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Morris v. Spectra Energy Partners (DE) GP, LP

Court of Chancery of Delaware

September 30, 2019

PAUL MORRIS, on behalf of all similarly situated former unitholders of SPECTRA ENERGY PARTNERS, LP, Plaintiff,

          Submitted Date: June 27, 2019

          Michael J. Barry and Michael T. Manuel, of GRANT & EISENHOFER P.A., Wilmington, Delaware; Peter B. Andrews, and Craig J. Springer, of ANDREWS & SPRINGER LLC, Wilmington, Delaware; OF COUNSEL: Jeremy Friedman, Spender Oster, and David Tejtel, of FRIEDMAN OSTER & TEJTEL PLLC, New York, NY, Attorneys for Plaintiff .

          Robert S. Saunders, Ronald N. Brown, III, and Ryan M. Lindsay, of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; OF COUNSEL: Noelle M. Reed, Daniel S. Mayerfeld, and Alston L. Walker, of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Houston, Texas, Attorneys for Defendant.



         This is the second incarnation of a challenge-by a unitholder of a master limited partnership-to a buyback (a "reverse dropdown") of partnership assets formerly purchased from the controller of the partnership's general partner. The first litigation in the matter alleged that a special committee appointed by the general partner consented to the transaction in violation of its contractual duty of good faith, at an inadequate price. That litigation was brought in pertinent part derivatively, and survived a motion to dismiss.[1] Standing to pursue the matter was lost, however, when the controller acquired the partnership via merger.

         The Plaintiff then brought this challenge to that merger, alleging that the general partner agreed to the merger in bad faith, in that it failed to receive any value for the derivative litigation asset. Generally, the litigation assets of an entity, like any other asset, pass to an acquirer. The former derivative plaintiff can, as a stockholder or unitholder, challenge the fairness of the merger in general directly, but she may not continue to litigate the derivative claim itself. The question arises, where a former derivative plaintiff seeks to pursue loss of the claim post-merger, whether the new complaint remains derivative in nature, in which case the plaintiff lacks standing, or whether it represents a direct attack on the merger itself.

         In limited circumstances, a former derivative plaintiff has standing to contest the merger directly, on the ground that it wrongfully extinguished the derivative claim. Those cases involve the situation where the entity's fiduciaries have permitted a material litigation asset to be extinguished in the merger process, without value to the stockholders or unitholders. In such a situation, the plaintiff may have standing to pursue a claim for the wrongful destruction of the asset. The analysis as to whether a plaintiff can pursue such a claim directly, post-merger, is set out, consistent with our Supreme Court's opinion in Parnes v. Bally Entertainment, [2] in this Court's Primedia decision.[3] Primedia provides a three-part test for standing to pursue a direct claim challenging a merger price solely on failure to obtain value for a derivative litigation asset: Was the underlying claim viable? Was its value material in light of the merger consideration? Did the company fail to receive value for the claim in the merger because the buyer would not be willing to pursue it?

         The Defendant has moved to dismiss, arguing that the Plaintiff does not pass the Primedia test, and therefore lacks standing; and that in any event he has failed to state a claim on which relief can be granted.

         I find that the value of the derivative claim here was not material in light of the merger transaction. The derivative claim asserted that in determining that the reverse dropdown was fair to the partnership, the derivative defendants erred in netting out from known value a reduction of future payments to the general partner avoided due to the reverse dropdown. According to the derivative complaint, the assets, valued at $1.5 billion, were undersold by $554 million. That is not the value of the claim to the partnership, however. The potential value must be reduced to reflect the minority unitholders' interest, as well as the prospect of ultimate recovery in light of the difficulties of proof inherent therein. Upon consideration, I find the amount at issue not material to the partnership. Therefore, the Plaintiff lacks standing and the Motion to Dismiss must be granted. Accordingly I need not reach the Defendant's argument under Rule 12(b)(6). My reasoning follows.

