Boardwalk Pipeline v. Bandera Master Fund LP

• Court: Supreme Court of Delaware
• Decided: December 19, 2022
• Docket: 1, 2022
• Status: Published

Opinion

IN THE SUPREME COURT OF THE STATE OF DELAWARE

BOARDWALK PIPELINE § PARTNERS, LP, BOARDWALK § PIPELINES HOLDING CORP., § BOARDWALK GP, LP, § BOARDWALK GP, LLC, § and LOEWS CORPORATION, § § No. 1, 2022 Defendants-Below, § Appellants-Cross Appellees, § Court Below: Court of Chancery § of the State of Delaware v. § § C.A. No. 2018-0372 BANDERA MASTER FUND LP, § BANDERA VALUE FUND LLC, § BANDERA OFFSHORE VALUE § FUND LTD., LEE-WAY § FINANCIAL SERVICES, INC., § and JAMES R. MCBRIDE, on behalf § of themselves and similarly situated § BOARDWALK PIPELINE § PARTNERS, LP UNITHOLDERS, § § Plaintiffs-Below, § Appellees-Cross Appellants. §

Submitted: September 14, 2022 Decided: December 19, 2022

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, Justices; and LEGROW, Judge,1 constituting the Court en Banc.

Upon appeal from the Court of Chancery of the State of Delaware: REVERSED AND REMANDED.

1 Sitting by designation under Del. Const. art. IV, § 12 and Supreme Court Rules 2(a) and 4(a) to complete the quorum. William Savitt, Esquire (argued), Sarah K. Eddy, Esquire, Adam M Gogolak, Esquire, Wachtell, Lipton, Rosen & Katz, New York, New York; Daniel A. Mason, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Wilmington, Delaware; Stephen P. Lamb, Esquire, Andrew G. Gordon, Esquire, Harris Fischman, Esquire, Robert N. Kravitz, Esquire, Carter E. Greenbaum, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York; Srinivas M. Raju, Esquire, Blake Rohrbacher, Esquire, Matthew D. Perri, Esquire, John M. O’Toole, Esquire, Richards, Layton & Finger, P.A., Wilmington, Delaware; Rolin P. Bissell, Esquire, Young Conaway Stargatt & Taylor LLP, Wilmington, Delaware, for Defendants Below, Appellants-Cross Appellees Boardwalk Pipeline Partners, LP, Boardwalk Pipelines Holding Corp., Boardwalk GP, LP, Boardwalk GP, LLC, and Loews Corporation.

A. Thompson Bayliss, Esquire (argued), J. Peter Shindel, Jr., Esquire, Daniel G. Paterno, Esquire, Eric A. Veres, Esquire, Samuel D. Cordle, Esquire, Abrams & Bayliss LLP, Wilmington, Delaware for Plaintiffs Below, Appellees-Cross Appellants Bandera Master Fund LP, Bandera Value Fund LLC, Bandera Offshore Value Fund Ltd., Lee-Way Financial Services, Inc., and James R. McBride, on behalf of themselves and similarly situated Boardwalk Pipeline Partners, LP Unitholders.

2 SEITZ, Chief Justice, for the Majority:

Oil and gas pipeline businesses transport petroleum products for their

producer-customers. They often organize as Delaware Master Limited Partnerships

(“MLPs”) to take advantage of tax benefits from Federal Energy Regulatory

Commission (“FERC”) regulations. Under Delaware law, the MLP sponsor can

structure the organizational agreements to permit maximum flexibility over

investments and operations. Perhaps most significantly, a sponsor can eliminate

fiduciary duties, meaning that an investor’s rights are, for the most part, limited to

the four corners of the MLP agreements. It is safe to generalize that MLP

prospectuses warn of the sponsor’s lopsided rights that include their right to make

self-interested decisions to the economic disadvantage of the public investors.

The Boardwalk MLP sponsors took full advantage of the flexibility permitted

under Delaware law. The Boardwalk limited partnership agreement (the

“Partnership Agreement”) disclaimed the general partner’s fiduciary duties. It

included a conclusive presumption of good faith when relying on advice of counsel.

It exculpated the general partner from damages under certain conditions. And the

sponsors disclosed the investment risks in detail to the public investors.

At issue in this appeal is whether Boardwalk’s general partner properly

exercised a call right to take the Boardwalk MLP private. Under the Partnership

Agreement, the general partner could exercise a call right for the public units if it

3 received an opinion of counsel acceptable to the general partner that a change in

FERC regulations “has or will reasonably likely in the future have a material adverse

effect on the maximum applicable rate that can be charged to customers.”

The Boardwalk MLP general partner received an opinion of counsel from

Baker Botts, a Texas-based law firm, that a change in FERC policy met the call right

condition (the “Baker Botts Opinion”). Skadden, a New York-based law firm,

advised that (a) it would be reasonable for the sole member, an entity in the

Boardwalk MLP structure, to determine the acceptability of the opinion of counsel

for the general partner; and (b) it would be reasonable for the sole member, on behalf

of the general partner, to accept the Baker Botts Opinion (the “Skadden Opinion”).

The sole member followed Skadden’s advice and caused the Boardwalk MLP

general partner to exercise the call right and to acquire all the public units through a

formula in the Partnership Agreement.

