Ryan v. Buckeye Partners, L.P.

2022 WL 389827 (2022)

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Nature of the Case

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Facts

P was a unitholder of Buckeye from 2017 through the Transaction's closing on November 1, 2019. Before it was acquired, D was a publicly traded limited partnership organized under the laws of Delaware and governed according to the LPA. D is managed by Buckeye GP LLC (Buckeye GP), a Delaware limited liability company, which is governed, in turn, by a board of directors. D did not have a board of directors; it was, instead, indirectly governed by Buckeye GP's Board. D, Buckeye GP, and the Board are referred to as Ds. D was acquired by IFM, IFM GIF, and Hercules who are referred to as the IFM Ds. The LPA provided that unitholders had no right to receive distributions. The provision authorizing distributions gave Buckeye GP discretion to make cash distributions if 'appropriate.' The LPA disclaimed fiduciary duties and replaced them with a contractual standard of good faith and that an action is taken in 'good faith' if the person taking it 'believe[s] that the determination or other action is in the best interests of the Partnership.' Conflict-of-interest transactions were to be evaluated at the Board level. Such transactions are 'permitted and deemed approved by all Partners, and shall not constitute a breach of [the LPA] . . . or of a duty stated or implied by law or equity' so long as they are 'fair and reasonable to the partnership.' Any resolution of a conflict of interest 'shall be conclusively deemed fair and reasonable to the Partnership' if approved by 'a majority of the members of the Nominating and Corporate Governance Committee' of the Board, so long as the material facts of the proposed transaction were disclosed to the Board. IFM was to acquire D's outstanding public units for $41.50 per unit. Under the Merger Agreement, D was prohibited from making certain distributions to unitholders between signing and closing without the buyer's consent. IFM could delay closing until (1) five business days after the end of a 'Marketing Period' to secure financing or (2) three business days after giving written notice of a delay to D. Unitholders overwhelmingly approved the Transaction. The Transaction closed prior to the date on which the Board could consider making a distribution under the Merger Agreement, D did not make a distribution to unitholders for the third quarter of 2019 or for the portion of the fourth quarter prior to closing. D executives and Board members received accelerated benefits and the benefits of pre-existing severance arrangements as a result of the Transaction. P alleges that Ds intentionally selected the November 1 closing date to avoid paying the unitholders a distribution that was customarily declared in late October or early November, which, in turn, 'maximize[d] the value transferred from the unit owners to the Buyers.' P also claims that Ds wrongfully structured the Transaction so that millions of assets that were not distributed to the cashed-out unitholders were nonetheless taxed to them. P sued Ds for (1) breach of contract; (2) breach of the implied covenant; (3) breach of fiduciary duty; and (4) aiding and abetting/tortious interference against the IFM Ds. Ds moved to dismiss.