         I. BACKGROUND[4]

         A. The Parties and Relevant Non-parties

         The Plaintiff, Paul Morris, owned common units of Spectra Energy Partners, LP ("SEP" or the "Partnership") at all relevant times through December 17, 2018, when all outstanding public units of SEP were converted into common shares of Enbridge, Inc. ("Enbridge").[5] He brings this action directly as a class action on behalf of all owners of SEP public units during the period beginning May 17, 2018 through December 17, 2018.

         Non-party SEP is a Delaware master limited partnership ("MLP"). Prior to their conversion to common shares of Enbridge, SEP's common units traded on the New York Stock Exchange ("NYSE"). The Defendant, Spectra Energy Partners (DE) GP, LP ("SEP GP"), is a Delaware limited partnership and the general partner of SEP.[6] SEP GP is controlled by its own general partner, non-party Spectra Energy Partners GP, LLC ("SEP GP LLC"), a Delaware limited liability company.[7] SEP GP LLC's Board of Directors manages SEP.[8]

         Non-party Enbridge is the ultimate parent of SEP and a pipeline and energy transportation company that owns interests in pipeline systems throughout North America.[9] Prior to their conversion to common shares of Enbridge, 83% of SEP's outstanding units were owned by Enbridge.[10] Further, SEP GP is a "wholly owned subsidiary" of Enbridge.[11] Enbridge's predecessor-in-interest as concerns all entities relevant here was Spectra Energy Corp ("SE Corp").[12] Enbridge acquired SE Corp in February 2017 in a stock-for-stock merger transaction.[13]

         B. The Reverse Dropdown Transaction

         1. The Proposed Transaction

         A previous derivative suit challenging the transaction at the heart of this case survived a motion to dismiss in this Court in 2017.[14] The opinion in that matter recites the facts fully; what follows are those facts sufficient to the issues here.[15]

         On September 8, 2015, SE Corp and Phillips 66 announced that they would contribute certain assets to DCP Midstream, LLC ("DCP"), an existing 50/50 joint venture between the two companies.[16] Phillips 66 would contribute $1.5 billion[17]and SE Corp would contribute two assets: a one-third interest in both DCP Sand Hills Pipeline, a long haul natural gas pipeline running from the Permian Basin to Mont. Belvieu, Texas ("Sand Hills"), and DCP Southern Hills Pipeline, a long haul natural gas pipeline running from southern Kansas to Mont. Belvieu, Texas ("Southern Hills" and, together with Sand Hills, the "Pipeline Interests").[18] Since both companies contributed half of DCPs' assets, the value of the Pipeline Interests implied by Phillips 66's cash contribution was $1.5 billion.

         At the time of this announcement, SEP owned the Pipeline Interests, requiring SE Corp to purchase them from SEP before it could contribute them to DCP.[19]Previously, in November 2013, SE Corp had transferred the Pipeline Interests, which it held at the time, to SEP in a dropdown transaction.[20] The proposed sale of the Pipeline Interests from SEP back to SE Corp was thus a "reverse dropdown" (the "Reverse Dropdown").[21]

         Four days before the public announcement, on September 4, 2015, SE Corp proposed the Reverse Dropdown in a letter to SEP GP.[22] As consideration for the sale of the Pipeline Interests, SE Corp (through its affiliates) offered to (i) surrender 20 million SEP limited partner units to SEP for redemption (the "LP Unit Redemption") and (ii) waive its right to receive up to $4 million in incentive distribution rights ("IDRs") for twelve consecutive quarters (the "IDR Give-back").[23] On September 7, 2015, SEP GP authorized its Conflicts Committee via written consent to evaluate the Reverse Dropdown, and appointed J.D. Woodward III ("Woodward") and Nora Mead Brownell ("Brownell"), both members of the SEP GP Board of Directors, to the Conflicts Committee (the "2015 Committee").[24]

