Investors’ Suit Over $1.9 Billion Mindbody Deal Moves Forward
Vice Chancellor Kathaleen S. McCormick has let stand claims against two of three Mindbody Inc. officers facing a consolidated proposed shareholder class action alleging they corrupted the $1.9 billion take-private sale last year of the wellness industry payment software provider for their own benefit. The Delaware Chancery judge agreed with the suing investors that Mindbody’s sale to Vista Equity Partners Management LLC for $36.50 per share last year is subject to enhanced scrutiny under the First State’s cornerstone Revlon standard. The opinion said:
The paradigmatic claim under Revlon Inc. v. MacAndrews & Forbes Holdings, Inc. arises when ‘a supine board under the sway of an overweening CEO bent on a certain direction tilts the sales process for reasons inimical to the stockholders’ desire for the best price.
The investors assert “this cautionary tale provided the template for” Mindbody’s sale, the vice chancellor said. The consolidated stockholder suit contends the deal’s terms were unfair and seeks damages on behalf of a proposed class of Mindbody investors, accusing three Mindbody officers of tilting “the sale process in Vista’s favor” because of their own conflicts of interest. Mindbody’s co-founder and former CEO Richard L. Stollmeyer, the company’s Chief Financial Officer Brett White and one of Mindbody’s directors, Eric Liaw, are accused of breaching their duties in connection with the transaction. In July, Mindbody announced Stollmeyer was stepping down as CEO but would still serve on the company’s board.
The investors contend Stollmeyer “was motivated by a need for liquidity and the prospect of future employment with Vista,” that White was also “motivated by the prospect of future employment” and that Liaw was looking out for the best interests of the venture capital firm that nominated him to serve on Mindbody’s board. That company was looking to exit as a Mindbody investor, according to the opinion.
Vice Chancellor McCormick was unswayed by arguments for dismissing the officers from any liability because the acquisition was considered by “an informed and engaged board of directors” and approved by “a fully informed, uncoerced stockholder vote.” The opinion said:
All of the defendants’ arguments ignore the well-pleaded allegations supporting the plaintiffs’ paradigmatic Revlon claim, and this decision largely denies the motion.
The Delaware Supreme Court’s landmark 1986 Revlon v. MacAndrews & Forbes Holdings decision established an intermediate deal-review standard between giving deference to directors’ business judgment and the “entire fairness” doctrine, a more stringent standard of review.
Vice Chancellor McCormick said the Mindbody deal, especially given allegations against Stollmeyer, was subject to more scrutiny under Revlon instead of deference to the company’s business judgement per the state Supreme Court’s 2015 Corwin v. KKR Financial Holdings decision. Corwin grants “irrebuttable” business judgment deference when fully informed stockholders approve a deal backed by unconflicted directors. The opinion said:
Plaintiffs do not argue that the stockholder vote was coerced. They contend that Corwin does not apply because the vote was uninformed. In view of the allegations as to Stollmeyer, it should be no surprise that defendants’ Corwin arguments fail at this stage. Generally, 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.
Vice Chancellor McCormick ruled the stockholders have sufficiently pleaded a breach of fiduciary duty claim against Stollmeyer and a breach of the duty of care claim against White. The opinion said:
In this case, plaintiffs’ liquidity-driven and prospective-employment theories of conflicts work in combination to land a powerful one-two punch on Stollmeyer, rendering it reasonably conceivable that Stollmeyer subjectively harbored interests in conflict with those of the Mindbody stockholders.
It was said further that the investors have also sufficiently shown at this stage of the case it is “reasonably conceivable” Stollmeyer “tilted the sale process in Vista’s favor.” The suit alleges Stollmeyer provided Vista with “informational and timing advantages.”
The shareholders have also shown “it is reasonably conceivable that White was at least recklessly indifferent to the steps Stollmeyer took to tilt the sale process in Vista’s favor,” the vice chancellor said.
However, the suit “does not support a reasonable inference that Liaw took any action to tilt the process toward his personal interest,” the opinion said. Vice Chancellor McCormick dismissed claims against Liaw, saying the suit lacked concrete allegations against him.
The transaction at issue came less than four years after Stollmeyer, who founded the company in 2001, in 2015 took Mindbody public with an initial stock offering raising more than $100 million. Leading up to the merger, Mindbody had grown through acquisitions of other software companies that develop systems for billing at salons, spas and fitness centers.
The investors are represented by Joel Friedlander, Jeffrey M. Gorris, Christopher M. Foulds and Christopher Quinn of Friedlander & Gorris PA, and Gregory V. Varallo, Mark Lebovitch, Jeroen van Kwawegen, Christopher J. Orrico and Andrew E. Blumberg of Bernstein Litowitz Berger & Grossmann LLP.
The case is In re: Mindbody Inc. Shareholders Litigation (case number 2019-0442) in the Court of Chancery of the State of Delaware.
Recent Class Action Settlements
There have been a number of significant settlements and approval of settlement around the country in class action litigation. We will mention some of them.