The Boardwalk MLP public unitholders filed suit and claimed that the general

partner improperly exercised the call right. In a post-trial opinion, the Court of

Chancery concluded that the general partner improperly exercised the call right

because the Baker Botts Opinion had not been issued in good faith; the wrong entity

in the MLP business structure determined the acceptability of the opinion; and the

general partner was not exculpated from damages under the Partnership Agreement.

4 The court awarded almost $700 million in damages to the public unitholders for what

it found were improperly redeemed units.

On appeal, the Boardwalk entities argue that the court erred as a matter of law

and fact when it found that the Baker Botts Opinion was not issued in good faith;

erred as a matter of law when it interpreted the acceptability requirement; should

have exculpated the general partner and others from damages; and exceeded its

discretion when awarding damages. After our review, we agree with the Boardwalk

entities that the sole member was the correct entity to determine the acceptability of

the opinion of counsel. We also agree with the Boardwalk entities that the sole

member, as the ultimate decisionmaker who caused the general partner to exercise

the call right, reasonably relied on Skadden’s opinion, and that the sole member and

the general partner are therefore conclusively presumed to have acted in good faith

in exercising the call right. Thus, the general partner and others were exculpated

from damages under the Partnership Agreement. We reverse the Court of

Chancery’s judgment and remand for further proceedings consistent with this

opinion. We do not address any other arguments on appeal.

I.

A.

FERC, as the federal regulator of energy policy, sets the maximum rates,

known as recourse rates, that oil and gas pipeline owners can charge shippers that

5 send oil and gas through pipelines. 2 FERC adjusts recourse rates through an

adversarial proceeding known as a rate case.3 FERC, shippers, or pipeline owners

can bring a rate case if the parties think the rates are too high or too low.4 In a rate

case, FERC “uses a methodology called cost-of-service ratemaking under which

rates are designed based on a pipeline’s cost of providing service.”5 The idea is to

allow a pipeline owner to recover its costs and create a reasonable rate of return for

investors (the “return on equity” or “ROE”).6 Cost-of-service ratemaking is a fact-

specific and intensive process that considers geographic zones, fixed and variable

costs, and the type of shipping.7 Recourse rates do not change without a rate case,

even with significant cost-of-service changes.8 And a change in one cost-of-service

variable generally does not support a change in recourse rates without a complete

review of all other components: focusing only on one factor is known as “single-

issue ratemaking,” which FERC generally prohibits.9

2 App. to Pls.’ Answering Br. (“PAB”) at B50, B58, B70 (Pre-Trial Order or “PTO”). 3 Id. at 2830–32 (Court Rep.). 4 Id. 5 Id. at 2836; id. at B63 (PTO). 6 Id. at B63 (PTO). 7 Id. at B2832–42 (Court Rep.). 8 App. to Defs.’ Opening Br. (“DOB”) at A628 (Wagner Tr.) (“[T]he pipeline can’t just automatically increase its recourse rates to reflect [an] increasing cost of service . . . . There’s got to be a procedural vehicle for recourse rate change to occur . . . .”). 9 App. to PAB at B2831 (Court Rep.) (“The Commission generally does not permit a pipeline to change any single component of its cost of service without addressing all other components. This is so because, although one component of the cost of service calculation may have increased, others may have declined. Therefore, in a general NGA section 4 rate case, all components of the cost of service are considered, and any decreases in an individual component may be offset against increases in other cost components.”).

6 FERC’s formula for cost of service historically includes the pipeline owner’s

income taxes. Before 1995, all pipeline owners could incorporate an income tax

allowance in their cost of service.10 Including income tax in the cost-of-service leads

to a higher cost of service and generally allows pipeline owners to charge higher

recourse rates through the cost-of-service ratemaking process.11

The treatment of accumulated deferred income taxes (“ADIT”) was one

component of the tax allowance.12 Under federal tax provisions, pipeline owners

can utilize accelerated depreciation rather than straight-line depreciation to 13 depreciate their assets. FERC, however, does not recognize accelerated

depreciation.14 As such, pipeline owners sometimes pay lower taxes than anticipated

by FERC’s cost-of-service calculations. In other words, they claim a depreciated

asset before FERC projects the asset will depreciate, and therefore have a lower cost

of service than predicted in that year.15

10 See Lakehead Pipeline Co., 71 FERC ¶ 61,338 (1995), abrogated by SFPP, L.P. v. FERC, 967 F.3d 788 (D.C. Cir. 2020). 11 See App. to PAB at B66–67 (PTO). 12 Id. at B64–65. 13 Id. at B2842–43 (Court Rep.) (“Under Commission ratemaking policies, income taxes included in rates are determined based on the return on net rate base, with the accumulated depreciation offset to rate base calculated using straight-line depreciation. However, in calculating the amount of income taxes due to the IRS, public utilities, interstate natural gas pipelines, and oil pipelines generally are able to take advantage of accelerated depreciation.” (quoting Inquiry Regarding the Effect of the Tax Cuts and Jobs Act on Commission-Jurisdictional Rates, 83 Fed. Reg. 12371, 12373-74 (Mar. 21, 2018)). 14 Id. 15 Id. (“Accelerated depreciation usually lowers income taxes payable during the early years of an asset’s life followed by corresponding increases in income taxes payable during the later years of

