Brinckerhoff v. Enbridge Energy Company, Inc.

         IN THE SUPREME COURT OF THE STATE OF DELAWARE

PETER BRINCKERHOFF,                 §
INDIVIDUALLY AND AS TRUSTEE         §
OF THE PETER R. BRINCKERHOFF        §
REV. TR U A DTD 10/17/97, and on    §       No. 273, 2016
                                    §
behalf of all others similarly situated,
                                    §       Court Below—Court of Chancery
       Plaintiff Below, Appellant,  §       of the State of Delaware
                                    §
       v.                           §       C.A. No. 11314
                                    §
ENBRIDGE ENERGY COMPANY, §
INC., et al.,                       §
                                    §
       Defendants Below, Appellees, §
                                    §
       and                          §
                                    §
ENBRIDGE ENERGY PARTNERS, §
L.P.,                               §
                                    §
       Nominal Defendant Below,     §
       Appellee.                    §

                         Submitted: January 11, 2017
                         Decided:   March 20, 2017
                         Revised:   March 28, 2017

Before STRINE, Chief Justice; HOLLAND, VALIHURA, VAUGHN, and
SEITZ, Justices, constituting the Court en Banc.

Upon appeal from the Court of Chancery: REVERSED

Jessica Zeldin, Esquire, Rosenthal, Monhait & Goddess, P.A., Wilmington,
Delaware; Lawrence P. Eagel, Esquire (argued), Jeffrey H. Squire, Esquire and
David J. Stone, Esquire, Bragar Eagel & Squire, P.C., New York, New York, for
Plaintiff, Appellant, Peter Brinckerhoff.
Raymond J. DiCamillo, Esquire, Richards, Layton & Finger, P.A., Wilmington,
Delaware; Michael H. Steinberg, Esquire (argued), Sullivan & Cromwell LLP, Los
Angeles, California; Laura Kabler Oswell, Esquire, Sullivan & Cromwell LLP,
Palo Alto, California, for Defendants, Appellees, Enbridge Inc., J. Richard Bird, J.
Herbert England, C. Gregory Harper, D. Guy Jarvis, Mark A. Maki, John K.
Whelen and Enbridge Pipelines (Alberta Clipper) L.L.C.

Thomas W. Briggs, Jr., Esquire and Richard Li, Esquire, Morris, Nichols, Arsht &
Tunnell LLP, Wilmington, Delaware; Kevin C. Logue, Esquire (argued) and
Kevin P. Broughel, Esquire, Paul Hastings LLP, New York, New York, for
Defendants, Appellees, Enbridge Energy Company, Inc., Enbridge Energy
Management, L.L.C., Jeffrey A. Connelly, Rebecca B. Roberts, Dan A.
Westbrook, Enbridge Energy Limited Partnership and Nominal Defendant
Enbridge Energy Partners, L.P.




SEITZ, Justice:
       The plaintiffs, Peter Brinckerhoff and his trust, are long-term investors in

Enbridge Energy Partners, L.P. (“EEP”), a Delaware master limited partnership

(“MLP”). As followers of this investment space know, MLPs are set up in the

petroleum transportation business to allow sponsors and public investors to take

advantage of favorable tax laws. Another benefit under Delaware law is the ability

to eliminate common law duties in favor of contractual ones, thereby restricting

disputes to the four corners of the limited partnership agreement (“LPA”).

       MLPs are typically families of entities that often engage in internal business

transactions, referred to as dropdowns, rollups, insider financings, incentive

distribution rights, and equity investments.           Because the entities proposing

transactions often have representatives seated at both sides of the negotiating table,

the LPAs typically attempt to address conflicts using various contractual tools.

Even so, disputes still arise over whether the conflicted parties have complied with

the letter and spirit of the LPA. Our Court has frequently been called upon to

interpret a number of LPAs to resolve these disputes.1



1
 E.g., Dieckman v. Regency GP LP, __ A.3d __, 2017 WL 243361, (Del. Jan. 20, 2017); El Paso
Pipeline GP Co., L.L.C. v. Brinckerhoff, __ A.3d __, 2016 WL 7380418, (Del. Dec. 20, 2016);
Employees Ret. Sys. of the City of St. Louis v. TC Pipelines GP, Inc., 2016 WL 7338592 (Del.
Dec. 19, 2016) (TABLE); Haynes Family Trust v. Kinder Morgan G.P., Inc., 2016 WL 912184
(Del. March 10, 2016) (TABLE); Allen v. El Paso Pipeline GP Co., L.L.C., 2015 WL 803053
(Del. Feb. 26, 2015) (TABLE); Allen v. Encore Energy Partners, L.P., 72 A.3d 93 (Del. 2013);
Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400 (Del. 2013) overruled on other grounds by
Winshall v. Viacom Intern., Inc., 76 A.3d 808 (Del. 2013); Norton v. K-Sea Transp. Partners
L.P., 67 A.3d 354 (Del. 2013); Brinckerhoff v. Enbridge Energy Co., 67 A.3d 369 (Del. 2013).
       This is not the first lawsuit between Brinckerhoff and the Enbridge MLP

entities over a conflicted transaction. In 2009, Brinckerhoff filed suit against most

of the same defendants in the current dispute, and challenged a transaction between

the sponsor and the limited partnership. Enbridge, Inc. (“Enbridge”), the ultimate

parent entity that controlled EEP’s general partner, Enbridge Energy Company,

Inc. (“EEP GP”), proposed a joint venture agreement (“JVA”) between EEP and

Enbridge, whereby Enbridge would contribute 66.7% and EEP would contribute

33.3% of the cost, and share the profits in the same proportion, of the Alberta

Clipper project—a proposed pipeline used to transport petroleum from the Alberta

tar sands to the United States.

       Brinckerhoff contested the fairness of the transaction on a number of

grounds. After several rounds in the Court of Chancery leading to the dismissal of

his claims, and a trip to our Court, Brinckerhoff eventually came up short when we

affirmed the Court of Chancery’s ruling that he had waived his claims for

reformation and rescission of the transaction by failing to assert them first in the

Court of Chancery.2




2
  Brinckerhoff v. Enbridge Energy Co., Inc. (“Brinckerhoff I”), 2011 WL 4599654 (Del. Ch.
Sept. 30, 2011); Brinckerhoff v. Enbridge Energy Co., Inc., No. 574, 2011 (Del. March 27, 2012)
(Remand Order); Brinckerhoff v. Enbridge Energy Co., Inc. (“Brinckerhoff II”), 2012 WL
1931242 (Del. Ch. May 25, 2012); Brinckerhoff v. Enbridge Energy Co., Inc. (“Brinckerhoff
III”), 67 A.3d 369 (Del. 2013).
                                              2
      The Alberta Clipper project would blow east again into the Court of

Chancery. In 2014, Enbridge proposed that EEP repurchase Enbridge’s interest in

the Alberta Clipper project (“Alberta Clipper Interest”), excluding the expansion

rights that were part of the earlier transaction.   As part of the billion dollar

transaction, EEP would issue to Enbridge $694 million of a new class of EEP

partnership securities designated Class E Units, repay $306 million in outstanding

loans made by EEP GP to EEP, and, central to the current dispute, amend the LPA

to effect a “Special Tax Allocation” whereby the public investors would be

allocated items of gross income that would otherwise be allocated to EEP GP.

      The allocation of gross income for tax purposes has important consequences

to the public investors. According to Brinckerhoff, the Special Tax Allocation

unfairly benefited Enbridge by reducing its tax obligations by hundreds of millions

of dollars while increasing the taxes of the public investors, thereby undermining

the investor’s long-term tax advantages in their MLP investment.