Drivers Seek Final Approval Of $890 Million Hyundai, Kia Engine Fire Settlement
Drivers have asked a California federal judge to sign off on an estimated $890 million settlement that includes full reimbursements for repairs and extended warranties to settle consolidated class claims that Hyundai and Kia sold vehicles with failure-prone engines that could sometimes catch fire.
More than 20 named Plaintiffs spearheading consolidated class actions in the Central District of California filed a motion asking U.S. District Judge Josephine L. Staton for final approval on a nationwide settlement that reimburses consumers for out-of-pocket repairs and extends warranties for affected vehicles, among other things.
The drivers, who have been negotiating the terms of the settlement with Hyundai Motor America Inc. and Kia Motors America Inc. since late 2018, said the benefits to the class are now estimated to be worth at least $889,570,109 and could be worth up to $1.3 billion, according to the motion.
Hyundai and Kia said they had earmarked approximately $758 million to settle the claims in the consolidated case, known as the Hyundai and Kia Engine Litigation. Judge Staton then conditionally approved the settlement in May.
The consolidated consumer class actions alleged that for nearly a decade, Hyundai and Kia knowingly sold certain vehicles equipped with Theta II 2.0-liter or 2.4-liter gasoline direct injection engines that could seize, fail or potentially catch fire. They accused Hyundai and Kia of failing to properly disclose the defects and of issuing piecemeal technical service bulletins or limited safety recalls of just some of the affected vehicles over the years that never fixed the underlying defect.
The National Highway Traffic Safety Administration (NHTSA) in 2017 began investigating reports of engine failures in certain Hyundai and Kia vehicles, a probe that was expanded in April 2019 after NHTSA received complaints of fires in more than 3,000 Hyundai and Kia vehicles.
The settlement calls for Hyundai and Kia to install an updated safety feature called the Knock Sensor Detection System that warns drivers if there’s a risk of engine stalling. Class members will also receive a lifetime warranty on the so-called engine short block – specifically, the rotating assembly where the alleged defect is located – that covers all costs associated with inspections and repairs.
Additionally, class members will be reimbursed for past repair expenses, including for rental car and towing service costs they incurred in connection with having to get the repairs. Class members who experienced engine failures or fires and/or delays in repairs are eligible for additional goodwill payments.
Class members who chose not to get their cars repaired and instead sold or traded in their vehicles after they experienced an engine failure or fire will still be eligible for some compensation. There is also a rebate program for class members who received notice of this settlement but have lost faith in their class vehicle and sold, surrendered or traded it in. They can submit claims to receive the baseline Black Book value of the car.
The class vehicles include 2011-2018 and certain 2019 model year Hyundai Sonata vehicles; 2013-2018 and certain 2019 Hyundai Santa Fe Sport vehicles; and 2014-2015, 2018, and certain 2019 Hyundai Tucson vehicles. They also include 2011-2018 and certain 2019 Kia Optima vehicles; 2011-2018 and certain 2019 Kia Sorento vehicles, and 2011-2018 and certain 2019 Kia Sportage vehicles.
The settlement covers approximately 2.3 million Hyundai vehicles and 1.8 million Kia vehicles that are equipped with the 2.0-liter and 2.4-liter GDI engines. A court hearing on final approval of the settlement is scheduled for Nov. 13.
The drivers are represented by Joseph G. Sauder, Matthew D. Schelkopf and Joseph B. Kenney of Sauder Schelkopf LLC, Adam Gonnelli of The Law Office of Adam R. Gonnelli LLC, Bonner Walsh of Walsh PLLC, and Steve Berman of Hagens Berman Sobol Shapiro LLP.
The lead case is In re: Hyundai and Kia Engine Litigation (case number 8:17-cv-00838) and related cases are Christopher Stanczak et al. v. Kia Motors America Inc. (case number 8:17-cv-01365); Wallace Coats et al. v. Hyundai Motor Co. Ltd. et al. (case number 8:17-cv-02208); Andrea Smolek v. Hyundai Motor America et al. (case number 2:18-cv-05255); Maryanne Brogan v. Hyundai Motor America et al. (case number 8:18-cv-00622); and Leslie Flaherty et al. v. Hyundai Motor Co. et al. (case number 8:18-cv-02223) in the U.S. District Court for the Central District of California.
Reliance Reaches $40 Million Settlement To End Insperity 401(k) Fee Suit
Reliance Trust Co. has agreed to pay $39.8 million to settle an Employee Retirement Income Security Act (ERISA) class action brought by workers who accused the investment manager of including poorly performing and costly proprietary funds in human resources services provider Insperity’s retirement plan. The plan participants – current and former workers for companies Insperity provides services to – said in a motion that the agreement warranted preliminary approval because it was “fair, reasonable and adequate” and had been negotiated in good faith.
