JOHN R. TUNHEIM, Chief Judge United States District Court.
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.
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,
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.)
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, 2015, just ten days after the Buyout closed." (Id. ¶ 74.)
Life Time filed the proxy with the SEC on April 30, 2015, and it was disseminated to the shareholders in advance of the shareholder vote on June 4, 2015. (Am. Compl. ¶ 63.) The 233-page proxy discussed the background of the merger, the Board's analyses and recommendations, the financial advisors' fairness opinions, and key terms of the Merger Agreement. (See Proxy.)
The proxy disclosed for reference the estimated valuation ranges for a REIT
The proxy also disclosed that the Buyer Defendants would raise some of the funds to pay shareholders by debt financing secured in part by a lien on Life Time's assets and a sale-leaseback of some Life Time real estate. (Proxy at 80-82.) In connection with this process, Life Time provided information on some of its real estate holdings to the Buyer Defendants and gave permission to give this information to banks and financing sources. In accordance with SEC regulations, Life Time also made this information public in Form 8-K on May 18, 2015. (Kilby Decl., Ex. E.) This form was available prior to the shareholder vote, and it disclosed that "the total gross book value" of the portion of real estate reviewed was "approximately $1.4 billion, and the appraised value [was] approximately $1.9 billion." (Id. at 9.)
Lusk brought this action on April 10, 2015. On May 8, 2015, Lusk moved for expedited discovery and to enjoin the shareholder meeting in which shareholders were expected vote on the Life Time's sale. (Pl.'s Mot. to Enjoin, May 8, 2015, Docket No. 23; Pl.'s Mot. to Lift Discovery Stay, May 8, 2015, Docket No. 29.) On May 18, 2015, this Court denied his motion to seek expedited discovery, finding that he failed to show undue prejudice. (Mem. Op. & Order, May 18, 2015, Docket No. 46.) Lusk then withdrew his motion for a preliminary injunction. (Pl.'s Notice of Withdrawal of Mot. to Enjoin, May 18, 2015, Docket No. 47.)
St. Clair filed in state court on April 8, 2015, bringing derivative and direct claims under Minnesota law. St. Clair also moved for expedited discovery, which was denied on May 21, 2015. (Kilby Decl., Ex. F.) St. Clair voluntarily dismissed its state court action without prejudice on July 20, 2015, and joined the present action. (Id. Ex. H.)
On August 31, 2015, Plaintiffs filed the present amended complaint. (Am. Compl.) They allege violations of federal securities law based on misleading statements in the proxy against Life Time and the Life Time Defendants, and against the Life Time Defendants and Buyer Defendants as "controlling persons" for the company. (Id. ¶¶ 94-107.) Plaintiffs also allege breach of fiduciary duty claims against the Life Time Defendants, (id. ¶¶ 108-112), and claims for aiding and abetting the breach of fiduciary duty against the Buyer Defendants, (id. ¶¶ 113-115).
Akradi, Life Time, the Life Time Defendants, and the Buyer Defendants all filed motions to dismiss on October 5, 2015.
In reviewing a motion to dismiss brought under Federal Rule of Civil Procedure 12(b)(6), the Court considers all facts alleged in the complaint as true to determine if the complaint states a "claim to relief that is plausible on its face." See, e.g., Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). To survive a motion to dismiss, a complaint must provide more than "`labels and conclusions' or
First, Plaintiffs allege claims under § 14(a) of the Exchange Act and SEC Rule 14a-9 against Life Time and the Life Time Defendants. Section 14(a) makes it unlawful to solicit proxies in violation of SEC rules. 15 U.S.C. § 78n(a). Rule 14a-9 prohibits making a statement in a proxy
17 C.F.R. § 240.14a-9(a). Based on this law, to state a claim under § 14(a) and Rule 14a-9, a plaintiff must allege facts suggesting that the proxy (1) contained a false or misleading statement about a material fact, or (2) omitted a material fact necessary to make statements within the proxy not false or misleading or to correct any statement in an earlier communication that has subsequently become false or misleading. See Int'l Broadcasting Corp. v. Turner, 734 F.Supp. 383, 390 (D. Minn. 1990) (discussing the elements of a claim under Rule 14a-9); see also Resnik v. Swartz, 303 F.3d 147, 151 (2d Cir. 2002) ("Thus, omission of information from a proxy statement will violate these provisions if either the SEC regulations specifically require disclosure of the omitted information in a proxy statement, or the omission makes other statements in the proxy statement materially false or misleading.")
