Court Opinion

ID: 4706165
Source: CourtListenerOpinion
Date Created: 2021-07-23 20:04:01.595038+00
Date Added: 2024-06-11T08:06:34.460502
License: Public Domain

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

                                                July 23, 2021

     Joel Friedlander, Esquire                               Ryan D. Stottmann, Esquire
     Jeffrey M. Gorris, Esquire                              Alexandra M. Cumings, Esquire
     Christopher M. Foulds, Esquire                          Morris, Nichols, Arsht & Tunnell LLP
     Friedlander & Gorris, P.A.                              1201 North Market Street
     1201 North Market Street, Suite 220                     Wilmington, DE 19801
     Wilmington, DE 19801

     Gregory V. Varallo, Esquire
     Bernstein Litowitz Berger & Grossmann LLP
     500 Delaware Avenue, Suite 901
     Wilmington, DE 19801

                         Re:   In re Mindbody, Inc., Stockholder Litigation,
                               Cons. C.A. No. 2019-0442-KSJM
      Dear Counsel:

               This letter decision resolves Liaw and IVP’s opposition to Plaintiffs’ motion for

      leave to file the proposed Second Amended Verified Consolidated Class Action Complaint

      (the “Second Amended Complaint”).1

               Plaintiffs filed the original Consolidated Complaint in October 2019 (the

      “Complaint”), claiming in relevant part that Liaw was conflicted because IVP sought

      to exit its investment in the Company.2 Defendants moved to dismiss the Complaint

      on October 31, 2019, and Plaintiffs amended the Complaint in response on

      1
       This letter adopts the defined terms used in the October 2, 2020 Memorandum Opinion.
      Cons. C.A. No. 2019-0442-KSJM, Docket (“Dkt.”) 216 (“Mem. Op.”).
      2
          See Dkt. 45.
Cons. C.A. No. 2019-0442-KSJM
July 23, 2021
Page 2 of 6

February 20, 2020 (the “First Amended Complaint”).3 On January 13, 2020, Plaintiffs

agreed to amend the Complaint only once more before the court decided Defendants’ then-

pending motion to dismiss.4 The First Amended Complaint is the current operative

complaint.

         Defendants renewed their motion to dismiss on March 12, 2020.5 In response, as

promised, Plaintiffs elected to stand on the First Amended Complaint for purposes of Court

of Chancery Rule 15(aaa) and filed their answering brief on April 22, 2020.6

         I granted Liaw’s motion to dismiss the claims against him in the October 2, 2020

Memorandum Opinion but observed that my decision was a pre-judgment ruling that could

be revisited “should future developments provide a compelling reason for doing so.”7

         Fact discovery closed on May 28, 2021, and on June 4, 2021, Plaintiffs moved to

amend the First Amended Complaint to reassert claims against Liaw and to bring new

claims against IVP and Vista.8

3
    Dkt. 146 (“First Am. Compl.”).
4
    Dkt. 330 ¶ 3.
5
    Dkt. 167.
6
 Dkt. 174; see also Dkt. 163 at 19:11–18 (Plaintiffs’ Counsel) (“[W]e’ll stand on the form
of complaint that we filed . . . .”).
7
 Mem. Op. at 86 n.309 (quoting In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL
3096748, at *43 (Del. Ch. June 11, 2020)).
8
    Dkt. 311; see Dkt. 311 Ex. A (the “Proposed Second Am. Compl.”).
Cons. C.A. No. 2019-0442-KSJM
July 23, 2021
Page 3 of 6

           Liaw and IVP oppose the amendment as to Liaw under Court of Chancery

Rule 15(aaa) and as to both Liaw and IVP on the ground that the timing of the motion is

prejudicial.

           Under Court of Chancery Rule 15(aaa), if “a party fails to timely file an amended

complaint . . . and the Court thereafter concludes that the complaint should be dismissed

under Rule 12(b)(6) . . . , such dismissal shall be with prejudice.”9 Rule 15(aaa) permits

exceptions, providing that a case will not be dismissed with prejudice if “the Court, for

good cause shown, . . . find[s] that dismissal with prejudice would not be just under all the

circumstances.”10

           Dell recognized an exception to Rule 15(aaa).11 There, the court denied motion to

dismiss claims against all but one of the defendants, rendering the decision an interlocutory

ruling. Recognizing that the case would proceed to discovery, the court held that “[i]f

discovery shows that [a dismissed defendant] had a more significant and compromising

role, then subject to the law of the case doctrine, the plaintiffs can seek to revisit [that

defendant’s] dismissal, should future developments provide a compelling reason for doing

so.”12

9
    Ch. Ct. R. 15(aaa).
10
     Id.
11
     2020 WL 3096748, at *43.
12
     Id. (citing Zirn v. VLI Corp., 1994 WL 548938, at *2 (Del. Ch. Sept. 23, 1994)).
Cons. C.A. No. 2019-0442-KSJM
July 23, 2021
Page 4 of 6

