United States District Court, D. Minnesota
MATTHEW LUSK and ST. CLAIR EMPLOYEES' RETIREMENT SYSTEM, individually and on behalf of all others similarly situated, Plaintiffs,
BAHRAM AKRADI, GILES H. BATEMAN, JACK W. EUGSTER, GUY C. JACKSON, JOHN K. LLOYD, MARTHA A. MORFITT, JOHN B. RICHARDS, and JOSEPH S. VASSALLUZZO, Defendants.
T. WISSBROECKER, ROBBINS GELLER RUDMAN & DOWD LLP, KAI H.
RICHTER, NICHOLS KASTER, PLLP, JEFFREY C. BLOCK AND JACOB A.
WALKER, BLOCK & LEVITON LLP FOR PLAINTIFFS MATTHEW LUSK
AND ST. CLAIR EMPLOYEES' RETIREMENT SYSTEM.
P. SWIGERT, DORSEY & WHITNEY LLP, FOR DEFENDANT BAHRAM
MATTHEW B. KILBY, FAEGRE BAKER DANIELS LLP, FOR DEFENDANTS
GILES H. BATEMAN, JACK W. EUGSTER, GUY C. JACKSON, JOHN K.
LLOYD, MARTHA A. MORFITT, JOHN B. RICHARDS, AND JOSEPH S.
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS'
MOTIONS FOR JUDGMENT ON THE PLEADINGS
R. TUNHEIM CHIEF JUDGE UNITED STATES DISTRICT COURT
Matthew Lusk and St. Clair Employees' Retirement System
(collectively “Plaintiffs”) are former
shareholders of Life Time Fitness, Inc. (“Life
Time”). Plaintiffs bring this action individually and
as a class action on behalf of all other similarly situated
former Life Time shareholders regarding the 2015 merger of
Life Time with a group of private equity firms.
Plaintiffs' sole remaining claim in this case is for
breach of fiduciary duty against the former directors of Life
Plaintiffs did not plead a non-exculpated breach of fiduciary
duty claim against the former Life Time board, and because
Life Time's shareholders ratified the transaction
pursuant to Minn. Stat. § 302A.255, the Court will grant
the defendants' motions for judgment on the pleadings.
Time is a Minnesota corporation that operates a chain of
health fitness centers. (Am. Compl. ¶¶ 2, 12, Aug.
31, 2015, Docket No. 87.) Defendant Bahram Akradi founded
Life Time in 1992, and he acted as its “Chairman of the
Board, President and CEO.” (Id. ¶ 13.)
Defendants Giles H. Bateman, Jack W. Eugster, Guy C. Jackson,
John K. Lloyd, Martha A. Morfitt, John B. Richards, and
Joseph S. Vassalluzzo were members of Life Time's board
of directors (hereinafter the “Board, ” and
together with Akradi, the “Defendants”).
(Id. ¶¶ 14-20.) Plaintiffs held Life Time
stock prior to the merger at issue. (Id.
response to pressure from a Life Time shareholder, on July
21, 2014, Life Time hired Wells Fargo Securities, LLC
(“Wells Fargo”), (Am. Compl. ¶¶ 32, 35;
Decl. of Matthew B. Kilby, Ex. D (“Proxy”) at 7,
Oct. 5, 2015, Docket No. 119), to consider “various
financing and strategic alternatives available to Life Time
to maximize long-term shareholder value, including but not
limited to the evaluation of a [real estate investment trust
(“REIT”)] conversion transaction, ” (Proxy
at 35-36). The concept of unlocking Life Time's real
estate value through a REIT transaction also prompted an
unsolicited acquisition proposal from Party A on July 30,
2014, for over $60.00 a share at a time when Life Time had a
$40.57 per share closing price. (Am. Compl. ¶
35; Proxy at 36.) In response, the Board also engaged
Guggenheim Securities, LLC (“Guggenheim”) to
review and assess various financial alternatives to maximize
shareholder value. (Am. Compl. ¶ 36; Proxy at
September 23, 2014, Party A increased its unsolicited
acquisition proposal to $70.00 per share. (Am. Compl. ¶
40; Proxy at 36.) At a September 25, 2014 meeting, “the
Board decided to allow Akradi and Life Time's financial
advisors to begin contacting potential bidders . . . . Akradi
was heavily involved in these communications and personally
contacted certain bidders with whom he had a pre-existing
relationship.” (Am. Compl. ¶ 40.) As Akradi and
the Board continued to consider strategic alternatives, on
January 16, 2015, Party A reaffirmed its offer of $70.00 per
share, and a group of private equity firms (the “Buyout
Group”) offered $65.00 to $69.00 per share.
