PPL Corporation v. Riverstone Holdings LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
PPL CORPORATION, PPL CAPITAL )
FUNDING, INC., PPL ELECTRIC )
UTILITIES CORPORATION, PPL ENERGY )
FUNDING CORPORATION, PAUL A. )
FARR, MARK F. WILTEN, PETER J. )
SIMONICH, WILLIAM H. SPENCE, )
RODNEY C. ADKINS, FREDERICK M. )
BERNTHAL, JOHN W. CONWAY, )
PHILIP G. COX, STEVEN G. ELLIOTT, )
LOUISE K. GOESER, STUART E. )
GRAHAM, STUART HEYDT, RAJA )
RAJAMANNAR, CRAIG A. ROGERSON, )
NATICA VON ALTHANN, KEITH H. )
WILLIAMSON, and ARMANDO ZAGALO )
DE LIMA, )
)
Plaintiffs, )
) C.A. No. 2018-0868-JRS
v. )
)
RIVERSTONE HOLDINGS LLC, TALEN )
ENERGY CORPORATION, TALEN )
ENERGY HOLDINGS, INC., TALEN )
ENERGY SUPPLY, LLC, TALEN )
MONTANA, LLC, RAVEN POWER )
HOLDINGS LLC, C/R ENERGY JADE, )
LLC, and SAPPHIRE POWER HOLDINGS )
LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: October 4, 2019
Date Decided: October 23, 2019
Paul J. Lockwood, Esquire, Robert A. Weber, Esquire and Nicole A. DiSalvo,
Esquire of Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware and
George A. Zimmerman, Esquire, Jonathan Frank, Esquire, Tansy Woan, Esquire,
Andrew N. Goldman, Esquire and Charles C. Platt, Esquire of Skadden, Arps, Slate,
Meagher & Flom, New York, New York, Attorneys for Plaintiffs PPL Corporation,
PPL Capital Funding, Inc., PPL Electric Utilities Corporation, PPL Energy Funding
Corporation, Mark F. Wilten, Peter J. Simonich, William H. Spence, Rodney C.
Adkins, Frederick M. Bernthal, John W. Conway, Philip G. Cox, Steven G. Elliott,
Louise K. Goeser, Stuart E. Graham, Stuart Heydt, Raja Rajamannar, Craig A.
Rogerson, Natica von Althann, Keith H. Williamson, and Armando Zagalo de Lima.
Thomas G. Macauley, Esquire of Macauley LLC, Wilmington, Delaware and
Joshua L. Seifert, Esquire of Joshua L. Seifert PLLC, New York, New York,
Attorneys for Plaintiff Paul A. Farr.
Rolin P. Bissell, Esquire and James M. Yoch, Jr., Esquire of Young Conaway
Stargatt & Taylor, LLP, Wilmington, Delaware and Michael C. Holmes, Esquire,
Melissa L. James, Esquire and Devin L. Kerns, Esquire of Vinson & Elkins LLP,
Dallas, Texas, Attorneys for Defendants Riverstone Holdings LLC, Raven Power
Holdings LLC, C/R Energy Jade, LLC and Sapphire Power Holdings LLC.
David E. Ross, Esquire and R. Garrett Rice, Esquire of Ross Aronstam &
Moritz LLP, Wilmington, Delaware; Karl Stern, Esquire and Kate K. Shih, Esquire
of Quinn Emanuel Urquhart & Sullivan, LLP, Houston, Texas; Andrew J. Rossman,
Esquire of Quinn Emanuel Urquhart & Sullivan, LLP, New York, New York; and
Adam B. Wolfson, Esquire of Quinn Emanuel Urquhart & Sullivan, LLP,
Los Angeles, California, Attorneys for Talen Energy Corporation, Talen Energy
Holdings, Inc., Talen Energy Supply, LLC, and Talen Montana, LLC.
SLIGHTS, Vice Chancellor
Some of the defendants in this case brought a first-filed action in Montana
state court against several of the plaintiffs here. The Montana claims share a
common nucleus of operative facts with the claims asserted in this Court. It is not
surprising, therefore, that Defendants have moved to dismiss or stay this litigation
in favor of the Montana litigation under Delaware’s well-settled McWane doctrine.1
Whether dismissed or stayed, from Defendants’ perspective, the Delaware case must
end now.
Borrowing from Coach Lee Corso, Plaintiffs say “not so fast.”
Acknowledging that McWane may appear, at first glance, to be case dispositive,
Plaintiffs argue the parties’ disputes, and all claims arising from those disputes, trace
back to a so-called “Separation Agreement” that contains a mandatory Delaware
forum selection clause. Thus, with vigor matching Defendants’, they argue McWane
does not apply and the Delaware claims, at least, must be litigated in this Court as
agreed by the parties.
Against this procedural curtain, the Court’s task is two-fold. First, the Court
must address the applicability and scope of the forum selection clause. This requires
a determination of whether the clause binds certain non-parties to the Separation
1
McWane Cast Iron Pipe Corp. v. McDowell-Wellman Eng’g Co., 263 A.2d 281
(Del. 1970) (setting forth a multi-factor test to determine if Delaware action should be
dismissed or stayed in favor of first-filed litigation pending elsewhere).
1
Agreement and whether it is broad enough to capture the claims asserted both in
Delaware and Montana, including extra-contractual claims. Second, the Court must
determine whether Plaintiffs have proffered a reasonable construction of the
Separation Agreement and have stated viable claims for relief.
For reasons I explain below, I conclude McWane does not apply because all
plaintiffs in the Montana litigation, including non-parties to the Separation
Agreement, are bound by that agreement’s mandatory Delaware forum selection
clause. In addition, Plaintiffs have well-pled the Separation Agreement is either
directly implicated by the Montana claims or must be construed before the viability
of the Montana claims can be determined. Because the parties agreed that only this
Court may construe the Separation Agreement, the claims brought here, including
claims of breach of the Separation Agreement and related prayers for declaratory
judgment, must proceed apace. With that said, Plaintiffs’ attempt to plead a breach
of the implied covenant of good faith and fair dealing based on Defendants’ alleged
breach of the Separation Agreement fails as a matter of law. That count in the
operative complaint must be dismissed. Finally, Plaintiffs’ claim that a non-party to
the Separation Agreement tortiously interfered with certain parties’ performance of
that contract is well-pled and, therefore, must remain.
2
I. BACKGROUND
I have drawn the facts from well-pled allegations in the operative Second
Amended Complaint2 and documents incorporated by reference or integral to that
pleading.3 For purposes of Defendants’ Rule 12(b)(6) motion, as I must, I accept
those well-pled facts as true.4 Otherwise, when addressing the venue issues under
Rule 12(b)(3), I am “not shackled to the plaintiff’s complaint” and have considered
extrinsic evidence that is properly in the record.5
A. The Parties
Plaintiff, PPL Corporation (“PPL”), is a publicly traded Pennsylvania
corporation with its headquarters in Allentown, Pennsylvania.6 Through its many
subsidiaries, PPL operates regulated utilities throughout the United States and the
United Kingdom, delivers natural gas to customers in Kentucky and generates
electricity from power plants in Kentucky.7
2
Citations to the Second Amended Complaint are to “Compl. ¶ __.”
