In re PLAINS ALL AMERICAN PIPELINE, L.P. UNITHOLDERS BOOKS AND RECORDS LITIGATION
Montgomery-Reeves Vice Chancellor.
Plaintiffs seek books and records of Defendants under Section
3.4(a) of the Plains All American Pipeline, L.P.
("Plains") limited partnership
agreement and 6 Del. C. § 17-305(a) to
investigate whether an oil spill from a Plains pipeline in
California was the result of mismanagement;
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
THEREFORE, THE COURT HEREBY FINDS AND ORDERS:
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.
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
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.
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
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
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.
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.
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