         2. Duties and Conflict of Interest Provisions in the Second A&R LPA

         SEP's Second Amended and Restated Agreement of Limited Partnership (the "Second A&R LPA"), [25] in place at the time of the Reverse Dropdown, [26] imposes a general, overarching obligation of "good faith" on SEP GP and its Conflicts Committee whenever they "make [a] determination or take or decline to take such other action . . ."[27] Under the Second A&R LPA, in order for a determination to be made in "good faith, " the person acting "must believe that the determination or other action is in the best interests of the Partnership."[28] That is, subjective good faith is the applicable standard for SEP GP and its Conflicts Committee.[29]

         Section 7.10 of the Second A&R LPA titled "Other Managers Concerning the General Partner" provides in subsection (b) that:

[t]he General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors selected by it, and any act taken or omitted to be taken in reliance upon the opinion (including an Opinion of Counsel) of such Persons as to matters that the General Partner reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith in accordance with such opinion.[30]

         This provides a conclusive presumption of good faith to SEP GP when it acts in reliance on professional advisors.[31]

         Section 7.9(a) of the Second A&R LPA provides four safe harbors in case of conflicts. That section states that:

whenever a potential conflict of interest arises between [SEP GP] or any of its Affiliates, on the one hand, and [SEP] . . . on the other, any resolution or course of action by [SEP GP] or its Affiliates in respect of such conflict of interest . . . shall not constitute a breach of this Agreement . . . if the resolution or course of action in respect of such conflict of interest is (i) approved by Special Approval, [32] (ii) approved by the vote of a majority of the Outstanding Common Units (excluding Common Units owned by [SEP GP] and its Affiliates), (iii) on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iv) fair and reasonable to [SEP] taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to [SEP]).[33]

         3. The 2015 Committee Approves the Reverse Dropdown

         The 2015 Committee retained Simmons & Company International ("Simmons") as its financial advisor in connection with the Reverse Dropdown.[34]Simmons' initial presentation to the 2015 Committee contained the terms of the transaction and noted that the contribution of the Pipeline Interests by SE Corp "was designed and intended to match Phillips 66's $1.5 billion cash contribution."[35] The presentation identified three "Components of Value" that SEP would receive as consideration in the deal: (i) the LP Unit Redemption (valued at $832 million), (ii) the IDR Give-back (valued at $53 million)[36] and (iii) Reduced GP Cash Flow (valued at $575 million) (the "Reduced GP Cash Flow").[37] Reduced GP Cash Flow represented "reduced distributions from SEP after the sale of Sand Hills and Southern Hills" and was calculated as the product of "[t]he reduction in GP distributions and [t]he comparable GP transaction and trading multiples" (excluding the value of the IDR Give-back).[38]

         In a following presentation in October 2015, Simmons moved Reduced GP Cash Flow to the appendix and the "Value of Consideration" section included only the LP Unit Redemption and the IDR Give-back with a combined aggregate value of $946 million.[39] On October 7, 2015 Simmons delivered a fairness opinion on the terms of the Reverse Dropdown and the 2015 Committee recommended that the SEP GP Board of Directors approve the Reverse Dropdown.[40] On October 8, 2015 the SEP GP Board of Directors approved the Reverse Dropdown.[41]

         Under the final terms of the Reverse Dropdown, SEP agreed to transfer the Pipeline Interests to subsidiaries of SE Corp in exchange for (i) 21.56 million limited partner units, [42] (ii) the redemption of 440, 000 general partner units, [43] and (iii) a reduction in IDRs payable to SEP GP of $4 million per quarter through September 30, 2018.[44]

         C. The Plaintiff's Derivative Suit

         On December 18, 2015 the Plaintiff served a books and records demand upon SEP pursuant to the Second A&R LPA and 6 Del. C. §17-305 (the "2015 Demand).[45]After review of the documents in response to the 2015 Demand, the Plaintiff filed a Verified Class Action and Derivative Complaint (the "Derivative Complaint") in this Court on March 16, 2016 (the "Derivative Litigation").[46] The crux of the Derivative Complaint was its contention that SEP only received value in the Reverse Dropdown in the form of the LP Unit Redemption and IDR Give-back (worth a combined $946 million) and, consequently, SEP did not receive sufficient value for the Pipeline Interests valued at $1.5 billion.