Under the agreement, class counsel will request $25,000 incentive awards for each of the five class representatives. The participants also noted that Insperity already made voluntary changes to the plan that would provide value to class members. The participants initially sued Reliance, Insperity Inc., Insperity Holdings Inc. and other related entities in December 2015, but filed an amended complaint in April 2016. The suit alleged the Defendants breached their duties of loyalty and prudence under ERISA by managing the plan for their own benefit at the expense of participants.
According to the suit, Reliance created a new series of collective trust target date funds called the Insperity Horizon RiskManaged Funds on Nov. 13, 2012, and added them to the plan two days later even though they had no performance history. The company included the funds so it could use the plan as seed money and advance its own interests, the suit said.
The court kept alive the participants’ allegations that Reliance wrongly included the Horizon funds in the plan and made the plan pay excessive investment fees, but dismissed claims about the funds’ retention, recordkeeping fees and prohibited transactions. The court also dismissed all of the claims against Insperity Inc. and Insperity Retirement Services LP, but kept certain monitoring claims against Insperity Holdings alive.
Though Insperity isn’t a party to the settlement, the settlement provides a full release of the claims asserted against the company in the case, according to court documents.
The participants are represented by Jerome J. Schlichter, Troy A. Doles and Kurt C. Struckhoff of Schlichter Bogard & Denton LLC, and Bradley S. Wolff of Swift Currie McGhee & Hiers LLP.
The case is Pledger et al. v. Reliance Trust Co. et al. (case number 1:15-cv-04444) in the U.S. District Court for the Northern District of Georgia.
Keurig To Pay $31 Million To Settle Indirect Buyers’ Antitrust Claims
Keurig Inc. has agreed to pay $31 million to settle claims from a putative class of indirect purchasers accusing it of monopolizing the market for single-serve coffee packs. A request for preliminary approval of the settlement has been filed in New York federal court.
If approved, the settlement funds will be split up among the hundreds of thousands of U.S. citizens who bought Keurig K-Cup Portion Packs for their own use from anyone other than Keurig between September 2010 and August 2020, when the settlement was reached.
Keurig is also facing other lawsuits from competitors and direct purchasers. That could affect the company’s ability to pay claims. Keurig is facing eight suits, consolidated into multidistrict litigation (MDL) in 2014, over several allegations of anti-competitive practices in the marketing of its single-serve packs of roasted and ground coffee for use in the company’s coffee machines.
Buyers and coffee companies, including TreeHouse Foods Inc., alleged that Keurig’s anti-competitive actions included forcing distributors to enter exclusive agreements, filing baseless patent infringement lawsuits against competitors and attempting to dissuade retailers from selling competitors’ products. They also alleged Keurig misled consumers into believing that rival pods wouldn’t work with “Keurig 2.0” coffee machines and modified its machines purely to make them incompatible with competitor pods.
The buyers are represented by Robert N. Kaplan, Gregory K. Arenson, Hae Sung Nam and Jason A. Uris of Kaplan Fox & Kilsheimer LLP, Mark C. Rifkin, Thomas H. Burt, Patrick Donovan of Wolf Haldenstein Adler Freeman & Herz LLP, and Clifford H. Pearson, Daniel L. Warshaw, and Matthew A. Pearson of Pearson Simon & Warshaw LLP.
The MDL is In Re: Keurig Green Mountain Single-Serve Coffee Antitrust Litigation (case number 1:14-md-02542) in the U.S. District Court for the Southern District of New York.
Five Big Banks Get Final Approval For $22 Million Libor-Rigging Settlement
U.S. District Judge Naomi Reice Buchwald has given final approval to a nearly $22 million settlement between five major banks and a class of indirect investors that accused the banks of manipulating the London Inter-bank Offered Rate (Libor) benchmark. The latest settlement in the ongoing Libor litigation involves JPMorgan, Citibank, Bank of America, HSBC and Barclays resolving claims by over-the-counter (OTC) investors that had indirect interactions with the banks through interest rate swaps and other transactions. The investors purchased instruments from financial institutions that are not Defendants in the case.
In addition to the cash award, the five banks agreed to provide “significant cooperation” to the investors in their continuing case against nonsettling banks. There was no objection to the settlement.
Judge Buchwald granted permission to this class of investors to move for a settlement of the claims despite a stay being in place. The settlement with HSBC, reached in 2018, was the first to receive preliminary approval from the court, followed by the remaining four banks in April.
Under the terms of the agreements, HSBC will pay $4.75 million, Citi will pay just over $7 million, and JPMorgan and Bank of America will each fork over $5 million. Barclays will substantially assist the investors in their remaining litigation in lieu of a monetary payment. That cooperation, according to the settlement, includes attorney proffers, documents and testimony.
The investors are represented by Joseph J. DePalma and Steven J. Greenfogel of Lite DePalma Greenberg LLC, Jason A. Zweig of Hagens Berman Sobol Shapiro LLP, William H. London of Freed Kanner London & Millen LLC and Vincent J. Esades of Heins Mills & Olson PLC. The case is In re: Libor-Based Financial Instruments Antitrust Litigation (case number 1:11-md-02262) in the U.S. District Court for the Southern District of New York.