Walter E. Ryan, Jr. v. Buckeye Partners, L.P., et a. ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
WALTER E. RYAN, JR., individually and )
on behalf of others similarly situated, )
)
Plaintiff, )
)
v. ) C.A. No. 2021-0432-JRS
)
BUCKEYE PARTNERS, L.P., )
BUCKEYE GP LLC, CLARK C. SMITH, )
PIETER BAKKER, BARBARA M. )
BAUMANN, BARBARA J. DUGANIER, )
JOSEPH A. LASALA, JR., MARK C. )
MCKINLEY, LARRY C. PAYNE, )
OLIVER G. RICHARD, III, FRANK S. )
SOWINSKI, MARTIN A. WHITE, )
IFM INVESTORS PTY LTD, )
IFM GLOBAL INFRASTRUCTURE )
FUND, HERCULES INTERMEDIATE )
HOLDINGS LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: December 21, 2021
Date Decided: February 9, 2022
Blake A. Bennett, Esquire and Dean R. Roland, Esquire of Cooch and Taylor, P.A.,
Wilmington, Delaware; Clinton A. Krislov, Esquire, Kenneth T. Goldstein, Esquire,
Christopher M. Hack, Esquire of Krislov & Associates, Ltd., Chicago, Illinois;
Samuel B. Edwards, Esquire and Ryan Cook Esquire of Shepherd, Smith,
Edwards & Kantas, LLP, Houston, Texas, Attorneys for Plaintiff Walter E. Ryan, Jr.
William M. Lafferty, Esquire, Ryan D. Stottmann, Esquire, Sabrina M. Hendershot,
Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware and
Gary A. Bornstein, Esquire and Rory A. Leraris, Esquire of Cravath, Swaine &
Moore LLP, New York, New York, Attorneys for Defendants Buckeye Partners,
L.P., Buckeye GP LLC, Clark C. Smith, Pieter Bakker, Barbara M. Baumann,
Barbara J. Duganier, Joseph A. LaSala, Jr., Mark C. McKinley, Larry C. Payne,
Oliver G. Richard, III, Frank S. Sowinski and Martin A. White.
Jeffrey L. Moyer, Esquire, Srinivas M. Raju, Esquire and Tyler E. Cragg, Esquire of
Richards, Layton & Finger, P.A., Wilmington, Delaware and Andrew W. Hammond,
Esquire and Steven A. Levy, Esquire of White & Case LLP, New York, New York,
Attorneys for IFM Investors Pty Ltd, IFM Global Infrastructure Fund, and Hercules
Intermediate Holdings LLC.
SLIGHTS, Vice Chancellor
In this putative class action, Plaintiff, Walter E. Ryan, Jr., a former unitholder
of Buckeye Partners, L.P. (“Buckeye”), brings several claims of wrongdoing against
both sell-side and buy-side defendants with respect to the acquisition of Buckeye by
a subsidiary of IFM Global Infrastructure Fund, in which Buckeye’s public
unitholders received $41.50 per unit in cash consideration (the “Transaction”).
The Transaction was approved by approximately 96% of Buckeye’s voting
unitholders.
According to Plaintiff, the defendants structured the Transaction to capture
earnings and favorable tax treatment for the acquirer while avoiding paying
distributions to unitholders. Plaintiff brings breach of contract, breach of the implied
covenant and good faith and fair dealing (the “implied covenant”) and breach of
fiduciary duty claims against the sell-side defendants, as well as aiding and abetting
and tortious interference with contract claims against the buy-side defendants.
Defendants have now moved to dismiss all claims under Chancery Rule 12(b)(6).
For reasons explained below, the motions must be granted. The breach of
contract claim fails because, contrary to Plaintiff’s conclusory allegations,
Buckeye’s Limited Partnership Agreement (“LPA”) unambiguously does not
require the distribution of partnership income to members and holds Buckeye’s
managers to a contractual standard of conduct that Plaintiff does not well-plead has
been breached. The implied covenant claim fails because Plaintiff does not identify
1
a gap in the LPA for the implied covenant to fill. The fiduciary duty claim fails
because the LPA expressly disclaims traditional fiduciary duties and replaces them
with a contractual standard of good faith, as is statutorily permitted in Delaware.
And, as noted, Plaintiff does not well-plead a breach of the good faith standard set
by the LPA.
As for Plaintiff’s claims against the buy-side defendants, even if Delaware
recognized a claim for aiding and abetting a breach of the implied covenant—
a dubious proposition—the claim fails in any event because Plaintiff has not well-
pled a predicate breach. Nor has Plaintiff come close to pleading a viable tortious
interference claim.
My reasoning follows.
I. BACKGROUND
I take the facts from Plaintiffs’ Verified Class Action Complaint
(“Complaint”) and documents properly incorporated by reference in that pleading.1
I accept all allegations in the Complaint, if well-pled, as true.2
1
See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (observing
that “[o]n a motion to dismiss, the Court may consider documents that are ‘integral’ to the
complaint”). When considering a Rule 12(b)(6) motion, this Court may also consider facts
in public SEC filings that are not subject to reasonable dispute. In re Gen. Motors (Hughes)
S’holder Litig., 897 A.2d 162, 170 (Del. 2006). Indeed, many of these documents are cited
in the Complaint itself. See Verified Class Action Compl. (“Compl.”) (D.I. 1) ¶¶ 5–6.
2
See Largo Legacy Gp. LLC v. Charles, 2021 WL 2692426, at *8 (Del. Ch. June 30, 2021)
(noting only non-conclusory facts need be accepted as true under Rule 12(b)(6)) (citing
2
A. The Parties
Plaintiff, Walter E. Ryan, Jr., was a unitholder of Buckeye from 2017 through
the Transaction’s closing on November 1, 2019.3 He brings this putative class action
suit on behalf of himself and a class of Buckeye’s unitholders.4
Before it was acquired, Buckeye was a publicly traded limited partnership
organized under the laws of Delaware and governed according to the LPA.5
Buckeye is managed by Buckeye GP LLC (“Buckeye GP”), a Delaware limited
liability company, which is governed, in turn, by a board of directors.6 The directors
on that board include Pieter Bakker, Barbara M. Baumann, Barbara J. Duganier,
Joseph A. LaSala, Jr., Mark C. McKinley, Larry C. Payne, Oliver G. Richard III,
Clark C. Smith, Frank S. Sowinski, and Martin A. White (together, the “Board”).7
Buckeye did not have a board of directors; it was, instead, indirectly governed by
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)); In re Essendant, Inc.
S’holder Litig., 2019 WL 7290944, at *2 (Del. Ch. Dec. 30, 2019) (same).
3
Compl. ¶ 13.
4
Compl. ¶ 1.
5
Compl. ¶ 15. The Amended and Restated Agreement of Limited Partnership is attached
to the Opening Br. in Supp. of the Buckeye Defs.’ Mot. to Dismiss (“Buckeye OB”) (D.I. 8)
as Ex. A-1 (“LPA”) (D.I. 9).
6
Compl. ¶ 16; Opening Br. in Supp. of the IFM Defs.’ Mot. to Dismiss the Compl.
(“IFM OB”) (D.I. 11) Ex. D (“Proxy”) (D.I. 13) at 2.
7
Compl. ¶¶ 1, 16–26.
3
Buckeye GP’s Board.8 I refer to Buckeye, Buckeye GP, and the Board collectively
as the “Buckeye Defendants.”
Buckeye was acquired by the investment fund manager, IFM Investors Pty
Ltd (“IFM”), through IFM Global Infrastructure Fund (“IFM GIF”), Hercules
Intermediate Holdings LLC (“Hercules”) and non-party Hercules Merger Sub LLC.9
I refer to IFM, IFM GIF and Hercules collectively as the “IFM Defendants.”