3
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that on
a Motion to Dismiss, the Court may consider documents that are “incorporated by
reference” or “integral” to the complaint).
4
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 169 (Del. 2006).
5
Troy Corp. v. Schoon, 2007 WL 949441, at *2 (Del. Ch. Mar. 26, 2007).
6
Compl. ¶ 16.
7
Id.
3
Plaintiff, PPL Capital Funding, Inc., is a Delaware corporation.8 It is a
subsidiary of PPL that provides financing for other PPL entities.9
Plaintiff, PPL Electric Utilities Corporation, is a Pennsylvania corporation.10
It is a subsidiary of PPL that distributes electricity in Pennsylvania.11
Plaintiff, PPL Energy Funding Corporation, is a Pennsylvania corporation.12
It is a subsidiary of PPL and a former indirect parent of PPL Montana LLC
(“PPL Montana”).13
Plaintiffs, Paul A. Farr, Mark F. Wilten and Peter J. Simonich are former
members of PPL Montana’s Board of Managers. Plaintiffs, Frederick M. Bernthal,
Philip G. Cox, Louise K. Goeser, Stuart E. Graham, Steven G. Elliott, William H.
Spence, Rodney C. Adkins, John W. Conway, Stuart Heydt, Raja Rajamannar,
Craig A. Rogerson, Natica von Althann, Keith H. Williamson and Armando Zagalo
de Lima, are current or former members of PPL’s Board of Directors.14
8
Compl. ¶ 17.
9
Id.
10
Compl. ¶ 18.
11
Id.
12
Compl. ¶ 19.
13
Id.
14
Compl. ¶¶ 20–23.
4
Defendant, Riverstone Holdings LLC (“Riverstone”), is a Delaware limited
liability company.15 Riverstone is a private equity firm with an $80 billion
investment portfolio.16 It has “deep expertise” in the energy industry, with particular
experience in managing “large-scale coal mines, power stations and associated
infrastructure.”17
Defendant, Talen Energy Corporation (“Talen”), is a Delaware corporation.18
Talen is wholly owned and controlled by Riverstone.19
Defendant, Talen Energy Holdings, is a Delaware corporation and is a wholly
owned subsidiary of Talen.20
Defendant, Talen Energy Supply, LLC (“Talen Energy Supply”), is a
Delaware LLC and is a wholly owned subsidiary of Talen.21 Talen Energy Supply
was formerly known as PPL Energy Supply.22
15
Compl. ¶ 24.
16
Id.
17
Id.
18
Compl. ¶ 25.
19
Id.
20
Compl. ¶ 26.
21
Compl. ¶ 27.
22
Id.
5
Defendant, Talen Montana, LLC (“Talen Montana”), is a Delaware LLC and
is a wholly owned subsidiary of Talen Energy Supply. 23 Talen Montana was
formerly known as PPL Montana.24
Defendant, Raven Power Holdings LLC (“Raven”), is a Delaware LLC.25
Raven is controlled by Riverstone.26
Defendant, C/R Energy Jade, LLC (“Jade”), is a Delaware LLC.27 Jade is
controlled by Riverstone.28
Defendant, Sapphire Power Holdings LLC (“Sapphire”), is a Delaware LLC.29
Sapphire is also controlled by Riverstone.30
B. The Essence of the Dispute
The disputes between the parties arise from two transactions. In 2014,
PPL Montana sold certain of its hydroelectric assets to an unrelated third-party for
23
Compl. ¶ 28.
24
Id.
25
Compl. ¶ 29.
26
Id.
27
Compl. ¶ 30.
28
Id.
29
Compl. ¶ 31.
30
Id.
6
$904 million.31 The proceeds from that sale were then distributed upstream to
various PPL-affiliated entities (the “Distribution”).32 Defendants have alleged in
Montana that the Distribution rendered PPL Montana insolvent.33
In 2015, PPL spun off certain of its assets to Talen (the “Spin”).34 Talen
Montana was one of the assets included in the Spin.35 Riverstone contributed assets
to the Spin, took a 35% interest in the newly created Talen and subsequently acquired
the 65% it did not own by taking Talen private in 2016.36
Talen Montana currently owns and operates two coal-fired power plants in
Montana.37 By all accounts, it is in deep financial distress.38 Specifically, its
environmental and pension liabilities likely exceed the value of its assets.39 Why
Talen Montana is in this predicament is hotly contested. Plaintiffs allege Riverstone
is to blame for Talen Montana’s distress after taking Talen private, raiding its cash
31
Compl. ¶ 72.
32
Compl. ¶ 73.
33
Compl. ¶ 4.
34
Compl. ¶ 1.
35
Compl. ¶ 3.
36
Id.; Compl. ¶ 5.
37
Compl. ¶ 42.
38
Compl. ¶¶ 3–7.
39
Compl. ¶¶ 112–15.
7
and then refusing to support Talen Montana with intercompany financing.40
Defendants claim Talen Montana’s financial distress followed the pre-Spin
Distribution, a transaction Defendants characterize in the Montana litigation as a
fraudulent transfer.41
C. PPL’s Pre-Spin Operations
PPL is a utility holding company and, prior to the Spin, it operated (through
PPL Energy Supply’s subsidiaries) competitive power generation facilities.42
PPL Montana was formed by a subsidiary of PPL Energy Supply in 1998 to operate
PPL’s power generating assets in Montana.43 PPL Montana’s primary assets were
eleven hydroelectric facilities, a storage dam and interests in two coal power plants,
known as Colstrip and Corette.44
After operating these facilities for over ten years, PPL made a business
decision to exit the unregulated power business and began exploring a sale of its
Montana assets.45 As a first step, on September 26, 2013, PPL agreed to sell its
40
Id.
41
Compl. ¶¶ 8–9.
42
Compl. ¶ 36.
43
Compl. ¶ 41.
44
Compl. ¶ 42.
45
Compl. ¶ 43.
8
Montana hydroelectric assets to non-party NorthWestern Corporation
(“NorthWestern”).46 This agreement required PPL Montana to terminate a sale-and-
leaseback arrangement for Colstrip, a move that, in turn, required PPL Montana to
borrow approximately $270 million from PPL affiliates to fund the termination
fees.47
As the sale of PPL Montana’s hydroelectric assets awaited regulatory
approval, PPL began to explore a spin-off of its competitive power generation
business (the “Energy Supply Business”), consisting of PPL Energy Supply and its
subsidiaries, including PPL Montana.48 Riverstone played a key role in these
negotiations.49
D. The Spin and the Distribution
The Spin involved three basic steps. First, PPL created two new entities,
Talen and Talen Energy Holdings.50 Second, PPL transferred all of PPL Energy
Supply’s assets to Talen. Third, Riverstone transferred power generating assets held
46
Compl. ¶ 44.