         The Plaintiff pled three derivative claims: Count II asserted a breach of the Second A&R LPA against SEP GP, alleging that SEP GP breached its "good faith" obligation by approving the Reverse Dropdown;[47] Count IV asserted a breach of the implied covenant of good faith and fair dealing against SEP GP; and Count VI asserted tortious interference with the Second A&R LPA against SE Corp.[48]

         SEP GP and SE Corp moved to dismiss the Derivative Complaint pursuant to Court of Chancery Rule 12(b)(6).[49] I granted SEP GP's motion to dismiss Count IV[50] and SE Corp's motion to dismiss Count VI.[51]

         I declined to grant the motion to dismiss Count II claim alleging a breach of the Second A&R LPA (the "Derivative Claim"). [52] I noted that at that stage in the proceedings "[t]he record [was] insufficient to determine the nature of the alleged IDR savings from the sale of Sand and Southern Hills and whether it was properly understood as value of consideration to SEP."[53] Drawing all reasonable inferences in favor of the Plaintiff, I found that the Derivative Complaint "made adequate allegations showing that under reasonably conceivable circumstances a facially unreasonable gap in consideration exists sufficient to infer subjective bad faith."[54] I concluded that it was "reasonably conceivable that the General Partner acted in subjective bad faith."[55]

         Following my denial of the motion to dismiss as to the Derivative Claim and until August 2018 the parties undertook fact and expert discovery in the Derivative Litigation.[56] On September 4, 2018 SEP GP moved for summary judgment on the Derivative Claim.[57] The summary judgment motion was pending when on March 26, 2019 the Derivative Claim was dismissed with prejudice for reasons explained below.

         D. The Roll-Up Transaction

         1. The Proposed Transaction

         On March 15, 2018 the Federal Energy Regulatory Commission ("FERC") announced plans to revise a policy to no longer allow pipeline MLPs such as SEP to "recover an income tax allowance in their cost of service."[58] The market viewed this as a negative development for MLPs; SEP's trading price declined by twenty percent within a week.[59] On March 16, 2018 SEP and Enbridge issued press releases stating they "anticipate[d] no immediate impact to [SEP's] current gas pipeline cost of service rates as a result of the revised policy" and that "[a]ny unmitigated impacts are not anticipated to materially change SEP's distributable cash flow outlook beyond 2018."[60] SEP changed tune on May 9, 2018 in its first quarter 2018 earnings release filed with the SEC, noting that "[t]he change in FERC's policy has had a negative impact on the MLP sector" and that it would attempt to mitigate the impact of the policy change.[61]

         On May 17, 2018 Enbridge offered SEP's public unitholders 1.0123 common shares of Enbridge in exchange for each publicly held common unit of SEP based on the closing price of SEP common units and Enbridge common shares on the NYSE on May 16, 2018 (the "Roll-Up").[62] Plaintiff contends that this was an "opportunis[tic]" attempt to "squeeze out SEP's public unitholders" as "SEP's trading price [was] still artificially depressed."[63] SEP's closing price was $33.10 per unit on May 16, 2018 and Enbridge's price was $32.70 per common share.[64]Enbridge's offer was conditioned on approval by SEP GP's Conflicts Committee.[65]After receiving Enbridge's offer letter, the SEP GP Board of Directors authorized its Conflicts Committee (the "2018 Committee") to consider the Roll-Up and to provide Special Approval.[66] The 2018 Committee consisted of Woodward and Brownell (both of the 2015 Committee) and Michael G. Morris, a fellow member of the SEP GP Board of Directors.[67]