B. The Limited Partnership Agreement
The LPA governed the relationship between Buckeye and its unitholders,
including Plaintiff.10 Several provisions are key to this dispute and highlighted
below.
First, the LPA provided that unitholders had no right to receive distributions.
Section 4.7 provided expressly that “[n]o Partner shall be entitled . . . to receive any
distributions from the Partnership except as provided in this Agreement.”11 The
provision authorizing distributions gave Buckeye GP discretion to make cash
distributions if “appropriate.”12
8
Compl. ¶¶ 15–16.
9
Compl. ¶¶ 1, 27.
10
Compl. ¶ 15.
11
LPA § 4.7.
12
LPA § 5.2(a) (“From time to time, not less often than quarterly, the General Partner shall
review the Partnership’s accounts to determine whether distributions are appropriate. The
4
Second, the LPA disclaimed fiduciary duties and replaced them with a
contractual standard of good faith.13 The LPA provided 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.”14
And third, the LPA contained a mechanism by which a conflict-of-interest
transaction is 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.”15 In addition, the LPA makes clear that 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
General Partner may make such cash distributions as it may determine . . . .”) (emphasis
added).
13
LPA § 7.9(c) (“Whenever the General Partner makes a determination or takes or declines
to take any other action . . . , then unless another express standard is provided for in this
Agreement, the General Partner shall make such determination or take or decline to take
such other action in good faith and shall not be subject to any other or different standards
imposed by this Agreement, any other agreement contemplated hereby or under the
Delaware [Revised Uniform Limited Partnership] Act or any other law, rule or regulation
or at equity.”).
14
Id.
15
LPA § 7.9(a).
5
and Corporate Governance Committee” of the Board, so long as the material facts
of the proposed transaction were disclosed to the Board.16
C. The Transaction
Between 2018 and 2019, IFM made several unsolicited offers to acquire
Buckeye.17 Following arms-length negotiations, on May 10, 2019, Buckeye
announced IFM would acquire its outstanding public units for $41.50 per unit,18
a 27.5% premium over the closing price of Buckeye units prior to the announcement
of the Transaction, and a 31.9% premium over the last trading day before Buckeye
announced the results of its comprehensive review of strategic alternatives.19
The parties subsequently entered into an Agreement and Plan of Merger
(the “Merger Agreement”).20 Importantly, under the Merger Agreement, Buckeye
was prohibited from making certain distributions to unitholders between signing and
closing without the buyer’s consent.21 The Merger Agreement also required
16
Id.; Buckeye OB Ex. A-2 (defining, in an amendment to the LPA, “Special Approval”
as used in LPA § 7.9(a)).
17
See Proxy at 36, 44, 46–48. Plaintiff does not allege that Buckeye, or any member of its
Board, had a pre-existing relationship with IFM, its affiliates or any of its managers.
18
Compl. ¶ 4. The Proxy discloses several rejected proposals from IFM before the Board
accepted IFM’s $41.50 per unit offer. See Proxy at 38, 44–48.
19
Proxy at 52.
20
See Buckeye OB at Ex. B-1 (“Merger Agreement”).
21
Merger Agreement § 5.01(b) (“[U]nless [the acquiring entity] otherwise consents in
writing (such consent not to be unreasonably withheld, delayed or conditioned), the
6
Buckeye to close five days after the closing conditions were satisfied,22 which
included obtaining certain regulatory approvals.23 While Buckeye was contractually
obligated to close at that point, 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 Buckeye.24
On June 7, 2019, Buckeye filed a Preliminary Proxy Statement on Form
PREM14A with the Securities and Exchange Commission, followed by its
Definitive Proxy Statement on Form 14A, filed on June 25, 2019 (the “Proxy”).25
The Proxy contained several disclosures pertaining to the tax consequences of the
Transaction. Relevant here, the Proxy disclosed that unitholders “will be subject to
U.S. federal income tax on any such allocated income and gain even if such U.S.
holder does not receive a cash distribution from the Partnership attributable to such
allocated income and gain.”26 It also informed unitholders that although a “gain or
Partnership shall not . . . (C) establish a record date for, declare, set aside for payment or
pay any dividend on, or make any other distribution in respect of, any of its partnership
interests or other equity or voting interests . . . .”).
22
Merger Agreement § 1.02.
23
Merger Agreement § 6.01(b).
24
Merger Agreement §§ 1.02, 8.12.
25
Compl. ¶ 5.
26
Proxy at 82.
7
loss recognized by a [unitholder] . . . will generally be taxable as a capital gain or
loss,” a “portion of this gain or loss, which portion could be substantial, will be
separately computed and taxed as ordinary income or loss under
[26 U.S.C. § 751].”27 The Proxy went on to disclose that “[s]uch ordinary income
attributable to unrealized receivables, inventory items and depreciation recapture
may exceed net taxable gain realized upon the exchange of a Partnership Unit
pursuant to the merger.”28 With these disclosures in hand, the unitholders were
“strongly urged to consult [their] own tax advisor with respect to the specific tax
consequences of the merger.”29
A unitholder vote was held July 31, 2019, and unitholders overwhelmingly
approved the Transaction.30 On October 22, 2019, Buckeye announced that it had
received all the necessary regulatory approvals and intended to close the Transaction
on November 1, 2019.31 Because the Transaction closed prior to the date on which
the Board could consider making a distribution under the Merger Agreement,
27
Id. at 81.
28
Id. at 81–82.
29
Id. at 82.
30
Compl. ¶ 7; see IFM OB Ex. H (Form 8-K) at 3 (noting that over 96% of the votes cast
and 93.6% of the units represented and entitled to vote were voted in favor of the
transaction).
31
Compl. ¶ 51.
8
Buckeye did not make a distribution to unitholders for the third quarter of 2019 or
for the portion of the fourth quarter prior to closing.32 The Transaction closed as
planned on November 1, 2019.33 As disclosed in the Proxy, Buckeye executives and
Board members received accelerated benefits and the benefits of pre-existing
severance arrangements as a result of the Transaction.34
Plaintiff alleges that Defendants deliberately 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
32
See Compl. ¶ 51 (quoting a Buckeye press release stating “[i]n accordance with the terms
of the merger agreement, if the completion of the proporsed merger occurs on Friday,
November 1, 2019 as currently expected, Buckeye’s general partner would not declare or
pay a cash distribution for the quarter ended September 30, 2019”); Compl. ¶ 52
(“[Buckeye’s] earnings and distribution declarations for the September 30 Quarter have
been always declared no later than the first week of November.”); id. (showing the prior
year’s earnings and distribution declaration date as November 2); Proxy at 82 (“Under the
terms of the merger agreement, the Partnership is prohibited from establishing a record
date for, declaring, setting aside for payment or paying any dividend or distribution, except
for regular quarterly distributions with dividend and distribution dates, as applicable, that
are on the same day in the same month as for the most recent corresponding quarter prior
to the consummation of the merger.”); Merger Agreement § 5.01(b)(i)(C).
33
Compl. ¶¶ 33, 75.
34
Compl. ¶¶ 50, 93; Proxy at 74–79. According to Plaintiff, several of the individual
defendants received over $50 million in accelerated and severance compensation.
Compl. ¶ 50. But, as the Buckeye Defendants point out, and as the Proxy discloses, these
totals include compensation given to Buckeye’s executive officers who are not named as
defendants in this action. Buckeye OB at 21; Proxy at 75. Nine of the ten Board members
received less than $200,000 in accelerated equity awards. Id.