47
Compl. ¶ 45.
48
Compl. ¶ 47.
49
Compl. ¶ 48.
50
Compl. ¶ 49.
9
by Raven, Jade and Sapphire to Talen.51 As consideration for these asset transfers,
PPL stockholders received 65% of Talen’s stock while Riverstone took the other
35%, making Riverstone Talen’s largest individual stockholder.52 PPL Montana
was one of approximately 50 PPL entities transferred to Talen in the Spin.53
PPL, PPL Energy Supply, Talen, Talen Energy Holdings, Raven, Jade and
Sapphire memorialized the terms of the Spin in a Transaction Agreement and
Separation Agreement, both dated June 9, 2014.54 The transaction did not close until
nearly a year later, on June 1, 2015.55 Riverstone obtained three seats on Talen’s
eight-seat board of directors, and Plaintiffs, Farr, Bernthal, Cox, Goeser and
Graham, left their jobs at PPL to fill the other five seats.56 It is not disputed that
Talen was solvent when the Spin was completed.57
PPL Montana’s sale of its hydroelectric assets to NorthWestern closed on
November 17, 2014, after the Spin-related documents were executed but before the
51
Compl. ¶ 50.
52
Id.; Compl. ¶ 76.
53
Compl. ¶ 56.
54
Compl. ¶ 54.
55
Compl. ¶ 76.
56
Compl. ¶¶ 77, 79.
57
Compl. ¶ 85.
10
transaction closed.58 The final price paid by NorthWestern was $904 million.59
PPL used $170 million of the sale proceeds to repay the loan that funded the
termination of the Colstrip sale-and-leaseback arrangement.60 The remaining
$734 million of the proceeds were distributed to other PPL entities.61 This left
PPL Montana with Colstrip and Corette as its primary assets.62
E. The Separation Agreement
The Separation Agreement addressed the distribution of assets and liabilities
between PPL and the newly created Talen.63 By its terms, the Separation Agreement
split the Spin-related assets and liabilities into two categories: “Energy Supply
Assets and Liabilities” and “Excluded Assets and Liabilities.”64 Talen was to receive
all Energy Supply Assets and was responsible for all Energy Supply Liabilities.65
58
Compl. ¶ 72.
59
Id.
60
Compl. ¶ 73.
61
Id.
62
Compl. ¶ 42.
63
Compl. ¶ 59; see Compl. Ex. A.
64
Compl. Ex. A, at §§ 2.02–2.03.
65
Compl. ¶ 57.
11
PPL was to keep all Excluded Assets and was responsible for all Excluded
Liabilities.66
The Energy Supply Assets and Liabilities include the assets and liabilities of
PPL Montana.67 These consist of, among other things, Colstrip and Corette as assets,
and pension and environmental obligations as liabilities.68 The Excluded Assets and
Liabilities relevant to the parties’ dispute are the proceeds of the hydroelectric sale
to NorthWestern that funded the Distribution.69
The Separation Agreement is a complex document with multiple references
to schedules, the Transaction Agreement and cross-references to other sections of
the Separation Agreement. Without playing the song’s every note, in relevant part,
the Separation Agreement provides that PPL will keep the proceeds of the asset sale
to NorthWestern and, if for some reason that transaction did not close, the
hydroelectric assets were to be retained by PPL.70 Consequently, PPL also retained
any liabilities arising from the sale.71 The parties also agreed to mutual
66
Compl. ¶ 62.
67
Compl. ¶ 60.
68
Compl. ¶¶ 60–61.
69
Compl. ¶ 64.
70
Id.
71
Compl. ¶ 62.
12
indemnification.72 Specifically, Talen agreed to indemnify PPL, PPL’s subsidiaries
and all of PPL’s past and present directors and officers for “any and all Losses that
result from, relate to or arise out of . . . any Energy Supply Liability.”73 PPL, in turn,
agreed to indemnify Talen for “any and all Losses that result from, relate to or arise
out of . . . any Excluded Liability.”74 Relatedly, the parties agreed to a release of
claims and a covenant not to sue.75 Finally, the parties agreed to a provision that
allowed Talen to request additional Energy Supply Assets from PPL, within 18
months of closing, if Talen believed additional assets would be necessary to support
post-Spin operations.76
Of particular relevance here, the Separation Agreement contains a forum
selection clause choosing the Delaware Court of Chancery as the exclusive forum
for disputes arising under the Agreement:
[E]ach of the Parties irrevocably and unconditionally agrees that any
Action with respect to this Agreement and the rights and obligations
arising hereunder . . . brought by any Party or Parties or their respective
successors or assigns, shall be brought and determined exclusively in
the Delaware Court of Chancery and any state appellate court therefrom
within the State of Delaware . . . . Each of the Parties hereby
72
Compl. Ex. A, at §§ 5.01–5.02
73
Compl. ¶ 65.
74
Compl. Ex. A, at § 5.02.
75
Compl. ¶¶ 181–82.
76
Compl. ¶ 58.
13
irrevocably submits with regard to any such Action for itself and in
respect of its property, generally and unconditionally, to the personal
jurisdiction of the aforesaid courts and agrees that it will not bring any
Action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than the aforesaid
courts . . .77
The parties also chose Delaware law to govern the “construction, validity,
enforcement and interpretation” of the Separation Agreement.78
F. Riverstone Takes Talen Private
On December 3, 2015, Michael Hoffman, a Riverstone partner and member
of Talen’s Board, contacted Graham, then the Chairman of Talen’s Board, to express
Riverstone’s interest in acquiring the 65% of Talen it did not already own.79
Riverstone engaged advisors and hired counsel to assist in the sale process and, on
June 2, 2016, the parties executed an agreement in principle to take Talen private.80
There was no mention of financial distress at any of Talen’s subsidiaries in the
documents executed or filed in connection with the transaction, in Riverstone’s
public statements regarding the transaction or in communications between Talen and
77
Compl. ¶ 71.
78
Compl. Ex. A, at § 10.03.
79
Compl. ¶ 89.
80
Compl. ¶¶ 90–91.
14
PPL about the transaction.81 In fact, PPL cooperated with Riverstone throughout the
sales process.82 Riverstone completed the take private transaction in December
2016, ending Farr, Bernthal, Cox, Goeser and Graham’s affiliations with Talen.83
Approximately a year after the take-private transaction closed, Riverstone declared
a “special cash dividend” for itself and sent $500 million from Talen Energy Supply
and its subsidiaries upstream to Riverstone.84 In 2018, Riverstone publicly
represented that Talen had the capacity to provide it with an additional $1 billion in
dividends.85
G. The Montana Actions
In June 2018, at Talen’s request, PPL’s CEO and General Counsel met with
their counterparts at Talen along with Ralph Alexander, a Riverstone board
designee.86 The Talen executives informed PPL that Riverstone intended to remove
an additional $500 million from Talen and then seek to hold PPL liable for the
81
Compl. ¶¶ 92–98.