      Brinckerhoff filed suit and alleged that the defendants breached the LPA by

(a) agreeing to repurchase the same asset—the Alberta Clipper Interest—EEP sold

to Enbridge six years earlier, on terms Brinckerhoff claims were not “fair and

reasonable” as required by Section 6.6(e) of the LPA; and (b) implementing the

Special Tax Allocation that, according to Brinckerhoff, materially adversely




                                        3
affected the investors, and enlarged their “obligations,” in violation of Sections

5.2(c) and 15.3(b) of the LPA.

      EEP GP and its Affiliates moved to dismiss, claiming that, regardless of any

breach of the LPA’s specific affirmative requirements, before Brinckerhoff could

pursue his claims, he first had to plead facts leading to an inference that the

defendants acted in bad faith. In other words, EEP GP and its affiliates were free

to breach any of the LPA’s specific requirements, so long as they did so in good

faith. The defendants also argued that to allege bad faith, Brinckerhoff had to

plead facts that ruled out all legitimate explanations for the defendants’ actions

except for bad faith—a pleading hurdle borrowed from one of the most demanding

corporate law standards, that of “waste.”

      The Court of Chancery did its best to reconcile earlier decisions interpreting

the same or a similar LPA, and ended up dismissing the complaint. Though the

court believed that in the corporate context Brinckerhoff’s allegations would have

stated a claim, it concluded that so long as EEP GP acted in good faith, it was free

to breach any of the LPA’s specific requirements. Once that standard applied, the

court found that Brinckerhoff had failed to allege bad faith conduct by EEP GP,

which required dismissal of the complaint.

      On appeal, Brinckerhoff has challenged the reasonableness of the Court of

Chancery’s interpretation of the LPA.           He also argues that this Court in

                                            4
Brinckerhoff III improperly defined what was needed to plead bad faith.          As

Brinckerhoff sees it, his allegations that (a) the partnership agreed to pay $200

million more to Enbridge to repurchase the same asset it sold in 2009, despite

declining EBITDA, slumping oil prices, and the absence of expansion rights sold

in 2009; (b) EEP’s financial advisor ignored the 2009 transaction as a comparable

transaction; (c) EEP GP added hundreds of millions of dollars more in benefits for

itself and Enbridge through the Special Tax Allocation, to the detriment of the

public unitholders and in breach of specific provisions of the LPA; and (d) the

Special Tax Allocation was not properly valued when determining whether the

transaction’s terms were fair and reasonable to the Partnership—support a fair

pleading-stage inference of bad faith that precludes dismissal.

      We agree with Brinckerhoff in part and reverse the decision of the Court of

Chancery. We say in part because we agree with the defendants that the Special

Tax Allocation did not breach Sections 5.2(c) and 15.3(b) governing new unit

issuance and tax allocations. But, we find that the Court of Chancery erred when it

held that other “good faith” provisions of the LPA “modified” Section 6.6(e)’s

specific requirement that the Alberta Clipper transaction be “fair and reasonable to

the Partnership.” The provisions of the LPA relied on by the Court of Chancery—

Sections 6.8(a), 6.9(a), and 6.10(d)—exculpate EEP GP and others from monetary

damages if they act in good faith, apply a good faith standard to EEP GP’s

                                         5
resolution of conflicts of interest, and replace default fiduciary duties with a

contractual good faith standard.      They do not, however, alter the specific

affirmative obligations of the LPA. The Court of Chancery’s interpretation of the

LPA leads to an unreasonable result no public investor would have considered

possible when reviewing the LPA—that EEP GP is free to violate any specific

LPA requirement so long as the breach is in good faith. In fact, precisely because

the Delaware Revised Uniform Limited Partnership Act (“DRULPA”) allows

LPAs—like that of the Enbridge LPA—to eliminate fiduciary duties, it is essential

that unitholders be able to hold the GP accountable for not complying with the

terms of the LPA.

      We also find that the Court of Chancery erred when it determined that EEP

GP and its Affiliates were exculpated under Section 6.8(a) from any liability for

breaching the LPA.     The Court of Chancery cannot be faulted for faithfully

applying our earlier decision in Brinckerhoff III, and its rigorous pleading standard

for bad faith. But we now change course from our earlier decision and adhere to

the more traditional definition of bad faith utilized in Delaware entity law. We

hold that bad faith is sufficiently alleged under the Enbridge LPA if the plaintiff

pleads facts supporting an inference that EEP GP did not reasonably believe it was

acting in the best interest of the partnership. Accepting the facts as pled, as we

must on an appeal from a motion to dismiss, Brinckerhoff has met this standard.

                                         6
      On remand, Brinckerhoff can proceed on his claim that the Alberta Clipper

transaction violated Section 6.6(e). If the Court of Chancery eventually finds a

breach of Section 6.6(e), and the defendants as Indemnitees are not immune from

monetary damages under Section 6.8(a) because they acted in bad faith, the court

can assess monetary damages to remedy the breach.              Alternatively, if the

defendants are immune from monetary damages under Section 6.8(a) because they

acted in good faith, or the court finds that monetary damages would be speculative

or difficult to determine reliably, then we leave it to the Court of Chancery’s broad

discretion, after its evaluation of all of the circumstances of the case, whether to

impose an equitable remedy tailored to address the harm caused by the breach of

Section 6.6(e) of the LPA.

                                         I.

      Peter Brinckerhoff is a unitholder of 73,080 Class A EEP common units.

The defendants and their business relationships are as follows:

      EEP - A publicly-traded Delaware MLP headquartered in Houston,
      Texas. EEP’s business focuses on energy transportation in the mid-
      Continent and Gulf Coast regions of the United States. EEP was
      formed in 1991 to own and operate the Lakehead pipeline system, the
      United States portion of a crude oil and liquid petroleum pipeline
      system running through portions of Canada and the United States.

      EEP GP - The general partner of EEP. EEP GP is a Delaware
      corporation wholly owned by Enbridge, Inc. EEP GP owns a 2%
      general partnership interest and 38.1% limited partnership interest in
      EEP. EEP GP also owns 100% of the voting shares and 11.7% of the
      listed shares of Enbridge Energy Management, L.L.C.
                                         7
      Enbridge Energy Management, L.L.C. (“Enbridge Management”) -
      EEP’s designated manager. Enbridge Management owns a 14.7%
      limited partnership interest in EEP.

      Enbridge - EEP GP’s controlling parent. Enbridge is a Canadian
      energy corporation operating an integrated midstream asset network in
      Canada and the United States. Enbridge indirectly owns 100% of
      EEP GP. Through its control of EEP GP and Enbridge Management,
      Enbridge controls a 2% general partnership interest and a 52.8%
      limited partnership interest in EEP.

      The following chart from the Court of Chancery’s opinion depicts the

relationships between the entities.




      The remaining defendants, Jeffrey A. Connelly, Rebecca B. Roberts, Dan A.

Westbrook, J. Richard Bird, J. Herbert England, C. Gregory Harper, D. Guy Jarvis,


                                       8
Mark A. Maki, and John K. Whelen (the “Director Defendants”) each served as

directors, and in some cases, officers of EEP GP and Enbridge Management.

Defendants Roberts and England also served as Enbridge directors, and Bird,

Harper, Jarvis, Maki, and Whelen served as Enbridge officers.

                                             A.

