Court of Chancery Dismisses Thinly-Pleaded Breach of LPA Claim and Breach of Fiduciary Duty Claim Disclaimed by LPA and Foreclosed by Corwin
Ryan v. Buckeye Partners L.P. et al., C.A. No. 2021-0432-JRS (Del. Ch. Feb. 9, 2021)
Delaware is a notice pleading jurisdiction. But, even under this forgiving standard, the Court of Chancery Rule 8 still requires that the pleadings give defendants notice of the claims asserted against them. This recent decision from the Court of Chancery found that Plaintiff’s breach of a limited partnership agreement (“LPA”) claim failed to put Defendants on notice of even what provisions were allegedly breached. The Court also held that Plaintiff’s breach of fiduciary duty claims was deficient because the LPA disclaimed traditional fiduciary duties and, in all events, the claims were foreclosed by a fully informed vote under Corwin.
Plaintiff – a former unitholder in Defendant Buckeye Partners L.P. (“Buckeye”) – filed suit alleging a series of wrongs stemming from Buckeye’s acquisition by Defendant IFM Investors Pty Ltd (“IFM”). Specifically, Plaintiff claimed the transaction was unfairly structured to result in financial and tax benefits to IFM, while depriving the unitholders of distributions.
In holding that the plaintiff failed to meet the Rule 8 notice standard with respect to the breach of the LPA claim, the Court reasoned that the Plaintiff did not point to any provision in the LPA that was breached. And the claim for failing to make distributions was belied by the fact that the LPA expressly provided that the unitholders had no right to distributions. The Court held that the breach of fiduciary duty claims also failed because the LPA eliminated all traditional fiduciary duties. Assuming the LPA had not displaced traditional duties, the Court also reasoned that the transaction was protected by the business judgment rule. Under the Corwin doctrine, transactions approved by a fully informed vote of stockholders – here, 96% of the unitholders had approved the transaction – are given business judgment rule protection. Based on the as-pleaded facts, the Court held the majority vole of the unitholders was fully informed. Accordingly, the Court dismissed the breach of LPA and breach of fiduciary duty claims.