82
Compl. ¶ 98.
83
Compl. ¶ 99.
84
Compl. ¶ 102.
85
Compl. ¶ 104.
86
Compl. ¶ 107.
15
Distribution.87 This was the first time Riverstone or Talen had informed PPL there
were potential legal issues arising from the Distribution.88 While claiming that Talen
Montana was (and had for some time been) insolvent, Talen never sought to exercise
its right under the Separation Agreement to demand that PPL contribute additional
assets to Talen.89
Three months later, in October 2018, PPL was named as a defendant in two
lawsuits in Montana.90 The first was filed in Rosebud County by a putative class of
Talen Montana creditors (the “Rosebud Action”);91 the second was filed in Lewis
and Clark County by Talen Montana (“the L&C Action”).92 The Rosebud Action
asserts eight claims against PPL, certain of its subsidiaries and certain present and
former PPL directors; the L&C Action asserts eleven claims against the same
87
Id.
88
Id.
89
Compl. ¶ 108.
90
Compl. ¶ 109.
91
Compl. ¶ 120.
Compl. ¶ 118. I refer to the Rosebud Action and L&C Action together as “the Montana
92
Actions.”
16
parties.93 While not named as a plaintiff in either of the Montana Actions, Plaintiffs
allege Riverstone caused its controlled entities to file both actions.94
The gravamen of the Montana Actions is that the Distribution caused
PPL Montana to become insolvent and, as such, was a fraudulent transfer.95
Plaintiffs here allege the Montana Actions are nothing more than an attempt by
Riverstone to hold PPL responsible for liabilities expressly assumed by Talen in the
Spin, and that the focus on the Distribution in Montana is simply a smoke screen
intended to distract attention from the clear allocation of assets and liabilities
memorialized in the Separation Agreement.96
The Rosebud Action has been removed to federal court and is currently
pending in the United States District Court for the District of Montana. 97 Plaintiffs
here have moved to dismiss that action, and will move to dismiss the L&C Action
shortly for lack of personal jurisdiction and forum non conveniens.98
93
Compl. ¶¶ 118–22.
94
Compl. ¶ 109.
95
Compl. ¶¶ 118–22.
96
Compl. ¶¶ 114–24.
97
Compl. ¶ 120.
98
Compl. ¶ 125.
17
H. Procedural History
Plaintiffs filed their Verified Complaint on November 30, 2018, and filed the
First Amended Complaint on January 11, 2019. Defendants moved to dismiss.
Plaintiffs then sought, and were granted, leave to file a Second Amended Complaint.
The Second Amended Complaint, which is the operative complaint, was filed on
March 20, 2019, and Defendants moved to dismiss on April 19, 2019.
The Second Amended Complaint comprises nine counts: (I) a claim for breach
of the Separation Agreement against Talen, Talen Energy Holdings and Talen
Energy Supply for causing the Montana Actions to be filed in violation of the forum
selection clause; (II) a claim for declaratory relief that all Defendants cannot recover
the proceeds from PPL Montana’s sale of the hydroelectric assets; (III) a claim for
declaratory relief against Talen Montana that Plaintiffs did not breach any fiduciary
duties owed to PPL Montana and that claims for breach of fiduciary duty and aiding
and abetting breach of fiduciary duty are time-barred; (IV) a claim for declaratory
relief against Talen Montana that Farr, Wilten and Simonich are not liable for any
alleged breach of PPL Montana’s LLC Agreement, the implied covenant of good
faith and fair dealing associated with that agreement or any other breach of contract,
and that any claims of breach are time-barred; (V) a claim for declaratory relief
against Talen Montana that Plaintiffs are not liable for tortious interference,
negligent misrepresentation, constructive fraud, deceit, unjust enrichment,
18
constructive trust or punitive damages; (VI) a claim for breach of the Separation
Agreement against Talen, Talen Energy Holdings, Talen Energy Supply, Talen
Montana, Raven, Jade and Sapphire for failure to indemnify Plaintiffs and violating
the Separation Agreement’s release clauses in connection with the Montana Actions;
(VII) a claim for breach of the implied covenant of good faith and fair dealing against
Talen, Talen Energy Holdings, Talen Energy Supply, Raven, Jade and Sapphire for
rendering Talen Montana insolvent and filing the Montana Actions; (VIII) a claim
for tortious interference against Riverstone for causing entities it controls to breach
the Separation Agreement; and (IX) a claim for declaratory relief that PPL is not
required to indemnify the Defendants for this Delaware action.99
The Talen Defendants have moved to dismiss or stay Counts II–V under
McWane for improper venue pursuant to Court of Chancery Rule 12(b)(3), and
Counts I, VI–VII and IX for failure to state a claim under Court of Chancery
Rule 12(b)(6).100 The Riverstone Defendants have moved to dismiss Count VIII for
failure to state a claim under Court of Chancery Rule 12(b)(6).
99
Compl. ¶¶ 126–205.
100
The Talen Defendants move to dismiss Count I (stating a claim for breach of the forum
selection clause) under Rule 12(b)(6) but their arguments implicate a venue analysis under
McWane and Rule 12(b)(3). Accordingly, I analyze the arguments under both rules.
19
II. ANALYSIS
Under McWane, this Court will stay or dismiss a case in deference to a first-
filed case in a different jurisdiction under Court of Chancery Rule 12(b)(3) if the
prior action involves the same parties, the same issues and is pending in a court
capable of doing prompt and complete justice.101 A valid forum selection clause,
however, can preempt application of the McWane doctrine.102 While Defendants
have addressed their Rule 12(b)(3) motion only to certain counts of the Complaint,
they have suggested in briefing that this Delaware litigation should be stayed in its
entirety in favor of the Montana Actions. Accordingly, I address the forum issues
first before turning to the viability of Plaintiffs’ claims as pled.
A. The Motion to Dismiss Counts I and II–V Under McWane
It is undisputed the Separation Agreement contains a forum selection clause
selecting the Delaware Court of Chancery as the exclusive venue for all disputes
among the parties “with respect to this Agreement and the rights and obligations
arising hereunder, or for recognition and enforcement of any judgment in respect of
this Agreement and the rights and obligations arising hereunder.”103 The parties
101
McWane, 263 A.2d at 283.
102
Ingres Corp. v. CA, Inc., 8 A.3d 1143, 1145 (Del. 2010).
103
Compl. ¶ 132; Compl. Ex. A, at 52; Talen Parties’ Opening Br. in Supp. of Their Mot.
to Dismiss or Stay Second Am. and Supplemental Verified Compl. (“Talen OB”) at 24.