       In early 2009, EEP owned 100% of the Alberta Clipper project, a proposed

$1.2 billion pipeline construction project extending almost a thousand miles from

Hardisty, Alberta to Superior, Wisconsin.3 EEP wanted to build the pipeline to

meet the expected petroleum demands in the Midwestern United States. In April

2009, Enbridge proposed a joint venture to EEP whereby Enbridge would

contribute 75% and EEP would contribute 25% of the Alberta Clipper project’s

costs. Profits would be divided according to their percentage contributions. The

transaction also included expansion rights.4

       EEP GP formed a Special Committee to determine whether the Alberta

Clipper project transaction was “fair and reasonable to [EEP] and its unitholders,”5

and to make a recommendation whether to pursue the transaction. The Special

3
  The Alberta Clipper project was operated through another operating limited partnership, OLP.
EEP’s and EEP GP’s interests in the Alberta Clipper project were held through their percentage
interest in OLP. The OLP entity is immaterial to the dispute. App. to Opening Br. at 329, n. 7
(Answering Br. in Opposition to Mot. to Dismiss), 25-29 (Compl. ¶¶ 18-25), 34-35 (Compl. ¶¶
38-39).
4
  When complete, the expansion projects would increase the Alberta Clipper pipeline’s U.S.
throughput capacity from 450,000 to 800,000 bpd, a 78% increase in capacity. Id. at 21 (Compl.
¶ 7).
5
  Brinckerhoff I, 2011 WL 4599654, at *2.
                                              9
Committee hired a financial advisor who was asked to evaluate whether the

Alberta Clipper transaction “was representative of an arm’s length transaction.”6

          In response to Enbridge’s proposal, the Special Committee recommended

that EEP retain a 33.3% equity stake in the Alberta Clipper project. EEP agreed to

the revised split. The financial advisor then opined that the JVA’s terms “are

representative, in all material respects, of those that would have been obtained by

the Partnership in an arm’s length transaction.”7 The Special Committee thereafter

recommended the transaction to EEP GP’s board. When the transaction closed in

2009, the 66.7% Alberta Clipper Interest was valued at $800 million, a multiple of

7x EBITDA. Brinckerhoff alleged that the Special Committee’s financial advisor

typically recommended a 9-12x forward year EBITDA multiple.

          Brinckerhoff filed a complaint in the Court of Chancery asserting derivative

and direct claims against most of the same defendants named in the current action.

Relying on multiple legal theories, Brinckerhoff essentially claimed that EEP GP

and others sold the Alberta Clipper Interest to Enbridge for an unreasonably low

price.

          In Brinckerhoff I, the Court of Chancery recognized that the Enbridge LPA

contained a specific provision, Section 6.6(e), covering the JVA. Section 6.6(e)

required that the JVA be “fair and reasonable to the Partnership.” But the court

6
    Id.
7
    Id. at *3.
                                           10
jumped to another LPA provision, Section 6.8(a), which exculpates Indemnitees,

including EEP GP, from monetary damages if the Indemnitee acted in good faith.

Invoking the conclusive presumption of good faith in Section 6.10(b) when EEP

GP relies on a qualified advisor, the Court of Chancery found that EEP GP was

exculpated from monetary damages. The other defendants were also found to have

acted in good faith. The court dismissed the complaint without considering the

possibility of equitable relief to remedy a breach of Section 6.6(e).

         Brinckerhoff appealed the dismissal. Before considering the merits of the

appeal, our Court remanded to the Court of Chancery to consider “the sufficiency

of [Brinckerhoff’s] claims for reformation and rescission under Chancery Court

Rule 12(b)(6) in the first instance.”8           Following remand, the court issued its

decision in Brinckerhoff II, finding that equitable relief could be a viable remedy

for breach of the LPA, but also ruling that Brinckerhoff waived his right to seek

any equitable relief.

         In Brinckerhoff III, we affirmed the Court of Chancery’s decisions in

Brinckerhoff I and II. Specifically, we affirmed both the finding of waiver, and

absence of bad faith. Using corporate law principles similar to pleading waste, we

found that Brinckerhoff had failed to allege that “the decision to enter into the

JVA, under the circumstances, must be ‘so far beyond the bounds of reasonable


8
    Brinckerhoff v. Enbridge Energy Co., Inc., No. 574, 2011 (March 27, 2012) (Remand Order).
                                               11
judgment that it seems essentially inexplicable on any ground other than bad

faith.’”9

                                          B.

       Turning to the current dispute, Brinckerhoff claims that, during the five

years before the announcement of the next Alberta Clipper transaction, crude oil

prices declined, reflected in the Alberta Clipper project’s nearly 20% decrease in

projected EBITDA. Further, tariffs on the Alberta Clipper project faced increased

risk that they would be rebased with long-term negative effect on revenue. Despite

this negative environment, on September 16, 2014, Enbridge proposed a sale of its

Alberta Clipper Interest, excluding the earlier expansion rights, to EEP for $1

billion, a multiple of 10.7x EBITDA.              The purchase price consisted of $694

million in newly issued Class E units and approximately $306 million in repaid

debt. As part of the transaction, the LPA would be amended to “allocate to the

Public Unitholders significant items of gross income that [would otherwise] have

been allocated to [General Partner],” referred to as the Special Tax Allocation.10

       According to Brinckerhoff, the Special Tax Allocation benefited Enbridge in

two ways. First, it would offset a $410 million capital gain EEP GP expected to




9
  Brinckerhoff III, 67 A.3d at 373 (quoting Parnes v. Bally Entm’t Corp., 722 A.2d 1243, 1246
(Del. 1999)).
10
   App. to Opening Br. at 19 (Compl. ¶ 2).
                                             12
incur on the sale of its Alberta Clipper Interest back to EEP.11 Second, EEP GP

would receive fewer cash distributions from EEP on the Class E Units than EEP

GP would have received from the Alberta Clipper Interest. Brinckerhoff claims

the Special Tax Allocation depressed EEP GP’s allocation of Partnership income

by an additional amount to lower EEP GP’s tax burden.

       The bottom line, according to Brinckerhoff, is EEP GP’s unfair shift of a

large tax burden from EEP GP to the public unitholders. Brinckerhoff alleges that

the Special Tax Allocation amounts to approximately “$24.8 million of additional

gross income, per year, for 22 years (or approximately $545.6 million in total), and

then approximately $12.4 million per year thereafter in perpetuity.”12 According to

the complaint, “the Special Tax Allocation increases the proportion of Partnership

income taxes for which Class A and B common unit holders and Class D unit

holders are responsible, without the benefit of receiving distributions in that

proportion.”13



11
   According to Brinckerhoff, partnership allocations of gross income to unitholders are simply
book entries. No money changes hands. These amounts are, however, gross income
immediately taxable to the unitholder. When cash is distributed to unitholders, it is considered a
return of capital and is not immediately taxable. But the cash distributions lower the cost basis
for each unit (as other factors impact basis such as deductions and taxable partnership income).
As “estate” assets, many unitholders invest in MLP units with an eye towards a stepped-up basis
at death, wiping out the built-up taxable gain in the units. Id. at 690-91 (Basic Tax Principles for
MLP Investors Pamphlet).
12
   Id. (Compl. ¶ 2).
13
   Brinckerhoff v. Enbridge Energy Co., Inc. (“Brinckerhoff IV”), 2016 WL 1757283, at *4, n. 26
(Del. Ch. Apr. 29, 2016).
                                                13
         In response to Enbridge’s proposal, Enbridge Management, as designated

manager for EEP GP, formed a Special Committee consisting of Roberts,

Connelly, and Westbrook. The Special Committee’s charge was to determine

whether the offer was fair and reasonable to EEP and its unitholders (other than

EEP GP and its affiliates), and whether they should proceed with the transaction or

seek alternatives.14 The Special Committee hired legal counsel and an investment

banker, Simmons & Company International (“Simmons”).

