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In re Plains All American Pipeline, L.P. Unitholders Books And Records Litigation

Court of Chancery of Delaware

August 8, 2017



          Tamika Montgomery-Reeves Vice Chancellor.

         WHEREAS, Plaintiffs seek books and records of Defendants under Section 3.4(a) of the Plains All American Pipeline, L.P. ("Plains") limited partnership agreement[1] and 6 Del. C. § 17-305(a) to investigate whether an oil spill from a Plains pipeline in California was the result of mismanagement;

         WHEREAS, the facts in this order are my findings based on the parties' pre-trial stipulation, 117 documentary exhibits introduced at a trial on February 16, 2017, and the parties' pre- and post-trial briefing; and I grant the evidence the weight and credibility that I find it deserves;[2]


         1. Plaintiffs lack standing to obtain the books and records of Plains GP Holdings, L.P. The remaining Defendants shall produce the documents listed in paragraph 47 of the Joint Pre-Trial Order going back to 2010. Plains may redact non-responsive data, and the parties shall negotiate a confidentiality stipulation. The production shall be incorporated by reference into any subsequent derivative complaint on the terms described in Amalgamated Bank v. Yahoo! Inc. (132 A.3d 752 (Del. Ch. 2016)) (the "Incorporation Condition"). Plaintiffs shall bear the expense of gathering, transporting, and copying the documents. Defendants shall be responsible for their own attorneys' fees and expenses-including, but not limited to, any vendor fees, expenses, and costs-in connection with any privilege or confidentiality review.

         2. Defendant Plains is a publicly traded Delaware master limited partnership that, through its subsidiaries, owns and operates midstream energy infrastructure, including crude oil pipelines in the United States and Canada. PTO ¶ 8. Defendant PAA GP LLC, a Delaware limited liability company, is the general partner of Plains and holds a 2% interest in Plains. JX 117. Defendant Plains AAP, L.P., a Delaware limited partnership, is the sole owner of PAA GP LLC. Id. And Defendant Plains All American GP LLC, a Delaware limited liability company, is the general partner of Plains AAP, L.P. Id. Plains All American GP LLC manages Plains's operations and activities and employs its domestic employees. Defendant Plains GP Holdings, L.P. ("GP Holdings") is a publicly traded Delaware limited partnership with its own set of public unitholders. GP Holdings is the sole managing member of Plains All American GP LLC. Id. Plaintiffs Roger Kirby, Linda Greenberg, and Fireman's Retirement System of St. Louis own Plains's publicly traded common units. JX 91; JX 100.[3]

         3. Defendants assert that Plaintiffs do not have standing to obtain the books and records of GP Holdings because they are not beneficial owners of that entity. Plaintiffs in their post-trial opening brief argue that they have standing to obtain documents from Plains's "General Partner." The opening brief does not identify which entity the term "General Partner" references. Defendants respond that their standing objection relates exclusively to GP Holdings. GP Holdings is a separate entity from Plains and from Plains's general partner, PAA GP LLC. GP Holdings has its own set of public unitholders, its own ticker symbol on the New York Stock Exchange, and its own partnership agreement. Plaintiffs fail to address standing at all in their post-trial reply brief and, thus, abandon any argument that they have standing to obtain GP Holdings's books and records. Emerald P'rs v. Berlin, 726 A.2d 1215, 1224 (Del. Ch. 1999) ("Issues not briefed are deemed waived."). Plaintiffs, thus, lack standing to obtain the books and records of GP Holdings.

         4. As to the remaining Defendants, to obtain books and records of a limited partnership under 6 Del. C. § 17-305, a limited partner must establish "(1) that the limited partner has complied with the provisions of [that] section respecting the form and manner of making demand for obtaining such information, and (2) that the information the limited partner seeks is reasonably related to the limited partner's interest as a limited partner." 6 Del. C. § 17-305(e). Defendants do not dispute that Plaintiffs complied with the form and manner requirements of Section 17-305.

         5. Defendants dispute whether Plaintiffs seek books and records "for a purpose reasonably related to [Plaintiffs'] interest as . . . limited partner[s] in [Plains], " as required by the Plains limited partnership agreement. JX 18, § 3.4(a). To determine "whether a purpose is reasonably related to the limited partner's interest under § 17-305, the Court of Chancery will consider whether that purpose is 'proper' within the meaning of 8 Del. C. § 220, the corporate analog to § 17-305. Plaintiff bears the burden of proving a proper purpose." Madison Real Estate Immobilien-Anlagegesellschaft Beschrankt Haftende Kg v. Kanam USA XIX Ltd. P'ship, 2008 WL 1913237, at *5 (Del. Ch. May 1, 2008); cf. 8 Del. C. § 220(b) ("A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder.").

