288 A.3d 1083
Del.2022Background
- Boardwalk Pipeline Partners, an MLP controlled by Loews, had a Partnership Agreement granting the General Partner a call right to buy out public units if the GP received an "Opinion of Counsel" that Boardwalk’s tax status would reasonably likely have a material adverse effect on the maximum applicable (recourse) rates; the opinion had to be “acceptable to the General Partner.”
- The Partnership Agreement disclaimed fiduciary duties for individual-capacity actions and contained an exculpation clause (no monetary liability absent bad faith/willful misconduct) and a conclusive-presumption-of-good-faith provision for reliance on counsel (§7.10(b)).
- After FERC’s March 15, 2018 actions concerning income-tax treatment for MLPs (and related uncertainty), Baker Botts issued an opinion concluding the call-right condition was met; Skadden issued a separate opinion to the Sole Member that Baker Botts’ opinion was reasonable and acceptable.
- The Sole Member (Holdings), controlled by Loews insiders, accepted Skadden’s advice and caused the General Partner to exercise the call right; the transaction closed in July 2018 for ~$1.5 billion.
- Public unitholders (Bandera) sued; the Court of Chancery held (post-trial) that (1) Baker Botts’ opinion was not issued in good faith, (2) the wrong entity (the GPGP board) should have made the acceptability determination, and (3) the General Partner was not exculpated; it awarded ~ $690M. Boardwalk appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper decisionmaker to determine whether an Opinion of Counsel was "acceptable to the General Partner" | Bandera: the Partnership/LLC documents are ambiguous and, construed against the drafter, the GPGP Board (with independent directors) should perform the acceptability review | Boardwalk: read together, the Partnership Agreement vests acceptability in the General Partner and the LLC Agreement gives the Sole Member exclusive authority to "cause" exercise of Section 15.1 rights; the Sole Member made the acceptability call | Court of Appeals: Sole Member was the correct decisionmaker; Court of Chancery erred in holding the GPGP Board had to decide; reverse on this point |
| Validity / good faith of Baker Botts’ opinion (Opinion Condition) | Bandera: Baker Botts’ opinion was contrived, used counterfactual assumptions, and was rendered in bad faith | Boardwalk: Baker Botts’ opinion was a reasoned legal and factual analysis; multiple firms and experts found assumptions reasonable; Skadden validated acceptability | Majority: did not resolve Baker Botts’ good-faith findings on appeal; instead relied on acceptability/reliance analysis and did not affirm the Court of Chancery’s damages judgment; concurrence would have reversed the bad-faith finding |
| Reliance on counsel & exculpation under Partnership §7.10(b) (conclusive presumption) | Bandera: even if Skadden issued an opinion, the General Partner cannot invoke §7.10(b) because the wrong entity considered acceptability and Skadden’s opinion was a “whitewash” | Boardwalk: Sole Member acted for the General Partner; Sole Member reasonably relied on Skadden; reliance triggers the conclusive good-faith presumption and thus exculpation under §7.8(a) | Court of Appeals: Sole Member reasonably relied on Skadden; §7.10(b)’s conclusive presumption was validly triggered; General Partner (and related defendants) are exculpated from monetary damages; reversal and remand |
| Damages award and imputation of scienter | Bandera: scienter of certain officers/lawyers (and Baker Botts) should be imputed to the General Partner so exculpation fails; damages flow from improper call exercise | Boardwalk: scienter can't be imputed to the Sole Member/General Partner decisionmakers; Skadden’s unchallenged good-faith opinion precludes damages | Court of Appeals: rejected broad imputation theory and found record did not support willful-misconduct findings for a majority of Sole Member directors; damages judgment reversed due to exculpation triggered by reliance on Skadden |
Key Cases Cited
- Norton v. K-Sea Transp. Partners L.P., 67 A.3d 354 (Del. 2013) (opinion-of-counsel reliance can trigger good-faith presumption where reasonable)
- Dieckman v. Regency GP LP, 155 A.3d 358 (Del. 2017) (focuses inquiry for exculpation/scienter on the board that authorized the challenged action)
- Gerber v. EPE Holdings, LLC, 67 A.3d 400 (Del. 2013) (contractual procedural devices can conclusively establish a partner’s good faith under partnership agreements)
- Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264 (Del. 2017) (trial courts should defer to counsel’s good-faith legal judgments rather than substitute their own interpretations when reviewing an opinion of counsel)
- United Airlines, Inc. v. FERC, 827 F.3d 122 (D.C. Cir. 2016) (DC Circuit vacated aspects of FERC’s tax-allowance regime, prompting FERC reconsideration that triggered industry uncertainty)