IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PHILIP RYAN, JR. and DONALD
FRIEDMAN, on behalf of themselves

and all other similarly situated
stockholders of MINDBODY, Inc.,

Plaintiffs,

Vv. C.A. No. 2019-0061-KSJM

MINDBODY, INC., RICHARD L.
STOLLMEYER, KATHERINE 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 XIU, 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,

Vv. C.A. No. 2019-0442-KSJM

RICHARD L. STOLLMEYER, BRETT
WHITE, and ERIC LIAW,

Sm me ee! ee” ae el ee ee ee el el eh el ee ee ee ee eh ee ee ee ee ee

Defendants.
ORDER CONSOLIDATING RELATED ACTIONS, SEVERING CLAIM, AND
ESTABLISHING A LEADERSHIP STRUCTURE

1. 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.”

2. The 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., ) Consolidated
STOCKHOLDERS LITIGATION ) CA. No. 2019-0442-KSJM

3. Two 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

 

Donald Friedman was an additional named plaintiff in the Ryan Action but has withdrawn
as a plaintiff because his son, coincidentally, works for Luxor.

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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 to
date.

5: Turning now to the leadership dispute, the Court applies the six “Hirt

* when designating a lead plaintiff and lead counsel in a representative

factors”
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

 

* Hirt v. U.S. Timberlands Serv. Co., 2002 WL 1558342 (Del. Ch. July 3, 2002).
4
litigation to date; and (c) factors relating to counsel’s track record and ability to
litigate going forward.°
6. The 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.

 

3 In re Del Monte Foods Co. S’holders Litig., 2010 WL 5550677, at *6—11 (Del. Ch.
Dec. 31, 2010).

* Hirt, 2002 WL 1558342, at *2; Del Monte Foods, 2010 WL 5550677, at *6.
> Hirt, 2002 WL 1558342, at *2.

6 See Del Monte Foods, 2010 WL 5550677, at *8 (noting one plaintiff “does not have a
sufficiently large stake to provide an incentive to monitor counsel and reduce agency
costs”).

1 In re Revion, Inc. S’holder Litig., 990 A.2d 940, 955 (Del. Ch. 2010) (stating that “the
weight given to the size of a plaintiffs’ holding is not used to generate a formalistic ranking,
but rather comes into play when a plaintiff owns a sufficient stake to provide an economic
incentive to monitor counsel and play a meaningful role in conducting the case”).

5
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
stockholders who perfect their appraisal rights, not the stockholders more
broadly.”

d. The common representation of class action plaintiffs and

appraisal petitioners does not present an automatically disqualifying conflict.

 

8 Revion, 990 A.2d at 955.

° Inre
2014).

Orchard Enters., Inc. S’holder Litig., 2014 WL 4181912, at *10 (Del. Ch. Aug. 22,
This Court has witnessed effective dual representation lead to financial and
informational advantages for members of the class.!°

e. In this case, the common pursuit of class claims and appraisal
claims does not present a disqualifying conflict. The Luxor Plaintiffs’ non-
appraisal stake of over five million shares is by no means nominal. This
potential upside for a hedge fund should more than adequately align its
incentives with the rest of the class. Further, the conflicts surrounding
settlement issues identified by Ryan are presently hypothetical only and can
be managed by counsel, and monitored by this Court, if they arise.

a. The second category of Hirt factors considers performance in the
litigation to date, analyzing the efforts of counsel and the quality of the pleading that
resulted from those efforts.!!

a. Both teams have demonstrated enthusiasm and vigor in
prosecuting their separate cases to date, although they have chosen separate

and distinct litigation strategies for challenging the underlying transaction.

 

10 See, e.g., Inre Emerging Commce’ns, Inc. S’holders Litig., 2004 WL 1305745, at *1 (Del.
Ch. June 4, 2004) (finding that the fair value of stock was 271% greater than the deal price
in case prosecuted by a plaintiff litigating as both class representative and appraisal
petitioner); see also In re Orchard Enters., Inc. S’holder Litig., 2014 WL 4181912, at *11
(Del. Ch. Aug. 22, 2014) (noting stockholders in a class action may benefit “from the
appraisal claimant’s investment in the proceeding and any resulting informational assets”).

