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Brinckerhoff v. Enbridge Energy Co. - 159 A.3d 242 (Del. 2017)

Rule:

Precisely because the Delaware Revised Uniform Limited Partnership Act allows limited partnership agreements (LPA) to eliminate fiduciary duties, it is essential that unitholders be able to hold the general partner accountable for not complying with the terms of the LPA.
 

Facts:

Plaintiffs, Peter Brinckerhoff and his trust, were long-term investors in Enbridge Energy Partners, L.P. (EEP), a Delaware master limited partnership (MLP). Enbridge, Inc. (Enbridge), the ultimate parent entity that controlled EEP’s general partner, Enbridge Energy Company, Inc. (EEP GP), proposed a joint venture agreement (JVA) between EEP and Enbridge, whereby Enbridge would contribute 66.7% and EEP would contribute 33.3% of the cost, and share the profits in the same proportion, of the Alberta Clipper project—a proposed pipeline used to transport petroleum from the Alberta tar sands to the United States. In 2014, Enbridge proposed that EEP repurchase Enbridge's interest in the Alberta Clipper project (Alberta Clipper Interest), excluding the expansion rights that were part of the earlier transaction.

Brinckerhoff filed suit against Defendants, EEp, Enbridge, EEP GP and Alberta Clipper, breached the limited partnership agreement by (a) agreeing to repurchase the same asset—the Alberta Clipper Interest—EEP sold to Enbridge six years earlier, on terms Brinckerhoff claims were not "fair and reasonable" as required by Section 6.6(e) of the LPA; and (b) implementing the Special Tax Allocation that, according to Brinckerhoff, materially adversely affected the investors, and enlarged their "obligations," in violation of Sections 5.2(c) and 15.3(b) of the LPA. The Court of Chancery dismissed the complaint.

Issue:

Did the Delaware Court of Chancery properly dismiss the complaint with respect to:

a. The assertion that the repurchase was not “fair and reasonable” and

b. The assertion that the Special Tax Allocation adversely affected the investors?

Answer:

a. No. b. Yes.

Conclusion:

The Court held that the investors’ action was properly dismissed with respect to a special tax allocation because it did not breach the terms of the limited partnership agreement (LPA) as to a government new unit issuance and tax allocations. However, the investors' claim that the MLP's agreement to repurchase an asset was not "fair and reasonable" should not have been dismissed, as even if the general partner (GP) acted in good faith, which was the standard that replaced fiduciary duties in the LPA pursuant to Del. Code Ann. tit. 6, § 17-1101(d), it was still not free to breach the terms of the LPA. Moreover, the investors sufficiently alleged viable bad faith claims under the LPA based on an inference that the GP did not reasonably believe it was acting in the best interest of the partnership.

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