7 On the flip side, because taxes are deferred to future years, this practice results

in greater taxes and higher costs of service than FERC predicts for later years.16 The

system of accelerated depreciation and tax deferral “effectively provides [FERC-

regulated pipelines] with cost-free capital” that functions as an interest free-loan.17

FERC, recognizing this, historically subtracted a pipeline’s ADIT balance from the

rate base for the cost-of-service calculations, benefiting shippers.18

When a rate case concludes, a pipeline’s recourse rates are published in a

“tariff” schedule. 19 These recourse rates, or “tariff” rates, remain in effect until

adjusted by future proceedings.20 In competitive shipping markets, however, the

pipeline owner can negotiate separate contractual rates “not bound by the maximum

and minimum recourse rates in the pipeline owner’s tariff.”21 These are referred to

as “negotiated” rates.22 Pipeline owners can also “‘selectively discount their rates,”

and the resulting rates are referred to as “discounted” rates.23 In any case, the tariff

or recourse rate is the rate that, should negotiations fail, becomes the default rate.24

an asset’s life.” (quoting Inquiry Regarding the Effect of the Tax Cuts and Jobs Act on Commission-Jurisdictional Rates, 83 Fed. Reg. at 12373-74)). 16 Id. 17 Id. at B333 (FERC Notice of Inquiry). 18 Id. at B333–34. 19 Id. at B2965 (Webb Rep.). 20 Id. at B60–61 (PTO). 21 Id. at B64. 22 Id. 23 Id. 24 Id.

8 The availability of discounted and negotiated rates often mean that a pipeline

owner’s revenues and ultimate ROE are lower than they would be under recourse

rates.25

The United States Court of Appeals for the District of Columbia (the “DC

Circuit”) has addressed tax policy for pipelines organized as limited partnerships, of

which MLPs are one publicly traded variety. In a 1990 case, the DC Circuit held

that FERC could not engage in “retroactive ratemaking” if it abolished ADIT and

required pipeline owners to return the balance over upcoming years, because it

would be “forcing a utility to disgorge the proceeds of rates that have been finally

approved and collected.”26 And in 1995, in Lakehead Pipeline Co., Ltd. P’ship,

FERC decided that a pipeline organized as a limited partnership could claim an

income tax allowance for partnership interests held by a corporation.27 The change

accounted for the double taxation of the distributions to the investors in the corporate

entities that held pipeline partnership interests and the higher returns those investors

would require as an offset.28 This became known as the Lakehead Policy.29

25 See id. at B2592 (Sullivan Tr.) (“A lot of the volumes are being done at discounted and negotiated rates, and you have to see how much revenue is actually being recovered from those -- those shippers before you actually know, you know, how you could calculate an appropriate [recourse] rate.”). 26 Pub. Utils. Comm’n of Cal. v. FERC, 894 F.2d 1372, 1383–84 (D.C. Cir. 1990). 27 Lakehead, 71 FERC ¶ 61,338. 28 Id. ¶ 62,313–15. 29 App. to PAB at B66 (PTO).

9 In 2004, the DC Circuit abrogated the Lakehead Policy because the

Commission had not “suppl[ied] reasoning for differentiating between individual

and corporate tax liability” for the purpose of allocating tax allowances.30 In 2005,

in response to this ruling, FERC abandoned the Lakehead Policy and allowed

pipeline owners organized as limited partnerships to claim an income tax allowance

for all partners, regardless of a partner’s corporate status (the “2005 Policy”). 31

Pipelines organized as limited partnerships, which do not pay entity-level income

taxes but were now “allowed a full tax allowance[,]” became attractive investment

vehicles.32

B.

Loews Corporation (“Loews”) formed Boardwalk Pipeline Partners, LP

(“Boardwalk”) to take advantage of FERC’s policy change and went public in 2005

as an MLP. 33 Typical of interlocking agreements in the MLP structure, Loews

owned a majority of Boardwalk’s units through a limited partnership: Boardwalk

GP, LP (the “General Partner”).34 The General Partner had its own general partner,

Boardwalk GP, LLC (the General Partner of the General Partner or “GPGP”).35 The

GPGP had a board of directors (the “GPGP Board”) and a sole member: Boardwalk

30 BP W. Coast Prods., LLC v. FERC, 374 F.3d 1263, 1290 (D.C. Cir. 2004). 31 App. to PAB at B853 (Court Rep.). 32 App. to DOB at A571 (Rosenwasser Tr.). 33 Id. 34 App. to PAB at B41 (PTO). 35 Id. at B44.

10 Pipelines Holding Corp. (the “Sole Member” or “Holdings”).36 The Sole Member

was a wholly owned subsidiary of Loews and its board (the “Sole Member Board”)

was controlled by Loews insiders. 37 As the Court of Chancery summarized the

ownership structure, “[t]hrough Holdings, Loews controlled the GPGP. Through

the GPGP, Loews controlled the General Partner. Through the General Partner,

Loews controlled Boardwalk and its subsidiaries.”38 The Boardwalk subsidiaries

operated interstate natural gas pipeline systems. 39 The following diagram, from

Boardwalk’s 10-K, illustrates the partnership/corporate structure:40

36 Id. at B44–45. 37 Id. at B45–46. 38 Bandera Master Fund LP v. Boardwalk Pipeline P’rs, LP, 2021 WL 5267734, at *9 (Del. Ch. Nov. 12, 2021). 39 App. to DOB at A3135 (Form 10-K). 40 Id.

