Buy This Entire Record For
Ryan v. Mindbody, Inc.
Court of Chancery of Delaware
October 1, 2019
PHILIP RYAN, JR. and DONALD FRIEDMAN, on behalf of themselves and all other similarly situated stockholders of MINDBODY, Inc., Plaintiffs,
MINDBODY, INC., RICHARD L. STOLLMEYER, KATHERTNE BLAIR CHRISTIE, COURT CUNNINGHAM, GAIL GOODMAN, CIPORA HERMAN, ERIC LIAW, ADAM MILLER, GRAHAM SMITH, VISTA EQUITY PARTNERS MANAGEMENT, LLC, TORREYS PARENT, LLC, TORREYS MERGER SUB, INC., and INSTITUTIONAL VENTURE PARTNERS XIII, L.P., MINDBODY, INC., et al., Defendants. LUXOR CAPITAL PARTNERS, LP, LUXOR CAPITAL PARTNERS OFFSHORE MASTER FUND, LP, LUXOR WAVEFRONT, LP, and LUGARD ROAD CAPITAL MASTER FUND, LP, on behalf of themselves and all other similarly situated former stockholders of MINDBODY, INC., Plaintiffs,
RICHARD L. STOLLMEYER, BRETT WHITE, and ERIC LIAW, Defendants.
ORDER CONSOLIDATING RELATED ACTIONS, SEVERING CLAIM,
AND ESTABLISHING A LEADERSHIP STRUCTURE
Kathaleen St. J. McCormick, Vice Chancellor
Pending before this Court are three lawsuits challenging the
acquisition of MINDBODY, Inc. by Vista Equity Partners
Management, LLC ("Vista"): Ryan v. Mindbody,
Inc., C.A. No. 2019-0061-KSJM (the "Ryan
Action"); Luxor Capital Partners, LP v.
Stollmeyer, C.A. No. 2019-0442-KSJM (the
"Luxor Action"); and Luxor Capital
Partners, LP v. Stollmeyer, C.A. No. 2019-0293-KSJM (the
"Appraisal Action"). These actions are related in
that they arise from common questions of law and fact. This
decision refers to them as the "Related Actions."
Related Actions are consolidated for all purposes-except
those identified in ¶ 4 below-and are referred to as the
"Consolidated Action." Going forward, all papers in
the Consolidated Action shall be filed in C.A. No.
2019-0442-KSJM. All papers and documents previously served
and filed in any of the Related Actions are deemed a part of
the record in the Consolidated Action. The Consolidated
Action shall bear the caption below:
IN RE MINDBODY, INC., STOCKHOLDERS LITIGATION
C.A. No. 2019-0442-KSJM
groups of stockholder plaintiffs and counsel seek to be
appointed to leadership roles in the Consolidated Action.
a. Plaintiff in the Ryan Action, Philip Ryan, Jr.,
proposes that his claims brought pursuant to 8 Del
C. § 225 (the "Section 225 Claims"), as
well as disclosure issues addressed in the trial briefs filed
at C.A. No. 2019-0061-KSJM, Docket Nos. 79, 87, and 91 (the
"Ryan Disclosure Issues"), be severed from
the Consolidated Action and remain in the Ryan
Action. Ryan also seeks to be appointed lead plaintiff and to
have his counsel, Prickett, Jones & Elliott, P.A. and
Kessler Topaz Meltzer & Check, LLP, appointed as co-lead
counsel in the Consolidated Action. This Order refers to Ryan
and his counsel as "Team Ryan."
b. Plaintiffs in the Luxor Action, Luxor Capital
Partners, LP, Luxor Capital Partners Offshore Master Fund,
LP, Luxor Wavefront, LP, and Lugard Road Capital Master Fund,
LP (collectively, the "Luxor Plaintiffs"), do not
oppose severing the Section 225 Claims from the Consolidated
Action, but they argue that certain of the Ryan
Disclosure Issues should be litigated as part of the
Consolidated Action. The Luxor Plaintiffs propose that they
each be appointed as lead plaintiffs and have their counsel,
Friedlander & Gorris, P.A., and Bernstein Litowitz Berger
& Grossman LLP, appointed as co-lead counsel in the
Consolidated Action. This Order refers to the Luxor
Plaintiffs and their counsel as "Team Luxor."
4. As a
threshold matter, Team Ryan's request to sever the
Section 225 Claims is granted and Team Ryan may continue to
pursue those claims. The Section 225 Claims have been fully
litigated and briefed, there is no reason to delay their
resolution, and it would be inefficient to switch teams for
the purpose of prosecuting those claims at this stage. The
parties in the Ryan Action shall contact Chambers to
reschedule oral argument on the Section 225 Claims. Following
oral argument, the Court will determine whether the
Ryan Disclosure Issues should be resolved as part of
the Section 225 Claims or as part of the Consolidated Action.
The record on the Section 225 Claims shall be considered part
of the record in the Consolidated Action, such that the class
may benefit from the record created on the Section 225 Claims
Turning now to the leadership dispute, the Court applies the
six "Hirt factors" when designating a lead
plaintiff and lead counsel in a representative action. The
Court has organized those factors into three categories: (a)
factors relating to the lead plaintiffs; (b) factors relating
to counsel's performance in the litigation to date; and
(c) factors relating to counsel's track record and
ability to litigate going forward.
first category of Hirt factors relating to the lead
plaintiffs considers the relative economic stakes of the
competing litigants and the absence of any conflict between
larger stockholders and smaller stockholders. When evaluating
this category of factors, relative ownership is "to be
accorded great weight, " as a relatively small ownership
stake may reduce a stockholder's incentive to monitor
counsel, leading to greater agency costs. Contrawise, a
"sufficient stake" can provide a plaintiff with an
incentive "monitor counsel and play a meaningful role in
conducting the case."
a. Prior to the challenged transaction, Ryan held only 202
shares of MINDBODY Class A common stock.
b. In contrast, the Luxor Plaintiffs held 9, 074, 929 shares
of MINDBODY Class A common stock. The Luxor Plaintiffs
demanded appraisal with respect to 3, 738, 935 of these
shares, but they accepted the merger consideration for 5,
335, 994 of these shares to retain their standing to pursue
any potential fiduciary claims. The Luxor Plaintiffs'
interest qualifies as a "sufficient stake to provide an
economic incentive to monitor counsel and play a meaningful
role in conducting the case."
c. Ryan questions whether the Luxor Plaintiffs'
simultaneous prosecution of the Appraisal Action might raise
conflicts. Ryan argues that at the settlement phase, the
Luxor Plaintiffs will be incentivized to divert as much as
possible to the Appraisal Action without consideration for
the fiduciary claims since "an appraisal proceeding
benefits only those ...