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Claims Alleging that Icahn Entities Schemed to Buy Out Minority Unitholders on the Cheap Survive Motion to Dismiss

In re CVR Refining, LP Unitholder Litig., Consol. C.A. No. 2019-0062-KSJM (Del. Ch. Jan. 31, 2020).

The Court of Chancery declined at the pleadings stage to dismiss claims for breach of a governing limited partnership agreement (the “Agreement”) and tortious interference alleging that entities controlled by Carl Icahn (the “Icahn Entities”) engaged in a multi-step scheme designed to artificially deflate the market price of CVR Refining L.P.’s (the “Partnership”) common units and facilitate an involuntary buyout that conferred a windfall on the Icahn Entities.

Plaintiffs were former common unit holders in the Partnership (the “Plaintiffs”). The Agreement disclaimed any fiduciary duties, but it required the Partnership’s general partner, CVR Refining GP, LLC (the “General Partner”), to act in good faith. Plaintiffs alleged that defendants’ scheme violated the contractual obligation to act in good faith, as well as the implied covenant of good faith and fair dealing, and tortiously interfered with the limited partners’ rights under the Agreement. The alleged scheme involved: (1) an Icahn-controlled entity, CVR Energy, proposing a partial exchange offer (the “Offer”) at $26.75 per unit to the General Partner’s board (the “Board”), which also was dominated by Carl Icahn; (2) the Board publicly announcing it would make no recommendation concerning the Offer; (3) launching the Offer to acquire additional common units sufficient to reach the ownership threshold to trigger a call right to purchase the remaining common units under the Agreement (the “Call Right”); (4) waiting for a 90-day price-protection period to expire while concealing their intention to exercise the Call Right; (5) subsequently announcing the intention to exercise the Call Right, thus driving down the trading price of the common units; and (6) exercising the Call Right and acquiring the remaining common units at the “artificially low price” of $10.50 per unit. Plaintiffs alleged this scheme was based on a similar, well-publicized allegedly unfair exercise of a call right by another publicly-traded partnership in the same industry, which also is the subject of litigation pending before the Court. See Bandera Master Fund, LP v. Boardwalk Pipeline P’ners, LP, 2019 WL 4927053 (Del. Ch. Oct. 7, 2019). 

While dismissing Plaintiffs’ claims as to some of the named defendants who were not parties to the Agreement, the Court found that Plaintiffs adequately pled a claim against certain defendants for (1) breach of the Agreement’s subjective “good faith” standard relating to the Board’s non-recommendation of the exchange offer and the public disclosure of such non-recommendation despite the apparent detrimental effect on the market value of the common units (conceivably increasing the Partnership’s cost of capital); (2) breach of the covenant of good faith and fair dealing for allegedly “undermining the price setting mechanism contained in the Call Right[;]” and (3) tortious interference with the Agreement relating to Carl Icahn’s utilization of his “control over the Partnership and General Partner” to facilitate other defendants’ breach of the Agreement.