20
further agreed they would “not bring any Action relating to this Agreement or any
of the transactions contemplated by this Agreement in any court other than the
[Court of Chancery].”104 Forum selection clauses like this are presumptively valid
and vigorously enforced in Delaware.105
Much of the analysis this Court usually undertakes when analyzing a forum
selection clause is unnecessary here because Defendants do not contest the validity
or breadth of the clause in the Separation Agreement.106 Instead, they argue the
Montana plaintiffs are non-signatories to the Separation Agreement and, therefore,
are not bound by the forum selection provision.107 This argument elides Delaware
law and ignores Plaintiffs’ well-pled allegations.
The forum separation provision at issue is, by any measure, broad.108 Broad
forum selection clauses “apply not only to claims dealing directly with the terms of
the contract itself, but also to any issues that touch on contract rights or contract
104
Compl. Ex. A, at §10.04.
105
Capital Gp. Cos., Inc. v. Armour, 2004 WL 2521295, at *6 (Del. Ch. Nov. 3, 2004).
106
The Talen Parties’ Reply Br. in Supp. of Their Mot. to Dismiss the Second Am. and
Supplemental Verified Compl. (“Talen RB”) at 7.
107
Talen OB 26.
108
See ASDC Hldgs., LLC v. Richard J. Malouf 2008 All Smiles Grantor Retained Annuity
Trust, 2011 WL 4552508, at *5 (Del. Ch. Sept. 14, 2011). The forum selection clause in
the Separation Agreement captures claims “with respect to” the parties’ “rights and
obligations” “arising” under the agreement. Compl. Ex. A, at § 10.04.
21
performance.”109 That the parties negotiated a broad forum selection clause is
relevant to the question of whether the parties intended the clause to apply to non-
signatories.110
The doctrine of equitable estoppel “prevents a non-signatory to a contract
from embracing the contract, and then turning her back on the portions of the
contract, such as a forum selection clause, that she finds distasteful.”111 This court
conducts a three-part inquiry to determine if equitable estoppel binds non-parties to
a forum selection clause: (1) is the clause valid?; (2) are the defendants third-party
beneficiaries or closely related to the contract?; and (3) does the claim arise from
defendants standing relating to the agreement?112
Defendants only contest the third factor, arguing the Montana Actions do not
arise from or relate to the Separation Agreement.113 Specifically, they argue the
Montana Actions assert common law, statutory and contractual claims that are not
109
ASDC, 2011 WL 4552508, at *5 (quotations omitted).
110
See Weygandt v. Weco, LLC, 2009 WL 1351808, at *4 n.15 (Del. Ch. May 14, 2009)
(Strine, V.C.). In Weygandt, the court held that in order for non-signatories to be bound,
their claims must “arise from” the operative agreement. This analysis tracks the analysis
the court undertakes when determining the extent to which certain claims are captured by
a forum selection clause. See ASDC, 2011 WL 4552508, at *5.
111
Armour, 2004 WL 2521295, at *6.
112
Weygandt, 2009 WL 1351808, at *4.
113
Oral Arg. on Defs.’ Mots. to Dismiss (“OA”) at 25.
22
dependent on the existence of the Separation Agreement.114 According to
Defendants, the Montana plaintiffs are not attempting to enforce the Separation
Agreement nor are they seeking any benefits from it.115 While this may be true,
Defendants choose to ignore that, if the Montana Actions proceed, the Montana
defendants undoubtedly will point to and rely upon the Separation Agreement as
their first and principal line of defense.116 While all roads may not lead to Rome, all
litigation roads these parties might travel, both in Delaware and Montana, invariably
will lead back to the Separation Agreement.
Additionally, Plaintiffs have well-pled that Riverstone caused entities over
which it exercised control to file the Montana Actions, in part, to attempt to avoid
the Delaware forum selection clause.117 If Plaintiffs prove this to be true, it would
be inequitable not to enforce the contractually bargained for forum selection clause
114
Talen RB 12.
115
Talen OB 30.
116
To state the obvious, the Montana defendants will argue that, under the Separation
Agreement, they can have no liability for Energy Supply Liabilities or for so-called
“Missing Assets,” are fully indemnified for such claims and, in any event, the Montana
plaintiffs have contractually waived their right to prosecute such claims. Compl. ¶¶ 41–
60. Defendants acknowledged as much at oral argument. (The Court: “you are looking
for some sort of declaration of what all this means in the Separation Agreement here in
Delaware that can then be used in some sort of preclusive way in Montana?” Defendants’
counsel: “That’s the way it’s been set up through this motion.”) OA at 18. Of course,
whether vel non these defenses have merit remains to be seen.
117
Compl. ¶¶ 109, 121, 134–39.
23
simply because Riverstone caused the Montana Actions to be filed by nonparties to
that contract. This Court does not countenance such tactics when they are employed
to defeat bargained-for rights.118
Because the Separation Agreement’s forum selection clause captures the
claims brought in the Montana Actions, there is no need to engage in a McWane
analysis.119 Defendants’ Motion to Dismiss or Stay Counts I and II–V is denied. As
bound parties, Plaintiffs have well-pled that Defendants breached the Separation
Agreement by causing the Montana Actions to be filed. Thus, Defendants’ Motion
to Dismiss Count I must be denied as well.
B. The Motion to Dismiss Counts I, VI, VII & IX Under Rule 12(b)(6)120
The standard for deciding a Motion to Dismiss under Court of Chancery
Rule 12(b)(6) is 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
118
See Ashall Homes, 992 A.2d at 1252 (refusing to allow “artful pleading” to circumvent
a forum selection clause); Neurvana Med., LLC v. Balt USA, LLC, 2019 WL 4464268,
at *5 (Del. Ch. Sept. 18, 2019) (noting “it would be inconsistent with [public] policy to
allow the entities through which one of the parties chooses to act to escape the forum
selection clause” (quoting Weygandt, 2009 WL 1351808, at *5)).
119
Ingres, 8 A.3d at 1145.
120
Having determined that Plaintiffs have properly invoked the forum selection clause, it
follows they have stated a viable claim of breach of that clause by virtue of the filing of the
Montana Actions. Accordingly, I need not analyze the Rule 12(b)(6) motion as to Count I
any further.
24
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 of proof.121
Because this case presents legal issues surrounding the “proper interpretation
of language in a contract,”122 the Court may address these issues at the motion to
dismiss stage “[w]hen the language of [the] contract is plain and unambiguous.”123
Contract language is ambiguous “only when the provisions in controversy are
reasonably or fairly susceptible of different interpretations or may have two or more
different meanings.”124 Dismissal is appropriate when the defendant’s interpretation
is the only reasonable construction as a matter of law; if the plaintiff has proffered a
reasonable construction upon which its claim of breach rests, the motion to dismiss
must be denied.125
Count VI alleges breaches of express provisions of the Separation Agreement;
Count VII alleges a breach of the implied covenant of good faith and fair dealing;
and Count IX seeks a declaratory judgment that PPL is not obligated to indemnify
121
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citation omitted).
122
Allied Capital Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006)
(Strine, V.C.) (noting that issues of contract interpretation present questions of law).
123
Id.
