health spa is closed and that a health spa member has 90 days from the date of the first notice to perfect a claim under the security posted; or
      2. (B) use any other reasonable method, to include regular mail, deemed by the secretary to provide sufficient notice to members of the health spa of the fact that the health spa is closed and that a member has 90 days from the date of the notice to perfect a claim under the security posted;
   4. (4) the secretary intends to perfect a claim against the bond or other security for the reasonable expenses incurred in providing notice to the members. The maximum amount of such expenses shall not exceed $3,000.
2. (b) Unless the surety or obligor, as the case may be, timely contests the preliminary determination of the secretary pursuant to the Administrative Procedure and Texas Register Act (Texas Civil Statutes, Article 6252-13a (Vernon Supp. 1992)), the secretary shall proceed to publish the notice.

3. (c) Within 45 days from the date the secretary first discovers that a health spa has closed, the secretary shall initiate the notice process.

   1. (1) If it is decided to publish in a newspaper, the secretary shall publish a display advertisement in a newspaper of general circulation in the county or nearest county in which the health spa is located notifying the public of the fact that the health spa is closed and the member has 90 days from the date of the first notice to perfect a claim under the security posted pursuant to this Act, §10. The notice shall be published for two consecutive Saturdays and Sundays and shall inform those affected of the procedures for perfecting a claim against the security. The secretary shall have a claim against the security for reasonable expenses incurred in publishing the notice which shall not exceed $3,000.
   2. (2) Regardless of the method utilized for notice to the members, all claims received by the secretary after 90 days following the date of the first notice are barred and shall not be considered by the secretary. If the total of claims evidencing actual financial loss exceed the amount of the security, the secretary shall adjudicate the claims on a pro rata basis by dividing the amount of the security, after first deducting the actual costs for publication of the notice, by the total amount of the claims in order to ascertain a percentage to be applied to each claim.
4. (d) In order to perfect a claim, a claimant must submit a copy of the contract that forms a basis of the claim together with documentation or a sworn affidavit indicating the total of payments made pursuant to the contract. In the event the claimant does not submit adequate documentation, the secretary shall promptly inform the claimant of this fact together with notice that adequate documentation must be received by the bar date in order for the claim to be considered.
5. (e) The secretary shall timely present claims together with supporting documentation for the approval of payment by the surety or obligor.

6. (f) Actual financial loss shall mean and be limited to those sums which have been paid under a health spa contract to a registrant or a registrant's assignee and which at the time the health spa is closed are unearned. Actual financial losses shall be calculated by multiplying the gross monthly payment by the total of months or partial months remaining on a contract at the time of closing minus any payments not made. For the purposes of this section the following terms shall have the following meanings.

   1. (1) Closed--The condition wherein the facilities of a health spa are no longer available to its members and equivalent facilities within 10 miles of the closed facility have not been made available to the members of the closed facilities; or where a registrant has sold a registered location and the security required in section of the Act has not been transferred to the new owner or the new owner has neither adopted nor honored the contracts of existing members.
   2. (2) Gross monthly payment--The gross monthly payment shall be calculated by determining the total of payments, including down payments and initiation fees required by the contract, divided by the total number of months in the term of the contract.
   3. (3) Calculation of dates--The date of closing and the date of the contract expiration shall be rounded to the nearest full month. The total months remaining on the contract shall be calculated by subtracting the date of closing from the expiration date of the contract. The result will be expressed in whole months.
7. (g) If the members' claims do not exceed the amount of the security, the registrant shall arrange for the direct payment of the claims to the members.
8. (h) The surety or obligor shall provide the secretary proof of payment of the members' claims.
9. (i) In the event the total of claims exceed the amount of the security, the claims shall be paid on a pro rata basis by dividing the amount of the security, after first deducting the secretary's cost of publication of the notice, by the total amount of the claims. This percentage shall be applied to each claim.

Source Note:The provisions of this §102.35 adopted to be effective January 18, 1993, 18 TexReg 61.