A Delaware Court issued a blow to Bally Total Fitness Jan. 11, adding more fuel to a bitter proxy battle between the fitness-center giant and hedge funds Pardus Capital Management and Liberation Investments.
The Court of Chancery of the State of Delaware denied Bally's motion for expedited discovery in its legal action against the hedge funds. Bally management is considering triggering "poison pill" provisions.
According to court documents, Pardus is seeking to elect three new directors to Bally's board while Liberation wants to enact a by-law amendment to remove the company's CEO Paul Toback. Bally filed a chancery complaint in December 2005 alleging the two hedge funds are conspiring and asked the court to expedite discovery. However, the court found that Bally had waited too long to bring its motion and failed to demonstrate it would suffer irreparable harm if its motion was not granted.
"No one has executed such a maneuver before, perhaps because it is so clearly illegal and inequitable," said Liberation's majority member Emanuel Pearlman in a press release.
"Triggering the 'poison pill' at this time will also make it impossible to sell the company until all the resulting litigation is cleared up ?? 1/2 Bally signaled that it is willing to risk destroying the company in order to preserve Mr. Toback's position."