124
AT&T Corp. v. Lillis, 953 A.2d 241, 252 (Del. 2008) (quotations omitted).
Caspian Alpha Long Credit Fund, L.P. v. GS Mezzanine P’rs 2006, L.P., 93 A.3d 1203,
125
1205 (Del. 2014); Kahn v. Portnoy, 2008 WL 5197164, at *1 (Del. Ch. Dec. 11, 2008).
25
the Defendants for this action. Each claim turns on the construction of the Separation
Agreement’s definition of “Energy Supply Liabilities” and “Excluded
Liabilities.”126 Accordingly, it is appropriate to begin the analysis there. I begin by
considering the parties’ competing construction of these terms and then address the
viability of Plaintiffs’ breach of contract, breach of the implied covenant and
declaratory judgment claims.
1. Energy Supply Liabilities vs. Excluded Liabilities
Delaware law governs the Separation Agreement. And, “under Delaware law,
courts interpret contracts to mean what they objectively say” 127 with a purpose of
“satisfying the ‘reasonable expectations of the parties at the time they entered into
the contract.’”128 Our courts construe contracts “as a whole, giving effect to all
provisions therein.”129 “The meaning inferred from a particular provision cannot
control the meaning of the entire agreement if such an inference conflicts with the
agreement’s overall scheme or plan.”130
126
See Talen OB 33–55.
127
Plaze, Inc. v. Callas, 2019 WL 1028110, at *4 (Del. Ch. Feb. 28, 2019) (quotations
omitted).
128
Dittrick v. Chalfant, 948 A.2d 400, 406 (Del. Ch. 2007) (quoting The Liquor Exchange,
Inc. v. Tsaganos, 2004 WL 2694912, at *2 (Del. Ch. Nov. 16, 2004)).
129
Riverbend Cmty., LLC v. Green Stone Eng’g, LLC, 55 A.3d 330, 334 (Del. 2012)
(quotations omitted).
130
GMG Capital Invs., LLC v. Athenian Venture P’rs I, L.P., 36 A.3d 776, 779 (Del. 2012).
26
As noted, the Separation Agreement provides that assets and liabilities
subject to the Spin would be characterized either as “Energy Supply” or
“Excluded.”131 Plaintiffs argue the Montana plaintiffs have brought claims based on
liabilities that Talen expressly assumed and agreed to indemnify the PPL parties for
in the Separation Agreement.132 Defendants counter that they are suing on liabilities
specifically retained by PPL in the Separation Agreement, and because their claims
relate to “Excluded Liabilities,” the Separation Agreement’s indemnification,
release of claims and “Missing Assets” provisions do not apply.133
As noted, Talen agreed to assume all liabilities related to the Energy Supply
Business, specifically promising to “assume, perform, discharge and fulfill when due
and, to the extent applicable, comply with, such Energy Supply Liabilities in
accordance with their respective terms.”134 Energy Supply Liabilities are defined as
“all Liabilities of [PPL] . . . arising out of, relating to or produced from the operation
or conduct of the Energy Supply Assets or . . . the operation or conduct of the Energy
Supply Business . . . .”135 In short, under this construction, any liability (except for
131
Compl. ¶¶ 57–64.
132
Compl. ¶¶ 61–69.
133
Talen OB 36–41.
134
Compl. Ex. A, at § 1.01(g).
135
Compl. Ex. A, at § 2.03(a).
27
Excluded Liabilities) of PPL Energy Supply prior to the Spin would be assumed by
the newly created Talen. Consequently, all of PPL Montana’s liabilities would be
transferred to Talen Montana after the Spin. Defendants do not dispute that this
would capture PPL Montana’s environmental liabilities and unfunded pension
obligations.136
The Separation Agreement specifically carves out certain assets and liabilities
as “Excluded.” This includes the proceeds of the hydroelectric sale to
NorthWestern. To define “Excluded Assets,” the Separation Agreement points to
“the Assets listed or described on Schedule 2.02(b)(ix) . . . .”137 The second item
listed in that schedule is “[a]ll proceeds payable to Energy Supply Sub pursuant to
that certain Purchase and Sale Agreement dated September 29, 2013 between
PPL Montana, LLC and NorthWestern Corporation. . . .”138 Section 2.03(b)(ii) of
the Separation Agreement defines “Excluded Liabilities” as “any Liability of Parent
and/or any of its Affiliates to the extent arising out of or relating to any Excluded
Asset, or any other Asset of Parent or any of its Affiliates that is not an Energy
Supply Asset. . . .”139 Therefore, under a reasonable construction of the relevant
136
See OA at 11–15.
137
Compl. Ex. A, at § 2.02(a).
138
Compl. Ex. C, at 1.
139
Compl. Ex A, at § 2.03(b).
28
language, the proceeds from the sale of PPL Montana’s hydroelectric assets are
Excluded Assets and any liabilities arising from or relating to those assets are
Excluded Liabilities.
Defendants say the contract construction exercise can end here. Specifically,
they argue that, because their claims in Montana relate to the Distribution, the
unambiguous language of the contract renders the liabilities giving rise to those
claims Excluded Liabilities.140 But this stops the analysis halfway. In their
fraudulent transfer claim, the “liability” the Montana plaintiffs say is “Excluded” is
the Distribution that caused Talen Montana’s insolvency.141 In this regard, the
Montana plaintiffs (and Defendants here) attempt a “but for” argument: but for
PPL Montana sending the proceeds of the hydroelectric sale upstream to PPL,
Talen Montana would have sufficient funds to pay its debts.142 Framing the claim
140
Talen OB 37–39.
141
Compl. ¶ 7. The Montana Actions allege insolvency “under all three solvency tests—
balance sheet insolvency, inability to pay debts when due, and unreasonably small
capital . . . .” Talen OB Ex. A, at 15. See generally, Insolvency, BLACK’S LAW
DICTIONARY (11th ed. 2019) (“[t]he condition of being unable to pay debts as they fall
due . . . when the debtor’s liabilities exceed its assets.”).
142
See Talen RB 21 (“Every claim in the Montana Actions seeks redress for the harm
caused by the PPL Parties’ scheme to strip Talen Montana of its value and render it
insolvent by causing the sale of hydroelectric assets and Distribution of the sale
proceeds.”). As Plaintiffs point out, while it is certainly true the money sent upstream to
PPL in the Distribution could have covered at least some portion of these debts, the same
could be said of the billions of dollars that allegedly have flowed in and out of Talen since
the Spin (Plaintiffs specifically point to $1.2 billion spent by Talen to buy MACH Gen,
LLC, and a $500 million special dividend declared and received by Riverstone as
29
this way exposes the inherent connection of the claim to the Separation Agreement;
the alleged insolvency exists because Talen Montana allegedly cannot pay its debts,
specifically its underlying environmental and pension obligations.143 These debts
arise separately from and predate the Distribution. Thus, there is reason under the
Separation Agreement to conclude that Talen expressly assumed these liabilities as
Energy Supply Liabilities.144 As pled in the Complaint, it is reasonably conceivable
that Defendants’ attempt to characterize the “liabilities” at issue as arising solely
from the Distribution is actually an effort to circumvent the Separation Agreement’s
bargained for allocation of risk.145
Riverstone negotiated the Spin with the assistance of experienced counsel on
a clear day. The parties conducted extensive diligence before executing the deal and
the Separation Agreement expressly recognizes that the newly created Talen had no
claim to the proceeds of the hydroelectric sale.146 As pled, all the parties were aware
examples). Compl. ¶¶ 82, 102. And, while Talen was not obliged under the Separation
Agreement to provide Talen Montana with intercompany financing, it is undisputed that
Talen, as a whole, was solvent prior to the take-private transaction and had the ability to
provide some funding to Talen Montana. Talen OB 10.
