Document: Brinckerhoff v. Enbridge Energy Co., Inc., C.A. No. 5526-VCN (Del. Ch. Sep. 30, 2011)
The Delaware Court of Chancery dismissed plaintiff’s claims that defendants, the general partner (the “GP”) of a master limited partnership (the “MLP”) and the GP’s board of directors, breached their fiduciary duties in entering into a joint venture with an affiliate where the MLP’s partnership agreement (the “LPA”) expressly (1) authorized the GP to enter into affiliate transactions, and (2) eliminated the GP’s liability for damages from breach of fiduciary duties unless the actions were taken in bad faith. The LPA provided that the GP could enter into transactions with affiliates that were “fair and reasonable” and that affiliate transactions would be presumed to fair and reasonable where the GP relied on expert advice. The Court noted that the MLP, acting through the GP, engaged a special committee, which hired its own financial and legal advisors, before recommending the transaction to the GP, which entitled the GP to a presumption that the transaction was fair and reasonable. The Court also found that plaintiff had failed to allege facts suggesting that the GP or the GP’s board acted in bad faith. The Court went as far as to suggest, in dicta, that “[i]t may…be the case that if a limited partnership agreement expressly permits a corporate general partner to take certain action, that the board of that general partner cannot be found to have acted in bad faith for causing the general partner to take the expressly permitted action.” However, the Court declined to address that particular issue in light of the plaintiff’s failure to plead facts alleging that the GP’s board acted in bad faith. Finally, the court held that the claim brought by the plaintiff was derivative in nature, distinguishing its 2010 decision in the Teppco case, which permitted limited partners to enforce a partnership agreement directly when the partnership was about to be merged out of existence. In holding that the claims were derivative, the court cited to Teppco (and its prior corporate decision in Tooley) in affirming the “core Delaware public policies of promoting internal dispute resolution and ensuring that [management] ha[s] the first opportunity to address and control the claim[s].”