Brinckerhoff v. Enbridge Energy Company, Inc.
159 A.3d 242
| Del. | 2017Background
- Plaintiff Peter Brinckerhoff, a long-term public unitholder of Enbridge Energy Partners, L.P. (EEP), challenged a 2015 transaction in which EEP repurchased the Alberta Clipper interest from sponsor Enbridge for $1 billion and amended the LPA to add a “Special Tax Allocation.”
- The 2015 repurchase priced the asset at a higher EBITDA multiple than the 2009 sale to Enbridge despite lower projected EBITDA and removal of expansion rights; consideration included newly issued Class E units and debt repayment.
- Brinckerhoff alleged breaches of specific LPA provisions: Section 6.6(e) (affiliate transactions must be “fair and reasonable to the Partnership”), Section 5.2(c) (tax allocations cannot have a material adverse effect), and Section 15.3(b) (amendments cannot enlarge limited partners’ obligations without consent).
- The Court of Chancery dismissed on the ground that general LPA good-faith clauses and exculpatory provisions required Brinckerhoff to plead bad faith under a heightened “waste”-style standard; the Supreme Court of Delaware reversed in part.
- The Supreme Court held Section 6.6(e)’s specific “fair and reasonable” obligation controls and is not overridden by general good-faith/exculpation clauses; it adopted Norton’s definition of good faith (an objective “reasonable belief” standard) and found Brinckerhoff sufficiently pleaded lack of good faith to survive dismissal.
- The Court rejected claims that the Special Tax Allocation breached Sections 5.2(c) and 15.3(b), concluding 5.2(c) was waived and that “obligations” in 15.3(b) means contractual obligations to the partnership, not increased tax liabilities to third-party governments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether general good-faith/exculpatory LPA provisions displace Section 6.6(e)’s specific requirement that affiliate transactions be “fair and reasonable to the Partnership” | Brinckerhoff: Specific Section 6.6(e) governs; general good-faith clauses cannot excuse noncompliance | Defendants: Sections 6.8(a), 6.9(a), and 6.10(d) impose a good-faith precondition and exculpate liability so plaintiff must plausibly plead bad faith | Held: Specific Section 6.6(e) controls; general provisions do not modify or nullify 6.6(e) |
| Standard and pleading burden for alleging lack of good faith under the LPA (i.e., to avoid exculpation) | Brinckerhoff: Norton standard applies — bad faith exists if GP did not reasonably believe the action was in the partnership’s best interests; pled facts meet that standard | Defendants: Court of Chancery applied Brinckerhoff III’s heightened waste-like standard requiring conduct be inexplicable on any ground other than bad faith | Held: Adopts Norton’s objective “reasonable belief” standard; rejects heightened waste pleading from Brinckerhoff III; plaintiff sufficiently pleaded lack of reasonable belief |
| Whether Section 6.10(b) conclusive presumption of good-faith reliance on advisors (Simmons fairness opinion) bars claim | Brinckerhoff: Simmons’ opinion was flawed or relied upon after terms were set; reliance was not the type protected by 6.10(b) | Defendants: Reliance on Simmons’ fairness opinion entitles GP to conclusive presumption of good faith | Held: Denied at pleading stage — whether reliance was reasonable turns on factual record; Simmons’ late-stage fairness opinion does not conclusively establish protected reliance now |
| Whether the Special Tax Allocation violated Sections 5.2(c) or 15.3(b) of the LPA | Brinckerhoff: Allocation materially increased public unitholders’ tax burden and thus breached 5.2(c) and enlarged their “obligations” under 15.3(b) | Defendants: Allocation was permissible under the LPA; did not alter contractual obligations to the partnership | Held: Claims under 5.2(c) waived; 15.3(b) interpreted to mean contractual obligations to the partnership so Special Tax Allocation did not enlarge those obligations — those claims fail |
Key Cases Cited
- Norton v. K-Sea Transp. Partners, L.P., 67 A.3d 354 (Del. 2013) (adopts an objective “reasonable belief” formulation of contractual good faith used to define exculpatory protection)
- Brinckerhoff v. Enbridge Energy Co., Inc., 67 A.3d 369 (Del. 2013) (prior appeal in the same dispute addressing waiver and pleading standards)
- Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160 (Del. 2002) (contractual fiduciary duties may support equitable remedies despite exculpatory clauses)
- DV Realty Advisors LLC v. Policemen’s Annuity and Benefit Fund of Chicago, 75 A.3d 101 (Del. 2013) (principle that specific contract provisions control over general ones)
- Parnes v. Bally Entertainment Corp., 722 A.2d 1243 (Del. 1999) (articulates the waste-style standard referenced in earlier pleadings)