The owner of 34 CorePower Yoga LLC franchise locations asked the Delaware Chancery Court on Friday to stop the brand’s owner from using the novel coronavirus pandemic to back out of a $23 million deal to acquire the yoga studios.
“The agreement has no force majeure clause that would allow defendants to back out, so defendants have manufactured a series of excuses based on the temporary closure of their yoga studios,” the lawsuit says.
The first stage of the three-part deal was supposed to close April 1, with CorePower paying $6.3 million for eight Colorado locations owned by Level 4 Yoga LLC, according to the complaint.
The other studios, and the rest of the money, would have changed hands following subsequent closings in July and October, the suit says. The staggered nature of the transaction was allegedly a negotiated concession to CorePower, which agreed in return that it, “not plaintiff, would assume any market and industry-wide risk associated with the delayed closing.”
Under Delaware law, which expressly governs the deal, corporate acquisitions are presumed to be “part of a long-term strategy,” according to the complaint. That means a “material adverse event” justifying cancellation of a purchase agreement must be one that’s “consequential to the company’s earnings power” over a period of “years rather than months,” the suit says.
Although the Colorado studios are currently closed, their temporary shuttering “pursuant to state and local temporary quarantine directions” doesn’t qualify as a material adverse event, according to the complaint.
“Defendants just want out of the obligation to buy plaintiff’s 34 yoga studios because Covid-19 and the government responses to it, including the temporary closure of businesses like yoga studios, have changed the economics of the deal,” the suit says. “This is precisely the risk that defendants agreed to assume when they bargained for a delayed and staggered closing.”
The suit also targets CorePower’s franchising arm.
Cause of Action: Breach of contract.
Relief: Specific performance of the purchase agreement; costs and fees.
Response: CorePower didn’t immediately respond to a request for comment Friday.
Attorneys: Level 4 is represented by Richards, Layton & Finger PA and Steptoe & Johnson LLP.
The case is Level 4 Yoga LLC v. CorePower Yoga LLC, Del. Ch., No. 2020-0249, complaint filed 4/3/20.