(Id. ¶ 41; Proxy at 37-38.)
March 3, 2015, the Board established a Special Committee
“consisting entirely of independent and disinterested
directors, ” (Proxy at 6), which “discussed
various strategies and tactics for seeking to obtain the
highest per-share cash bids for Life Time” and also
considered a “REIT [c]onversion [e]xploration.”
(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.) The Special Committee allegedly
“permitted Akradi to negotiate the terms of a rollover
investment and his continued employment at the surviving
company with potential buyers.” (Am. Compl. ¶ 43.)
March 11, 2015, the Buyout Group offered $70.50 per share and
a rollover of Akradi's equity in Life Time. (Am. Compl.
¶ 46; Proxy at 42.) Party A again indicated that it
offered $70.00 per share. (Am. Compl. ¶ 45; Proxy at 41-
42.) Plaintiffs suggest that Akradi recognized a sale to the
Buyout Group was his only chance to invest in the surviving
company, and thus “quickly tipped the sales process in
the Buyout Group's favor.” (Am. Compl. ¶ 47.)
On March 13, 2015, the Special Committee met with the
financial advisors Wells Fargo and Guggenheim to discuss the
two proposals as well as a REIT conversion. (Proxy at 42-43.)
Guggenheim's analysis suggested that a REIT conversion
would have resulted in a present value range of $64.50 to
$84.50 per share, (id. at 43), and Wells Fargo's
analysis suggested a range of $59.69 to $92.23 per share,
(id. at 43-44). The Special Committee considered
these analyses as well as the “uncertainties and risks
associated” with a REIT conversion. (Id. at
over the transaction agreements continued over the next few
days. (Id. at 44-45; Am. Compl. ¶ 49.) On March
15, 2015, Party A delivered a revised proposal with an offer
of $72.00 per share, but did not provide a rollover
investment or continued employment for Akradi. (Am. Compl.
¶ 49; Proxy at 45.) The Buyout Group also submitted a
bid of $72.10 per share and requested Akradi roll over $125
million in equity. (Am. Compl. ¶ 50; Proxy at 46.)
March 15, 2015, the Special Committee and the Board both
unanimously approved the merger with the Buyout Group. (Proxy
at 48.) Life Time filed the Proxy with the Securities and
Exchange Commission (“SEC”) on April 30, 2015,
and it was disseminated to Life Time shareholders in advance
of the shareholder vote on the merger on June 4, 2015. (Am.
Compl. ¶ 63; Proxy at 2.) The 233-page Proxy discussed
the background of the merger, the Board's analyses and
recommendations, the financial advisors' fairness
opinions, key terms of the merger agreement, disclosed
Akradi's rollover interest, and the Board's
entitlement to stock options at the consummation of the
merger. (See Proxy at 7-8, 27, 35-75.) In
recommending Life Time's shareholders vote in favor of
the merger, the Board and the Special Committee noted that
Guggenheim and Wells Fargo opined the price of $72.10 was
fair to shareholders. (Proxy at 48-49.) Not including the
Defendants' shares, the Life Time shareholders approved
the merger with 81.65% voting in favor on June 4,
2015. Pursuant to the merger, Akradi rolled over
$125 million worth of his Life Time shares in exchange for
shares in the surviving entity, (Am. Compl. ¶ 50), and
remained the CEO, (id. ¶¶ 57-58).
August 31, 2015, Plaintiffs filed an amended complaint
alleging that Life Time and the Defendants issued a false or
misleading proxy statement prior to the merger in violation
of § 14(a) of the Securities Exchange Act and SEC Rule
14a-9, (id. ¶¶ 94-100), the Defendants and
the Buyout Group acted as controlling persons of Life Time in
violation of § 20(a) of the Securities Exchange Act,
(id. ¶¶ 101-107), the Defendants breached
fiduciary duties owed to Life Time's shareholders,
(id. ¶¶ 108-112), and the Buyout Group
aided and abetted the Defendants' breach of fiduciary
duties, (id. ¶¶ 113-115). All defendants
moved to dismiss on October 5, 2015.
on September 30, 2016, the Court dismissed all claims except
for the breach of fiduciary duty claim against Akradi and the
Board. Lusk v. Life Time Fitness, Inc., 213
F.Supp.3d 1119, 1137-38 (D. Minn. 2016). The Court did not
dismiss the claim primarily because the Defendants raised
additional arguments in their reply memorandum, to which
Plaintiffs were not given a chance to respond. Id.
at 1133 n.7. On October 28, 2016, the Defendants moved for
judgment on the pleadings to dismiss the claim. (Def.