11 The GPGP LLC Agreement (the “LLC Agreement”) required the GPGP

Board to have between five and eight members, with at least three independent

directors serving on an audit committee.41 At the relevant time, the GPGP Board

had eight members: four independent directors, and four Loews insiders.42 The four

Loews directors on the GPGP Board were:

41 Id. at A1313 (LLC Agreement § 5.1) (“The number of directors (the ‘Directors’) constituting the Board (the ‘Board’) shall be at least five and not more than eight, unless otherwise fixed from time to time pursuant to a resolution adopted by the Sole Member.”). The LLC Agreement requires only three independent directors to serve on an audit committee, but it is otherwise silent regarding the appointment of independent directors. Id. at A1313–14 (LLC Agreement § 5.2). 42 App. to PAB at B44–45 (PTO).

12 • Kenneth I. Siegel, Senior Vice President of Loews and Chairman of the GPGP Board; • Andrew H. Tisch, the Co-Chairman of the board of directors of Loews, the Chairman of the Executive Committee of Loews, and member of the Office of the President of Loews; • Peter W. Keegan, a Senior Advisor to Loews; and • Stanley C. Horton, the President and Chief Executive Officer of Boardwalk.43

During the relevant period, the Sole Member directors were Siegel, Keegan,

and Jane Wang, a Vice President of Loews.44

C.

There was always a possibility that FERC tax policy could change again.45

Thus, when Loews took Boardwalk public, it included a call right in Section 15.1 of

the Partnership Agreement.46 The call right gives Boardwalk’s General Partner the

right to acquire Boardwalk’s public limited partner interests under two Partnership

Agreement provisions: Section 15.1(a) if the General Partner and its affiliates own

at least 80% of Boardwalk’s total outstanding units; or Section 15.1(b) if the General

Partner and its affiliates own more than 50% and the following condition is met:

43 Id. 44 Id. at B46 (PTO). 45 For instance, shippers challenged the 2005 FERC Policy immediately, and Loews was concerned FERC might change course. E.g., ExxonMobil Oil Corp. v. FERC, 487 F.3d 945, 955 (D.C. Cir. 2007) (rejecting challenge to 2005 FERC Policy due to showing of reasonableness). 46 App. to DOB at A572 (Rosenwasser Tr.) (“[Loews was] not prepared to go forward with a Boardwalk public offering as an MLP if Lakehead were reversed or interpreted in a way that would be materially adverse to . . . Loews . . . so [the Call Right] . . . is a reflection of the way they dealt with that risk.”).

13 The General Partner receive[s] an Opinion of Counsel that the Partnership’s status as an association not taxable as a corporation and not otherwise subject to an entity-level tax for federal, state or local income tax purposes has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers . . . .47

The “Opinion of Counsel” definition in the Partnership Agreement required that the

“written opinion of counsel” be “acceptable to the General Partner.” 48 In other

words, before the General Partner could exercise the call right under Section 15.1(b),

the General Partner had to find the opinion acceptable. The Partnership Agreement

did not address which entity would act on behalf of the General Partner in accepting

the opinion, the Sole Member or the GPGP Board.49 As explained later, these details

were set forth in the LLC Agreement.50

The Partnership Agreement also provided that, in deciding whether to exercise

the call right, the General Partner was free of any fiduciary duty and acted in its

individual capacity. 51 In other words, it was bound only by the non-waivable

47 Id. at A3117–18 (Partnership Agreement § 15.1). 48 Id. at A3030 (Partnership Agreement § 1.1); Bandera, 2021 WL 5267734, at *1. 49 App. to DOB at A3030 (Partnership Agreement § 1.1). 50 Id. at A1313–21 (LLC Agreement Art. 5). 51 See id. at A3084 (Partnership Agreement § 7.1(b)) (“[T]he execution, delivery or performance by the General Partner . . . of this Agreement or any agreement authorized or permitted under this Agreement (including the exercise by the General Partner or any Affiliate of the General Partner of the rights accorded pursuant to Article XV) shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners . . . under this Agreement (or any other agreements) or of any duty stated or implied by law or equity.”); App. to DOB at A3091 (Partnership Agreement § 7.9(c)) (“Whenever the General Partner makes a determination or takes or declines to take any other action . . . in its individual capacity . . . then the General Partner . . . [is] entitled to make such determination or to take or decline to take such

14 implied covenant of good faith and fair dealing.52 Once the General Partner received

an acceptable opinion, the General Partner had 90 days to trigger the call right, after

which it would purchase all outstanding limited partner interests “at a purchase

price . . . equal to the average of the daily Closing Prices . . . for the 180 consecutive

Trading Days immediately prior to the date three days prior to the date” on which

the General Partner had mailed notice that it would be exercising the call right.53

Two other Partnership Agreement provisions were relevant to the call right

exercise. The first was Section 7.8(a) that exculpated the General Partner from

monetary liability absent bad faith, fraud, willful misconduct, or criminality.54 The

second was Section 7.10(b) that provided a conclusive good faith presumption for

any action taken in reliance on expert advice, including that of legal counsel.55

D.