      During a presentation on December 23, 2014, Simmons explained to the

Special Committee that, “[a]t the updated proposed transaction value of $1 billion,

[EEP GP] is projected to have a large taxable gain of $410 million on the sale of its

units in Alberta Clipper.”15 Thus, “to be cash neutral, the taxable gain will be

allocated to the EEP A, B, and D [unitholders].”16 Enbridge planned to partially

offset the increased tax burden by allocating additional “depreciation to the A, B,

and D units.”17 Simmons informed the Special Committee that the Special Tax

Allocation would “negate most of the accretion the Public Unitholders would

otherwise obtain from the Transaction.”18          On December 23, 2014, Simmons

concluded that “the Transaction is fair to [EEP] and to the holders of EEP’s

14
   App. to Opening Br. at 83 (Simmons Presentation).
15
   Id. at 113.
16
   Id.
17
   Id.
18
   Id. at 41 (Compl. ¶ 59). According to Brinckerhoff, although the Special Committee knew
that the Special Tax Allocation represented additional consideration paid to EEP GP for the
Alberta Clipper Interest, it never learned how much that consideration was worth.
                                            14
common units (other than [EEP GP] and its affiliates) from a financial point of

view.”19 The Special Committee then recommended the transaction, and EEP GP

approved the transaction the same day.20

       On January 2, 2015, EEP repurchased from Enbridge the Alberta Clipper

Interest, excluding the Alberta Clipper project expansion rights, for $1 billion. On

the same day, EEP GP amended the 6th LPA to create the 7th LPA, adding Section

5.2(i) to implement the Special Tax Allocation.

                                              C.

       On July 20, 2015, Brinckerhoff filed an eight-count complaint in the Court

of Chancery against the defendants. In essence, the complaint claims that the

defendants violated three specific provisions of the LPA by approving the Alberta

Clipper transaction—Section 6.6(e), requiring that contracts with Affiliates be “fair

and reasonable to the Partnership”; Section 5.2(c), governing new unit issuance;

and Section 15.3(b), prohibiting enlargement of the unitholders’ “obligations”

under the LPA. Brinckerhoff sought monetary damages against all defendants, and

equitable relief rescinding the Alberta Clipper transaction or reforming the

transaction “to render the Transaction fair and reasonable to EEP and the Public



19
  Id. at 307 (Simmons Fairness Opinion).
20
   Enbridge announced in a press release the same day that EEP agreed to purchase the Alberta
Clipper Interest. The press release stated that the Class E units would be entitled to the same
distributions as Class A common units held by the public. It did not mention the Special Tax
Allocation. See App. to Opening Br. at 75-76 (Press Release).
                                              15
Unitholders” and to remove the newly-added Section 5.2(i) implementing the

Special Tax Allocation.21

       Following briefing on the defendants’ motion to dismiss, the Court of

Chancery granted the motion.           Relying on the trilogy of earlier Brinckerhoff

decisions and other MLP cases, the court set aside the LPA’s specific requirements

and focused instead on the LPA’s good faith standards. According to the court,

“Brinckerhoff was obliged to state well-pled facts that would allow a reasonable

inference that Defendants acted in bad faith” before considering his LPA breach

claims.22 Because he had failed to do so under the rigorous pleading standard

adopted in Brinckerhoff III, the court ruled that the defendants were exculpated

from any liability under the LPA, and dismissed the complaint.23 This appeal

followed.

                                              II.

       We turn to the gating issue on appeal—whether the Court of Chancery

correctly found that the LPA can reasonably be interpreted to permit EEP GP to

breach any of the LPA’s specific requirements if EEP GP acts in good faith.


21
   Id. at 73 (Compl.).
22
   Brinckerhoff IV, 2016 WL 1757283, at *20.
23
   The Court of Chancery wondered about the impact of its ruling excusing compliance with the
specific provisions of the LPA if EEP GP acted in good faith: “In response to this conclusion,
one might reasonably ask whether EEP GP, as a practical matter, is relieved of all obligations to
act in compliance with the detailed provisions of a limited partnership agreement that
comprehensively address[es] nearly all aspects of the relationship between the general and
limited partners.” Id. at *18, n. 125.
                                               16
Because the appeal is from a decision granting a motion to dismiss, we review the

claims of error de novo.24

       The Court of Chancery did its best to attempt to reconcile complex

contractual provisions and confusing precedent. In this appeal, we change course

from the earlier pleading standard announced in Brinckerhoff III to which the

Court of Chancery was bound, and apply the definition of bad faith that is

commonly used in our entity law and incorporated into the Enbridge LPA. We

also hold that the LPA’s general good faith standards do not displace specific

affirmative obligations contained in other provisions of the LPA.

                                             A.

       The DRULPA permits the LPA drafter to disclaim fiduciary duties, and

replace them with contractual duties.25 The drafter cannot, however, disclaim the

implied covenant of good faith and fair dealing.26 If fiduciary duties have been

validly disclaimed, the limited partners cannot rely on traditional fiduciary

principles to regulate the general partner’s conduct.            Instead, they must look

exclusively to the LPA’s complex provisions to understand their rights and




24
   Cent. Mortg. Co. v. Morgan Stanley, 27 A.3d 531, 535 (Del. 2011) (citing Savor, Inc. v. FMR
Corp., 812 A.2d 894, 896 (Del. 2002)).
25
   6 Del. C. § 17-1101(d).
26
   Id.
                                             17
remedies.27 Further, when trying to square existing precedent with the language of

different LPAs, we have observed that:

       Although the limited partnership agreements in all of these cases
       contain troublesome language, each decision was based upon
       significant nuanced substantive differences among each of the specific
       limited partnership agreements at issue. That is not surprising,
       because the Delaware Revised Uniform Limited Partnership Act is
       intended to give “maximum effect to the principle of freedom of
       contract.” Accordingly, our analysis here must focus on, and examine,
       the precise language of the LPA that is at issue in this case.28

       Turning to the provisions of the Enbridge LPA, Section 6.10(d) of the LPA

modifies, waives or limits common law duties in favor of contractual duties:

       Any standard of care and duty imposed by this Agreement or under
       the Delaware Act of any applicable law, rule or regulation shall be
       modified, waived or limited 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 the best interests of the
       Partnership.29

       In Norton v. K-Sea Transp. Partners, L.P., we interpreted language nearly

identical to Section 6.10(d), and held that it unconditionally eliminated all common

law standards of care and fiduciary duties, and substituted a contractual good faith

standard of care—that the General Partner “reasonably believe that its action is in

27
   Gotham Partners, L.P., 817 A.2d at 170.
28
   DV Realty Advisors LLC v. Policemen’s Annuity and Benefit Fund of Chicago, 75 A.3d 101,
106-07 (Del. 2013) (citations and footnotes omitted); see also El Paso Pipeline GP Co., L.L.C.,
2016 WL 7380418, at *6 (“[T]he prevalence of entity-specific provisions in an area of law
defined by expansive contractual freedom requires a nuanced analysis and renders deriving
‘general principles’ a cautious enterprise.”).
29
   App. to Opening Br. at 280.
                                              18
the best interest of, or not inconsistent with, the best interests of the Partnership.”30

Although the accuracy of this interpretation is the subject of legitimate debate,31

we choose in this case not to upset Norton’s settled interpretation of Section

6.10(d). Thus, we will not reinterpret Section 6.10(d), and instead will replace any

standard of care and duty “imposed by this Agreement or under the Delaware Act

or any applicable law, rule or regulation” with a contractual good faith standard.32

       Article VI of the LPA addresses management and operation of the

Partnership’s business. Section 6.3(a), entitled “Restrictions on General Partner’s

