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Law360 (Apr 3, 2020, 7:44 p.m. EDT) – A CorePower Yoga LLC franchisee has sued the yoga studio chain in the Delaware Chancery Court, alleging it is attempting to use coronavirus-induced studio closures to help out a Purchase agreement to withdraw from 34 Studios, although there is no force majeure clause allowing CorePower to do so.
Level 4 Yoga, which operates franchise yoga studios under the CorePower brand, alleged in its infringement suit Wednesday that the Denver-based company expressed an interest in acquiring the studios last spring and that the parties eventually agreed to a closing date for some on April 1st the studios agreed.
“As people around the world grapple with the devastating effects of the COVID-19 pandemic, the defendants have used the crisis to break off,” claims Level 4 Yoga. “The agreement does not contain a force majeure clause that would allow the defendants to resign. As a result, the defendants have made a number of excuses based on the temporary closure of their yoga studios – the plaintiff and the defendants – in order to avoid a substantial one assert an adverse effect that justifies not closing. ” the purchase.”
Level 4 Yoga said it wanted to close the studio sale sooner but agreed to postpone closing because certain conditions were met under an asset purchase agreement. According to Level 4 Yoga, CorePower has assumed certain “market and industry-wide risks” according to the agreement.
“As stated in the agreement, the parties specifically envisaged that there could be market and industry-wide events, including events like COVID-19 that would affect the yoga business between execution and closing, and the parties are at risk these events are assigned to the defendants, “claims the lawsuit.
CorePower was due to complete the purchase of eight Colorado studios for approximately $ 6.3 million on April 1st. This was the first in a series of deals. The rest of the closings are scheduled for July through October. CorePower is paying $ 13.9 million for 15 studios in Illinois, $ 3.2 million for certain locations in South Carolina, North Carolina and Arizona and an amount yet to be determined for other studios in Arizona and North Carolina, the said Suit.
Citing the 2008 Chancery Court judgment in Hexion Specialty Chemicals Inc. v Huntsman Corp. According to Level 4 Yoga, CorePower “must be assumed to be buying the target as part of a long-term strategy”.
“The important consideration is therefore whether the target’s business has changed adversely, which results from the company’s long-term profitability over an economically reasonable period of time that would be measured in years rather than months,” the lawsuit said on appeal on the Hexion decision.
The temporary closure of studios that Level 4 Yoga operates due to state and local quarantine orders related to coronavirus does not justify CorePower’s attempt to withdraw from the sales contract, according to the lawsuit.
Level 4 Yoga argues that the completion of the sales was staggered and delayed at the request of CorePower, and the chain agreed to take certain risks in the process.
Until a few days before the first wave of studio sales closed on April 1, CorePower “did not mention anything about material adverse effects on operations in the plaintiff’s studios or in the defendant’s studios and did not request a delay in the initial closing date.” and did not ask for additional time to complete the rest of the transaction in light of the pandemic, “the lawsuit said.
CorePower wants “out of a commitment to buy plaintiff’s thirty-four yoga studios because COVID-19 and government responses to it, including the temporary shutdown of businesses like yoga studios, have changed the economics of business,” Level said 4 yoga. “This is exactly the risk the defendants took in negotiating a belated and staggered deal.”
CorePower did not request a force majeure clause or “a break fee that would allow them to withdraw from business for a fixed amount of money,” the lawsuit said.
Level 4 Yoga is asking the court to explain that the asset purchase agreement “remains in full force and effect” and that CorePower must comply with its terms. It is also about damages and legal costs.
Consultation information for CorePower was not available on Friday.
The level 4 yoga attorney declined to comment on Friday.
CorePower representatives did not immediately respond to a request for comment on Friday.
Level 4 Yoga is represented by Lisa A. Schmidt and Matthew D. Perri from Richards Layton & Finger PA and Michael Dockterman and Cara Lawson from Steptoe & Johnson LLP.
The case is Level 4 Yoga LLC v CorePower Yoga LLC et al., Case number 2020-0249, in the Court of Chancery of the State of Delaware.
– Adaptation by Marygrace Murphy.
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