9
from the unit owners to the Buyers.”35 He further alleges that Defendants
“withh[eld] amounts due to unitholders under the Partnership Agreement, and
transferr[ed] those amounts to the [IFM] Defendants.”36
Plaintiff also takes issue with the tax consequences of the Transaction to
unitholders, alleging Defendants wrongfully structured the Transaction so that
millions of assets that were not distributed to the cashed-out unitholders were
nonetheless taxed to them.37 According to Plaintiff, “the cashed-out unit owners
would be taxed on not only the $41.50 merger consideration as a capital transaction,
but also their unit share of the partnership’s income through the closing date . . .
regardless of the fact that, while the buyer will receive and retain all of that income[,]
it is the cashed-out unit holders who will be taxed on, but not receive any of that
income.”38
Defendants also allegedly refused to provide Plaintiff with tax information he
requested.39 Specifically, “[c]oncerned that Defendants may have artificially loaded
35
Compl. ¶¶ 58–60. By Plaintiff’s lights, “it was a clear act of bad faith and a breach of
loyalty and the Implied Covenant of Good Faith and Fair Dealing[] for the Company and
the Individual Defendants to select a closing date to favor the interests of the buyer over
the interests of the unitholders.” Compl. ¶ 62.
36
Compl. ¶ 2.
37
Compl. ¶¶ 2, 10, 33, 36.
38
Compl. ¶ 33 (emphasis omitted).
39
Id.
10
the Partnership with Section 751 assets to tax-benefit themselves at the redeemed
unitholders’ expense, Plaintiff, by counsel, repeatedly requested the Section 751 tax
calculations.”40 Defendants effectively denied the request by claiming that the
calculations could only be viewed at Buckeye’s Houston, Texas office, which was
closed in the midst of the COVID-19 pandemic.41 Defendants later rejected
Plaintiff’s requests outright because “the redeemed-out unitholders [were] no longer
partners” and, thus, were no longer entitled to inspect books and records under
the LPA.42
D. Procedural History
The first litigation relating to the Transaction was styled Ingalls v. Buckeye
Partners, L.P., and was filed by certain unitholders in the United States District
Court for the Southern District of Texas shortly after the Transaction was
announced.43 Plaintiff intervened in Ingalls on September 6, 2019, and was granted
Lead Plaintiff status on December 10, 2019.44 On January 13, 2020, Plaintiff moved
to transfer the case to the United States District Court for the District of Delaware,
40
Compl. ¶ 69.
41
Compl. ¶ 70.
42
Compl. ¶ 72.
43
Compl. at 3; Buckeye OB Ex. I.
44
Compl. at 3.
11
and that motion was granted on July 17, 2020.45 Plaintiff’s consolidated amended
complaint alleged, among other things, that Defendants violated the Exchange Act
by not disclosing certain tax consequences of the Transaction to unitholders (federal
law claims) and breached the LPA and their fiduciary duties (state law claims), just
as Plaintiff alleges here.46
After hearing argument on defendants’ motions to dismiss, on May 5, 2021,
the presiding Magistrate Judge issued a thorough Report and Recommendation (the
“Report”), recommending that Plaintiff’s federal claims be dismissed with prejudice
but that the state law claims be dismissed without prejudice, anticipating that
Plaintiff would re-file his state claims in this court.47 The Report noted that Plaintiff
had offered voluntarily to dismiss the federal claims but, nevertheless,
“recommend[ed] dismissal of those claims” because “Plaintiff failed to identify an
actionable false or misleading statement.”48 The presiding District Court Judge
issued an order, dated June 2, 2021, adopting the Report in full.49 In the time
45
Compl. at 4; Buckeye OB at Ex. I at 10–11.
46
Buckeye OB Ex. J at 31–35; Buckeye OB at 12.
47
Buckeye OB Ex. M (“Report and Recommendation”) at 4.
48
Report and Recommendation at 3.
49
See Buckeye OB Ex. I.
12
between the Report and the adoption of the Report, Plaintiff filed his Complaint in
this court.50
The Complaint comprises four counts: (1) breach of contract against the
Buckeye Defendants,51 (2) breach of the implied covenant against the Buckeye
Defendants,52 (3) breach of fiduciary duty against the Buckeye Defendants,53 and
(4) aiding and abetting/tortious interference against the IFM Defendants.54
In response, the Buckeye Defendants and IFM Defendants both filed Motions to
Dismiss the Complaint under Court of Chancery Rule 12(b)(6).55
II. ANALYSIS
Under Chancery Rule 12(b)(6), the Court may dismiss a complaint for “failure
to state a claim upon which relief can be granted.”56 The standards that apply to a
motion to dismiss under Rule 12(b)(6) are well settled:
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are well-pleaded if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
50
D.I. 1.
51
Compl. ¶ 87.
52
Compl. ¶ 101.
53
Compl. ¶¶ 91–92.
54
Compl. ¶¶ 106, 108.
55
D.I. 7, 10.
56
Ct. Ch. R. 12(b)(6).
13
in favor of the non-moving party; and (iv) dismissal is inappropriate
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible to proof.57
With respect to claims that arise from relationships based in contract, “[u]nder
Rule 12(b)(6), a complaint may . . . be dismissed where the unambiguous language
of documents upon which the claims are based contradict the complaint’s
allegations.”58
A. The Breach of Contract Claim
Plaintiff alleges the Buckeye Defendants breached the LPA by structuring the
Transaction to benefit the IFM Defendants and “causing income items allocated to
the unitholders to be [] transferred to the [IFM] Defendants.”59 The claim fails for
two principal reasons.
First, Plaintiff’s Complaint fails to cite a single provision of the LPA that the
Buckeye Defendants allegedly breached. Not one. This failure is not a technical
foot fault; it reflects, instead, a fundamental failure to give the Buckeye Defendants
57
Savor, 812 A.2d at 896–97; see also Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010)
(holding that this court need not “blindly accept conclusory allegations unsupported by
specific facts” or “draw unreasonable inferences in the plaintiffs’ favor”) (internal
quotation marks omitted).
58
Werner v. Miller Tech. Mgmt., L.P., 831 A.2d 318, 327 (Del. Ch. 2003).
59
Compl. ¶ 87.
14
fair notice of the claim asserted against them as required by Chancery Rule 8.60
Indeed, the Complaint references only one section of the LPA—Section 5.1(b)61—
and that section deals with the calculation of unitholder capital accounts, a function
not implicated by any of Plaintiff’s claims.62 Thus, the Complaint fails to put
Defendants on fair notice of Plaintiff’s breach of contract claims.63
60
Ct. Ch. R. 8; VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 611 (Del. 2003)
(observing that the purpose of Rule 8 is to give the defendant “fair notice” of the claim
being asserted against him); Coca-Cola Beverages Fla. Hldgs., LLC v. Goins,
2019 WL 2366340, at *3 (Del. Ch. June 4, 2019) (dismissing breach of contract claim
under Rule 12(b)(6) for failing to identify a contractual provision that was allegedly
breached); US Ecology, Inc. v. Allstate Power Vac, Inc., 2018 WL 3025418, at *5–7
(Del. Ch. June 18, 2018) (dismissing breach of contract claim because “[s]omewhat
astonishingly, plaintiffs did not identify in their Complaint a specific provision in the
Purchase Agreement that [defendant] allegedly breached”), aff’d, 202 A.3d 510(Del. 2019). To be clear, Plaintiff could have described the contract provision(s) allegedly
breached without actually identifying them by section or subject heading, and that likely
would have sufficed for notice pleading purposes. See Cartel Media Gp. LLC v. Barone,
2021 WL 3673215, at *3 (Del. Super. Ct. Aug. 16, 2021) (“The quoted provisions of the
contract, that Defendants allege were not complied with, which contract was annexed to
the counterclaim and initial complaint, are enough to put Plaintiff on notice of Defendants’
claim for breach of contract.”). This Complaint did not even do that.