Between 2005 and 2017, Boardwalk’s public filings explained in great detail

the General Partner’s authority and conflicts, and the self-interested decision-making

other action free of any fiduciary duty or obligation whatsoever to the Partnership, any Limited Partner or Assignee, and the General Partner . . . shall not be required to act in good faith . . . .”). 52 See 6 Del. C. § 17-1101(d) (“To the extent that, at law or in equity, a partner or other person has duties (including fiduciary duties) to a limited partnership or to another partner or to another person that is a party to or is otherwise bound by a partnership agreement, the partner’s or other person’s duties may be expanded or restricted or eliminated by provisions in the partnership agreement; provided that the partnership agreement may not eliminate the implied contractual covenant of good faith and fair dealing.”). 53 App. to DOB at A3117 (Partnership Agreement § 15.1(b)). 54 Id. at A3090 (Partnership Agreement § 7.8(a)). 55 Id. at A3092 (Partnership Agreement § 7.10(b)).

15 permitted by the Partnership Agreement.56 Although the language varied slightly

over the years, each filing alerted investors that the General Partner had a call right

to repurchase the common units, described the triggering events for the General

Partner to exercise its call right, explained the absence of fiduciary duties when

exercising the call right, and cautioned that the call right could force limited partners

to sell their common units at “an undesirable time or price” leaving no return on their

investments.57 The following warnings are illustrative:

 “Investing in our common units involves risks. . . . These risks include the following: . . . Our general partner has call rights that may require you to sell your common units at an undesirable time or price.”58

 “If the FERC policy is reversed or implemented in a manner that is disadvantageous to us, our general partner’s call right may be triggered. . . . Our general partner has call rights that may require you to sell your common units at an undesirable time or price.”59

56 Id. at A1330, A1337, A1356, A1363-65, A1425, A1436, A1452 (Draft Prospectus); id. at A1675, A1685, A1692, A1703, A1714, A1785, A1797, A1813 (Amend. No. 4 to Draft Prospectus); id. at A2223, A2233, A2240, A2249, A2260-62, A2333, A2345, A2361 (Amend. No. 5 to Draft Prospectus); id. at A2579, A2589, A2596, A2607-08, A2618-19, A2703, A2719 (Final Prospectus); id. at A2811 (2005 Form 10-K); id. at A2921-22 (2006 Form 10-K); id. at A3286 (2017 Form 10-K); id. at A3470-71 (2018 Form 10-K). 57 Id. at A1330, A1337, A1356, A1363-65, A1425, A1436, A1452 (Draft Prospectus); id. at A1675, A1685, A1692, A1703, A1714, A1785, A1797, A1813 (Amend. No. 4 to Draft Prospectus); id. at A2223, A2233, A2240, A2249, A2260-62, A2333, A2345, A2361 (Amend. No. 5 to Draft Prospectus); id. at A2579, A2589, A2596, A2607-08, A2618-19, A2703, A2719 (Final Prospectus); id. at A2811 (2005 Form 10-K); id. at A2921–22 (2006 Form 10-K); id. at A3286 (2017 Form 10-K); id. at A3470-71 (2018 Form 10-K). 58 Id. at A1330, A1337 (Draft Prospectus); id. at A1675, A1685 (Amend. No. 4 to Draft Prospectus); id. at A2223, A2233 (Amend. No. 5 to Draft Prospectus); id. at A2579, A2589 (Final Prospectus). 59 Id. at A1356, A1425 (Draft Prospectus); id. at A1703, A1785 (Amend. No. 4 to Draft Prospectus); id. at A2251, A2333 (Amend. No. 5 to Draft Prospectus); id. at A2607–08, A2619 (Final Prospectus); id. at A2811 (2005 Form 10-K).

16  “Our general partner and its affiliates own a controlling interest in us and have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment. . . . These potential conflicts include, among others, the following situations: . . . Our general partner may exercise its rights to call and purchase (1) all of our common units if at any time it and its affiliates own more than 80% of the outstanding common units or (2) all of our equity securities (including common units) if it and its affiliates own more than 50% in the aggregate of the outstanding common units, subordinated units and any other classes of equity securities and it receives an opinion of outside legal counsel to the effect that our being a pass- through entity for tax purposes has or is reasonably likely to have a material adverse effect on the maximum applicable rates we can charge our customers.”60

 “Our general partner has call rights that may require you to sell your common units at an undesirable time or price. . . . As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the call rights. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units or other equity securities and exercising its call right. If our general partner exercised its call rights, the effect would be to take us private and, if the common units were subsequently deregistered, we might no longer be subject to the reporting requirements of the Securities Exchange Act of 1934 (‘Exchange Act’).’”61

 “Common units are subject to our general partner’s limited call rights. Our general partner may exercise its right to call common units as provided in our partnership agreement or assign this right to one of its affiliates or to us. Our general partner may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. As a result, a common unitholder may have his common units purchased from him at an undesirable

60 Id. at A1363-64 (Draft Prospectus); id. at A2260–61 (Amend. No. 5 to Draft Prospectus). 61 Id. at A1365 (Draft Prospectus); id. at A1714 (Amend. No. 4 to Draft Prospectus); id. at A2261– 62 (Amend. No. 5 to Draft Prospectus); id. at A2618–19 (Final Prospectus).

