Reed Smith Client Alerts

The Delaware Court of Chancery’s recent post-trial memorandum opinion in Level 4 Yoga, LLC v. CorePower Yoga, LLC, C.A. No. 2020-0249 (Del. Ch.) held that CorePower Yoga LLC and CorePower Yoga Franchising must honor the “one-sided” franchise deal they agreed to for 29 Level 4 Yoga studios in March 2020, rejecting CorePower’s argument that Level 4 violated the purchase agreement and triggered a “Material Adverse Effect” when it closed studios due to the COVID-19 pandemic.

Case Background

In May 2019, defendants CorePower Yoga, LLC and CorePower Yoga Franchising, LLC (together, CorePower), exercised a preexisting contractual “call option” to require one of its franchisees, plaintiff Level 4 Yoga, LLC (Level 4), to sell CorePower all of Level 4’s assets, comprised mainly of yoga studios located in several states and the business components required to operate those studios under the CorePower Yoga brand (the Transaction).

On November 27, 2019, CorePower and Level 4 entered into an asset purchase agreement (the APA). The first stage of the three-part deal was supposed to close on April 1, 2020, with CorePower paying $6.3 million for eight Colorado studios owned by Level 4. The remaining studios and money would have changed hands in July and October 2020.

As April 1, 2020 approached, businesses throughout the United States began to shut down due to COVID-19. CorePower had directed its franchises, including Level 4, to shut down their yoga studios, just as CorePower had done with its own studios. Around the same time, CorePower had decided it wanted to delay or terminate the Transaction because “the transaction was no longer as attractive ... as it had been before the shutdowns caused by COVID-19.” Level 4 refused to delay and insisted that it stood ready and willing to honor its commitments under the APA.