61
See Compl. ¶ 31. When pressed at oral argument, Plaintiff’s counsel acknowledged that
the Complaint makes no reference to any provision of the LPA that was breached here.
Tr. of Oral Arg. on Defs.’ Mots. to Dismiss (“OA Tr.”) (D.I. 32) at 62:21–63:17.
62
See LPA § 5.1(b) (“For purposes of computing the amount of each item of income, gain,
loss or deduction to be reflected in the Capital Accounts, the determination, recognition
and classification of such item shall be the same as its determination, recognition and
classification for federal income tax purposes . . . .”).
63
See, e.g., Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005) (“An allegation, though vague or
lacking in detail[,] can still be well-pleaded so long as it puts the opposing party on notice
of the claim brought against it.”) (emphasis added) (internal quotation marks omitted).
15
Second, when one actually reads the LPA, Plaintiff’s pleading strategy to
avoid specific reference to the contract is not surprising. Instead of supporting
Plaintiff’s breach of contract claim, the provisions of the LPA actually foreclose it.
The LPA makes clear that Plaintiff and other Buckeye unitholders were not entitled
to distributions as a matter of right; indeed, Section 5.2(a) underscores the General
Partner’s discretion in deciding whether and when to make distributions to
unitholders, stating that “[t]he General Partner may make such cash distributions as
it may determine.”64 And Section 4.7 is even more clear: “No Partner shall be
entitled to withdraw any part of its Capital Contributions or its Capital Account or
to receive any distributions from the Partnership except as provided in this
Agreement.”65 That Buckeye historically paid quarterly distributions does not create
a contractual right to receive them.
To summarize, the breach of contract claim must be dismissed because
Plaintiff does not even attempt to plead the claim and, even if he had, the LPA makes
clear the claim cannot be squared with the unambiguous terms of the operative
contract.66 To the extent Plaintiff would couch his allegation that the Buckeye
64
LPA § 5.2(a) (emphasis added).
65
LPA § 4.7 (emphasis added).
66
The Buckeye Defendants argue that the breach of contract claim also fails as a matter of
law because only Buckeye GP LLC is a party to the LPA. See Buckeye OB at 15–16;
16
Defendants have acted in bad faith as a breach of contract claim, I address that claim
below.
B. Breach of the Implied Covenant
Plaintiff’s allegations in support of his implied covenant claim, like his breach
of contract allegations, are sparse. In essence, in a single paragraph, Plaintiff alleges
the Buckeye Defendants breached the implied covenant by engaging in the conduct
that allegedly breached the LPA.67 For reasons explained below, the claim, as pled,
fails.
“The implied covenant is inherent in all contracts” and ensures parties do not
“frustrat[e] the fruits of the bargain” by acting “arbitrarily or unreasonably.”68 The
application of the implied covenant of good faith and fair dealing, however, is
limited to filling contractual gaps that neither party anticipated.69 For this reason,
Reply Br. in Further Supp. of the Buckeye Defs.’ Mot. to Dismiss (D.I. 24) at 3. I need
not consider this argument, as dismissal is justified on other grounds.
67
Compl. ¶ 101 (“Defendants’ conduct described above violates the Covenant of Good
Faith and Fair Dealing implied in all contracts.”).
68
Dieckman v. Regency GP LP, 155 A.3d 358, 367 (Del. 2017).
69
Id.; Nemec, 991 A.2d at 1125; see also Glaxo Gp. Ltd. v. DRIT LP, 248 A.3d 911, 919
(Del. 2021) (“[T]he court has in its toolbox the implied covenant of good faith and fair
dealing to fill in the spaces between the written words.”); Lidya Hldgs. Inc. v. Eksin, 2022
WL 274679, at *6 (Del. Ch. Jan. 31, 2022) (noting the implied covenant “should not be
deployed when ‘there is no gap to fill in the Agreement’”) (citing Glaxo Gp. Ltd., 248 A.3d
at 920) (alterations omitted); Miller v. HCP & Co., 2018 WL 656378, at *9 (Del. Ch.
Feb. 1, 2018) (noting that the implied covenant, as applied, “must be consistent with the
17
the implied covenant is “rarely invoked successfully,”70 as it is “a limited and
extraordinary legal remedy.”71
Given these well-settled principles, the Buckeye Defendants correctly point
out that the implied covenant “cannot be invoked where the contract itself expressly
covers the subject at issue.”72 Here, the LPA fully occupies the spaces where
Plaintiff would have the Court shoehorn the implied covenant.73
First, Ryan alleges that the Buckeye Defendants breached the implied
covenant by “withholding amounts due the unitholders under the [LPA], and
transferring those amounts to the [IFM] Defendants.”74 But as noted, the LPA, by
its terms, makes clear that Plaintiff was not entitled to any distributions at all.
terms of the agreement as a whole”) (citing Airborne Health, Inc. v. Squid Soap, LP,
984 A.2d 126, 146 (Del. Ch. 2009)).
70
Miller, 2018 WL 656378, at *9 (quoting Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872,
888 (Del. Ch. 2009)).
71
Oxbow Carbon & Mins. Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d 482, 507
(Del. 2019) (quoting Nemec, 991 A.2d at 1128).
72
OBB at 24; Allen v. El Paso Pipeline GP Co., 113 A.3d 167, 183 (Del. Ch. 2014).
73
As noted, the Complaint is not at all clear on what factual allegations fit under the
umbrella of the implied covenant. See Compl. ¶¶ 99–104. Consequently, I do my best to
construct Plaintiff’s best implied covenant claim by doing what he should have done––
pulling factual allegations from elsewhere in the Complaint and inserting them within the
implied covenant count.
74
Compl. ¶ 2.
18
Second, Plaintiff alleges the Buckeye Defendants wrongfully chose to close
on November 1, 2019, “to maximize the value transferred from the unit owners to
the Buyers.”75 As a preliminary matter, the timing of the closing as relates to
distributions is a moot point since Plaintiff was not entitled to distributions. But, in
any event, the Buckeye Defendants were contractually obligated to close “on the
fifth business day following the satisfaction or waiver” of all closing conditions,
including governmental regulatory approvals.76 While the IFM Defendants could
delay closing in certain circumstances, once closing conditions were satisfied, the
Buckeye Defendants enjoyed no such freedom to delay. Importantly, Plaintiff does
not allege that the timing of regulatory approvals was within the Buckeye
Defendants’ control such that they could manipulate the closing date.
According to Plaintiff, the Merger Agreement provided that distributions
could be made if the acquiror consented, and that “such consent [was] not to be
unreasonably withheld.”77 But Plaintiff fails to explain why IFM would have
consented to a distribution when the distribution would be to its financial detriment,
and he fails to allege how a refusal to give consent under such circumstances would
have been “unreasonabl[e].” Again, he does not even try.
75
Compl. ¶ 60.
76
Merger Agreement § 1.02.
77
Merger Agreement § 5.01(b).
19
Third, Plaintiff alleges that Buckeye rejected his requests for additional
information about the calculation of Section 751 income reported on his personal
Form K-1. Here again, the LPA expressly addresses unitholders’ information rights;
there is, therefore, no room for the implied covenant to work here.78 And, as the
Buckeye Defendants point out, “at the time Ryan first made his request for
information in March 2020, the Transaction had already closed and Ryan had ceased
to be a unitholder—meaning he had no further information rights under the LPA,
express or implied.”79
In sum, Plaintiff fails to plead a gap in the LPA that could be filled by the
implied covenant. The claim for breach of the implied covenant, therefore, fails as
a matter of law.
