Delaware Business Litigation Report

Court Of Chancery Explains What Is Required To Plead Bad Faith

Brinckerhoff v. Enbridge Energy Company Inc., C.A. 11314-VCS (April 29, 2016)

This is an interesting decision for at least two reasons. First, in it the new Vice Chancellor demonstrates that he is both well-versed in Delaware business entity law and fully capable of carrying out the Court of Chancery’s tradition of well-written, comprehensive decisions. Second, the decision explains what is required to adequately allege the bad faith sufficient to overcome an LLP’s exculpatory provisions for a conflicted transaction. In general, the use of a special negotiation committee, receipt of an adequate fairness opinion and use of independent counsel are sufficient to overcome mere allegations that a transaction was approved in bad faith. There is no need to also submit the transaction to a majority vote of the entity’s owners, at least when the entity is a limited partnership and when the LLP agreement does not require such a vote.

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