Lusk v. Life Time Fitness, Inc.
| Decision Date | 30 September 2016 |
| Docket Number | Civil No. 15–1911 (JRT/BRT) |
| Citation | 213 F.Supp.3d 1119 |
| Parties | Matthew LUSK and St. Clair Employees' Retirement System, Plaintiffs, v. LIFE TIME FITNESS, INC., Bahram Akradi, Giles H. Bateman, Jack W. Eugster, Guy C. Jackson, John K. Lloyd, Martha A. Morfitt, John B. Richards, Joseph S. Vassalluzzo, Leonard Green & Partners L.P., TPG Capital, L.P., and LKN Partners, Defendants. |
| Court | U.S. District Court — District of Minnesota |
Kai H. Richter, NICHOLS KASTER, PLLP, 80 South Eighth Street, Suite 4600, Minneapolis, MN 55402; David T. Wissbroecker, ROBBINS GELLER RUDMAN & DOWD LLP, 655 West Broadway, Suite 1900, San Diego, CA 92101; Jason Leviton and Jacob A. Walker, BLOCK & LEVITON LLP, 155 Federal Street, Suite 400, Boston, MA 02110, for plaintiff Matthew Lusk.
Kai H. Richter, NICHOLS KASTER, PLLP, 80 South Eighth Street, Suite 4600, Minneapolis, MN 55402, for plaintiff St. Clair Employees' Retirement System.
Wendy J. Wildung, FAEGRE BAKER DANIELS LLP, 90 South Seventh Street, Suite 2200, Minneapolis, MN 55402, for defendants Life Time Fitness, Inc., Giles H. Bateman, Jack W. Eugster, Guy C. Jackson, John K. Lloyd, Martha A. Morfitt, John B. Richards, and Joseph S. Vassalluzzo.
Thomas P. Swigert, DORSEY & WHITNEY LLP, 50 South Sixth Street, Suite 1500, Minneapolis, MN 55402, for defendant Bahram Akradi.
Michele D. Johnson, LATHAM & WATKINS LLP, 650 Town Center Drive, 20th Floor, Costa Mesa, CA 92626; and Bret A. Puls, FOX ROTHSCHILD LLP, 222 South Ninth Street, Suite 2000, Minneapolis, MN 55402; for defendant Leonard Green & Partners L.P.
Christopher G. Green, ROPES & GRAY LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199; Martin Crisp, ROPES & GRAY LLP, 1211 Avenue of the Americas, New York, NY 10036; Bret A. Puls, FOX ROTHSCHILD LLP, 222 South Ninth Street, Suite 2000, Minneapolis, MN 55402, for defendant TPG Capital, L.P.
Frank A. Taylor, BRIGGS & MORGAN, PA, 80 South Eighth Street, Suite 2200, Minneapolis, MN 55402, for defendant LKN Partners.
Plaintiffs Matthew Lusk and St. Clair County Employees' Retirement System ("St. Clair") (collectively "Plaintiffs") are former shareholders of defendant Life Time Fitness, Inc. ("Life Time"). This litigation relates to the purchase of Life Time by defendants Leonard Green & Partners L.P. ("LGP"), TPG Capital, L.P., and LKN Partners (collectively "Buyer Defendants") in Spring 2015. Plaintiffs bring claims against Life Time; the individual members of its board of directors (collectively "Life Time Defendants"); the former CEO and founder of Life Time, Bahram Akradi; and the Buyer Defendants, alleging that they issued a false or misleading proxy statement prior to the buyout. Plaintiffs allege violations of §§ 14(a) and 20(a) of the Exchange Act, breach of fiduciary duty, and aiding and abetting a breach of fiduciary duty. All defendants now move to dismiss all claims.
Because Plaintiffs have not alleged a false or misleading statement in the proxy statement, the Court will dismiss their Exchange Act claims against all parties. The Court rejects the Life Time Defendants' argument that the sale extinguished Plaintiffs' right to bring a claim for breach of fiduciary duty and that statutory appraisal was Plaintiffs' exclusive remedy, and therefore, the Court will deny the Life Time Defendants' motion with regard to Plaintiffs' breach of fiduciary duty claim. However, Plaintiffs have not alleged sufficient facts suggesting that the Buyer Defendants knew of and substantially assisted any breach of fiduciary duty, and thus the Court will dismiss Plaintiffs' aiding and abetting claim against the Buyer Defendants. Accordingly, the Court will grant the Buyer Defendants' motion in full, and grant in part and deny in part the Life Time and Life Time Defendants' motion to dismiss.
Life Time is a Minnesota corporation that operates a chain of health fitness centers.