17 time or price. Please read ‘The Partnership Agreement—Limited Call Rights.’”62

 “In addition, if (a) our general partner receives an opinion of outside counsel to the effect that our being a pass-through entity for federal income tax purposes has or is reasonably likely to have a material adverse effect on the maximum applicable rates chargeable to customers by our subsidiaries that are regulated interstate natural gas pipelines and (b) at such time our general partner and its affiliates own more than 50% in the aggregate of the outstanding common units, subordinated units and other equity securities, then within 90 days of receiving such opinion our general partner will have the right, which it may assign to any of its affiliates or us, but not the obligation, to acquire all, but not less than all, of the equity securities units held by unaffiliated persons. The purchase price in the event of such an acquisition will be equal to the average of the daily closing prices of the equity securities over the 180 days preceding the date three days before the date on which our general partner first mails notice of its election to purchase the equity securities. The limited call rights are exercisable by our general partner, acting in its individual capacity, and may be assigned to its affiliates. As a result of our general partner’s rights to purchase outstanding units, a holder of units may have his units purchased at an undesirable time or price. The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his common units in the market. Please read ‘Material Tax Consequences—Disposition of Common Units.’”63

E.

In July 2016, the DC Circuit issued its ruling in United Airlines, Inc. v.

FERC.64 United Airlines challenged the 2005 Policy. The DC Circuit found that the

tax allowance, as implemented, “permit[ted] [the] partners in a partnership pipeline

to ‘double recover’ their taxes.” 65 MLPs are not taxed at the pipeline level, but

62 Id. at A1797 (Amend. No. 4 to Draft Prospectus); id. at A2703 (Final Prospectus). 63 Id. at A1452 (Draft Prospectus); id. at A1813 (Amend. No. 4 to Draft Prospectus); id. at A2361 (Amend. No. 5 to Draft Prospectus); id. at A2719 (Final Prospectus). 64 United Airlines, Inc. v. FERC, 827 F.3d 122, 126 (D.C. Cir. 2016). 65 Id. at 127.

18 FERC allowed a “discounted cash flow” ROE based on taxes for all pipelines.66 A

partnership investor would recover more than a corporate pipeline investor, because

the pipeline was claiming a credit for income tax—without actually being taxed.67

The partner would get the benefit of the taxes it would pay as a corporation, and

through the partnership.68 The court remanded the case with instructions to FERC

to figure out how it could fix the double-recovery problem, but noted that its

precedent did not preclude the option of eliminating income tax allowance entirely.69

In December 2016, FERC issued a notice of inquiry in response to United

Airlines, seeking comment on the double-recovery problem. 70 While the review

process was underway, Congress passed the Tax Cuts and Jobs Act (the “Tax Act”),

which lowered the federal corporate income tax rate from 35% to 21%.71 FERC

66 Id. at 136 (“First, unlike a corporate pipeline, a partnership pipeline incurs no taxes, except those imputed from its partners, at the entity level. Second, the discounted cash flow return on equity determines the pre-tax investor return required to attract investment, irrespective of whether the regulated entity is a partnership or a corporate pipeline. Third, with a tax allowance, a partner in a partnership pipeline will receive a higher after-tax return than a shareholder in a corporate pipeline, at least in the short term before adjustments can occur in the investment market.” (citations omitted)). 67 Id. (“These facts support the conclusion that granting a tax allowance to partnership pipelines results in inequitable returns for partners in those pipelines as compared to shareholders in corporate pipelines.”). 68 Id. (“[T]he necessary conclusion is that partners in a partnership pipeline receive a windfall compared to shareholders in a corporate pipeline . . . . FERC . . . attributes this disparity in returns to the Internal Revenue Code while simultaneously denying that double-recovery exists.”). 69 Id. at 179. 70 App. to DOB at A3627 (Revised Policy) (“Following the decision of the U.S. Court of Appeals for the District of Columbia Circuit in United Airlines, Inc., et al. v. Federal Energy Regulatory Commission, 827 F.3d 122 (D.C. Cir. 2016), the Commission issued a notice of inquiry (NOI) seeking comment regarding how to address any double recovery resulting from the Commission’s current income tax allowance and rate of return policies.”). 71 App. to PAB at B71 (PTO).

19 responded to these changes at the same time to “ensure[] administrative efficiencies

by reducing the number of filings required of regulated entities.”72

At its scheduled meeting on March 15, 2018, FERC took four actions in

response to the recent developments (the “March 15 FERC Actions”).73 The first

was the adoption of the “Revised Policy” on the treatment of income taxes.74 The

Revised Policy stated that FERC “[would] no longer permit MLPs to recover an

income tax allowance in their cost of service” as doing so in combination with a

discounted cash flow-driven ROE would result in “an impermissible double

recovery” under United Airlines.75 The second action was a notice of proposed

rulemaking (“NOPR”) that FERC would implement regulations to “address[] the

effects of [the] Revised Policy on the rates of interstate natural gas pipelines

organized as MLPs.” 76 In response to questioning during this meeting, FERC

representatives said that they had not yet decided when the policy would apply: “the

NOPR [Notice of Public Rulemaking] anticipates that the deadlines for pipeline

filings will be late summer or early fall [2018]. We obviously have to go to a final

72 Id. at B293 (FERC Meeting Tr.). 73 Id. at B288–90, B293. 74 App. to DOB at A3627–62 (Revised Policy). 75 Id. at A3633. 76 Id.; App. to PAB at B347–72 (NOPR).

