(Bloomberg) — Hilton Worldwide Holdings Inc. was sued over its decision to renege on an agreement to buy a stake in ClassPass Inc., a start-up that allows users to take classes at boutique gyms without buying a membership.
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A Hilton Worldwide Holdings Inc. hotel in the Gaslamp Quarter of San Diego, California, U.S., on Tuesday, Aug. 11, 2020. California reported 12,500 new confirmed infections yesterday, its second-biggest one-day increase and above the 14-day average of 7,704.
Manhattan-based ClassPass alleged the 6,000-hotel Hilton chain didn’t act in good faith when it pulled out of the 2019 deal to buy the shares, according to an unsealed lawsuit filed Wednesday in Delaware Chancery Court. The investment came as part of an effort by the fitness-class app to raise new investor cash.
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The amount of the stake was redacted in the complaint, but a person familiar with the transaction said it was $17 million. The funding round, which generated $285 million by January, pumped up the valuation of closely held ClassPass to more than $1 billion as investors bet on the growth of fitness companies that offer classes both online and in person.
ClassPass officials didn’t immediately respond to emails and calls seeking comment Thursday. A Hilton spokeswoman, Meg Ryan, said Friday the company doesn’t comment on pending litigation.
The startup contends Hilton agreed in December to the $17 million investment, but later negotiated a provision allowing the hotel chain to cancel its payment, according to the person familiar with the transaction.
In July, Hilton exercised that option, according to the complaint.
It’s not clear from the complaint why Hilton — which offered ClassPass at some of its hotels — decided to pull out of the investment. But the advent of the Covid-19 pandemic earlier this year has decimated the travel and hotel industries and has companies looking to cut costs.
In January, ClassPass told Bloomberg News the startup had more than 30,000 partnership businesses on its platform, a third of which were international. The company allows people to work out with others and to mix and match various exercise specialties, from kick boxing to Pilates.
The case is ClassPass Inc. v. Hilton Worldwide Holdings Inc. 2020-0673, Delaware Chancery Court (Wilmington).
(Updates with Hilton spokeswoman declining to comment.)
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