         The Memorandum Opinion followed the Dell approach, dismissing Liaw but noting

that the decision was interlocutory and providing that claims against him could be

reasserted if developments in discovery provided a compelling reason.13

         The question is thus whether developments in discovery provided a compelling

reason to permit Plaintiffs to reassert claims against Liaw and, in turn, IVP. To align the

inquiry called for by Dell with the policy underlying Rule 15(aaa), typically the analysis

should focus on developments after the date a plaintiff elected to stand on a complaint. In

this case, that date is April 22, 2020.14

         Circumstances unique to this case, however, render the relevant date a bit earlier, as

Plaintiffs agreed to stand on the First Amended Complaint on January 27, 2020, during

oral argument on Defendants’ motion to stay pending resolution of their motion to

dismiss.15

         After January 27, 2020, Plaintiffs received the following evidence, which it relied

on in the Second Amended Complaint:

13
     Mem. Op. at 86 n.309.
14
     See Dkt. 174.
15
  Dkt. 163 at 19:11–18 (Plaintiffs’ Counsel); see also Dkt. 198 at 143:10–21 (Plaintiffs’
Counsel) (confirming the court’s statement “that the plaintiffs do not intend to amend any
further” and “that they stood on their complaint for the purpose of Rule 15(aaa) at the
pleading stage”). There is a non-frivolous argument that the relevant developments date
back to January 13, 2020, when Plaintiffs agreed not to serially amend their Complaint to
permit briefing on the motion to dismiss, such that the court may consider documents
produced in February 2020. Because documents produced after January 27, 2020, suffice,
the court need not consider discovery produced prior to that time for the purpose of this
decision.
Cons. C.A. No. 2019-0442-KSJM
July 23, 2021
Page 5 of 6

           •     On February 21, 2020, IVP produced text messages from Liaw to Goodman
                 from November 14, 2018, only nine days after Mindbody lowered guidance,
                 in which Liaw wrote, “if we are missing [Q4 guidance] they will slow roll
                 us. Hence good to guide down as far as we did.”16

           •     On February 19, 2021, Plaintiffs obtained a batch of discovery containing
                 several text messages that Liaw received from a fellow Board member,
                 Adam Miller, dated October 26, 2018. These messages reveal that Miller
                 agreed with Liaw “on the deal likelihood.”17 Miller then asked: “If we have
                 Qatalyst, a deal can get done. But here is the real question: would you sell if
                 the valuation is 1.75B?”18 Then, Miller texted Liaw that “the PE guys will
                 drag it out if they think we will miss numbers.”19 These texts occurred eleven
                 days before Mindbody announced its lowered guidance for Q4, which
                 reduced the risk that Mindbody would miss its Q4 numbers and increased the
                 likelihood that IVP would secure a liquidity event by year-end.20 The
                 messages thus give credence to Plaintiffs’ theory that Liaw helped set Q4
                 numbers at a lower value with the motive of a quick sale in mind.

           •     Plaintiffs deposed Liaw on April 27, 2021, and Stollmeyer on May 4 and 5,
                 2021.21 From these depositions, Plaintiff also learned “Stollmeyer and Liaw
                 spoke immediately after the Audit Committee meeting” on November 5,
                 2018.22

           On their face, the produced text messages and additional depositions support

Plaintiffs’ theory that Liaw formed an alliance with Stollmeyer to bring about a near-term

sale within IVP’s desired timeframe. The texts and deposition testimony provide support

for the contention that Liaw worked to lower the Company’s guidance to boost Q4 numbers

16
     Dkt. 311 Ex. 7, at 3.
17
     Id. at 1.
18
     Id.
19
     Id.
20
     Proposed Second Am. Compl. ¶¶ 13, 93–94, 114.
21
     Dkt. 330 ¶ 20.
22
     Proposed Second Am. Compl. ¶ 123.
Cons. C.A. No. 2019-0442-KSJM
July 23, 2021
Page 6 of 6

in preparation of a quick private equity sale and communicated with Stollmeyer in the

process.

        I do not intend to suggest that the text messages or depositions offer definitive proof

of Plaintiffs’ theories. They do, however, provide a reason to permit the amendment.

        Liaw and IVP argue that the timing of the amendment is prejudicial—fact discovery

closed in May and trial was scheduled for November. But Plaintiffs sought leave to file

the Second Amended Complaint only one week after the close of fact discovery. And Liaw

and IVP participated in fact discovery. In any event, to mitigate any prejudice to them

resulting from the timing of the amendment, I have allowed the parties to select a later trial

date.

        For the foregoing reasons, Plaintiffs’ motion for leave to amend is GRANTED.

        IT IS SO ORDERED.

                                            Sincerely,

                                            /s/ Kathaleen St. Jude McCormick

                                            Kathaleen St. Jude McCormick
                                            Chancellor

cc:     All counsel of record (by File & ServeXpress)