         2. The 2018 Committee Approves the Roll-Up and Values the Derivative Claim at Avoided Costs

         On May 18, 2018 the Plaintiff's counsel in the Derivative Litigation, Grant & Eisenhofer P.A. and Friedman Oster & Tejtel PLLC (collectively with Andrews & Springer LLC, "Plaintiff's Derivative Counsel") sent a letter to the 2018 Committee detailing support for the Plaintiff's valuation of the Derivative Claim of over $500 million and requesting a meeting with the 2018 Committee to discuss the Derivative Claim.[68] Because the Derivative Claim is considered under Delaware law to be a corporate asset, the purpose of the Plaintiff's letter was to ensure the asset was assigned proper value in determining whether the exchange ratio offered by Enbridge was in the best interests of SEP. The letter noted that the offer proposed on May 17, 2018 was "woefully inadequate in that it fails to provide SEP and its public unitholders with any value associated with the Derivative Claim" and further informed the 2018 Committee that it had an "unwavering duty to act in good faith" that could only be "discharge[d] . . . by ensur[ing] that SEP (and its unaffiliated LP unitholders) receive appropriate value for the Derivative Claim."[69]

         The 2018 Committee retained Sidley Austin LLP ("Sidley Austin") as its legal advisor[70] and Jefferies LLC ("Jefferies") as its financial advisor[71] in connection with its review of the Roll-Up.

         On July 18, 2018, FERC finalized the aforementioned policy change, but contrary to initial expectations it did not "meaningfully limit an MLP's ability to recover an income tax allowance in its cost of service."[72] SEP's public units realized a corresponding increase in market price.[73]

         On July 20, 2018, the Defendant's counsel in the Derivative Litigation, Skadden, Arps, Slate, Meagher & Flom, LLP ("Skadden") met with the 2018 Committee regarding the Derivative Litigation.[74] Plaintiff alleges that Skadden "acknowledged" that Simmons "relegated any supposed value from Reduced GP Cash Flow to the appendix" of their discussion materials, "incorrectly stated that the [Pipeline Interests] were 'financially challenged'" at the time of the Reverse Dropdown, and "mischaracterized the pro forma financial analysis done by Simmons in connection with the Reverse Dropdown."[75] The 2018 Committee asked Skadden to "express their degree of confidence that the defendant in the [Derivative Litigation] would prevail if the case were to go to trial."[76] Skadden "declined to quantify the defendant's chance of success" but "noted that the [Derivative Claim] had no merit and that the defendants should have a strong chance at success."[77] Skadden "emphasized that there was no evidence that the [2015 Committee] had not possessed the subjective belief that the [Reverse Dropdown] was in the best interests of the Partnership."[78]

         On July 26, 2018, Plaintiff's Derivative Counsel met telephonically with Sidley Austin and Jefferies in their respective capacities as legal and financial advisors to the 2018 Committee regarding the Derivative Litigation.[79] Plaintiff's Derivative Counsel also provided discussion materials to Sidley Austin and Jefferies discussing the Reverse Dropdown, "the applicable legal standards under Delaware law, " and, according to Plaintiff's Derivative Counsel, "the reasons there was a significant likelihood that SEP GP would be held liable for breaching the Partnership Agreement by agreeing to the Reverse Dropdown, and an analysis of the damages in the [Derivative Litigation]."[80]

         At a meeting of the 2018 Committee on August 3, 2018, Sidley Austin noted that Plaintiff's Derivative Counsel had made a telephonic presentation to themselves and Jefferies and provided a slide presentation summarizing their arguments and reports from the Plaintiff's expert James Read.[81] The 2018 Committee discussed the status of the Derivative Litigation with its advisors and determined that "if the [Roll-Up] were consummated, the Partnership would receive a benefit in avoiding the continuing litigation costs associated with the [Derivative] Litigation, so that the amount of such avoided costs would represent modest incremental value that the Partnership would obtain through the [Roll-Up]."[82] In other words, the 2018 Committee determined that the value of the Derivative Claim, net of defense costs, was less than $0.