         6. Plaintiffs' sole asserted purpose for seeking books and records in this case is to investigate mismanagement or wrongdoing in connection with the Line 901 oil spill. Pls.' Pre-Trial Br. 26-28. In the 8 Del. C. § 220 context, "[t]his Court routinely has acknowledged that investigating corporate waste, mismanagement, or wrongdoing is a proper purpose for which to demand inspection of books and records." Beatrice Corwin Living Irrevocable Tr. v. Pfizer, Inc., 2016 WL 4548101, at *4 (Del. Ch. Aug. 31, 2016). But a plaintiff cannot obtain books and records merely by alleging that its purpose is to investigate mismanagement. Instead, "a stockholder whose stated purpose is investigating mismanagement must provide 'some evidence' to suggest a 'credible basis' from which this Court may infer possible mismanagement, waste, or wrongdoing may have occurred." Id. (quoting Seinfeld v. Verizon Commc'ns, Inc., 909 A.2d 117, 118 (Del. 2006)). The credible basis standard requires far less than proving actual waste or mismanagement. Seinfeld, 909 A.2d at 123. Rather, "[s]tockholders need only show, by a preponderance of the evidence, a credible basis from which the Court of Chancery can infer there is possible mismanagement that would warrant further investigation . . . ." Id. That "threshold may be satisfied by a credible showing, through documents, logic, testimony or otherwise, that there are legitimate issues of wrongdoing." Id. (quoting Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 568 (Del. 1997)) (internal quotation marks omitted). "Hearsay statements may be considered, provided they are sufficiently reliable." Yahoo! Inc., 132 A.3d at 778. The credible basis standard is "the lowest possible burden of proof" under Delaware law. Seinfeld, 909 A.2d at 123. "The only way to reduce the burden of proof further would be to eliminate any requirement that a stockholder show some evidence of possible wrongdoing." Id.

         7. The evidence Plaintiffs presented at trial sufficiently establishes a credible basis to warrant further investigation into whether the Plains board complied with its standard of care under the Plains limited partnership agreement. The Plains limited partnership agreement states as follows regarding the Plains directors' duties:

Any standard of care and duty imposed by this Agreement or under the Delaware Act or any applicable law, rule or regulation shall be modified, waived or limited, to the extent permitted by law, as required to permit the General Partner to act under this Agreement or any other agreement contemplated by this Agreement and to make any decision pursuant to the authority prescribed in this Agreement, so long as such action is reasonably believed by the General Partner to be in, or not inconsistent with, the best interests of the Partnership.

JX 18, § 7.10(d). On May 19, 2015, the primary event giving rise to Plaintiffs' demand for books and records occurred. Line 901, a Plains pipeline, ruptured in Santa Barbara County, California and spilled an estimated 1, 700 to 2, 500 barrels of crude oil on a Pacific Ocean beach and the surrounding area. JX 31; JX 32; JX 39. The oil spill covered four miles of coast in crude oil and damaged the natural environment and at least some wildlife. JX 31; JX 57. On May 20, 2015, a Los Angeles Times article reporting on the Line 901 spill stated that "[a] Times analysis of data from the Pipeline and Hazardous Materials Safety Administration shows Plains'[s] rate of incidents per mile of pipe is more than three times the national average. Such incidents may include problems with pipelines, storage tanks and drains, among others." JX 35. The article stated that "only four companies reported more infractions than Plains, " and Plains's incidents "caused more than $23 million in property damage" from 2006 to the date of the article. Id. The article further explained that Plains said it had inspected Line 901 two weeks before the spill but that the results of that inspection had not come back before the rupture. Id. On May 21, 2015, an article in the New York Times described the Line 901 spill and quoted Carl Weimer, the executive director of the Pipeline Safety Trust, a "nonprofit watchdog group, " as saying "Plains Pipeline had a 14 percent higher rate of incidents per mile of pipeline than the national average rate . . . ." JX 40.

         8. On May 20, 2015, the Santa Barbara County district attorney's office publicly confirmed that it was investigating the Line 901 rupture (JX 34), and a year later on May 16, 2016, the Santa Barbara County grand jury returned a 46-count indictment of Plains and Plains employee James Colby Buchanan. The indictment includes four felony counts and alleges, in part, that Plains "knowingly engaged in or caused, or reasonably should have known that [it] was engaging in or causing, the discharge or spill of oil into the waters of the state, " and that Plains "did knowingly make a false or misleading oil spill report to the California Office of Emergency Services, regarding the discharge or spill of approximately 140, 000 gallons of crude oil ...

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