'! Hirt, 2002 WL 1558342, at *2; Del Monte Foods, 2010 WL 5550677, at *6 (specifically
describing “the quality of the pleading that appears best able to represent the interests of

7
b. Team Ryan moved swiftly to pursue Ryan’s claims, commencing
this litigation on January 29, 2019. Ryan’s original complaint asserted five
causes of action: Count J asserts claims under 8 Del C. §§ 111, 225, and 227
challenging the validity of the stockholder vote that approved the transaction;
Count II claims that the merger violated the equal treatment provision of the
MINDBODY certificate of incorporation; Count III claims that
MINDBODY’s CEO breached his fiduciary duties; Count IV claims that the
MINDBODY directors breached their fiduciary duties; and Count V claims
that Vista aided and abetted the fiduciary breaches. Ryan amended his
complaint on February 13, 2019 after MINDBODY issued corrective
disclosures. The amended complaint asserts the same causes of action
supplemented by additional factual allegations.

C. Team Ryan moved to expedite a trial on Count I, which the
parties and this Order refer to as the Section 225 Claims. The Section 225
Claims raise technical issues concerning the validity of the stockholder vote
on the challenged transaction. On February 27, 2019, the Court ordered that
a trial on the Section 225 Claims be scheduled for April 2019, and that

expedited discovery be conducted in the interim. In expedited discovery,

 

the shareholder class and... the enthusiasm or vigor with which the various contestants
have prosecuted the lawsuit’).
Team Ryan obtained 31,000 pages of documents and took six depositions. On
April 23, 2019, the parties stipulated to present the case on a paper record.
The parties completed trial briefing on June 13, 2019, and argument was set
for July 23, 2019. At a hearing on July 16, 2019, the Court ordered
submissions on the instant motions and postponed the July 23, 2019 argument.

d. Team Luxor took a different path. On January 18, 2019, the
Luxor Plaintiffs demanded to inspect MINDBODY books and records
pursuant to Section 220 of the Delaware General Corporation Law. The
Luxor Plaintiffs then filed and settled its 220 action, obtaining key documents
in the process. For a portion of its shares, the Luxor Plaintiffs demanded
appraisal and commenced the Appraisal Action on April 17, 2019. Using
discovery that it obtained in the Appraisal Action, documents from the 220
action, as well as documents made available from expedited discovery in the
Ryan Action, the Luxor Plaintiffs commenced the Luxor Action on June 12,
2019.

e. Both teams have worked vigorously in pursuing their chosen
strategies and are committed to continue their efforts going forward. At this
stage, it would be imprudent for the Court to opine on the merits of either

strategy, except to acknowledge that both are facially meritorious.
8. The third category of Hirt factors considers counsel’s track record and
the contestants’ willingness and ability to litigate going forward.!? All counsel vying
for leadership have a demonstrated history of success in this Court. There is no
doubt that each also has the resources to devote to prosecuting this case and is
motivated to do so.

9. Considering all of the Hirt factors, the Luxor Plaintiffs’ significant
relative ownership stake tips the balance in their favor. Recognizing this, and in
light of their efforts in the Ryan Action to date, Team Ryan argues in the alternative
that the Court should force the competing factions to work together as a combined
team. On this point, the Court is reminded of the words of the great Knute Rockne.
To paraphrase: you play not your best eleven, but your eleven best. Coach Rockne
meant to emphasize the importance of team dynamics to a team’s success, which
this Court has similarly recognized in the context of class leadership disputes.
Cognizant that forcing cooperation risks impairing team dynamics, this Court has
repeatedly declined to craft its own leadership structure in lieu of selecting a team

that the parties have formed themselves.'? I see no need to risk potential dysfunction

 

12 Hirt, 2002 WL 1558342, at *2; Del Monte Foods, 2010 WL 5550677, at *6 (specifically
describing “the willingness and ability of all the contests to litigate vigorously on behalf of
an entire class of shareholders . . . [and] the competence of counsel and their access to the
resources necessary to prosecute the claims at issue’’).

