Chancery Retains Part Of Boardwalk Pipeline Class Suit
By Rose Krebs
Law360 (October 7, 2019, 8:49 PM EDT) -- A Delaware vice chancellor on Monday refused to toss three of six counts in a proposed class challenge to Boardwalk Pipeline LP's $1.5 billion public unit buyout in 2018, ruling the class has shown it is “reasonably conceivable” the deal was unfair to minority unitholders.
In a 62-page memorandum opinion, Vice Chancellor J. Travis Laster dismissed breach of fiduciary duty claims and a count he deemed too similar to others, but kept alive contract-based claims involving breaches of a partnership agreement.
The fiduciary duty claims “are readily swept away because the partnership agreement eliminated all fiduciary duties,” the decision said.
However, claims dealing with whether Boardwalk Pipeline’s general partner, Boardwalk GP LP, breached certain provisions of the agreement can proceed because there is ambiguity in contractual language as it relates to disclosures made leading up to the buyout.
“At the pleading stage, it is reasonably conceivable that it was not ‘fair and reasonable’ to the partnership for the general partner to cause the partnership to make the potential-exercise disclosure,” the decision said.
The suit was filed in February after Vice Chancellor Laster months earlier rejected a class settlement reached between Boardwalk and two shareholders who previously filed suit, ruling that public investors got too little from the proposed deal. The then-class attorneys went for the settlement without fully investigating the harm or damages, the vice chancellor said.
In the subsequent suit, hedge fund Bandera Master Fund LP and affiliated funds asserted various claims against Boardwalk and argued that the $12.06 per common unit — for a total of about $1.5 billion — paid by the general partner to buy the outstanding units was far less than fair value.
"As a result of defendants' contractual breaches and deliberate, disloyal actions, plaintiffs and the class have been deprived of their significant investment in Boardwalk for an artificially low purchase price that defendants themselves engineered," the suit asserted.
Bandera contends public disclosures leading up to the buyout were purposely intended to drive down the price of units before they were purchased by Boardwalk's controlling general partner under a provision set forth in a master limited partnership agreement.
During oral arguments in July, Bandera argued the proposed class action, which seeks damages on behalf of minority unitholders who contend they were shortchanged, should survive the motion to dismiss Boardwalk filed.
In his decision, Vice Chancellor Laster agreed certain claims should proceed against the general partner and related entities that control the general partner.
Those related entities include Loews Corporation, Boardwalk GP LLC [GPGP] and Boardwalk Pipelines Holding Corp., with Loews in control of the general partner and the partnership, according to the suit.
“Because it is reasonably conceivable that GPGP, Holdings, and Loews used their controlover the general partner to cause it to breach the partnership agreement, and that they did so without justification, the complaint has stated a claim for tortious interference with contract,” the decision said.
In April, Loews disclosed that a Federal Energy Regulatory Commission announcement limiting pipeline owners' ability to recover tax expenses via adjustments in customer cost-of-service rates could trigger a general partner right to call in, or purchase, all outstanding public units.
In its suit, Bandera takes issue with what it contends were failures by the general partner in making certain disclosures and to comply with certain requirements of the call in right.
“Here, because of the fact-intensive nature of this inquiry, it is not possible to determine at the pleading stage whether GPGP, Holdings, and Loews acted with justification when they caused the general partner (through the partnership) to make the potential-exercise disclosure and subsequently exercise the call right,” the opinion said. “Based on the facts alleged in the complaint, however, it is reasonably conceivable that GPGP, Holdings, and Loews interfered with the partnership agreement maliciously or in bad faith by causing the partnership to make the potential-exercise disclosure to drive down the price of the common units and by causing the general partner to exercise the call right opportunistically.”
Boardwalk has disagreed with any assertion that disclosures or any comments made that the units may be called in were "suspicious" or that they were made in breach of the partnership agreement. The call-in of public units was handled properly and Bandera has failed to prove its assertion that there was any contractual or fiduciary duty breaches associated with the transaction, the company has argued.
Counsel for the parties did not immediately respond to a request for comment on Monday.
Bandera and its affiliated funds are represented by A. Thompson Bayliss and J. Peter Shindel of Abrams & Bayliss LLP.
Boardwalk and its affiliates and Loews Corp. are represented by Srinivas M. Raju, Blake Rohrbacher and Matthew D. Perri of Richards Layton & Finger PA, Lawrence Portnoy, Charles S. Duggan and Gina Cora of Davis Polk & Wardwell LLP, Rolin P. Bissell of Young Conaway Stargatt & Taylor LLP, and Stephen P. Lamb and Andrew G. Gordon of Paul Weiss Rifkind Wharton & Garrison LLP.
The case is Bandera Master Fund LP et al. v. Boardwalk Pipeline Partners LP et al., case number 2018-0372, in the Court of Chancery of the State of Delaware.
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