( Lusk and St. Clair were both holders of Life Time stock. (Id. ¶¶ 10–11.) Defendant Bahram Akradi founded Life Time in 1992, and he acted as its "Chairman of the Board, President and CEO." (Id. ¶ 13.) The seven named individual defendants2 were members of Life Time's Board of Directors. (Id. ¶¶ 14–20.) Plaintiffs allege that Life Time had built up substantial value in its real estate holdings; at the time of the buyout, "Life Time owned 70% of its 114 centers, and the majority of the owned properties had no mortgage attached." (Id. ¶ 31.) In May 2014, Life Time's real estate holdings were valued at $2.3 billion; however, Plaintiffs contend that this amount did not reflect the fair market value. (Id. )
In May 2014, Marcato, a hedge fund with 7.2% effective stake in Life Time, began pushing for Life Time to engage in a real estate investment trust ("REIT") reorganization. (Id. ¶ 32.) On July 21, 2014, Life Time hired Wells Fargo Securities to consider "various financing and strategic alternatives available ... to maximize long-term shareholder value," including a possible REIT. (Decl. of Matthew B. Kilby ("Kilby Decl."), Ex. D ("Proxy") at 35–36,3 Oct. 5, 2015, Docket No. 119; Am. Compl. ¶ 35.) On July 30, 2014, Life Time received an unsolicited acquisition proposal from Party A for over $60 a share, even though Life Time's closing price was $40.57 at the time. (Am. Compl. ¶ 35; Proxy at 36.) On August 25, 2014, Life Time announced that the Board would consider a REIT. (Am. Compl. ¶ 36; Proxy at 36.)
On September 5, 2014, Marcato publicly informed Life Time that at the midpoint of its valuation range, Life Time's stock could reach $70.00 per share upon separation of Life Time's real estate assets. (Am. Compl. ¶ 37; Proxy at 36.) On September 23, 2014, Party A increased its unsolicited bid to $70.00 per share. (Am. Compl. ¶ 40; Proxy at 36.) At a September 25, 2014, meeting, the Board gave Akradi and Life Time's financial advisors permission to begin contacting potential bidders. (Am. Compl. ¶ 40; Proxy at 36.)
On January 16, 2015, Party A reaffirmed its offer of $70.00 per share, and LGP offered $65.00 to $69.00 per share. (Am. Comp. ¶ 41; Proxy at 38.) The Board considered these offers on January 21, 2015, and decided to continue negotiations. (Am. Comp. ¶ 41; Proxy at 38.) On February 2, 2015, LGP informed Life Time that its proposal was conditioned on Akradi "rolling over" his shares of Life Time stock; the next day, Party A informed Life Time that rollover of management stocks was not a prerequisite for its offer, but that it would be beneficial. (Am. Compl. ¶ 42; Proxy at 38–39.)
On March 3, 2015, the Board established a Special Committee "to consider and evaluate possible strategic transactions outside of the ordinary course of business with the potential to increase shareholder value." (Proxy at 40; see also Am. Compl. ¶ 43.)
The Special Committee "discussed their beliefs that potential bidders were more likely to submit the highest bids possible if they were permitted to discuss potential arrangements with senior members of Life Time's management team and that such discussions could be helpful in connection with arranging financing for a transaction." (Proxy at 40.)
On March 5 and March 8, 2015, Akradi, along with the Chairman and the Special Committee's legal counsel as observers, met with Party A and Party A again stated that its offer was not conditioned on reaching an agreement with Akradi or management; Akradi's involvement in the transaction with Party A remained an "open issue" that would not be decided until after a merger. (Proxy at 41; Am. Compl. ¶ 44.)
On March 11, 2015, LGP offered $70.50 per share and a rollover of equity from Akradi. (Am. Compl. ¶ 46; Proxy at 42.) Party A again indicated that it offered $70.00 per share. (Am. Compl. ¶ 45; Proxy at 41.) On March 12, 2015, Party A indicated that it would not be able to fund at a price higher than $70.00 per share during the time frame proposed by the Special Committee, which envisioned a definitive agreement before market open on March 16, 2015. (Proxy at 42.) The next day, LGP raised its bid to $71.00 per share. (Proxy at 45; Am. Compl. ¶ 49.) Negotiation over transaction agreements continued on March 14 and 15 between LGP and Life Time. (Proxy at 45.) On March 15, 2015, Party A delivered a revised proposal with an offer of $72.00 per share and also noted that it "would be willing to agree to any non-economic terms proposed by other bidders and viewed as superior by Life Time." (Id. ; Am. Compl. ¶ 49.) The Special Committee then requested final bids from both parties by that evening, at which point Party A stayed with $72.00 per share, and LGP offered $72.10 per share. (Proxy at 46.) The Board approved the sale to LGP that day and announced it publicly the following day. (Am. Compl. ¶ 52.)
Guggenheim Securities' illustrative analysis suggested that a REIT would have resulted in a present value range of $64.50 to $84.50 per share. (Proxy at 43). Wells Fargo Securities' illustrative analysis suggested a present value range of $59.69 to $92.23 per share for a REIT. (Id. at 43–44.) Both Guggenheim Securities and Wells Fargo Securities issued opinions that $72.10 per share was fair to shareholders. (Id. at 47.)
Plaintiffs allege that Akradi's Rollover Agreement provided him with an equity rollover, annual base salary of $1 million and annual cash bonus of $1 million, and stock options, among other things. (Am. Compl. ¶¶ 57–58.) According to Plaintiffs, "Akradi stood to receive between 45% and 65% more value for equity holdings in the Company than Life Time's public shareholders," totaling a "windfall" of $255 to $290 million. (Id. ¶¶ 59–60.) Plaintiffs also allege that "Akradi and the Buyout Group are already cashing in on the value of Life Time's real estate assets by selling individual properties," including "29 of its 114 fitness centers for $900 million on June 20,...
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