'3 See, e.g., In re Expedia Gp., Inc. S’holders Litig., C.A. 2019-0494-JTL (Del. Ch.
Sept. 20, 2019) (ORDER) (Laster, V.C.) (observing that “‘[a] successful team depends on
a variety of factors, including group dynamics” and that “[i]t would be dangerous and

10
resulting from a forced leadership structure in this case and thus reject Team Ryan’s
alternative argument
10. The Luxor Plaintiffs are hereby appointed as Lead Plaintiffs of the

Consolidated Action. The law firms of Friedlander & Gorris, P.A. and Bernstein

 

potentially counterproductive for the court to disregard the teams that counsel have formed
and impose its own’); In re Inv’rs Bancorp, Inc. S’holder Litig., 2016 WL 4257503, at *1
(Del. Ch. Aug. 12, 2016) (Slights, V.C.) (declining to force competing factions to work
together because “it is not in the best interests of the Company or its stockholders to appoint
all of the law firms competing for leadership as co-lead counsel”); Raul v. Office Depot,
Inc., C.A. No. 10628-CB at 69:5—12 (Del. Ch. Mar. 31, 2015) (TRANSCRIPT) (Bouchard,
C.) (commenting that “[c]ompromising by including everyone in the leadership structure
just leads to bad leadership and bad compromises. Now, this may be a catch-22 .. . but
it’s not a catch-22 I’m willing to endorse with inefficient leadership structures. At some
point certain firms just need to be left out or step aside and focus their resources on a
different case”); Mesirov v. Pepco Hldgs., Inc., C.A. No. 9600-VCG at 22:5—16 (Del. Ch.
June 11, 2014) (TRANSCRIPT) (Glasscock, V.C.) (expressing regret that the plaintiffs
could not resolve their own disputed leadership but recognizing “it is important that [the
Court] . . . not try to impose some other structure other than those two groups have decided
for themselves”); In re LSI Corp. S’holders Litig., C.A. No. 9175-VCN at 34:7-35:1 (Del.
Ch. Jan. 23, 2014) (TRANSCRIPT) (Noble, V.C.) (declining to require cooperation
between two lead plaintiffs and their counsel while noting that “the more members on a
committee, the more awkward, at best, and the more dysfunctional, at worst, it may
become”); Weinstein v. Illumina, Inc., C.A. No. 7242-VCP at 55:5-56:8 (Del. Ch. Apr. 16,
2012) (TRANSCRIPT) (Parsons, V.C.) (declining to require a majority faction of plaintiffs
to include and cooperate with dissenting plaintiff faction); Se. Pa. Transp. Auth. v. Rubin,
2011 WL 1709105, at *2 (Del. Ch. Apr. 29, 2011) (Noble, V.C.) (“[F]or the Court to
appoint everyone (or most everyone) to a lead role would run the risk of imposing the
inefficiencies and lack of focus that frequently plague committees. Ultimately, the
objective must be to find the case management structure that optimizes the interest and
potential of the shareholder class.”). But see Jacksonville Police and Fire Pension Fund
v. Moffett, 2013 WL 297958, at *4 (Del. Ch. Jan. 25, 2013) (Noble, V.C.) (appointing three
firms as co-lead counsel despite questioning internal politics and negotiations that preceded
apparent compromise); /n re Delphi Fin. Gp. S’holder Litig., 2012 WL 424886, at *3 (Del.
Ch. Feb. 7, 2012) (Glasscock, V.C.) (appointing co-lead counsel after contenders had
reached a compromise and submitted that “the remaining differences were minor and could
be worked out among counsel going forward”).

1]
Litowitz Berger & Grossmann LLP are appointed as Co-Lead Counsel. The
following law firms are designated as additional counsel: Prickett, Jones & Elliott,
P.A.; Kessler Topaz Meltzer & Check, LLP; and Schall Law Firm.

11. Co-Lead Counsel shall set policy for the prosecution of this litigation,
delegate and monitor the work performed to ensure that there is no duplication of
effort or unnecessary expense, and initiate and coordinate the activities of counsel.

12. Co-Lead Counsel shall have the power and responsibility to:

a. Coordinate and direct the preparation of pleadings;

b. Coordinate and direct the briefing and argument of motions;

c. Coordinate and direct the conduct of discovery and other pretrial
proceedings;

d. Coordinate and direct class certification proceedings;

e. Conduct any and all settlement negotiations with counsel for the
Defendants;

f. Coordinate and direct the preparation for trial and trial of this

matter, and delegate work responsibilities to selected counsel as may be
required; and
g. Coordinate and direct any other matters concerning the

prosecution or resolution of the consolidated action.

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13. The Verified Complaint in the Luxor Action is deemed operative for
the Consolidated Action. The parties shall confer on an appropriate schedule
moving forward regarding the Consolidated Action, including a deadline for Lead

Plaintiffs to file an amended Consolidated Complaint.

Kthelar Std MGmnick

Vice Chancellor Kathaleen St. J. McCormick
Dated: October 1, 2019

 

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