20 rule first.”77 FERC staff also said more clarification on the Revised Policy would be

coming soon—by summer or fall.78

FERC “invite[d] interested persons to submit comments.”79 Under the NOPR,

interstate natural gas pipelines would file an informational form (the “501-G Form”),

allowing FERC to evaluate the impact of the Tax Act on revenue.80 Pipelines would

perform limited cost and revenue studies like those done in rate cases, to show how

the tax policy had affected their revenue.81 In preparing their analysis, firms would

use their cost of service from 2017, the new federal income tax, a reduction of

allowance from 35% to 0%, and an ROE of 10.55%.82 In this way, FERC could get

a preliminary understanding of whether a pipeline’s rate base had changed and

whether a rate case was warranted.83

FERC also proposed that a pipeline could submit the form a) by itself, b) with

a commitment to file a general rate case, c) with a voluntary reduction of recourse

rates, or d) with a statement explaining why a rate adjustment was not justified.84

FERC recognized that many pipelines would not be subject to a rate case, because

77 App. to PAB at B72–73 (PTO). 78 Id. 79 App. to PAB at B364 (NOPR). 80 Id. at B354–55. 81 Id. 82 Id. 83 Id. (“The Commission and the parties may use this information in considering whether to initiate NGA section 5 rate investigations of pipelines . . . .”). 84 Id. at B356–58.

21 they had rates that did not recover their cost of service, operated in competitive

markets with discounted rates, or had settlements providing rate moratoria.85

The third March 15 FERC Action was a notice of inquiry asking how FERC

should treat ADIT under the Tax Act and the Revised Policy (the “ADIT NOI”).86

The notice of inquiry distinguished between partnerships and other entities and

sought comment on options for ADIT treatment, including whether ADIT sums

should be eliminated or returned to ratepayers.87

The final March 15 FERC Action was the implementation of the United

Airlines decision against the defendant, SFPP, the gas pipeline owner that was

organized as a limited partnership (the “Order on Remand”).88 The order held that

“to avoid a double recovery of investor-level tax costs, SFPP should not receive an

income tax allowance.” 89 The order also required SFPP to revise its rates

accordingly. 90 FERC also initiated two rate cases against two other natural gas

pipelines.91 In one of these cases, the order initiating the case cited the Revised

85 Id.; App. to DOB at A4281 (Boardwalk Comments on NOPR) (“The market drives pipelines’ transportation rates, and pipelines frequently must discount rates below their recourse rate to remain competitive.”). 86 App. to PAB at B327–46 (ADIT NOI). 87 Id. at B340–41. 88 App. to PAB at B81 (PTO). 89 App. to DOB at A3595 (Order on Remand). 90 Id. at A3619 (“SFPP shall file revised West Line rates and refunds consistent with this order within 60 days after this order issues . . . .”). 91 App. to PAB at B81–82 (PTO).

22 Policy in calculating the pipeline’s increased ROEs. 92 In the second, the order

initiating the case cited increased ROEs resulting from the Tax Act’s change in

corporate income tax.93

The March 15 FERC Actions ushered in a period of significant uncertainty

and industry advocacy. The price of Boardwalk units dropped 7% in one day, and

the Alerian Index, an industry index tracking MLPs, fell by 4.6%.94 MLPs rushed

to reassure investors with press releases pointing to their long-term contracts with

customers—meaning it was unlikely the FERC policies would impact them in the

near future.95 Boardwalk noted in its press release that it “[did] not expect FERC’s

proposed policy revisions to have a material impact on the company’s revenues.”96

Industry participants meanwhile responded with communications to FERC,

including thirteen requests for rehearing regarding the Revised Policy and over a

hundred comments on the NOPR and ADIT NOI.97

92 App. to PAB at B81–82 (PTO). 93 Id. 94 App. to PAB at B83 (PTO); App. to DOB at A5727 (Hubbard Rebuttal). 95 App. to DOB at A686 (McMahon Tr.); id. at A746 (Siegel Tr.) (“A lot of Boardwalk’s competitors put out press releases to try to calm the market and provide some stability.”); see, e.g., id. at A3662 (Spectra Energy Partners Press Release) (“SEP anticipates no immediate impact to its current gas pipeline cost of service rates as a result of the revised policy and therefore no impact is expected to its previously provided 2018 financial guidance.”). 96 Id. at A3666 (March 19, 2018 Press Release). 97 Id. at A776–78 (Court Rep.).

23 F.

Boardwalk saw an opportunity to exercise the call right following FERC’s

announcement.98 Exercising the call right at the right time could be advantageous

to Boardwalk’s sponsors, because the purchase price was based on a trailing market

average.99 Boardwalk’s stock price was already significantly reduced.100 In 2014,

it had cut its quarterly distributions from $0.5325 to $0.10, sending its unit price

down about $20 in value. 101 It had not recovered. 102 Under the Partnership

Agreement, there was nothing improper about Boardwalk’s consideration of the call

right at this time. The Partnership Agreement allowed Boardwalk to exercise the

call right to its advantage – and to the disadvantage of the minority unitholders –

free from fiduciary duties.

G.

