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Court of Chancery Grants Summary Judgment In Favor Of Defendants Alleged To Have Breached Their Fiduciary Duties By Approving Asset Sale Likely To Result In Zero Value To Equity Owners

Blackmore Partners, L.P. v. Link Energy LLC, C.A. No. 454-N, 2005 WL 2709639 (Del. Ch. Oct. 14, 2005). Plaintiff Blackmore Partners L.P. instituted cause of action against Defendant Link Energy LLC and its directors, alleging breaches of fiduciary duty in connection with the sale of Link's assets for a price likely to leave zero value to Link's equity investors. Defendants moved for summary judgment. Link had issued $104 million in unsecured notes and 95% of its equity units to certain creditors. Plaintiff owned some of the remaining equity units. The instrument governing the notes contained a restrictive covenant requiring any purchaser of substantially all of Link's assets to assume the notes. Facing a threat of bankruptcy, a special committee consisting of Link directors who did not any notes negotiated an asset sale with a third party acquirer. The note holders agreed to waive the restrictive covenant in exchange for Link agreeing to repay the notes at par plus interest and to pay note holders their proportionate share of up to $25 million from funds remaining after Link wound up its affairs, but before any distribution to equity unit holders. As a result, the equity unit owners stood to gain nothing from the asset sale. Plaintiff alleged that the directors breached their fiduciary duties by approving the transactions. The Court granted the Defendants motion for summary judgment, finding: (1) the transactions were not subject to enhanced scrutiny; (2) Link was insolvent and therefore its directors owed fiduciary duties to Link's creditors; and (3) Plaintiff failed to rebut the presumption of the business judgment rule.