Brinckerhoff v. Enbridge Energy Company, Inc., et al.

Plaintiffs Peter Brinckerhoff and his trust, were long-term investors in Enbridge Energy Partners, L.P. (“EEP”), a Delaware master limited partnership (“MLP”). A benefit under Delaware law of this business structure was the ability to eliminate common law duties in favor of contractual ones, thereby restricting disputes to the four corners of the limited partnership agreement (“LPA”). This was not the first lawsuit between Brinckerhoff and the Enbridge MLP entities over a conflicted transaction. In 2009, Brinckerhoff filed suit against most of the same defendants in the current dispute, and challenged a transaction between the sponsor and the limited partnership. Enbridge, Inc. (“Enbridge”), the ultimate parent entity that controlled EEP’s general partner, Enbridge Energy Company, Inc. (“EEP GP”), proposed a joint venture agreement (“JVA”) between EEP and Enbridge. Brinckerhoff contested the fairness of the transaction on a number of grounds. After several rounds in the Court of Chancery leading to the dismissal of his claims, and a trip to the Delaware Supreme Court, Brinckerhoff eventually came up short when the Court of Chancery’s ruling that he had waived his claims for reformation and rescission of the transaction by failing to assert them first in the Court of Chancery was affirmed. A dispute over the Clipper project would again go before the Court of Chancery. In 2014, Enbridge proposed that EEP repurchase Enbridge’s interest in the Alberta Clipper project excluding the expansion rights that were part of the earlier transaction. As part of the billion dollar transaction, EEP would issue to Enbridge a new class of EEP partnership securities, repay outstanding loans made by EEP GP to EEP, and, amend the LPA to effect a “Special Tax Allocation” whereby the public investors would be allocated items of gross income that would otherwise be allocated to EEP GP. According to Brinckerhoff, the Special Tax Allocation unfairly benefited Enbridge by reducing its tax obligations by hundreds of millions of dollars while increasing the taxes of the public investors, thereby undermining the investor’s long-term tax advantages in their MLP investment. The Court of Chancery did its best to reconcile earlier decisions interpreting the same or a similar LPA, and ended up dismissing the complaint. On appeal, Brinckerhoff challenged the reasonableness of the Court of Chancery’s interpretation of the LPA. The Supreme Court agreed with the defendants that the Special Tax Allocation did not breach Sections 5.2(c) and 15.3(b) governing new unit issuance and tax allocations. But, the Court found that the Court of Chancery erred when it held that other “good faith” provisions of the LPA “modified” Section 6.6(e)’s specific requirement that the Alberta Clipper transaction be “fair and reasonable to the Partnership.” View "Brinckerhoff v. Enbridge Energy Company, Inc., et al." on Justia Law