C. Breach of Fiduciary Duty
Plaintiff asserts the Buckeye Defendants breached their fiduciary duties by
foisting the Transaction on Buckeye unitholders on unfair terms. Of course, the
claim assumes the Buckeye Defendants owed fiduciary duties. As explained below,
78
See LPA § 8.5; Buckeye OB at 27.
79
Buckeye OB at 27; see also Greenhouse v. Polychain Fund I LP, 2019 WL 2290245,
at *4–5 (Del. Ch. May 29, 2019) (holding that plaintiff had no standing to seek books and
records under 6 Del. C. § 17-305 because plaintiff was no longer a limited partner).
In Greenhouse, the Court noted that “[c]entral to the statute is the refrain that the inspection
right belongs to current limited partners.” Id. at *4. The LPA likewise provides
information rights only to “Limited Partner[s].” LPA § 8.5.
20
they did not. And, to the extent the fiduciary duty claim rests on a breach of the
standard of conduct prescribed in the LPA, the pled facts fall well short of supporting
a reasonable inference that the contractual standard was breached.
1. The LPA Eliminated Traditional Fiduciary Duties
Under Delaware law, alternative entities such as limited partnerships are
“creatures of contract.”80 By statute, our General Assembly has declared that “[i]t is
the policy of [Delaware] to give maximum effect to the principle of freedom of
contract and to the enforceability of partnership agreements.”81 To that end,
traditional fiduciary duties “may be expanded or restricted or eliminated by
provisions in the partnership agreement,” except for the implied covenant.82
That is precisely what the LPA did. Section 7.9(c) declares that the General
Partner “shall not be subject to any other or different standards imposed by this
Agreement, any other agreement contemplated hereby or under the Delaware
80
See El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1260 (Del. 2016).
81
6 Del. C. § 17-1101(c); Dieckman, 155 A.3d at 366 (“The Delaware Revised Uniform
Limited Partnership Act (‘DRUPLA’) gives ‘maximum effect to the principle of freedom
of contract.’”) (citing 6 Del. C. §17-1101(c)).
82
6 Del. C. § 17-1101(d) (emphasis added); Dieckman, 155 A.3d at 366 (“The act allows
drafters of Delaware limited partnerships to modify or eliminate fiduciary-based principles
of governance, and displace them with contractual terms.”); In re Inergy L.P. Unitholder
Litig., 2010 WL 4273197, at *12 (Del. Ch. Oct. 29, 2010) (Ҥ 1101(d) allows MLPs to
eliminate completely a general partner’s fiduciary duties to common unitholders, subject
only to the limited protections of the covenant of good faith and fair dealing.”).
21
[Revised Uniform Limited Partnership] Act or any other law, rule or regulation or at
equity.”83 This language displaced traditional fiduciary duties,84 and precludes
Plaintiff from prosecuting a claim based on a breach of common law fiduciary
duties.85
2. Even if Fiduciary Duties Existed, the Business Judgment Rule Applies
Under Corwin
The Buckeye Defendants argue that even if traditional fiduciary duties had
not been displaced by the LPA, the fiduciary duty claim would still fail because their
actions would be protected by the business judgment rule under Corwin.86 I agree.87
Under Corwin, “the business judgment rule is invoked as the appropriate standard
83
LPA § 7.9(c).
84
See, e.g., Brinckerhoff v. Texas Eastern Prods. Pipeline Co., LLC, 986 A.2d 370, 389
(Del. Ch. 2010) (finding that a similar provision in a limited partnership agreement was
“an ‘express standard’ that replaces default fiduciary rules”). Plaintiff disputes that this
language waives fiduciary duties, but he does not offer any competing interpretation, much
less a reasonable one. Answering Br. in Opp’n to Defs.’ Mots. to Dismiss Pl.’s Compl.
(“PAB”) (D.I. 23) at 17.
85
See Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 252–53 (Del. 2017), as revised
(Mar. 28, 2017) (“If fiduciary duties have been validly disclaimed, the limited partners
cannot rely on traditional fiduciary principles to regulate the general partner’s conduct.
Instead, they must look exclusively to the LPA’s complex provisions to understand their
rights and remedies.”).
86
Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015).
87
Plaintiff does not argue that Corwin does not apply in the limited partnership context, so
in this case, I assume that it does. After all, Corwin itself involved a merger between a
limited partnership and a limited liability company. Id. at 306 n.3. While there may be
reasons to restrict or alter Corwin’s application in the alternative entity context, the parties
have not identified them and I see no reason to search for them here.
22
of review for a post-closing damages action when a merger that is not subject to the
entire fairness standard of review has been approved by a fully informed, uncoerced
majority of the disinterested stockholders.”88 The business judgment rule “precludes
judicial second-guessing so long as the [] decision ‘can be attributed to any rational
business purpose.’”89 “When the business judgment rule standard of review is
invoked because of a vote, dismissal is typically the result.”90 Having failed to plead
waste––which is not at all surprising given the hefty premium secured in the
Transaction––dismissal is the result here as well.
Plaintiff argues Corwin does not apply because the vote was not fully
informed.91 He maintains that Buckeye “failed to disclose the material details about
the consequences of the closing,” particularly “the tax consequences to cashed-out
unitholders.”92 Again, I disagree. As a preliminary note, the District Court already
88
Id. at 305–06.
89
In re MFW S’holders Litig., 67 A.3d 496, 526 (Del. Ch. 2013), aff’d sub nom. Kahn v.
M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (quoting Sinclair Oil Corp. v. Levien,
280 A.2d 717, 720 (Del. 1971)).
90
Singh v. Attenborough, 137 A.2d 151, 152 (Del. 2016) (observing that dismissal will
likely result “because the vestigial waste exception has long had little real-world relevance”
since “it has been understood that stockholders would be unlikely to approve a transaction
that is wasteful”).
91
Corwin, 125 A.3d at 312 (“[T]he doctrine applies only to fully informed, uncoerced
stockholder votes, and if troubling facts . . . were not disclosed that would have been
material to a voting stockholder, then the business judgment rule is not invoked.”).
92
PAB at 19.
23
addressed and dismissed these challenges to the Proxy disclosures in the prior federal
action not only because Plaintiff abandoned them,93 but also because he “failed to
identify an actionable false or misleading statement.”94 The federal court’s ruling,
if not outright preclusive,95 is, at a minimum, highly persuasive.
In any event, the Buckeye Defendants point to several disclosures in the Proxy
that reveal the unitholder vote was fully informed.96 The disclosures reflect that
93
According to Plaintiff, his election to abandon his federal disclosure claims was a
“strategic decision.” Id.94
Report and Recommendation at 3.
95
The Buckeye Defendants argue that the District Court’s ruling is preclusive as a matter
of collateral estoppel. See Buckeye OB at 33–34 (“The federal judgment bars Ryan from
relitigating claims related to allegedly inadequate disclosures as a matter of issue
preclusion.”). At oral argument, Plaintiff agreed that the District Court’s ruling is a final
“binding final judgment for issue and claim preclusion purposes” regarding the federal
claims, but he argued it did not affect the state causes of action. See OA Tr. 54:1–24.
Because I do not rest my finding here on collateral estoppel, I need not decide this issue.