Authority,” provides that “[t]he General Partner may not, without written approval

of the specific act by all of the Limited Partners . . . take any action in

contravention of this Agreement . . . .”33              Thus, as a threshold matter when

evaluating a proposed transaction under the LPA, the court must determine what




30
   67 A.3d 354, 362 (Del. 2013).
31
   The Court of Chancery has questioned this Court’s interpretation of Section 6.10(d). Instead
of an unconditional waiver of extra-contractual duties, one could interpret the Section to impose
“a condition precedent to the effectiveness of the provisions of the LP Agreement that purport to
modify, waive, or limit standards of care or duties otherwise imposed by law.” In re Kinder
Morgan, Inc. Corp. Reorganization Litig., 2015 WL 4975270, at *5, n. 1 (Del. Ch. Aug. 20,
2015), aff’d sub nom. The Haynes Family Trust v. Kinder Morgan G.P., Inc., 135 A.3d 76, 2016
WL 912184 (Del. Mar. 10, 2016) (TABLE). This is because the language modifying, waiving,
or limiting standards of review and duties is effective “so long as” the General Partner
“reasonably believed” its decision was in “the best interest of the Partnership.” Id. at *5. If the
general partner failed to act in the best interest of the Partnership, a condition precedent to the
modification of fiduciary duties failed to occur, and arguably common law fiduciary duties
would then apply to the general partner.
32
   App. to Opening Br. at 280.
33
   Id. at 276.
                                               19
provision controls the transaction, and whether Brinckerhoff has stated a claim that

EEP GP has acted in contravention of that provision.

       The Alberta Clipper transaction is a contract with an Affiliate (Enbridge) to

sell property (Alberta Clipper Interest) back to the Partnership (EEP). Section 6.6,

entitled “Contracts with Affiliates,” and in particular Section 6.6(e), directly

addresses the affirmative obligation EEP GP must satisfy for such transactions:

“[n]either the General Partner nor any of its Affiliates shall sell, transfer or convey

any property to, or purchase any property from, the Partnership, directly or

indirectly, except pursuant to transactions that are fair and reasonable to the

Partnership.”34

       Even though Section 6.6(e) imposes an affirmative obligation on EEP GP,

the Court of Chancery held that Section 6.10(d)’s contractual good faith standard

“modifies” Section 6.6(e), and requires Brinckerhoff to first show that EEP GP

lacked good faith in approving the transaction.35 We are at a loss to understand

how it does. Section 6.6(e) imposes an affirmative obligation on EEP GP when

contracting with Affiliates.         Section 6.10(d), on the other hand, is a general

standard of care that operates in the spaces of the LPA without express standards.



34
   Id. at 278.
35
   Brinckerhoff IV, 2016 WL 1757283, at *13 (quoting Brinckerhoff I, 2011 WL 4599654, at *4
(“To meet the standard set by . . . Section 6.10(d), Plaintiff must ‘plead facts suggesting that EEP
GP’s Board acted in bad faith’ in its determination that the Transaction was ‘fair and reasonable
to the Partnership.’”)).
                                                20
Although EEP GP must act in good faith under the LPA, and is not subject to

fiduciary standards of care, it still must comply with the specific requirements of

the LPA. The Court of Chancery confused the general standard of care under

Section 6.10(d) with the LPA’s more specific requirements. It also violated settled

rules of contract interpretation, requiring that the court prefer specific provisions

over more general ones.36

       Similar difficulties occur with the Court of Chancery’s reliance on Section

6.9(a) to engraft a bad faith standard of care onto Section 6.6(e). Section 6.9(a),

which addresses ways EEP GP might resolve conflicts of interest, expressly carves

out other provisions of the LPA.37 Equally important, Section 6.9(a) is a safe

harbor for conflict transactions, such as mergers, that are not controlled by other



36
   Gelfman v. Weeded Investors, L.P., 792 A.2d 977, 990 (Del. Ch. 2001) (specific provision
governing conflict of interest transactions controlled in lieu of general provision addressing non-
conflicted transaction); Sonet v. Timber Co. L.P., 722 A.2d 319, 325 (Del. Ch. 1998) (specific
provision in LPA controlled over more general provision).
37
   App. to Opening Br. at 279 (“Unless otherwise expressly provided in this Agreement . . . .”);
Brinckerhoff v. Tex. E. Prods. Pipeline Co., LLC, 986 A.2d 370, 388-89 (Del. Ch. 2010)
(“Section 6.6(e) is an ‘express standard’ [under Section 6.9(b) and] the defendants were required
to comply only with Section 6.6(e) and were ‘not . . . subject to any other or different standard
imposed by this Agreement . . . .’”); see also Norton, 67 A.3d at 364 (interpreting a section
substantially identical to Section 6.6(e) and holding that “[t]his language creates an affirmative
obligation—K-Sea GP may not engage in a transaction with the Partnership unless the
transaction is ‘fair and reasonable’” compared to the permissive nature of the conflict resolution
provision); In re El Paso Pipeline Partners, L.P. Deriv. Litig., 2014 WL 2768782, at *11 (Del.
Ch. June 12, 2014) (interpreting a similar conflict resolution provision and noting that the section
“has its own introductory phrase—‘[u]nless otherwise expressly provided in this Agreement’—
which is itself important, because for certain types of transactions that involve a conflict of
interest on the part of the General Partner, the LP Agreement sets forth a separate and even more
specific contractual standard.”).
                                                21
specific provisions of the LPA. It does not displace express standards in other

provisions of the LPA.

          The defendants point to the last stand-alone paragraph of Section 6.9(a), and

claim that it imposes a bad faith standard on all conflict transactions.38 But as

explained previously, Section 6.9(a) is a conflict resolution procedure that EEP GP

can use to resolve conflicts not addressed by other LPA provisions. The bad faith

limitation in the last paragraph relates only to “the resolution, action or terms so

made, taken or provided” by EEP GP to resolve a conflict transaction under

Section 6.9(a). Here, the Alberta Clipper transaction is expressly governed by

Section 6.6(e).

          Finally, taking a cue from Brinckerhoff I, the Court of Chancery determined

that Sections 6.8(a) (good faith exculpates Indemnitees from monetary damages)

and 6.10(b) (conclusive presumption of good faith based on reliance with

professional advisors) “enveloped” 6.6(e), requiring Brinckerhoff to plead that the

defendants lacked good faith when they approved the Alberta Clipper transaction

under Section 6.6(e).          The Court of Chancery also relied on a statement in

38
     App. to Opening Br. at 279:
         Nothing contained in this Agreement, however, is intended to nor shall it be
         construed to require the General Partner to consider the interests of any Person
         other than the Partnership. In the absence of bad faith by the General Partner, the
         resolution, action or terms so made, taken or provided by the General Partner with
         respect to such matter shall not constitute a breach of this Agreement or any other
         agreement contemplated herein or a breach of any standard of care or duty
         imposed herein or therein under the Delaware Act or any other law, rule or
         regulation.
                                                 22
Brinckerhoff I that “the Defendants ‘will not be liable to EEP or its [unitholders]

for any actions taken in good faith.’”39

       Section 6.8(a) exculpates EEP GP and other Indemnitees from monetary

damages for actions taken in good faith. But, Section 6.8(a) does not grant EEP

GP absolute immunity from suit for any actions taken in good faith. Instead, it

only immunizes EEP GP and other Indemnitees from monetary damages.

Equitable remedies are still available. The availability of equitable remedies no

doubt motivated our Court to issue the remand order in Brinckerhoff II, asking the

Court of Chancery to consider the availability of reformation and rescission as

remedies for breach of Section 6.6(e) of the LPA.40 And, as will be discussed later,

Brinckerhoff has pled viable claims that the defendants acted in bad faith when

undertaking the Alberta Clipper transaction.