143
See Talen OB Ex. A, at 14–15.
144
See Compl. Ex. A, at § 2.03(a).
145
Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010) (holding that Delaware courts may
not “rewrite the contract to appease a party who later wishes to rewrite a contract he now
believes to have been a bad deal.”).
146
Compl. ¶¶ 10–12, 64.
30
of the Distribution and nothing in the Separation Agreement indicates any party took
issue with it.147 Moreover, Talen expressly assumed PPL Montana’s liabilities and
Riverstone presumably was aware how PPL had supported its subsidiary through
intercompany financing and how a decline in the wholesale energy market could
threaten the newly-created Talen Montana’s solvency.148 These pled facts support
Plaintiffs’ construction of the operative provisions of the Separation Agreement.
Whether Plaintiffs’ is the only reasonable construction of the contract is a question
not called by the motion sub judice. Suffice it to say, Plaintiffs have proffered a
reasonable construction and, as discussed below, their construction supports their
claims for breach of contract and declaratory judgment.
2. Plaintiffs Have Stated Viable Breach of Contract and Declaratory
Judgment Claims
To state a claim for breach of contract, a plaintiff must plead: (1) the existence
of a contract; (2) the breach of a contractual obligation; and (3) damage to the
plaintiff.149 Having determined that Plaintiffs have proffered a reasonable
construction of the Separation Agreement that supports their claim that the liabilities
in the Montana Actions are Energy Supply Liabilities, it follows they have stated a
147
Compl. ¶ 107.
148
Compl. ¶¶ 112–15.
149
Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 883 (Del. Ch. 2009).
31
viable claim that the filing of the Montana Actions constitutes a material breach of
the Separation Agreement by violating the agreement’s indemnification and antisuit
provisions. Accordingly, the Talen Defendants’ Motion to Dismiss Count VI must
be denied.150 And because the liabilities of Talen Montana are conceivably Energy
Supply Liabilities such that Defendants would not be entitled to indemnification for
defending this action, Defendants’ Motion to Dismiss Count IX must also be denied.
3. Plaintiffs Have Failed to State a Viable Implied Covenant Claim
Along with their express breach of contract claims, Plaintiffs allege
Defendants have breached the implied covenant of good faith and fair dealing.151
Specifically, they allege Talen’s failure to support Talen Montana with
intercompany financing and the Talen controlled entities’ act of filing the Montana
Actions both breach the implied covenant.152 As explained below, these claims fail
as a matter of law.
150
Defendants’ arguments about the inapplicability of the indemnification, waiver of
claims, antisuit and “Missing Assets” provisions of the Separation Agreement all rest on
their construction of the language concerning Energy Supply and Excluded liabilities.
Talen OB 36–41. While that construction may ultimately prevail, the Court’s
determination that Plaintiffs’ have proffered a reasonable construction that would place the
claims in the Montana Actions within the definition of Energy Supply Liabilities precludes
dismissal of claims alleging those provisions have been breached.
151
Compl. ¶¶ 187–93.
152
Id.
32
The implied covenant of good faith and fair dealing “attaches to every
contract.”153 But our courts appreciate that “the implied covenant is a cautious
enterprise” that should not be invoked imperiously.154 Delaware implies terms
within a contract only when there is a gap in a contract that the parties would have
covered with additional covenants had they thought to do so.155 It is not surprising,
then, that “Delaware courts rightly employ the implied covenant sparingly when
parties have crafted detailed, complex agreements, lest parties be stuck by judicial
error with duties they never voluntarily accepted.”156
Plaintiffs have failed to identify the contractual “gap” in the Separation
Agreement the implied covenant must fill. Although the Separation Agreement is
silent regarding Talen’s obligation to provide intercompany support to Talen
Montana, mere silence does not a contractual gap make.157 “The most obvious
reason a term would not appear in the parties’ express agreement is that the parties
simply rejected that term ex ante when they articulated their contractual rights and
153
Dunlap v. State Farm Fire and Cas. Co., 878 A.2d 434, 442 (Del. 2005).
154
Oxbow Carbon & Minerals Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 202 A.3d 482,
506–07 (Del. 2019); Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 146
(Del. Ch. 2009).
155
Nemec, 991 A.2d at 1125.
156
Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *7
(Del. Ch. Apr. 20, 2009) (Strine, V.C.).
157
Nemec, 991 A.2d at 1125.
33
obligations.”158 The Separation Agreement thoroughly details each party’s
obligations and there is no indication the parties bargained for, or even contemplated,
a post-closing duty for Talen to provide financing support to Talen Montana. Had
the parties intended to impose that obligation upon Talen, they would have said so
in the Spin documents.159
Plaintiffs argue the Defendants’ construction of the Separation Agreement
vests Defendants with the ability to “exercise discretion in a manner that could strip
[Plaintiffs] of the benefits of the agreement.”160 “Discretion” in the implied covenant
context does not exist wherever a party to the contract has some decision-making
flexibility; it only exists “in contracts that defer a decision at the time of contracting
and empower one party to make that decision later.”161 Plaintiffs have failed to
address exactly what that discretion is here, other than the obvious power Talen has
158
Allen v. El Paso Pipeline GP Co., L.L.C., 113 A.3d 167, 183 (Del. Ch. 2014) (quoting
Mohsen Manesh, Express Contract Terms and the Implied Contractual Covenant of
Delaware Law, 38 DEL. J. CORP. L. 1, 19 (2013)).
159
Additionally, as Defendants note, the Spin documents do address other post-closing
matters. Talen OB 44–45. Although none concern intercompany financing, the fact that
some post-closing matters were bargained for, but not intercompany financing, strengthens
the argument that the parties did not intend for there to be any contractual obligation for
Talen to provide post-Spin financing to Talen Montana.
160
Pls.’ Answering Br. in Opp’n to Defs.’ Mots. to Dismiss the Second Am. and
Supplemental Verified Compl. (“AB”) 54 (citing Amirsaleh v. Bd. of Trade of City of New
York, Inc., 2008 WL 4182998, at *8 (Del. Ch. Sept. 11, 2008)).
161
Amirsaleh, 2008 WL 4182998, at *8.
