Hogan Lovells Publications | Quarterly Corporate and M&A Decisions Update | February 2021
2020 Q4 Decisions Update
In re Mindbody, Inc. Stockholders Litigation, No. 2019-0442-KSJM (Del. Ch. Oct. 2, 2020)
Summary
Richard Stollmeyer founded Mindbody, Inc. (Mindbody or the Company) in 2001 and became the Chairman of the board of directors and CEO of the company in 2004. In 2012, venture capital firm Institutional Venture Partners (IVP) purchased stock in Mindbody and, in 2014, IVP’s general partner, Eric Liaw, was appointed to the Mindbody board of directors. Following two key acquisitions in 2018, Mindbody’s stock price increased significantly.
Before Mindbody went public in 2015, and again in 2017, Stollmeyer communicated with Vista Equity Partners (Vista) regarding the prospect of a take-private sale of Mindbody. Vista, however, “chose not to engage in buyout talks at that time because Mindbody stock was trading ‘at an all-time high.’” In 2018, however, Vista changed its mind and expressed interest in acquiring Mindbody. Following the expression of interest, Mindbody management lowered the Company’s guidance and, on the earnings call for Q4 2018, noted several challenges facing the Company. In response, Mindbody’s stock price fell.
Later in November 2018, Mindbody pursued a take-private transaction, forming a Transaction Committee that hired a financial advisor to select potential bidders, including Vista. After some price negotiation, on December 23, 2018, the board approved the sale to Vista, which was announced on December 24, 2018.
Following the announcement of the transaction with Vista, the plaintiffs brought suit against Stollmeyer, Brett White, Mindbody’s CFO and COO, and Liaw, alleging that they breached their fiduciary duties by “initiating, timing, and tilting the sales process in favor of Vista in their own self-interest” and by “failing to disclose all material information to Mindbody stockholders’ in advance of the stockholder vote on the Merger.” The shareholders asserted that each was conflicted because: (1) Stollmeyer was motivated by his desire to obtain liquidity and the prospect of future employment, (2) Liaw was motivated by IVP’s desire to exit the investment, and (3) White was motivated by the prospect of future employment.
The court declined to dismiss the claims against Stollmeyer and White. Applying enhanced scrutiny under Revlon, the court found that the plaintiffs sufficiently alleged that Stollmeyer was motivated by his own desire for liquidity and his own employment prospects, and that Stollmeyer purposely drove down the stock price and provided Vista with “information and timing advantages” throughout the sales process. In so holding, the court held that the formation of an independent committee to oversee the transaction, standing alone, was insufficient to overcome a pleading-stage inference of conflict. Similarly, the court concluded that the plaintiffs’ adequately alleged that White either acted with gross negligence or reckless indifference throughout the sales process, including in altering Mindbody’s forecasts and providing timing and informational advantages to Vista.
With regard to Liaw, however, the plaintiffs’ allegations that Liaw was motivated to liquidate IVP’s investment were insufficient to allege a claim for breach of fiduciary duty. The court found the complaint lacked any allegations that Liaw was involved in lowering the Company’s guidance or in providing Vista any advantages during the sales process.
Finally, the court declined to find that a fully informed stockholder vote supported dismissal under Corwin. Based on the allegations against Stollmeyer, the court stated that “[g]enerally, where facts alleged make the paradigmatic Revlon claim reasonably conceivable, it will be difficult to show on a motion to dismiss that the stockholder vote was fully informed.” Here, the court found that the allegations regarding Stollmeyer’s alleged undisclosed conflicts were sufficient to defeat a Corwin defense at the pleading stage.
Back To Listing