       Our interpretation of the Enbridge LPA—Section 6.6(e) is a specific

affirmative obligation of EEP GP which is not displaced by other general

provisions—is the only one consistent with the overall framework of the LPA.41 It



39
   Brinckerhoff IV, 2016 WL 1757283, at *14 (quoting Brinckerhoff I, 2011 WL 4599654, at *9)
(emphasis in original); see also Brinckerhoff III, 67 A.3d at 372-73.
40
   Brinckerhoff v. Enbridge Energy Co., Inc., No. 574, 2011 (March 27, 2012) (Remand Order).
41
   See also Norton, 67 A.3d at 365 (“This interpretation achieves the goal of giving each LPA
term an independent meaning. If Section 7.9(a) were construed to impose an affirmative
obligation on K-Sea GP, it would be unclear whether Section 7.6(d)’s affirmative obligation
relating to transactions between K-Sea GP and K-Sea—which addresses a specific conflict of
interest and contains parallel provisions—has any independent meaning or serves any
independent purpose.”); see also In re El Paso Pipeline Partners, 2014 WL 2768782, at *11
                                             23
is also consistent with settled contract interpretation principles.42 The defendants’

interpretation would render many of the LPA’s specific requirements a nullity.43

       The Court of Chancery erred by finding that Sections 6.8(a), 6.9(a), and

6.10(d) modified the affirmative obligation set forth in Section 6.6(e). Section

6.6(e) and its “fair and reasonable” requirement govern the Alberta Clipper

transaction.

                                             III.

       Brinckerhoff alleged that the Alberta Clipper transaction breached three

specific provisions of the LPA—Sections 6.6(e) (the Alberta Clipper transaction

must be “fair and reasonable” to the Partnership); 5.2(c) (tax conventions,

allocations, and amendments cannot have a “material adverse effect on the

Partners”); and 15.3(b) (LPA amendments cannot “enlarge the obligations” of any

investor without their consent). Although the Court of Chancery did not fully

consider the viability of these claims, they were presented to the court and “in the




(recognizing that “the LP Agreement establishes a hierarchy of contractual standards ranging
from the general to the specific and that in each case the most specific standard applies.”).
42
   DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005) (“Specific language in a
contract controls over general language, and where specific and general provisions conflict, the
specific provision ordinarily qualifies the meaning of the general one.”) (internal citations
omitted).
43
   The good faith precondition would override other express provisions of the LPA. See, e.g.,
Section 6.3(a) (EEP GP must comply with the specific provisions of the LPA); Section 6.5
(outside activities of the General Partner, covering matters falling under the corporate
opportunity doctrine); and Section 6.7 (indemnification of the General Partner and other
indemnitees by the Partnership).
                                              24
interest of justice and for the sake of judicial economy, we decide those issues de

novo.”44

                                           A.

      Under Section 6.6(e), “[n]either the General Partner nor any of its Affiliates

shall sell, transfer or convey any property to, or purchase any property from, the

Partnership, directly or indirectly, except pursuant to transactions that are fair and

reasonable to the Partnership.”45 The requirements of 6.6(e) are deemed satisfied,

however, “as to any transaction the terms of which are no less favorable to the

Partnership than those generally being provided to or available from unrelated third

parties.”46 In other words, the fairness and reasonableness of the transaction can be

assessed by comparing it to arms-length transactions. Further, the fairness and

reasonableness “shall be considered in the context of all similar or related

transactions.”47 The fair and reasonable standard is “something similar, if not

equivalent to entire fairness review.”48

      We find that Brinckerhoff has pled sufficient facts leading to an inference

that the Alberta Clipper transaction was not “fair and reasonable to the

Partnership” because EEP repurchased assets from Enbridge “less favorable to the


44
   Bank of New York Mellon v. Commerzbank Capital Funding Trust II, 65 A.3d 539, 553 (Del.
2013) (internal citations omitted).
45
   App. to Opening Br. at 278.
46
   Id.
47
   Id. at 289.
48
   Brinckerhoff II, 2012 WL 1931242, at *2.
                                           25
Partnership than those generally being provided to or available from unrelated third

parties.”49 According to Brinckerhoff, EEP paid $200 million more to repurchase

the same assets it sold in 2009, despite declining EBITDA, slumping oil prices,

and the absence of the expansion rights sold in 2009. He also alleged that, through

the Special Tax Allocation, EEP GP added hundreds of millions of dollars more in

benefits for Enbridge to the detriment of the public unitholders. These allegations

are sufficient to state a claim for breach of the requirements of Section 6.6(e).

                                          B.

       The same cannot be said for Brinckerhoff’s claims that the Special Tax

Allocation, which involved the issuance of new Class E Units, breached Sections

5.2(c) and 15.3(b) of the LPA. Section 5.2(c) controls allocations for tax purposes

needed “[f]or the proper administration of the Partnership or for the preservation of

the uniformity of the Units (or any class or classes thereof) . . . .”50            Such

allocations cannot be made if they have “a material adverse effect” on the

unitholders.51 Brinckerhoff conceded below that Section 5.2(c) does not apply to

the Alberta Clipper transaction because the Special Tax Allocation was not for the

proper administration of the partnership or to equalize the tax treatment among




49
   App. to Opening Br. at 278.
50
   Id. at 270.
51
   Id.
                                          26
unitholders.52 Thus, Brinckerhoff has waived the argument that EEP GP breached

Section 5.2(c) of the LPA.

       Section 15.3(b) sets forth the requirements to amend the LPA. It states that,

notwithstanding earlier provisions of Section 15 addressing when and how EEP GP

can adopt LPA amendments without unitholder approval, “no amendment to this

Agreement may (i) enlarge the obligations of any Limited Partner without such

Limited Partner’s consent, which may be given or withheld in its sole discretion . .

. .”53 Brinckerhoff argues that the Special Tax Allocation, and its potential to

generate taxable income to the unitholders, “enlarges the obligations” of the

unitholders without their consent. Stated differently, the Special Tax Allocation

increases their tax liability to the government without their consent.

       Essential to Brinckerhoff’s argument is the meaning of “obligations.”

Lacking a specific definition in the LPA, we look for its use in other contexts in the

LPA to discern its meaning.54           We note first that “obligations” is not used

anywhere in Article IX of the LPA addressing “Tax Matters.” The word does,

52
   Id. at 668 (Oral Argument Trans.).
53
   Id. at 295.
54
   See Kuhn Const., Inc. v. Diamond State Port Corp., 990 A.2d 393, 397 (Del. 2010) (looking to
how term was used in other parts of a contract to assess its meaning); Radio Corp. of Am. v.
Philadelphia Storage Battery Co., 6 A.2d 329, 334 (Del. 1939) (“[W]ords used in one sense in
one part of the contract will ordinarily be considered to have been used in the same sense in
another part of the same instrument where the contrary is not indicated.”); In re Mobilactive
Media, LLC, 2013 WL 297950, at *19 (Del. Ch. Jan. 25, 2013) (interpreting phrase “so as to give
it the same meaning throughout the [a]greement”); 28 Richard A. Lord, Williston on Contracts
§ 32:6 (“Generally, a word used by the parties in one sense will be given the same meaning
throughout the contract in the absence of countervailing reasons.”).
                                              27
however, appear in Article VII, entitled “Rights and Obligations of Limited

Partners.” In that context, “obligations” plainly means the responsibilities, or more

accurately, lack of responsibilities, of the limited partners to the Partnership.