Exchange Act claims also face a heightened pleading standard based on the Private Securities Litigation Reform Act ("PSLRA"). See 15 U.S.C. § 78u-4(b). "The PSLRA heightens the Federal Rule of Civil Procedure 12(b)(6) standard in two important ways." In re Hutchinson Tech., Inc. Sec. Litig., 536 F.3d 952, 958 (8th Cir. 2008). First, "the complaint must `specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.'" Id. (quoting 15 U.S.C. § 78u-4(b)(1)). Second, the plaintiff must, "with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." Id. (quoting 15 U.S.C. § 78u-4(b)(2)).
Here, Plaintiffs contend that Life Time violated § 14(a) and Rule 14a-9 by failing to disclose two pieces of information in the proxy: (1) "the actual market value of Life
First, Life Time contends that Plaintiffs have failed to point to any particular statements rendered false or misleading by the omission of the actual market value of Life Time's real estate. In response, Plaintiffs point to various statements within the proxy that they allege were rendered false or misleading by the omission, including statements that: (1) Life Time and the Board considered a REIT conversion transaction and that such a transaction could benefit shareholders,
The proxy's disclosure that the Board and Life Time considered a REIT conversion and its benefits, and received an illustrative analysis regarding the potential impact, were not rendered false or misleading because the proxy did not also disclose the market value of Life Time's real estate holdings. And Plaintiffs do not allege that the per share estimates from Guggenheim Securities or Wells Fargo Securities were false, that they were based on the acquisition costs rather than the actual market value of Life Time's real estate holdings, or that they were rendered false or misleading by the absence of the actual market value. Finally, the property valuation disclosed in Form 10-K did not become false or misleading merely because the actual market value was not also disclosed. While a "literally" true statement — a "so-called half-truth[]" — can "create a materially misleading impression" sufficient to "support [a] claim[] for securities fraud," Freedman v. St. Jude Medical, Inc., 4 F.Supp.3d 1101, 1121 (D. Minn. 2014), Plaintiffs have not established or even explained how the Form 10-K disclosure led to a reasonable inference that was false. Simply put, Plaintiffs have not connected the dots to show how any
Alternatively, even if this claimed omission did render the above-described disclosures and statements false or misleading, Plaintiffs have not shown how the omitted information was material. A defendant only violates Rule 14a-9 if he or she "omits to state any
Plaintiffs contend that many courts have found that the true market value of a company's real estate holdings is material; however, in most of those cases, courts found that the companies made affirmative and misleading representations about the value of their holdings, and thus omitted information that would have significantly altered the "total mix" of available information. In Woodward & Lothrop, Inc. v. Schnabel, for example, the court held that a corporation should have timely disseminated "factual data" about a discrepancy in a real estate appraisal it had previously disclosed because this data was "an essential component of the `mix' of information." 593 F.Supp. 1385, 1391, 1393 (D.D.C. 1984). Similarly, in Virginia Bankshare, Inc. v. Sandberg, the Supreme Court suggested that the effect of real estate appreciation could be found material, but there, the proxy at issue explicitly described the proposed price "as offering a premium above both book value and market price." 501 U.S. 1083, 1094, 1098, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991).
In sum, Plaintiffs have not stated a claim because they have not adequately alleged that any statements within the proxy were rendered false or misleading by the omission of the market value of Life Time's real estate holdings, or, alternatively, that this omission was material.
