Topic: Asset Sale

CHANCERY COURT FINDS THAT LANGUAGE OF LIMITED PARTNERSHIP AGREEMENT GOVERNS WHICH CLAIMS SURVIVE SUMMARY JUDGMENT IN MASTER LIMITED PARTNERSHIP’S RELATED PARTY TRANSACTION

By Scott Waxman and Adrienne Wimberly

In Mesirov v. Enbridge Company, Inc., et al. C.A. No. 11314-VCS (Del. Ch. Aug.29, 2018), the Delaware Chancery Court dismissed five of eight counts alleged with respect to a transaction where Enbridge Energy Company (EEP) repurchased for $1 billion a two-thirds interest in Alberta Clipper Pipelines (AC interest), despite the fact that EEP had sold that same interest years prior for $800 million and the business had steadily declined since such sale.  The dismissals were based primarily upon the language and obligations included in EEP’s limited partnership agreement.

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Chancery Court Finds That Stockholders Have Standing For Direct Suit Relating To Unique Claims For Breach Of Fiduciary Duties

By: David L. Forney and Calvin D. Kennedy

In In re Straight Path Communications Inc. Consol. S’holder Litig., C.A. No. 2017-0486-SG (Del. Ch. June 25, 2018), the Court of Chancery, denied a motion to dismiss, finding that the transfer of an indemnification claim to the controller of a company was “sufficiently intertwined” with the company’s sale for the stockholders to make the Plaintiff’s claim a direct claim instead of a derivative claim.  The Court stated that when a controller uses his control to extract a special benefit in a sale, at the expense of the consideration to the stockholders, both the injury and the recovery run directly in favor of the former stockholders. The Court also found that, the controller’s actions related to the purchase of the indemnification claim and other assets from the company for “a manifestly unfair price” were sufficient to state a viable claim for breach of fiduciary duties.

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Failure to Make Demand to the Board of Directors Dooms 50% Owner’s Breach of Fiduciary Duty Claims Against Co-Owner

By: Michelle McCreery Repp and Benjamin Kendall

In Dietrichson v. Knott, C.A. No. 11965-VCMR (Del. Ch. Apr. 19, 2017), the Chancery Court dismissed the entire complaint brought by  one member of a limited liability company against another member for paying himself an unauthorized salary and misappropriating the proceeds of a sale of the company’s assets, concluding that the claims made were derivative rather than direct stockholder claims.  The Court also held that plaintiff’s claims were not “dual-natured” (i.e., having both direct and derivative aspects), because the plaintiff failed to plead that the transaction resulted in both an improper transfer of economic value and voting power from the minority equity holders to the controlling equity holder.

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Chancery Court Dismisses Derivative Breach of Fiduciary Duty Claims as Improperly Pled and the Requests for Declaratory Judgment as Not Ripe

By: Annette Becker and Makda Goitom

In Chester County Employees’ Retirement Fund v. New Residential Investment Corp., No. 11058-VCMR (Del. Ch. Oct. 7, 2016), the Court of Chancery granted the motion to dismiss brought by defendants (the members of the board of directors of New Residential Corp. (“New Residential”), its manager, the manager’s owner, and its controlling stockholder: (i) for an improperly pled derivative claim (with leave to replead) brought against the defendants for breach of fiduciary duty by the plaintiff, a stockholder of New Residential, (ii) for plaintiff’s failure to sufficiently plead futility in demanding that the board of New Residential bring the derivative suit, and (iii) as to declaratory judgments sought by plaintiff with respect to the Defendants’ liability under certain documents as not being ripe (with leave to replead).

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Chancery Court Denies Defendant Fund Manager’s Request to Pay Ongoing Legal Fees from Disputed Assets; Permits Payment of Administrative Fees Incurred in Completing Necessary SEC and Tax Filings

By Scott Waxman and Max Kaplan

By letter-order dated November 25, 2015, Vice Chancellor John W. Noble issued a “Status Quo Order” in Capital Link Fund I, LLC v. Capital Point Management, LP. By this order, the court approved disbursement of certain administrative fees sought by defendants from the assets in dispute, but denied defendants’ request to pay its legal fees from the same disputed assets.

Plaintiffs in this action are limited partners to an investment fund of which defendant Capital Point Management, LP (“CPMLP”) is the general partner. In July of 2014, CPMLP caused the partnership to sell all of its assets to defendant Princeton Capital Corporation (“Princeton Capital”)—a CPMLP affiliate. Plaintiffs allege that CPMLP, in violation of the controlling partnership agreement, did so without providing notice to or obtaining approval from the limited partners or the partnership’s Board of Advisors.

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