         At a meeting the following day, August 4, 2018, the 2018 Committee continued to discuss the Derivative Litigation. The 2018 Committee "confirmed its preliminary determination that the Reduced GP Cash Flows should be included" as a component of the consideration in the Reverse Dropdown and that "the total value of consideration received by Partnership [sic] in the [Reverse Dropdown], including the Reduced GP Cash Flows, was approximately $1.5 billion."[83] The 2018 Committee then determined that the Derivative Litigation "did not have any value to the Partnership, other than the modest incremental value from the avoidance of continuing ligation costs that would otherwise be incurred as a result of the extinguishment of such derivative claim upon the consummation of the [Roll-Up]."[84]The 2018 Committee determined it should attribute $4 million of value to SEP that would "result from the avoidance of continuing litigation costs through the extinguishment of the [Derivative Claim]" and asked Jefferies to "reflect that incremental $4 million in subsequent updates of its financial analyses."[85]

         At a meeting of the 2018 Committee on August 16, 2018, a revised offer was announced from Enbridge with an exchange ratio of 1.09 Enbridge common shares per SEP common unit.[86] In communicating this offer, Enbridge's representative indicated that the revised offer "ascribed no value" to the Derivative Claim.[87] The 2018 Committee noted that it had "previously determined that the value of the [Derivative Claim] . . . was limited to the costs of continued litigation that would be avoided . . . upon consummation of the [Roll-Up]" and that "Enbridge had indicated that approximately $4.0 million had been reserved for such costs."[88] The 2018 Committee directed Jefferies to confirm that the $4 million in negative value "would be taken into account in its valuation analyses of the Partnership."[89]

         On August 17, 2018 the 2018 Committee met to discuss another offer by Enbridge, this time for 1.11 Enbridge common shares per SEP common unit.[90] Jefferies urged the 2018 Committee to "make a final counter offer of 1.111x to Enbridge so that the last offer in the negotiation of the [Roll-Up] would be made by the [2018 Committee], which Jefferies said they were confident that Enbridge would accept."[91] Further, "[i]n response to a question that was raised, Jefferies confirmed that . . . the incremental value to the Partnership related to the [Derivative Claim] . . . was so small in comparison to the total value of the Partnership that there would be no meaningful impact on the exchange ratio."[92] Ultimately, the 2018 Committee decided to accept an exchange ratio of 1.111 Enbridge common share per SEP common unit "assuming Enbridge accepted the [2018 Committee's] final counteroffer."[93]

         On August 23, 2018, the 2018 Committee passed a resolution, and resolved in part that it "determine[d] in good faith that the [Roll-Up] . . . is fair and reasonable to, and in the best interest of, the Partnership and the Public Unitholders."[94] The 2018 Committee "approve[d] the [Roll-Up]" and "recommend[ed] that the Board approve the [Roll-Up]."[95]

         On August 24, 2018, SEP announced that it had entered into a definitive merger agreement with Enbridge (and its wholly-owned subsidiaries) "whereby Enbridge would acquire all publicly held SEP units at an exchange ratio of 1.111 shares of Enbridge stock for each publicly held unit of SEP."[96] The Roll-Up was not subject to majority of minority approval.[97]

         The Roll-Up was approved by SEP's unitholders on December 13, 2018 by a 435, 055, 449 to 2, 940, 813 vote with 141, 914 units abstaining.[98] Enbridge-affiliated entities held 402, 989, 862 units of the 484, 896, 871 units outstanding at the time of the vote (approximately 83%).[99] Of the 89, 907, 009 publicly held units, 32, 065, 987 units (approximately 39%) voted in favor of the Roll-Up.[100]

         E. The Derivative Claim is Dismissed

         Subsequent to the closing of the Roll-Up, SEP GP moved to dismiss the Derivative Claim arguing that the Plaintiff lost standing to pursue that claim under the continuous ownership requirement set forth in Lewis v. Anderson: "[a] plaintiff who ceases to be a shareholder, whether by reason of merger or for any other reason, loses standing to continue a derivative suit."[101] In its reply brief to SEP GP's motion to dismiss, the Plaintiff acknowledged that "[f]ollowing and as a result of the Roll-Up Transaction, Enbridge is the sole owner of all common units of Spectra Energy" and noted that "[a]s the owner of the claim, Enbridge should be allowed to determine whether to prosecute it against Defendants [sic]."[102]

