Chancery Holds Prior Rulings in Appraisal and Securities Litigation Do Not Bar New Columbia Pipeline Fiduciary Duty Action
In re Columbia Pipeline Group, Inc. Merger Litigation, C.A. No. 2018-0484-JTL (Del. Ch. Mar. 1, 2021)
Certain judicial doctrines, including collateral estoppel and stare decisis, promote efficiency and finality by barring the re-litigation of factual and legal issues. For these doctrines to apply, however, there must be overlap between the parties, the claims or the legal posture. This case demonstrates that, without such overlap, courts will permit subsequent claims even when the underlying transaction has already been the subject of significant prior litigation.
In 2016, TransCanada acquired Columbia Pipeline by merger. Since then, there has been constant litigation related to the deal. The Court of Chancery dismissed an initial action claiming the merger was a breach of fiduciary duty. In a subsequent appraisal action, the Court concluded the deal price presented “fair value.” And the federal District Court dismissed a suit that asserted federal securities claims (although without addressing the fiduciary duty claims brought in that suit).
Plaintiffs filed this action alleging (in basic terms) that Columbia’s CEO and CFO breached their fiduciary duties by improperly aiding TransCanada’s acquisition efforts and that TransCanada aided that breach of fiduciary duty. Defendants moved to dismiss on the grounds that the prior litigation barred Plaintiffs’ claims.
The Court disagreed. Collateral estoppel — i.e., issue preclusion — bars re-litigation of an issue essential to the judgment in prior litigation between the same litigants and parties sufficiently aligned with those litigants. Here, Plaintiffs were not parties to the prior fiduciary duty litigation, nor were they represented by or in privity with the prior litigants, and Plaintiffs undertook no action that would warrant binding them to the earlier dismissal in that case. In reaching its decision, the Court distinguished earlier cases suggesting broader application of preclusion. The Court also noted that the federal court’s dismissal did not have preclusive effect to the extent that the court predicated its decision on the federal “plausibility” pleading standard rather than Delaware’s lower “reasonable conceivability” standard. Thus, the Court concluded that collateral estoppel did not bar the Plaintiffs’ claims.
Similarly, stare decisis did not bar Plaintiff’s claims. Although the appraisal litigation examined the sale process, it did so only to determine whether the process “was sufficiently reliable to make the deal price a persuasive indicator of value.” Because of the limited nature of a statutory appraisal action, the court in that case did not examine whether a fiduciary breach prevented a better price or a higher bid. That is, the appraisal action did not apply enhanced scrutiny or address whether Columbia’s directors satisfied the so-called Revlon duties to act reasonably to obtain the best value reasonably available. Because Plaintiffs otherwise properly pleaded their claims, the Court allowed the claims to proceed.Share