Brinckerhoff v. Enbridge Energy Co.

159 A.3d 242 (2017)

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Nature of the Case

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Facts

Brinckerhoff and his trust (Ps), are long-term investors in Enbridge Energy Partners, L.P. (EEP), a Delaware master limited partnership (MLP). MLPs are set up in the petroleum transportation business to allow sponsors and public investors to take advantage of favorable tax laws. Delaware law also allows a limited partnership agreement (LPA) to eliminate common law duties in favor of contractual ones. This is important because MLPs are typically families of entities that often engage in internal business transactions, referred to as dropdowns, rollups, insider financings, incentive distribution rights, and equity investments. Usually, the entities proposing transactions often have representatives seated at both sides of the negotiating table. The LPAs address conflicts using various contractual tools. In 2014, Enbridge Energy (D) proposed that EEP repurchase D's interest in the Alberta Clipper project. The dispute comes from how the tax consequences are distributed to each partner. In this transaction, the public investors would be allocated items of gross income that would otherwise be allocated to D, the EEP General Partner. P alleged that D breached the LPA by (a) agreeing to repurchase the same asset-the Alberta Clipper Interest-EEP sold to Enbridge six years earlier, on terms P claims were not 'fair and reasonable' as required by Section 6.6(e) of the LPA. P also claims that the Special Tax Allocation materially and adversely affected the investors, and enlarged their 'obligations,' in violation of Sections 5.2(c) and 15.3(b) of the LPA. Ds moved to dismiss, claiming that, P had to plead facts leading to an inference that the Ds acted in bad faith. Ds' position was that they could breach any of the LPA's specific requirements, so long as they did so in good faith. The Court of Chancery concluded that so long as D acted in good faith, it was free to breach any of the LPA's specific requirements. Since P had failed to allege bad faith conduct by D, the complaint was dismissed. P appealed. P argues in part that the Court improperly defined what was needed to plead bad faith.