By Rose Krebs

Law360 (August 19, 2020, 6:09 PM EDT) -- A Delaware vice chancellor on Wednesday denied CorePower Yoga LLC's bid to toss a suit by one of its franchisees seeking to force the yoga studio chain to finalize the purchase of 34 studios, ruling he can't yet make a "fact-intensive" decision as to coronavirus-related breach of contract claims.

During a hearing held via telephone, Vice Chancellor Joseph R. Slights III said CorePower's arguments in support of its dismissal bid asked him to decide questions of law that need more of a factual record to play out, adding it was seeking a determination on "fact-intensive" issues "too early in the case."

One of those issues concerns whether the seller, Level 4 Yoga, breached warranties in a sale agreement struck last year when studios set to be sold were shut down due to COVID-19 pandemic.

In April, Level 4 filed suit against CorePower, claiming the yoga studio chain was trying to use coronavirus shutdown-caused closures to back out of the agreement to buy 34 studios, even though there is no force majeure clause permitting it to do so.

Level 4 Yoga, which operates franchised yoga studios under CorePower's brand, asserted in its breach of contract suit that the Denver-based company had expressed interest last spring in acquiring the studios, with the parties eventually settling on an April 1 closing date for some of the studios.

Level 4 Yoga said it had wanted to close on the studio sales earlier, but agreed to delay closing given that certain conditions were met under an asset purchase agreement. CorePower assumed certain "market and industry-wide risks" per the agreement, Level 4 Yoga asserted.

CorePower was set to finalize the purchase of eight studios in Colorado for roughly $6.3 million on April 1, in the first in a series of sale closings, the suit said. The rest of the closings were set to happen through October, with CorePower set to pay $13.9 million for 15 studios in Illinois, $3.2 million for certain locations in South Carolina, North Carolina and Arizona, and a yet-to-be-determined amount for other studios in Arizona and North Carolina, the suit said.

CorePower attorney Howard Graff of Arent Fox LLP asserted Wednesday that the suit should be tossed because Level 4 Yoga violated warranties in the sale agreement, including one that assured the studios would be operating in the "ordinary course" of business on the closing date.

"The business has changed in terms of its operations," Graff said, asserting that CorePower didn't agree "to buy a car without an engine."

Level 4 Yoga did not deliver what CorePower "bargained" to buy, he argued, adding that the suit should be tossed because the pandemic-related closures put Level 4 Yoga in breach of the sale agreement, and thus, CorePower was within its rights not to finalize the deal.

Vice Chancellor Slights was unswayed by the argument, saying he can't at this point in the case make a determination that temporary closures related to state shutdown mandates amid the pandemic amount to a material breach of the sale deal.

Level 4's attorney Michael Dockterman of Steptoe & Johnson LLP took issue with Graff's assertions about how conditions have changed since the sale agreement was struck last year.

"Frankly, our car is in great shape," Dockterman said. "The car is running and running quite well."

Rather, states have "closed the roads" due to the public health crisis, Dockterman contended. But certain studios are now open once again, he said.

Dockterman argued that there was no basis for CorePower to be granted an early escape from the suit and that the case should move forward so that a factual record can be developed.

The vice chancellor agreed and told the parties to consult on scheduling issues moving forward.

In the suit, Level 4 Yoga argues that the temporary closure of studios because of state and local coronavirus-related quarantine orders does not justify CorePower's attempt to back out of the sale agreement. Finalization of the sales was staggered and delayed at CorePower's request, and in doing so, the chain agreed to assume certain risks, the suit claims.

Until just days before the April 1 closing on the first wave of studio sales, CorePower "did not mention anything about a material adverse effect on operations in plaintiff's studios or in defendants' studios, did not ask for a delay in the initial closing date, and did not ask for additional time to complete the balance of the transaction in light of the pandemic," the suit said.

CorePower did not demand a force majeure clause or "set a break fee that allowed them to walk away from the deal for a fixed amount of money," the suit said.

Level 4 Yoga is asking the court to declare that the asset purchase agreement "remains in full force" and that CorePower must abide by its terms. It is also seeking damages and legal costs.

"Level 4 is pleased with the vice chancellor's ruling and will press forward to a trial at the earliest possible moment," Dockertman said in an email to Law360 after the hearing. He added that the company hopes the ruling prompts CorePower to quickly close on acquiring the studios.

Counsel for CorePower did not immediately respond to a request for comment after Wednesday's ruling.

Level 4 Yoga is represented by Lisa A. Schmidt and Matthew D. Perri of Richards Layton & Finger PA and Michael Dockterman and Cara Lawson of Steptoe & Johnson LLP.

CorePower Yoga is represented by Daniel B. Rath, Rebecca L. Butcher and Jennifer L. Cree of Landis Rath & Cobb LLP and Howard Graff, Michael Cryan, Eric A. Biderman, Jason Rotstein, Megan Woodward and Bryon Moser of Arent Fox 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.

--Editing by Steven Edelstone.

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