The other basis for Plaintiffs' Exchange Act claim is the omission of the full terms of Akradi's Rollover Agreement. Life Time argues that Plaintiffs have once more failed to state a claim because the proxy contained extensive information about Akradi's personal interest in the Merger, and none of those statements were rendered false or misleading by the nondisclosure of the full terms of the agreement. Plaintiffs, by contrast, allege that the proxy provided an incomplete picture to investors and failed to disclose how Akradi's stake in the post-merger company would be calculated. (Am. Compl. ¶¶ 82-84.) Plaintiffs point to several specific statements as false or misleading based on the omission of the full terms of Akradi's Rollover Agreement. First, Plaintiffs note the statement that shareholders "should be aware that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a shareholder." (Proxy at 72.) Additionally, the proxy states:
Plaintiffs, however, fail to explain how these statements were rendered false or misleading because the full and precise details of the agreement were not provided. Instead, Plaintiffs likely contend that Life Time's partial disclosure of Akradi's agreement created a duty to make a full disclosure. But the cases cited by Plaintiffs do not support this proposition — they merely hold that if a proxy statement discloses something, it must do so honestly. See Kushner v. Beverly Enters., Inc., 317 F.3d 820, 830-31 (8th Cir. 2003) (acknowledging that "once the company chose to make representations ... there arose a duty to be truthful in that disclosure"); Rand-Heard of N.Y., Inc. v. Dolan, No. 14-3011, 2015 WL 1396984, at *6 (D. Minn. Mar. 25, 2015) (finding that where a party discloses material facts they assume "a duty to speak fully and truthfully on those subjects" (quoting In re K-Tel Int'l Sec. Litig., 300 F.3d 881, 898 (8th Cir. 2002)), rev'd on other grounds, 812 F.3d 1172 (8th Cir. 2016). While Plaintiffs seek to extend this principal and suggest that because the proxy stated any terms of Akradi's agreement, it had a duty to speak fully and disclose all terms, neither of these cases suggest that a lack of full disclosure is actionable unless the omission renders the underlying statements misleading or false. See Rand-Heard, 2015 WL 1396984, at *6 (finding that statements suggesting future high earnings were actionable because the speaker knew that the company "would experience a sharp decline in revenues in the third quarter").
Plaintiffs also cite to Shaev v. Saper, where the court found that "the material terms of the incentive plan and general performance goals on which an executive's compensation is based must, at a minimum, be disclosed." 320 F.3d 373, 383 (3d Cir. 2003). But in Shaev, the shareholders were voting on the compensation plan itself; thus, the court found "a proxy soliciting shareholders' approval of a proposed executive incentive compensation plan, which refers to an existing incentive plan, must disclose the material features of both plans," and state, "if determinable, the amount of the increased benefits and performance goals under the proposed plan." Id. at 383-84. Here, in contrast, the shareholders were not voting to approve Akradi's Rollover Agreement.
Alternatively, even if the statements within the proxy concerning Akradi's Rollover Agreement were rendered false or misleading by the omission of the full terms of the agreement, Plaintiffs still have not stated a claim because those terms were not material. The only specific omitted term that Plaintiffs have pointed to is how Akradi's share — between 7.4% and 7.7% — was calculated. But considering the total information available about Akradi's interest in the buyout, this information was not material. Shareholders had substantial information about Akradi's Rollover
Because Plaintiffs have not sufficiently alleged that the proxy contained a false or misleading statement about a material fact, or omitted a material fact necessary to make statements within the proxy not false or misleading or to correct any statement in any earlier communication that has subsequently become false or misleading, their § 14(a) claim fails, and the Court need not address the parties' additional arguments about state of mind or causation. Moreover, because Plaintiffs have shown no prospect that they could state a viable claim if allowed to amend, the Court will dismiss these claims with prejudice. Plaintiffs had the opportunity in both their briefing and at the hearing to point to proxy statements rendered false or misleading by the claimed omissions, but failed to do so. The Court can discern no basis for why an amendment to the complaint would be any different.
Plaintiffs also bring Exchange Act claims against the Life Time Defendants and the Buyer Defendants under § 20(a), which imposes joint and several liability upon "controlling person[s]" of a primary violator. 15 U.S.C. § 78t(a). To state a § 20(a) claim, a plaintiff must allege:
Lustgraaf v. Behrens, 619 F.3d 867, 873-74 (8th Cir. 2010) (quoting Farley v. Henson, 11 F.3d 827, 836 (8th Cir. 1993)). "The plain language of the control-person statute dictates that, absent a primary violation, a claim for control-person liability must fail." Id. at 874. Here, because the Court finds no primary violation under § 14(a) and Rule 14a-9, as described above, the Court will dismiss Plaintiffs' § 20(a) claims with prejudice as well.
Plaintiffs bring a state-law breach of fiduciary duty claim, alleging that the Life Time Defendants allowed Akradi to hijack the sale and extract substantial benefits for himself, failed to maximize shareholder value, and failed to disclose material information, among other bases. The Life Time Defendants now move to dismiss, arguing that Plaintiffs cannot pursue a breach of fiduciary duty claim because it is a derivative claim that was extinguished by the buyout, and also because statutory appraisal was Plaintiffs' exclusive remedy.
