Planet Fitness pays $9.4 million to settle suit by ex-CFO
Drawn-out legal action stemmed from dispute over company’s value
New Hampshire-based gym chain Planet Fitness paid $9.4 million last week to its former chief financial officer, more than half of that in interest, after the Appeals Court of Massachusetts upheld a ruling that the company fraudulently misled her about the value of the company and settled for a much smaller sum.
Included in the effort to get Jayne Conway to settle was former New Hampshire Gov. Craig Benson, a former Planet Fitness board member who acted as an “informal advisor” in April 2012 when he met Conway in a restaurant in Newburyport, Mass., and allegedly told her the company was not financially sound, according to an appeals court decision issued in May.
Conway ended up accepting $500,000 in 2013. A Massachusetts jury awarded her $5.3 million in 2019, but the litigation continued on appeal.
Former CEO Michael Grondahl challenged the award in its entirety, and Conway argued that the rate of prejudgment interest should be decided by Massachusetts law, a flat 12 percent, rather than New Hampshire law, which charges the prevailing Treasury Bill discount rate plus 2 percent (about 4.5 percent in 2019). Conway prevailed on both points, leading to $9.4 million award.
As of June 2022, the Hampton-based fitness chain had $2.9 billion in assets.
In her initial suit, Conway alleged that Planet Fitness wrongfully terminated her in November 2011 because she notified Planet Fitness auditors that David Kirkpatrick was spearheading a private equity deal several years before the company went public in 2014.
Kirkpatrick involvement was a problem because he was living under a legal cloud at the time due to various investigations into Cabletron – a defunct Rochester-based technology company founded by Benson that was once the state’s largest employer – and its spinoffs Enterasys Networks and other companies. Kirkpatrick never faced criminal charges, unlike some other Enterasys executives who were sent to prison, but he did settle a civil suit with the U.S. Securities and Exchange Commission for nearly $350,000, for his alleged actions as Cabletron’s CFO.
Planet Fitness denied Conway’s allegations, but agreed that Conway still had some 1.5 percent equity rights in the company. The question was how much the company was worth. Conway said that the company misled her into thinking its enterprise value was $315 million, but company officials did not disclose that the company had already closed the deal with private equity investors for three-quarters of the company for $505 million at the end of 2012.
After Benson and Grondahl encouraged Conway to settle, Conway agreed to engage a Massachusetts firm, Delphi Valuation Advisors Inc., to determine the value of Conway’s equity interest, according to the appeal court decision. But Planet Fitness “provided Delphi with misleading and incorrect information,” said the appeals court.
Following the initial award, the defendants filed a motion for a new trial, which was mostly denied but the judge ordered a new trial unless Conway accepted a lower amount, which she did, although the fight over the interest rate continued. Conway argued that she was a Massachusetts resident, but the defendants argued that she was working in New Hampshire.
“While it is true that Planet Fitness was located in New Hampshire and Conway worked there, the fraud and deceit that is at the heart of this case all occurred after Conway’s employment was terminated,” said the appeals court opinion. “Massachusetts is the State with the greater interest at stake.”
After exhausting its appeals, Planet Fitness paid up, said Ken DeMoura, Conway’s attorney, of the Wakefield, Mass., firm of DeMoura Smith.
“Jayne Conway trusted the wrong people to do the right thing. We are pleased that after defeating two separate motions to dismiss, a motion to compel arbitration, challenges to our discovery requests, and a summary judgment motion, followed by a 15-day jury trial and two appeals, Jayne Conway has finally received what she was entitled to” said DeMoura in a press release.