96
See Buckeye OB at 8–9, 34–35; see, e.g., Proxy at 81 (“[A] portion of [the] gain or loss,
which portion could be substantial, will be separately computed and taxed as ordinary
income or loss under Section 751 of the Code to the extent attributable to ‘unrealized
receivables’ or to ‘inventory items’ owned by the Partnership in its subsidiaries.”);
id. at 81–82 (“Such ordinary income attributable to unrealized receivables, inventory items
and depreciation recapture may exceed net taxable gain realized upon the exchange of a
Partnership Unit pursuant to the merger . . . .”); id. at 81 (“The amount of gain or loss
recognized by each U.S. holder in the merger will vary depending on each U.S. holder’s
particular situation . . . .”). I note that “there is no obligation to supply investors with legal
advice,” nor is there an obligation to supply definitive tax advice, particularly when the
disclosure encourages unitholders to seek out advice from their own tax advisors. Kahn v.
Caporella, 1994 WL 89016, at *7 (Del. Ch. Mar. 10, 1994); see Proxy at 82 (“Each U.S.
holder is strongly urged to consult its own tax advisor with respect to the specific tax
consequences of the merger to such holder, taking into account its own particular
circumstances.”).
24
Buckeye unitholders were told that the Transaction could carry adverse tax
consequences for them, received a summary of those potential consequences, and
were advised to consult with their own tax advisors before casting their vote. This
is more than adequate to fulfill the Board’s disclosure obligation.97
While not clear, it appears Plaintiff may be arguing that Corwin is not
applicable because entire fairness is the applicable standard of review given that all
members of the Board were conflicted.98 They were not. The only basis for conflict
Plaintiff offers is that Board members received accelerated equity awards and pre-
existing severance payments that were triggered by the Transaction. But, under
Delaware law, “the possibility of receiving change-in-control benefits pursuant to
pre-existing employment agreements does not create a disqualifying interest as a
matter of law,”99 especially when “the interests of the [unitholders] and directors are
97
See Caporella, 1994 WL 89016, at *7; In re GGP, Inc. S’holder Litig.,
2021 WL 2102326, at *32 (Del. Ch. May 25, 2021) (finding on a motion to dismiss that a
disclosure urging stockholders to consult with advisors regarding the scope of their
appraisal rights was adequate).
98
PAB at 18 (“The Buckeye Defendants’ self-interested dealings trigger the entire fairness
standard of review.”). I note that this allegation, alone, is not sufficient to take the
Transaction out of the Corwin paradigm. See In re Merge Healthcare Inc., 2017
WL 395981, at *6 (Del. Ch. Jan. 30, 2017) (explaining that Corwin applies in the context
of allegations that entire fairness is triggered by a conflicted board). As I explain below,
however, even if a conflicted board was, alone, sufficient to disable Corwin, the allegations
of conflict in this Complaint are not well pled.
99
In re Novell, Inc. S’holder Litig., 2013 WL 322560, at *11 (Del. Ch. Jan. 3, 2013).
25
aligned in obtaining the highest price” for the company.100 Nor has Plaintiff alleged
that director compensation was “material to the director,” as required to “create
independence problems.”101
Regardless, the LPA provided that any resolution of a purported conflict of
interest “shall be conclusively deemed fair and reasonable to the Partnership” if
“approved by Special Approval,” meaning “approval by a majority of the members
of the Nominating and Corporate Governance Committee” of the Board, “as long as
the material facts known to the officers and directors of the General Partner . . . were
disclosed.”102 The Nominating and Corporate Governance Committee unanimously
approved the Transaction,103 and there is no allegation they did not know the material
facts relating to the deal before doing so. Therefore, under the LPA, the Transaction
is deemed conclusively fair and reasonable, extinguishing any claim of conflict.104
Globis P’rs, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *8 (Del. Ch. Nov. 30,
100
2007).
101
MCG Cap. Corp. v. Maginn, 2010 WL 1782271, at *20 (Del. Ch. May 5, 2010).
102
LPA § 7.9(a); Buckeye OB Ex. A-2.
103
Proxy at 3.
104
See Allen v. Encore Energy P’rs, L.P., 72 A.3d 93, 110 (Del. 2013) (“[T]he Conflicts
Committee’s grant of Special Approval requires us to conclude that Allen’s allegations fail
to state a claim . . . .”).
26
3. The Complaint Does Not Well Plead a Lack of Good Faith
According to the Complaint, “[a]ny attempt to disclaim or avoid common law
fiduciary duties fails due to Defendants’ self-dealing. Further, the Partnership
Agreement did not unambiguously disclaim liability for the type of bad faith,
disloyal conduct at issue.”105 As explained below, these allegations fail as a matter
of law and as a matter of pleading on several fronts.
As a preliminary matter, Plaintiff’s allegations regarding the Transaction have
no bearing on whether the LPA eliminated traditional fiduciary duties (which it
unambiguously did). That disclaimer occurred on a clear day years before the
Transaction presented on the horizon. Additionally, the LPA did not attempt to
“disclaim liability for . . . bad faith,” as Plaintiff alleges, but instead imposed a
contractual duty of good faith. An action is taken in “good faith” under the LPA if
the person taking it believes it to be “in the best interests of the Partnership.”106
Plaintiff failed even to mention (or cite to) this contractual standard in his Complaint,
but more importantly, he has not well-pled that Defendants did not believe the
Transaction was in the best interests of Buckeye and its unitholders.
105
Compl. ¶ 94.
106
LPA § 7.9(c).
27
The well-pled allegation of bad faith “is a [rare bird].”107 A conclusory
incantation of the words “bad faith” is not enough; the plaintiff must, instead, offer
a factual narrative that provides at least some explanation of the motive of the
supposed bad faith actor.108 The Complaint sub judice makes no such effort. In
other words, Plaintiff pleads no facts that would allow a reasonable inference that
the Buckeye Defendants believed the Transaction was not “in the best interests of
the Partnership” but nevertheless caused Buckeye to commit to it.
The only reasonable inference from the facts as pled (and properly
incorporated documents to the Complaint) is that IFM wanted to acquire Buckeye,
the Board initially rebuffed offers it considered too low, the Buckeye Defendants
ultimately secured a substantial premium for the unitholders, and one of the terms in
the Merger Agreement Buckeye offered to achieve that premium included a
restriction on issuing distributions that, while regularly declared, the unitholders had
107
In re Chelsea Therapeutics Int’l Ltd. S’holders Litig., 2016 WL 3044721, at *1 (Del. Ch.
May 20, 2016); see also Genworth Fin., Inc. Consol. Deriv. Litig., 2021 WL 4452338,
at *1 (Del. Ch. Sept. 29, 2021) (“In Delaware, the sustainable bad faith claim is a
‘rara avis.’”) (quoting Chelsea).
108
See, e.g., In re Essendant, Inc. S’holder Litig., 2019 WL 7290944, at *12 (Del. Ch.
Dec. 30, 2019) (finding that “the conclusory suggestion[s]” proffered in the complaint
“lack[ed] any factual narrative that would allow any inferential explanation of why the[]
fiduciaries would so abandon their duties as to engage in bad faith”); Kuroda v.
SPJS Hldgs., L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009) (“General allegations of bad faith
are not sufficient.”).
28
no contractual right to receive.109 This narrative does not come close to supporting
a reasonable inference that the Buckeye Defendants engaged in bad faith, as
understood in our common law, or failed to act in good faith, as defined in the LPA.
This is especially so when one appreciates that the individual Buckeye Defendants
were themselves unitholders with an incentive to obtain the highest price possible
for all unitholders on the best terms available, understanding that their units would
be subject to the same tax treatment as the others.110
109
See Proxy at 36, 44, 46–48; Compl. ¶¶ 1, 4, 35, 46, 51.