With regard to the Life Time Defendants' first argument, the parties dispute the proper test for determining whether a shareholder action is derivative or direct, based on somewhat conflicting Minnesota cases. The Life Time Defendants contend that to determine whether a claim is derivative or direct, the court applies what can be referred to as the "same character" test, where the court "consider[s] whether the injury to the individual plaintiff is separate and distinct from the injury to other persons in a similar situation as the plaintiff." Nw. Racquet Swim and Health Clubs, Inc. v. Deloitte & Touche, 535 N.W.2d 612, 617 (Minn. 1995). Plaintiffs, on the other hand, point out that in Wessin v. Archives Corp. ("Wessin I"), the Minnesota Court of Appeals explicitly rejected this "same character" test and instead found that the critical inquiry was whether the injury was direct to the corporation or the shareholders. 581 N.W.2d 380, 383-85 (Minn. Ct. App. 1998) (finding that "focus[ing] on a direct injury to the shareholder that is distinct from the injury to the corporation is more consistent with the policies underlying the direct-derivative distinction"). On appeal, the Minnesota Supreme Court reversed, but did not explicitly state whether it agreed or disagreed with the appellate court's rejection of the "same character" test. Wessin v. Archives Corp. ("Wessin II"), 592 N.W.2d 460, 464 (Minn. 1999). And in fact, the court appeared to apply the "direct injury" test embraced in Wessin I, rather than the "same character" test. Id. ("In determining whether a claim is direct or derivative, we have focused the inquiry to whether the complained-of injury was an injury to the shareholder directly, or to the corporation."). Since Wessin II, courts have not consistently applied either test.
Under this test, the Court finds that Plaintiffs have alleged injuries that are direct to the shareholders, rather than derivative of the corporation. Courts "look not to the theory in which the claim is couched, but instead to the injury itself." Wessin II, 592 N.W.2d at 464. The crux of Plaintiffs' claim is that the Life Time Defendants breached their fiduciary duty with respect to the merger, resulting in a lower price for shareholders. Because recovery for this injury would be to the shareholders rather than the corporation, this injury is direct and not derivative. See, e.g., Parnes v. Bally Ent't Corp., 722 A.2d 1243, 1245 (Del. 1999) ("In order to state a direct claim with respect to a merger, a stockholder must challenge the validity of the merger itself, usually by charging the directors with breaches of fiduciary duty resulting in unfair dealing and/or unfair price."). Thus, contrary to the Life Time Defendants' argument, Plaintiffs' breach of fiduciary duty claim was not extinguished by the buyout.
The Life Time Defendants also contend that even if Plaintiffs' claims are not derivative, they are barred because statutory appraisal was Plaintiffs' exclusive remedy. Under Minnesota law, a shareholder who has a right to appraisal does "not have a right at law or in equity to have a corporate action ... set aside or rescinded, except when the corporate action is fraudulent with regard to the complaining shareholder or the corporation." Minn. Stat. § 302A.471, subd. 4. "[T]he appraisal right ... is [the plaintiff's] exclusive remedy
The Life Time Defendants argue that although the court in Sifferle mentioned breach of fiduciary duty as a way to satisfy the fraud exception, not just any breach of fiduciary duty would suffice. Instead, the Life Time Defendants argue that the breach of fiduciary duty must be pled with particularity and rise to the level of fraud, citing at least one Minnesota trial court decision that has held as much. (See Kilby Decl., Ex. J.) However, the court in Sifferle clearly denominated a breach of fiduciary duty as a manner in which a merger could be fraudulent and explicitly stated that "the term `fraudulent' ... [should] be construed more broadly than strict common-law fraud." Sifferle, 384 N.W.2d at 507. Furthermore, the Sifferle court went on to consider whether the freeze-out merger "constitute[d] a breach of fiduciary duty by the majority and [was] therefore `fraudulent' under Minn. Stat.
Because the Life Time Defendants argued that more than an ordinary breach of fiduciary duty was necessary for Plaintiffs to avoid the exclusivity of the statutory appraisal remedy, they did not address whether Plaintiffs' have sufficiently stated a breach of fiduciary duty claim in their opening brief, and thus, the Court will not consider the merits of their breach of fiduciary duty claim except to find that it is not barred by the exclusive statutory appraisal remedy, and survives this motion to dismiss. Accordingly, the Court will deny the Life Time Defendants' motion to dismiss Plaintiffs' breach of fiduciary duty claim.
Plaintiffs also allege that the Buyer Defendants aided and abetted the Life Time Defendants' breach of fiduciary duty. To state a claim for aiding and abetting a breach of fiduciary duty under Minnesota Law, Plaintiffs must plead facts showing that (1) a third party breached a fiduciary duty causing injury to Plaintiffs, (2) the Buyer Defendants knew that the third party's conduct constituted a breach of duty, and (3) the Buyer Defendants substantially assisted or encouraged the third party in achievement of the breach of duty. Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 187 (Minn. 1999).
