In re Mindbody, Inc., Stockholder Litigation ( 2021 )


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  •                                     COURT OF CHANCERY
    OF THE
    STATE OF DELAWARE
    KATHALEEN ST. JUDE MCCORMICK                                          LEONARD L. WILLIAMS JUSTICE CENTER
    CHANCELLOR                                                          500 N. KING STREET, SUITE 11400
    WILMINGTON, DELAWARE 19801-3734
    November 29, 2021
    Joel Friedlander, Esquire                           Lisa A. Schmidt, Esquire
    Jeffrey M. Gorris, Esquire                          Robert L. Burns, Esquire
    Christopher M. Foulds, Esquire                      Matthew D. Perri, Esquire
    Friedlander & Gorris, P.A.                          John M. O’Toole, Esquire
    1201 North Market Street, Suite 220                 Richards, Layton & Finger, P.A.
    Wilmington, DE 19801                                One Rodney Square
    920 North King Street
    Gregory V. Varallo, Esquire                         Wilmington, Delaware 19801
    Bernstein Litowitz Berger & Grossmann LLP
    500 Delaware Avenue, Suite 901                      Ryan D. Stottmann, Esquire
    Wilmington, DE 19801                                Alexandra Cumings, Esquire
    Morris, Nichols, Arsht & Tunnell LLP
    1201 North Market Street
    Wilmington, DE 19801
    Re:    In re Mindbody, Inc., Stockholder Litigation,
    Cons. C.A. No. 2019-0442-KSJM
    Dear Counsel:
    This letter resolves the motion to dismiss filed by Defendants Vista Equity Partners
    Management, LLC, Torreys Parent, LLC, and Torreys Merger Sub, Inc. (collectively,
    “Vista”).1
    Vista has moved to dismiss the plaintiffs’ claim that Vista aided and abetted in the
    breaches of fiduciary duties committed by the other defendants pursuant to Court of
    1
    See Cons. C.A. No. 2019-0442-KSJM, Docket (“Dkt.”) 336 (second amended complaint,
    “Sec. Am. Compl.”), 343 (opening brief), 363 (answering brief), 386 (reply brief). Defined
    terms used herein have the same meaning ascribed to them in the court’s October 2, 2020
    Memorandum Opinion denying the defendants’ motion to dismiss (the “October 2
    Opinion” cited as “Oct. 2 Op.”). Dkt. 216.
    Cons. C.A. No. 2019-0442-KSJM
    November 29, 2021
    Page 2 of 4
    Chancery Rule 12(b)(6). “[T]he governing pleading standard in Delaware to survive a
    motion to dismiss is reasonable ‘conceivability.’”2 When considering such a motion, the
    court must “accept all well-pleaded factual allegations in the [c]omplaint as true . . . , draw
    all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff
    could not recover under any reasonably conceivable set of circumstances susceptible of
    proof.”3 The court, however, need not “accept conclusory allegations unsupported by
    specific facts or . . . draw unreasonable inferences in favor of the non-moving party.”4
    To state a claim for aiding and abetting, the plaintiffs must allege that Vista
    knowingly participated in a breach of fiduciary duty.5 The plaintiffs predicate their claim
    against Vista on two categories of disclosure violations. The first is the failure to include
    sufficient detail in the Proxy and Supplemental Proxy regarding Stollmeyer’s early
    interactions with Vista. The second is the failure to disclose Mindbody’s preliminary
    revenue results for Q4 2018 in advance of its earnings announcement while also noting the
    68% premium deal. I previously found that the plaintiffs stated a claim for breach of
    2
    Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 
    27 A.3d 531
    , 537 (Del.
    2011).
    3
    
    Id.
     at 536 (citing Savor, Inc. v. FMR Corp., 
    812 A.2d 894
    , 896–97 (Del. 2002)).
    4
    Price v. E.I. DuPont de Nemours & Co., 
    26 A.3d 162
    , 166 (Del. 2011) (citing Clinton v.
    Enter. Rent-A-Car Co., 
    977 A.2d 892
    , 895 (Del. 2009)), overruled on other grounds by
    Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 
    189 A.3d 1255
    , 1277 (Del. 2018).
    5
    In re Santa Fe Pac. Corp. S’holder Litig., 
    669 A.2d 59
    , 72 (Del. 1995) (“A claim for
    aiding and abetting requires the following three elements: (1) the existence of a fiduciary
    relationship, (2) a breach of the fiduciary's duty, and (3) a knowing participation in that
    breach by [the non-fiduciary].”); In re Rural Metro Corp. S’holders Litig., 
    88 A.3d 54
    , 97
    (Del. Ch. 2014), aff’d RBC Cap. Mkts., LLC v. Jervis, 
    129 A.3d 816
     (Del. 2015).
    Cons. C.A. No. 2019-0442-KSJM
    November 29, 2021
    Page 3 of 4
    fiduciary duty as to each category of disclosure violations.6 The question dispositive to the
    present motion is whether the plaintiffs have adequately alleged that Vista knowingly
    participated in those violations. The plaintiffs have met their pleading burden.
    As to the first category of disclosure violations, In re Columbia Pipeline Group, Inc.
    is instructive.7 There, the proxy failed to disclose material information about a meeting
    between the buyer and the seller’s CFO that occurred in violation of a standstill provision.
    The merger agreement gave the buyer “the right to participate in drafting the [p]roxy and
    review its contents,” and obligated the buyer to provide “any information it possessed that
    was required to be disclosed.”8 The court concluded that the buyer reviewed the proxy,
    knew that it did not disclose the meetings between the buyer and the personnel, and thus
    knowingly participated in the fiduciary breach.9
    Similarly, here, the merger agreement contractually entitles Vista to review the
    proxy and requires Vista to inform Mindbody of any deficiencies with the proxy.10 Vista
    knew that the proxy did not disclose information about Vista’s own dealings with
    Stollmeyer, dealings which I previously found support the plaintiffs’ claim for breach of
    6
    See Oct. 2 Op. at 66–79.
    7
    
    2021 WL 772562
     (Del. Ch. Mar. 1, 2021).
    8
    Id. at *10.
    9
    Id. at *58–59.
    10
    Sec. Am. Compl. ¶¶ 205–206.
    Cons. C.A. No. 2019-0442-KSJM
    November 29, 2021
    Page 4 of 4
    the duty of disclosure. The plaintiffs thus adequately alleged that Vista knowingly
    participated in the disclosure violation related to Stollmeyer’s early interactions with Vista.
    Although there is no contractual hook implicating Vista’s involvement in the second
    category of disclosure violations, the plaintiffs adequately alleged knowing participation
    as to that category as well. In fact, the reasonable inference from the facts alleged is that
    Mindbody declined to disclose the Q4 2018 preliminary revenue results at Vista’s request.
    Mindbody’s attorneys had drafted a press release announcing the Q4 2018 results and
    emailed that press release to Vista asking for “thoughts” and whether “Vista has different
    views on this approach.”11 Vista raised “concerns” internally, then relayed them to
    Mindbody, which decided not to disclose the results.12 These allegations support a claim
    that Vista knowingly participated in the disclosure violation related to withholding the Q4
    2018 results.
    For these reasons, Vista’s motion to dismiss is DENIED. IT IS SO ORDERED.
    Sincerely,
    /s/ Kathaleen St. Jude McCormick
    Kathaleen St. Jude McCormick
    Chancellor
    cc:      All counsel of record (by File & ServeXpress)
    11
    Id. ¶¶ 194, 197.
    12
    Id. ¶¶ 196–97, 200–01.