Article VII addresses the “limited” nature of the limited partners’ liability under

the LPA (Section 7.1); the lack of an obligation to manage the business (Section

7.2); and the lack of an obligation to work exclusively on partnership business

(Section 7.3). In the context of Article XIV entitled “Dissolution and Liquidation,”

Section 14.8 uses the word “obligations” to eliminate any duty by the limited

partners to restore negative balances in their capital account to the Partnership

upon liquidation of the Partnership. And finally, “obligations” is used in Sections

5.11, 5.12, and 5.13 addressing the “rights and obligations” of unitholders.

      When the word “obligations” in Section 15.3(b) is placed in the context of

the LPA as a whole, we find that the only reasonable meaning of the word

“obligations” in Section 15.3(b) is contractual obligations that the limited partners

owe to the Partnership. The Special Tax Allocation might increase the limited

partners’ tax liability to the government, but it does not enlarge the limited

partners’ obligations to the Partnership. Thus, EEP GP has not breached Section

15.3(b) by potentially allocating additional gross income to the limited partners

through the Special Tax Allocation.

                                        IV.

                                         28
       Having established that Brinckerhoff has pled a viable claim for breach of

Section 6.6(e), we turn to possible remedies. If a breach is eventually found, then

under Section 6.8(a), EEP GP is exculpated from monetary damages if it acts in

good faith. Equitable remedies are not exculpated. We find that Brinckerhoff has

pled facts supporting an inference that EEP GP acted in bad faith in approving the

Alberta Clipper transaction.

                                               A.

       Absent contractual limitations, if EEP GP breached the LPA, and damages

could be established with reasonable certainty, EEP GP would pay monetary

damages to the unitholders. Section 6.8(a), however, exculpates EEP GP as an

Indemnitee from monetary damages if it acted in good faith:

       Notwithstanding anything to the contrary set forth in this Agreement,
       no Indemnitee55 shall be liable for monetary damages to the
       Partnership, the Limited Partners, the Assignees or any other Persons
       who have acquired interests in the Units, for losses sustained or
       liabilities incurred as a result of any act or omission if such
       Indemnitee acted in good faith.56




55
   App. to Opening Br. at 24:
         “Indemnitee” means the General Partner, any Departing Partner, any Person who
         is or was an Affiliate of the General Partner or any Departing Partner, any Person
         who is or was an officer, director, employee, partner, agent or trustee of the
         General Partner, any Departing Partner or any such Affiliate, or any Person who
         is or was serving at the request of the General Partner, any Departing Partner or
         any such Affiliate as a director, officer, employee, partner, agent or trustee of
         another Person.
56
   Id. at 279.
                                               29
       The LPA does not define good faith. In Brinckerhoff III, we considered

what must be pled to allege bad faith by EEP GP. Relying on Parnes v. Bally

Entertainment Corporation, and corporate notions of waste, we held that “[t]o state

a claim based on bad faith,” EEP GP’s decision to enter into the Joint Venture

Transaction “must be ‘so far beyond the bounds of reasonable judgment that it

seems essentially inexplicable on any ground other than bad faith.’”57

       On the same day we decided Brinckerhoff III, we also decided Norton, and

took a different approach to define bad faith.58                  Using essentially the same

language of Section 6.10(d) of the Enbridge LPA, the Norton LPA modified any

standard of care or duty to permit the general partner to act under the LPA “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.”59

       In Norton, we found that this expression of the standard of care [Section

7.10(d) in Norton, Section 6.10(d) in this case] also supplied the definition of good

57
   Brinckerhoff II, 67 A.3d 369, 372 (Del. 2013) (quoting Parnes, 722 A.2d at 1246 (internal
quotation and citation omitted)).
58
   67 A.3d 354 (Del. 2013).
59
   Id. at 361 (italics omitted). Compare App. to Opening Br. at 280 (any standard of care or duty
modified to permit general partner to act under the LPA “so long as such action is reasonably
believed by the General Partner to be in the best interests of the Partnership.”). The “best
interests of the partnership” are the best interests of the entity, not just the best interests of the
limited partners. See In re Kinder Morgan, Inc. Corp. Reorganization Litig., 2015 WL 4975270,
at *8 (“[T]he members of the Committee did not have to believe that the MLP Merger was in the
best interests of the limited partners. They rather had to believe in good faith that the MLP
Merger was in the best interests of the Partnership.”); In re El Paso Pipeline Partners, L.P.
Deriv. Litig., 2015 WL 1815846, at *18-19 (Del. Ch. Apr. 20, 2015) (Special Committee’s
determination that transaction would be accretive to the unitholders did not mean that the
transaction was in the best interests of the MLP as an entity).
                                                 30
faith for the stand-alone good faith requirement in the exculpatory provision

[Section 7.8(a) in Norton, Section 6.8(a) in this case]:

          [T]he LPA broadly exculpates all Indemnitees . . . so long as the
          Indemnitee acted in “good faith.” Although the LPA regrettably does
          not define “good faith” in this context, we cannot discern a rational
          distinction between the parties’ adoption of this “good faith” standard
          and Section 7.10(d)’s contractual fiduciary duty, i.e., an Indemnitee
          acts in good faith if the Indemnitee reasonably believes that its action
          is in the best interest of, or at least, not inconsistent with, the best
          interests of K-Sea. If we take seriously our obligation to construe the
          agreement’s “overall scheme,” we must conclude that the parties’
          insertion of a free-standing, enigmatic standard of “good faith” is
          consistent with Section 7.10(d)’s conceptualization of a reasonable
          belief that the action taken is in, or not inconsistent with, the best
          interests of the Partnership. In this LPA’s overall scheme, “good
          faith” cannot be construed otherwise.60

          We believe the approach taken in Norton interpreting essentially the same

exculpatory language is more faithful to the specific language of the Enbridge

LPA, and does not rely on extra-contractual notions of waste and a heightened

pleading burden to plead bad faith. As in Norton, and consistent with contract

interpretation rules,61 we believe good faith was intended to be used consistently

throughout the LPA. Thus, we depart from our earlier decision in Brinckerhoff III,

and hold that to plead a claim that EEP GP did not act in good faith, Brinckerhoff

must plead facts supporting an inference that EEP GP did not reasonably believe

that the Alberta Clipper transaction was in the best interests of the Partnership. As


60
     Norton, 67 A.3d at 362 (internal citations omitted).
61
     See note 55.
                                                  31
our prior cases have established, the use of qualifier “reasonably” imposes an

objective standard of good faith.62

       Here, Brinckerhoff has pled facts supporting an inference that EEP GP did

not reasonably believe in good faith that the Alberta Clipper transaction was fair

and reasonable to the Partnership. According to the allegations of the complaint,

EEP GP and Enbridge Management, through the Director Defendants, knew when

approving the transaction that (a) they did not consider the 2009 transaction despite

express direction in the LPA that they do so; (b) Enbridge changed its valuation

methodology in 2014 when it valued the Alberta Clipper Interest as a multiple of

EBITDA, as compared to 2009, when it valued the Alberta Clipper Interest at cost;

(c) failed to consider that the Alberta Clipper Interest’s projected next year

EBITDA was 20% lower than it was in 2009, although valued 25% higher in 2009;

(d) failed to negotiate the purchase price despite the negative oil pricing

environment, Enbridge’s control over the volume flowing through the pipeline, and

shorter tariff agreements; (e) failed to value the Special Tax Allocation benefits to

Enbridge, and the financial detriment to the unaffiliated unitholders; (f) failed to




62
   Norton, 67 A.3d at 361, n. 34 (The LPA’s “addition of the term ‘reasonably’ distinguishes it
from limited partnership agreements that Delaware courts have interpreted as establishing a
purely subjective standard.”); see also DV Realty Advisors LLC, 75 A.3d at 110, n. 18
(distinguishing from Norton and applying a subjective good faith standard because the LPA at
issue did not require a “reasonable belief.”).
                                              32
take into consideration the lack of expansion rights sold in 2009; and (g) relied on

a purportedly flawed financial opinion.