110
Cf. Orman v. Cullman, 794 A.2d 5, 27 n.56 (Del. Ch. 2002) (“A director who is also a
shareholder of his corporation is more likely to have interests that are aligned with the other
shareholders . . . as it is in his best interest, as a shareholder, to negotiate a transaction that
will result in the largest return for all shareholders.”); In re Mindbody, Inc.,
2020 WL 5870084, at *14 (Del. Ch. Oct. 2, 2020) (“It is a guiding principle of Delaware
law that material amounts of stock ownership can serve to align the interests of fiduciaries
with the interests of other stockholders.”); In re Synthes, Inc. S’holder Litig., 50 A.3d 1022,
1035 (Del. Ch. 2012) (noting the “basic understanding that when a stockholder who is also
a fiduciary receives the same consideration for her shares as the rest of the shareholders,
their interests are aligned”).
At oral argument, Plaintiff’s counsel proffered the acceleration of deferred compensation
and the triggering of severance benefits for the individuals that are part of the Buckeye
Defendant group as evidence of bad faith, and then pointed to this court’s decision in
“Skye Mineral” to argue that this alone is enough to support an inference of bad faith. See
OA Tr. at 45:1–46:13. I note there are actually two decisions in Skye Mineral and both
address allegations of bad faith. See Skye Min. Invs., LLC v. DXS Cap. (U.S.) Ltd.,
2020 WL 881544, at *27 (Del. Ch. Feb. 24, 2020) (“Skye I”); Skye Min. Invs., LLC v.
DXS Cap. (U.S.) Ltd., 2021 WL 3184591, at *16 (Del. Ch. July 28, 2021) (Skye II).
Plaintiff’s counsel did not clarify which of the decisions he was relying upon.
See OA Tr. at 46:1. Regardless, neither opinion supports Plaintiff’s argument. In Skye I,
the court held, in part, that the plaintiffs pled sufficient facts to support an inference that
defendants exercised certain contractual blocking rights in bad faith, intending for the
company to suffer so that they could purchase the company’s assets for themselves at a
bargain price. See Skye I, at *27. Later in the litigation, this court reached a similar
29
* * * * *
The breach of fiduciary duty claim must be dismissed because the LPA
disclaims fiduciary duties, the fully informed unitholder vote cleanses any fiduciary
duty breach and the Complaint fails to well-plead that the Buckeye Defendants
breached their contractual obligation to act in good faith.
D. Aiding and Abetting and Tortious Interference with Contract
In its final claim, Plaintiff alleges the IFM Defendants aided and abetted in
the Buckeye Defendants’ breaches of contract, the implied covenant and fiduciary
duties, as well as tortiously interfered with the LPA.111 As for the aiding and abetting
count, the IFM Defendants correctly observe that, generally speaking, “Delaware
does not recognize a claim for aiding and abetting a breach of contract.”112 The same
holding—this time as to the allegations in the counterclaims. See Skye II, at *16 (holding
that facts supported an inference that directors acted in bad faith by “exploit[ing] their
control” over the company “in an effort to put [the company] back in default under [a] loan,
for the sole purpose of enriching themselves to the detriment of SMP and CSM”). Plaintiff
has pled nothing approximating those facts here. See Novell, 2013 WL 322560, at *11
(“[T]he possibility of receiving change-in-control benefits pursuant to pre-existing
employment agreements does not create a disqualifying interest as a matter of law.”).
111
Compl. ¶¶ 6, 106.
112
IFM OB at 14 (citing Wenske, v. Blue Bell Creameries, Inc., 2018 WL 3337531, at *15
n.128 (Del. Ch. July 6, 2018)); Gerber v. EPE Hldgs., LLC, 2013 WL 209658, at *11
(Del. Ch. Jan. 18, 2013) (same). I note, as do the IFM Defendants, that this court has
recognized a limited exception to this rule when a contract creates fiduciary duties.
See Dieckman v. Regency GP LP, 2018 WL 1006558, at *4 (Del. Ch. Feb. 20, 2018)
(“Delaware law does not recognize a claim for aiding and abetting a breach of contract.
An exception to this rule arises where a contract creates fiduciary duties, but that exception
does not apply here.”) (internal quotation marks and footnotes omitted). Just as in
30
is true with respect to claims for aiding and abetting a breach of the implied
covenant.113 Because Plaintiff fails to plead a cognizable claim under Delaware law,
the aiding and abetting breach of contract and the implied covenant claims must be
dismissed.114
Even if these claims were viable under Delaware law, the claims would still
fail because, as explained above, the Buckeye Defendants did not actually breach
the LPA or the implied covenant. The IFM Defendants could not have aided and
abetted the Buckeye Defendants in breaches that never occurred.115
Dieckman, this exception does not apply here because, as noted, the LPA supplanted
fiduciary duties with a contractual standard of good faith.
113
See Gerber, 2013 WL 209658, at *11 (“Delaware law does not recognize a claim for
aiding and abetting a breach of contract. Accordingly, [plaintiff’s] claims—if they are
asserted—for aiding and abetting a breach of the LPA, or a covenant implied through the
LPA, must also fail.”) (emphasis added) (footnote omitted).
114
See Malpiede v. Townson, 780 A.2d 1075, 1094 (Del. 2001) (“The plaintiffs are entitled
to all reasonable inferences flowing from their pleadings, but if those inferences do not
support a valid legal claim, the complaint should be dismissed . . . .”); see also Allen,
113 A.3d at 194 (“When parties establish a purely contractual relationship, they have
chosen to limit themselves to pursuing contractual remedies against their contractual
counterparties. Under those circumstances, a claim for aiding and abetting cannot be used
to expand the possible range of defendants.”).
115
See, e.g., English v. Narang, 2019 WL 1300855, at *14–15 (Del. Ch. Mar. 20, 2019)
(“‘As a matter of law and logic, there cannot be secondary liability for aiding and abetting
an alleged harm in the absence of primary liability.’ Here, because plaintiffs’ breach of
fiduciary duty claim fails to state a claim for relief against the individual defendants for the
reasons explained above, the aiding and abetting claim fails as well for lack of a predicate
breach of duty.”) (citing In re Alloy, Inc. S’holder Litig., 2011 WL 4863716, at *14
(Del. Ch. Oct. 13, 2011)).
31
The same is true for the claim that the IFM Defendants aided and abetted in
the Buckeye Defendants’ breach of fiduciary duty. To state a claim for aiding and
abetting a breach of fiduciary duty, Plaintiff must allege: (1) the existence of a
fiduciary relationship; (2) the fiduciary breached its duty; (3) a defendant, who is not
a fiduciary, knowingly participated in a breach; and (4) damages to the plaintiff
resulted from the concerted action of the fiduciary and nonfiduciary. 116 Since there
is no predicate fiduciary duty, much less a breach of fiduciary duty, this claim also
fails.117
But even assuming fiduciary duties existed and applied, Plaintiff’s claim still
fails because Plaintiff’s allegations and the documents properly incorporated by
reference do not allow an inference that the IFM Defendants knowingly participated
in a breach. Allegations that the IFM Defendants “knew or should have known” of
the fiduciary breaches through their “involvement in the negotiations” and “material
aid” and “willingness”118 to consummate the deal fall well short of meeting the
116
Malpiede, 780 A.2d at 1096.
117
In re Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *27 (Del. Ch. Oct. 24,
2014) (“Because the underlying breaches of fiduciary duty are being dismissed, Plaintiffs’
aiding and abetting claim must be dismissed as well.”); Gerber, 2013 WL 209658, at *11
(“Gerber has not stated a claim for breach of fiduciary duty. Accordingly, his claim for
aiding and abetting a breach of fiduciary duty must also fail.”).
118
Compl. ¶¶ 107–08.
32
“stringent standard” applicable to allegations of “knowing participation.”119 Rather,
the only reasonable inference to be drawn from the Complaint is that the
IFM Defendants paid a high premium after substantial arms-length negotiations and,
in exchange, bargained for certain contractual provisions that operated in their favor.