         On March 26, 2019, I granted the parties' Stipulation and Proposed Order dismissing the Derivative Claim with prejudice.[103] The Order did not preclude the Plaintiff from prosecuting this Action.[104]

         F. Procedural Background of this Action

         The Plaintiff made a books and records demand on SEP on October 8, 2018.[105]The Plaintiff filed the Verified Class Action Complaint (the "Complaint") on February 8, 2019.[106] The Defendant filed a Motion to Dismiss the Complaint on April 8, 2019.[107] I heard Oral Argument on the Motion to Dismiss on June 27, 2019, and considered the Motion submitted for decision on that date.

         The Complaint pleads two counts. Both are pled as direct claims.

         Count I asserts breach of SEP's Third Amended and Restated Agreement of Limited Partnership (the "Third A&R LPA") against SEP GP. It alleges that SEP GP "allowed Enbridge to engineer the [Roll-Up] on terms that were patently unfair and unreasonable to SEP and its public unitholders" and that were not approved in good faith by the 2018 Committee or the SEP GP Board of Directors.[108] The basis of this claim is that the 2018 Committee and the SEP GP Board of Directors as a whole failed to "attempt to (i) appropriately value the Derivative Claim, or (ii) secure any value for the Derivative Claim in its negotiations concerning the Roll-Up."[109]

         Count II asserts breach of the implied covenant of good faith and fair dealing against SEP GP. The Plaintiff alleges that SEP GP violated the implied covenant of good faith and fair dealing when it (1) "allow[ed] Enbridge to engineer the [Roll-Up] on terms that are patently unfair and unreasonable to SEP, " and (2) secured Special Approval using a "majority conflicted" committee that (i) did not appropriately value the Derivative Claim and (ii) failed to secure any value for the Derivative Claim.[110]

         The Complaint does not challenge the fairness of the Roll-Up's exchange ratio, other than to allege failure to achieve value for the litigation asset.

         II. ANALYSIS

         The Defendant has moved to dismiss the action pursuant to Chancery Court Rule 12(b)(6).[111] The standard of review for a Rule 12(b)(6) motion is well settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are well-pleaded if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the nonmoving party; and (iv) dismissal is inappropriate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.[112]

         When reviewing a motion to dismiss, the Court may take into consideration documents "incorporated into the pleadings by reference and may take judicial notice of relevant public filings."[113]

         Standing is a predicate issue in any litigation.[114] Since I find that the Plaintiff lacks standing, I do not reach the Defendant's Motion to Dismiss under Rule 12(b)(6).

         Below I review both Counts of the Complaint. For the reasons that follow I grant the Defendant's Motion in full.

         A. Standing Requirement for the Plaintiff's Claims

         As noted above, the Delaware Supreme Court held in Lewis v. Anderson[[1]] that a plaintiff who ceases to be a stockholder loses standing to pursue derivative litigation on behalf of the entity.

         In certain circumstances, Delaware law permits stockholders who lose standing under this scenario to directly challenge the fairness of the merger that extinguished their right to pursue the derivative litigation. These claims "embrace the holding of the Supreme Court's decision in Parnes v. Bally Entertainment Corp., [116] which permits a plaintiff to attack a merger directly if the target board agreed to a materially inadequate, and therefore unfair, price because the price did not reflect the value of certain assets."[117]

         In re Primedia, Inc. Shareholders Litigation[118] sets out the standing requirements under Delaware law for a plaintiff who attacks the fairness of a merger based on a "board's alleged failure to obtain value for an underlying derivative claim."[119]Primedia holds that a plaintiff seeking to ...

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