The Buyer Defendants contend that Plaintiffs have failed to allege any facts supporting the second and third elements — whether the Buyer Defendants had actual knowledge of or substantially assisted a breach of fiduciary duty. These two elements are "evaluate[d]" together, and "where there is a minimal showing of substantial assistance, a greater showing of scienter is required." Id. at 188 (citing Camp v. Dema, 948 F.2d 455, 459 (8th Cir. 1991)). "Whether the requisite degree of knowledge or assistance exists depends in part on the particular facts and circumstances of each case," including "[f]actors such as the relationship between the defendant and the primary tortfeasor, the nature of the primary tortfeasor's activity, the nature of assistance provided by the defendant, and the defendant's state of mind." Id.
In general, to satisfy the knowledge requirement, a plaintiff must show "actual knowledge" by alleging "specific facts" that the defendant knew the "tortious nature" of the third party's dealings. Id. This knowledge can be shown by circumstantial evidence, but only if it "demonstrate[s] that the aider-and-abettor
Plaintiffs allege that the Buyer Defendants knew of the wrongful conduct because they were aware that Akradi continued to negotiate with them on Life Time's behalf and personally for his continued employment, and because they had an opportunity to review the proxy. However, "it is not enough to plead awareness of the conduct in question ... [Plaintiffs] must plead facts plausibly suggesting [the Buyer Defendants were] aware of the
Plaintiffs also allege that the Buyer Defendants assisted in the breach of fiduciary duty by negotiating with and recruiting Akradi. Plaintiffs cite only a Delaware chancery decision stating:
In re Del Monte Foods Co. S'holders Litig., 25 A.3d 813, 837 (Del. Ch. 2011) (citing Gilbert v. El Paso Co., 490 A.2d 1050, 1058 (Del. Ch. 1984)). However, the Buyer Defendants point out that in that case, the bidder knowingly violated a confidentiality agreement and secretly manipulated the sales process. Id. Here, there are no comparable allegations. Similarly, Plaintiffs cite Malpiede v. Townson, a Delaware case which found that "a bidder may be liable to the target's stockholders if the bidder attempts to create or exploit conflicts of interest in the board," but also found that "a bidder's attempts to reduce the sale price through arm's-length negotiations cannot give rise to liability for aiding and abetting." 780 A.2d 1075, 1097-98 (Del. 2011).
Here, the facts alleged do not suggest exploitation, but rather, a "routine business transaction[]." Varga, 952 F.Supp.2d at 859 (quoting Camp, 948 F.2d at 459). In particular, the fact that the Buyer Defendants increased their bid three times while competing with another buyer to secure the sale suggests an arm's length transaction. Overall, Plaintiffs have not provided factual allegations suggesting that the Buyer Defendants knew of any tortious conduct or substantially assisted with any such conduct.
Thus, the Court will grant the Buyer Defendants' motion to dismiss Plaintiffs' state law aiding and abetting claim. Because Plaintiffs could potentially remedy these defects with additional factual detail regarding knowledge and substantial assistance, the Court will dismiss this claim without prejudice.
Based on the foregoing, and all the files, records, and proceedings herein,
1. The Buyer Defendants' Motion to Dismiss [Docket No. 109] is
In another case cited by Plaintiffs, Edick v. Contran Corp., the court found that nondisclosure of the value of real estate relating to a reverse stock split was sufficient to state a claim for breach of fiduciary duty, where the company admitted that "appraisals and comparable sales data ... form[ed] the basis for [the company's] stated belief that the fair market value of certain real estate owned by [the company] or its subsidiaries `substantially exceeds' its carrying value." 1986 WL 3418, at *1-3 (Del. Ch. Mar. 18, 1986). Additionally, in Texas Partners v. Conrock Co., the Ninth Circuit found that the plaintiffs could have stated a claim based on failure to disclose that the real estate was likely undervalued where amendments were proposed to make a hostile takeover more difficult and a disclosure would have, among other things, helped shareholders assess the "importance" of the amendments. 685 F.2d 1116, 1118-19, 1121 (9th Cir. 1982). However, it is not entirely clear what information the plaintiffs in that case had about the value of the real estate, and thus, the extent to which the "total mix" of information was altered.