“This Court adheres to ‘the long-standing rule that arm’s-length bargaining . . . does
not, absent actual collusion and facilitation of fiduciary wrongdoing, constitute
aiding and abetting.’”120 As Vice Chancellor Zurn recently observed, “[c]onsistent
with longstanding principles of law and capitalism,” a buyer can “exercise[] its right
to secure for itself a sweet deal.”121
Plaintiff’s tortious interference claim against the IFM Defendants fares no
better. To state a claim for tortious interference with contract, a plaintiff must
adequately allege: “(1) a contract, (2) about which defendant knew and (3) an
intentional act that is a significant factor in causing the breach of such contract
(4) without justification (5) which causes injury.”122 The third element is not met
119
Lee v. Pincus, 2014 WL 6066108, at *13 (Del. Ch. Nov. 14, 2014).
120
Jacobs v. Meghji, 2020 WL 5951410, at *8 (Del. Ch. Oct. 8, 2020) (citing Morgan v.
Cash, 2010 WL 2803746, at *1 (Del. Ch. July 16, 2010)).
121
Id. at *13 (internal quotation marks omitted).
122
Aspen Advisors LLC v. United Artists Theatre Co., 861 A.2d 1251, 1266 (Del. 2004)
(internal quotation marks omitted).
33
because, as explained above, Plaintiff fails to well-plead that the Buckeye
Defendants breached the LPA.123
The tortious interference claim also fails because Plaintiff has not pled that
the IFM Defendants acted “without justification.” This element is distinct from
“knowing participation” as an element of aiding and abetting. In aiding and abetting
claims, a third-party knows the counterparty has fiduciary obligations and helps
participate in that counterparty’s breach of those obligations.124 If the fiduciary
obligation does not exist, the other party may negotiate at arms-length for its own
financial benefit with no concern for the extent to which the contract might be
detrimental to the counter-party.125 Here, the only reasonable inference from the
123
See Aspen Advisors LLC v. United Artists Theatre Co., 843 A.2d 697, 713 (Del. Ch.
2004) (holding that a tortious interference claim “necessarily fails” because plaintiff “failed
to state a claim” for breach of contract or of the implied covenant), aff’d, 861 A.2d 1251(Del. 2004); see also Goldman v. Pogo.com Inc., 2002 WL 1358760, at *8 (Del. Ch.
June 14, 2002) (“A claim of tortious interference with a contractual right requires, inter
alia, a contract, a breach of that contract, and an injury.”) (emphasis added).
124
Malpiede, 780 A.2d at 1097 (“Knowing participation in a board’s fiduciary breach
requires that the third-party act with the knowledge that the conduct advocated or assisted
constitutes such a breach.”)
125
See, e.g., WaveDivision Hldgs., LLC v. Highland Cap. Mgmt. L.P., 2011 WL 5314507,
at *12 (Del. Super. Ct. Nov. 2, 2011) (“It was not improper for defendants to interfere with
the . . . [a]greements in order to protect their own financial interest . . . .”), aff’d, 49 A.3d
1168, 1174 (Del. 2012) (affirming the trial court’s determination that protecting one’s own
financial interest “weighed in favor of justification”); Surf’s Up Legacy P’rs, LLC v.
Virgin Fest, LLC, 2021 WL 117036, at *8 (Del. Super. Ct. Jan. 13, 2021) (observing that,
for a tortious interference claim, “the complaint must allege facts” that the “interference
was unjustified—a meddling motivated not by legitimate economic goals, but with bad
faith”).
34
Complaint is that the IFM Defendants thought the Transaction was in their best
interests and pursued it accordingly. That does not support a claim for tortious
interference.
E. The Complaint is Dismissed with Prejudice
In his answering brief, Plaintiff asks that he be given leave to amend his
Complaint. But he chose to brief the motion to dismiss instead of filing an amended
complaint, as permitted by Chancery Rule 15(a). The consequence of this choice
under our rules is that if “the Court . . . concludes that the Complaint should be
dismissed . . . such dismissal shall be with prejudice.”126
Chancery Rule 15(aaa) allows the Court to depart from this general rule and
dismiss a complaint without prejudice for “good cause shown.” 127 Though he has
not couched his argument in terms of “good cause,” Plaintiff essentially argues that
dismissal with prejudice is unjustified because he “has repeatedly demanded
information and records from Defendants to which he is rightfully entitled.”128
In other words, Plaintiff argues this Court should dismiss his Complaint without
prejudice because any insufficiencies in his allegations are the fault of Defendants.129
126
Ct. Ch. R. 15(aaa).
127
Id.128
PAB at 32.
129
Id. at 34 (“To the extent the Court finds that Plaintiff’s Complaint lacks sufficient
specificity, the Court should order Defendants to produce the information and records
35
Plaintiff’s argument in this regard is unpersuasive. As a threshold matter,
because Plaintiff is no longer a unitholder, he does not have standing to enforce
information rights under the LPA.130 I do not see “good cause” to amend based on
inspection rights that Plaintiff no longer has standing to enforce.
More importantly, Plaintiff’s claims do not fail for a lack of specificity that
more information in-hand could fix. The breach of contract claim fails because the
Buckeye Defendants were under no contractual obligation to make distributions.
The implied covenant claim fails because the LPA specifically addresses the issues
that animate Plaintiff’s claims, such that there are no gaps to fill. The fiduciary duty
claim fails because the LPA expressly removed traditional fiduciary duties and there
is no reasonably conceivable basis to conclude that the Buckeye Defendants failed
to act in good faith. And the claims against the IFM Defendants fail because there
is no predicate breach of contract or fiduciary duty. These fundamental defects in
Plaintiff’s claims flow from a clear and unambiguous contract, a contract that
Plaintiff did not even attempt to reconcile with his claims, not just from his thread-
(which Plaintiff has requested and is entitled to) and permit Plaintiff to replead with such
information in hand.”).
130
Greenhouse v. Polychain Fund I LP, 2019 WL 2290245, at *4–5 (Del. Ch. May 29,
2019) (holding that plaintiff had no standing to seek books and records under 6 Del. C.
§ 17-305 because plaintiff was no longer a limited partner).
36
bare factual allegations. Amendment would be futile.131 Therefore, not only has
Plaintiff failed to show the “good cause” required under Chancery Rule 15(aaa) for
this Court to overlook his strategic decision to brief a motion to dismiss rather than
amend his Complaint, he has also failed to demonstrate why leave to amend would
not be futile. Dismissal is with prejudice.
III. CONCLUSION
Based on the foregoing, the Buckeye Defendants’ and the IFM Defendants’
Motions to Dismiss are GRANTED.
IT IS SO ORDERED.
131
See Clark v. State Farm Mut. Auto. Ins. Co., 131 A.3d 806, 811–12 (Del. 2006)
(“A motion for leave to amend a complaint is futile where the amended complaint would
be subject to dismissal under Rule 12(b)(6) for failure to state a claim.”) (internal quotation
marks and citation omitted). I note that Plaintiff has not explained how he would obtain
the records he says he needs to plead a better complaint. He has not brought an action to
compel inspection of books and records, likely because he appreciates he has no standing
to bring that claim. And he cannot obtain litigation discovery for the sake of enabling him
to plead a claim he cannot otherwise well-plead. See Zhang v. Zoox, Inc., — A.3d —, 2022
WL 275777, at *7 (Del. Ch. Jan. 31, 2022) (observing that it is a “well-established principle
of Delaware law that a litigant is not entitled to conduct discovery for the purpose of
developing new causes of action”).
37