El Paso Pipeline GP Company, L.L.C. v. Brinckerhoff

Summary

The Delaware Supreme Court reversed the Court of Chancery in a derivative action arising from conflicted dropdown transactions involving a publicly traded master limited partnership. The court held that the plaintiff's claims were derivative, belonged to the partnership under the limited partnership agreement, and were transferred to the surviving entity in a subsequent merger, extinguishing the plaintiff's derivative standing. The court concluded that the plaintiff's remedy was to challenge the fairness of the merger rather than continue the derivative action.

Holdings

1. The claim was exclusively derivative because the alleged harm was suffered by the Partnership, the contractual duty of good faith was owed to the Partnership, and any recovery would belong to the Partnership. The claim was not dual-natured because the transaction did not increase the General Partner's or Parent's control or affect the limited partners' voting rights.
2. The merger extinguished Brinckerhoff's standing to continue the derivative action because the Partnership's claim passed by operation of law to the surviving entity.
3. The cross-appeal was dismissed as moot because the same loss of derivative standing applied to the Spring Dropdown claims.

Questions Presented

1. Whether Brinckerhoff's claim for breach of the limited partnership agreement was direct, derivative, or dual-natured under the Tooley framework.
2. Whether the merger transferred the Partnership's derivative claim to the surviving entity and extinguished Brinckerhoff's standing to continue the action.
3. Whether the same loss of standing required dismissal of Brinckerhoff's cross-appeal concerning the Spring Dropdown.

Disposition

reversed