       At the pleading stage of this case, we find that EEP GP cannot rely on

Section 6.8(a) to exculpate it from monetary damages.

                                               B.

       EEP GP nonetheless claims it is entitled to a conclusive presumption of

good faith by relying on Simmons’ fairness opinion that the Alberta Clipper

transaction “is fair to Partners and to the holders of Partners’ common units (other

than [Enbridge] and its affiliates) from a financial point of view.”63 Using similar

language to that of 8 Del. C. § 141(e),64 Section 6.10(b) of the LPA provides EEP

GP with a conclusive presumption of good faith under certain conditions:

       The 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 in
       reliance upon the opinion (including, without limitation, 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 and in accordance with such opinion.65


63
   App. to Opening Br. at 306-07.
64
   8 Del. C. § 141(e) (emphasis added):
        A member of the board of directors, or a member of any committee designated by
        the board of directors, shall, in the performance of such member’s duties, be fully
        protected in relying in good faith upon . . . any other person as to matters the
        member reasonably believes are within such other person’s professional or expert
        competence and who has been selected with reasonable care by or on behalf of the
        corporation.
65
   App. to Opening Br. at 280.
                                               33
For several reasons, EEP GP has fallen short of making a dispositive, pleading-

stage showing that it is entitled to invoke the conclusive presumption of good faith.

By its own terms, Section 6.10(b) requires that EEP GP “reasonably believe” that

Simmons was professionally equipped to opine on the fairness and reasonableness

of the Alberta Clipper transaction in a manner consistent with the requirements of

Section 6.6(e). In this case, whether EEP GP could have reasonably believed

Simmons was an appropriate advisor depends on the factual record developed

through discovery. For present purposes, we must accept as true Brinckerhoff’s

allegation that EEP GP could not have reasonably relied on a banker that did not

consider what Brinckerhoff has alleged to be the most relevant precedent

transaction when it was acting under a standard that expressly required

consideration of comparable transactions—the 2009 Alberta Clipper transaction.

Further, as is the case with Section 141(e) of the Delaware General Corporation

Law and as contemplated by Section 6.10(b) of the LPA, qualified advisors are

often called upon to provide accounting, tax, and financial advice to the general

partner in pursuit of the entity’s business. For instance, transaction and tax counsel

will often advise the board members on transaction structure. Financial advisors

will often advise the board on valuation issues. In those situations, the advice

established the appropriate methods and terms on which the general partner then




                                         34
acts to consummate a transaction.66 If Simmons had been charged in the first

instance to value the Alberta Clipper Interest, and the Special Committee had

reasonably relied on Simmons’ valuation to set the sale price, Simmons’ role and

the Special Committee’s reliance on its valuation might be a more comfortable fit

with the reliance language of Section 6.10(b).

       Instead, according to the complaint’s allegations, the financial terms were

fully baked by the time Simmons appeared on the scene to render a fairness

opinion.67 Thus, on the record before us, EEP GP did not rely on Simmons in the

manner contemplated by Section 6.10(b), and is not entitled to a conclusive

presumption of good faith for the Alberta Clipper transaction.

                                                C.

       Defendants next argue, and the Court of Chancery agreed, that reformation

and rescission were unavailable as remedies for breach of the LPA, because

Brinckerhoff was not excused “from supporting his claims for reformation or

66
   See generally Edward P. Welch et al., Folk on the Delaware General Corporation Law
§ 141.12 (2016) (citing In re Formica Corp. Shareholders Litig., 1989 WL 2581 (Del. Ch.
March 22, 1989) (special committee entitled to rely on valuation advice of its investment
banker)); In re Cheyenne Software, Inc. S’holders Litig., 1996 WL 652765 (Del. Ch. Nov. 7,
1996) (board entitled to rely on investment banker’s opinion in considering a tender offer). See
also In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 770 (Del. Ch. 2005), aff’d, 906 A.2d 27
(Del. 2006) (committee’s reliance on expert’s analysis protected under § 141(e)); Cinerama, Inc.
v. Technicolor, Inc., 663 A.2d 1134, 1142 (Del. Ch. 1994), aff’d, 663 A.2d 1156 (Del. 1995)
(board relied in good faith on advice of experienced counsel relevant to overall fairness of the
process).
67
   See App. to Opening Br. at 83 (Simmons Presentation) (“Valuation had been pre-announced
via press-release, with a proposed total transaction value of $916 million . . . subsequently raised
2015 EBITDA forecast to $93 million and transaction value to $1 billion . . . Simmons has been
engaged to provide a fairness opinion . . . .”).
                                                35
rescission with well-pled facts that meet the requisite elements of these

remedies.”68     We conclude, however, that the Court of Chancery viewed its

remedial authority too narrowly.

       The LPA eliminated monetary damages if EEP GP acted in good faith. It

did not, however, limit equitable remedies. In the earlier appeal in Brinckerhoff

III, we remanded to the Court of Chancery before the final decision to determine

the sufficiency of Brinckerhoff’s claims for reformation and rescission. Following

remand, the court believed reformation was a possible remedy for breach of the

LPA.69 We agree with that conclusion.

       Once liability has been found, and the court’s powers shift to the appropriate

remedy, the Court of Chancery has broad discretion to craft a remedy to address

the wrong.70 EEP GP faces potential liability for breach of Section 6.6(e), under a

contractual fiduciary standard similar if not identical to entire fairness. As we held

in Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., such contractual

standards can subject the general partner to equitable relief:

       The Partnership Agreement provides for contractual fiduciary duties
       of entire fairness. Although the contract could have limited the
       damage remedy for breach of these duties to contract damages, it did

68
   Brinckerhoff IV, 2016 WL 1757283, at *19.
69
   Brinckerhoff II, 2012 WL 1931242, at *2.
70
   Int’l Telecharge, Inc. v. Bomarko, Inc., 766 A.2d 437, 439 (Del. 2000) (noting that the
Delaware Supreme Court “defer[s] substantially to the discretion of the trial court in determining
the proper remedy”); Weinberger v. UOP, Inc., 457 A.2d 701, 715 (Del. 1983) (noting “the
broad discretion of the Chancellor to fashion such relief as the facts of a given case may
dictate”).
                                               36
         not do so. The Court of Chancery is not precluded from awarding
         equitable relief as provided by the entire fairness standard where, as
         here, the general partner breached its contractually created fiduciary
         duty to meet the entire fairness standard and the partnership
         agreement is silent regarding damages.71

         At this stage in the proceedings, Brinckerhoff will not be limited to a

specific equitable remedy. Whether an equitable remedy should be ordered will

depend on the Vice Chancellor’s assessment of the equities, which include the

practicality of an equitable remedy given the passage of time, and the ability to

order equitable relief tailored to the harm caused by a breach of the LPA.

                                          V.

         Finally, Brinckerhoff argues that the Court of Chancery erred in dismissing

his claims against Enbridge and the Remaining Defendants for breach of residual

fiduciary duties, aiding and abetting breach of contract, and tortious interference

with the LPA. Because the secondary liability claims raise interesting issues that

would benefit from a more fully developed record, we will await the Court of

Chancery’s determination of these issues.

                                          VI.

         Because we have determined that Brinckerhoff has pled a viable claim for

breach of the express terms of the LPA, we reverse the Court of Chancery’s April

29, 2016 decision and remand the matter for further proceedings consistent with


71
     817 A.2d 160, 175 (Del. 2002).
                                          37
this Opinion.   It is further ordered that the time within which a motion for

reargument may be timely filed under Supreme Court Rule 18 is shortened to five

days from the date of this Opinion.




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