34
to control its subsidiaries.162 Our case law is clear the discretion required to invoke
the implied covenant is narrower and more definite than Plaintiffs have proffered
here.163
Plaintiffs also attempt an argument that, in essence, grounds the alleged
breach of the implied covenant in Defendants’ alleged breaches of the express terms
of the Separation Agreement.164 Of course, that is not how the implied covenant
works. If Plaintiffs have a claim for breach of contract, they should state it as such.
There is no room or need for the implied covenant.165 Count VII must be dismissed.
162
AB 55 (“This would give Defendants the discretion to operate the Talen entities in a
bad faith manner and then shift their post-Spin liabilities to PPL.”).
163
See Winshall v. Viacom Int’l, Inc., 55 A.3d 629, 637 (Del. Ch. 2011) (Strine, C.)
(dismissing an implied covenant claim alleging an acquiring company had a duty to run
the acquired company in a manner that maximized payouts to shareholders), aff’d, Winshall
v. Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013); Amirsaleh, 2008 WL 4182998, at *8–9
(denying summary judgment of an implied covenant claim in a contract which contained
explicit discretion granting language); Emery Bay, 2009 WL 1124451, at *7 (denying
Motion to Dismiss of an implied covenant claim where a party was expressly vested with
discretion to cause agreements to be performed); Miller v. HCP & Co., 2018 WL 656378,
at *10–11 (Del. Ch. Feb. 1, 2018) (dismissing implied covenant claim where scope of
discretion was specified).
164
AB 55–57.
165
See Fisk Ventures, LLC v. Segal, 2008 WL 1961156, at *10 (Del. Ch. May 7, 2008)
(“because the implied covenant is, by definition, implied, and because it protects the spirit
of the agreement rather than the form, it cannot be invoked where the contract itself
expressly covers the subject at issue.”).
35
C. Plaintiffs Have Stated a Viable Tortious Interference Claim Against
Riverstone
Plaintiffs allege Riverstone tortiously interfered with the Separation
Agreement by intentionally rendering Talen Montana insolvent and subsequently
causing the Montana Actions to be filed.166 Riverstone accepts as true Plaintiffs’
allegations for now and rests its motion to dismiss on the lack of an underlying
contractual breach, or in the alternative, the affiliate privilege.167 As I have declined
to dismiss Plaintiffs’ breach of contract claims, I turn directly to Riverstone’s
affiliate privilege defense.
The elements of tortious interference are “(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.” 168 The
so-called “affiliate privilege” is a qualified privilege in the intentional interference
realm that protects a parent company’s ability to engage in legitimate business
activities with its subsidiaries.169 If the privilege applies, the plaintiff will not be
able to prove a prima facie element of the tort of intentional interference—that the
166
Compl. ¶ 197.
167
The Riverstone Defs.’ Br. in Supp. of Their Mot. to Dismiss the Second Am. and
Supplemental Verified Compl. (“Riverstone OB”) 2 n.1, 4–5.
168
Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013).
169
Shearin v. E.F. Hutton Gp., Inc., 652 A.2d 578, 591 (Del. Ch. 1994) (Allen, C.).
36
parent’s alleged interference with its subsidiary’s contract was “without
justification.”
“[T]he test for holding a parent corporation liable for tortious interference
ha[s] to be high or every-day consultation or direction between parent corporations
and subsidiaries about contractual implementation would lead parents to be always
brought into breach of contract cases.”170 In Shearin v. E.F. Hutton Group, Inc.,
Chancellor Allen described how a plaintiff must plead the interfering party acted in
bad faith to overcome the privilege:
[T]he gist of a well-pleaded complaint for interference by a corporation
of a contract of its affiliate is a claim that the “interfering” party was
not pursuing in good faith the legitimate profit seeking activities of the
affiliated enterprises. If one is privileged by reason of a recognized
relationship to discuss the financial welfare of an affiliated party, one
may in good faith suggest that a termination of a contract, and the
assumption of any resulting liability, would be beneficial to that
party.171
The bad faith standard is “stringent” and will not be found where a parent was merely
advising or causing the subsidiary to engage in an efficient breach of the contract.172
Plaintiffs’ allegations that Riverstone intentionally caused its subsidiaries to
render Talen Montana insolvent and to file the Montana Actions are sufficient to
170
Allied Capital, 910 A.2d at 1039.
171
Shearin, 652 A.2d at 591.
172
Allied Capital, 910 A.2d at 1039; NAMA Hldgs., LLC v. Related WMC LLC, 2014
WL 6436647, at *30 (Del. Ch. Nov. 17, 2014).
37
allege bad faith and overcome the privilege.173 In this regard, then-Vice Chancellor
Strine’s decision in Allied Capital v. GC-Sun Holdings, L.P. is instructive.174
In Allied Capital, a company engaged in a series of transactions with its subsidiaries
by which a note holder’s priority, and ultimate financial return, was dramatically
reduced.175 The court noted, “this case does not involve the classic efficient breach
scenario that underlies the limited privilege in the tortious interference context[,]”
and emphasized that “[parent] is alleged to have purposely injured [subsidiaries] so
as to enable [parent’s] newly-created affiliate [company] to reap gain.”176
Plaintiffs have also sufficiently pled this is not a “classic efficient breach
scenario” and that Riverstone purposefully damaged its subsidiary, Talen Montana,
in order to orchestrate this lawsuit as a means to achieve a cash recovery from
Plaintiffs.177 As in Allied Capital, it is well-pled here that Riverstone “use[d] its
control of a subsidiary, not to enrich the subsidiary, but to divert value from the
173
Compl. ¶¶ 197–98.
174
Allied Capital, 910 A.2d at 1040. Although the court dismissed the tortious interference
claim because there was no underlying breach of contract, in discussing a claim of civil
conspiracy among business entities under common control, the court specifically noted,
“[i]n this case, there is no doubt that the complaint pleads facts that satisfy . . . the bad faith
standard articulated in Shearin.” Id.
175
Id. at 1026–29.
176
Id. at 1040.
177
Id. at 1041; Compl. ¶¶ 197–98.
38
subsidiary to itself in a bad faith manner . . . .”178 Riverstone is not alleged to have
caused Talen Montana to breach the Separation Agreement because it viewed paying
damages as less costly than performance. Rather, it is well-pled that Riverstone
caused a breach because it thought it could profit from a subsequent lawsuit against
the PPL parties.179 Whether Plaintiffs can prove those allegations remains to be seen.
For now, however, the Riverstone Defendants’ Motion to Dismiss Count VIII must
be denied.
III. CONCLUSION
For the foregoing reasons, the Talen Defendants’ Motion to Dismiss is
DENIED as to Counts I–VI and Count IX, and GRANTED as to Count VII.
Riverstone’s Motion to Dismiss Count VIII is DENIED.
IT IS SO ORDERED.
178
Allied Capital, 910 A.2d at 1042.
179
Compl. ¶ 110.
39