Under Section 15.1(b) of the Partnership Agreement, the call right could not

be exercised without an opinion of counsel acceptable to the General Partner. The

day after the FERC announcements, Marc Alpert, Loews’ general counsel, contacted

Mike Rosenwasser, a partner at Baker Botts, and asked whether Baker Botts could

98 See App. to DOB at A687 (McMahon Tr.). 99 Id. at A3117 (Partnership Agreement § 15.1(b)). 100 App. to PAB at B2148 (Horton Dep.). 101 Id. at B2148 (Horton Dep.); id. at B59 (PTO). 102 Id. at B2148 (Horton Dep.).

24 render an opinion.103 Rosenwasser gathered a group of senior Baker Botts attorneys

with extensive industry experience to consult regarding the call right. 104

Over the following months, Rosenwasser’s team worked with Boardwalk,

Loews, and Barry Sullivan, a third-party rate expert, to determine whether the FERC

announcements had triggered the Section 15.1(b) conditions and whether Baker

Botts could deliver an opinion to that effect.105 Marc Alpert remained involved with

the process.106 Kenneth Siegel, Mike McMahon, Boardwalk’s general counsel, and

Ben Johnson, Boardwalk’s Vice President of Rates and Tariffs, also took lead

internal roles.107 A key project was the development of a financial model to assess

the impact to Boardwalk’s rates.108 Baker Botts also consulted with Richards Layton

& Finger and, to a lesser extent, Skadden on issues of Delaware law.109

Baker Botts gave its final opinion on June 29, 2018, advising that it was

of the opinion that the status of the Partnership as an association not taxable as a corporation and not otherwise subject to an entity-level tax for federal, state or local income tax purposes has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers by subsidiaries of the Partnership that are regulated interstate natural gas pipelines.110

103 Id. at B83 (PTO). Rosenwasser drafted the call right provision in the Boardwalk Partnership Agreement. App. to DOB at A642–43 (Alpert Tr.). 104 App. to DOB at A575–76 (Rosenwasser Tr.). 105 Id. at A5125 (Baker Botts Opinion); id. at A5113 (Skadden Opinion). 106 See e.g., App. to PAB at B547. 107 See, e.g., App to DOB at A3741, A4257; App. to PAB at B542, B547. 108 App. to PAB at B542. 109 App. to DOB at A5525; App. to Defs.’ Reply Brief (“DRB”) at AR22. 110 Id. at A5123 (Baker Botts Opinion).

25 To support its conclusion, Baker Botts summarized the financial data underlying its

analysis and provided a comprehensive memorandum explaining the basis for its

opinion.

First, Baker Botts concluded that the lack of a tax allowance meant a lower

cost of service, which in turn would mean lower rates.111 It described the rate model

used in the financial analysis (the “Rate Model Analysis”) as a simplified cost-based

determination of the hypothetical indicative rates that would result without the tax

allowance after an assumed rate case for all of Boardwalk’s pipelines. 112 The

indicative rates applied across each pipeline as a whole rather than in market-based

or geographic segments. 113 It recognized that the hypothetical model was not a

replication of the intensive rate case process, which, should one be initiated, would

consider further cost and demand-side adjustments across various geographic zones

before setting recourse rates.114 Baker Botts made key assumptions in this regard,

namely “that each Subsidiary would charge all its customers the maximum

applicable rate, and as a result, each Subsidiary would recover its entire cost of

service” and that “reductions in the maximum applicable rates would not be offset

111 See App. to PAB at B476. 112 See App. to DOB at A5125 (Baker Botts Opinion); see also App. to PAB at B548–50. 113 App. to PAB at B548–50 (“In order to provide a comparable rate assessment for each of the assets to assist in business decision-making, we have provided indicative rates that are postage stamp (i.e., every shipper pays the same maximum rate for each molecule) and unadjusted (i.e., does not adjust the maximum tariff rate for any under-recoveries of cost associated with either discounted or negotiated rate capacity that is below the maximum tariff rate).”). 114 See id. at B2596, B2604 (Sullivan Dep.).

26 by any reduction in costs incurred by the Subsidiaries.”115 An additional assumption

was that the Revised Policy would not change in any relevant way.116 Baker Botts

then noted:

The Rate Model Analysis indicates that elimination of an income tax allowance from the cost of service would result in an estimated 12.12% decline in the maximum applicable rate for Texas Gas Transmission, LLC, an estimated 11.68% decline in the maximum applicable rate for Gulf South Pipeline Company, LP, and an estimated 15.62% decline in the maximum applicable rate for Gulf Crossing Pipeline Company LLC.117

Next, Baker Botts turned to an interpretation of key terms in the call right.

Relying on our Court’s decision in Norton v. K-Sea Trans. Partners L.P., it

explained that key terms in Section 15.1(b) were unambiguous and were better

viewed as “technical terms” with intended “special meaning[s]” that allowed

consideration of extrinsic evidence. 118 It first considered the phrase “maximum

applicable rate that can be charged to customers by subsidiaries that are regulated

115 App. to DOB at A5125 (Baker Botts Opinion). The Baker Botts memorandum explained that it relied on “certain of the Partnership’s internal assumptions” and that in its review of the financial information with Sullivan, the retained rate expert, “[n]othing came to our attention that indicate [sic] a material error in the Financial Data or that the Partnership had not prepared the Financial Data in good faith.” Id. at A4834–36 (Baker Botts Memorandum). 116 Id. at A5126 (Baker Botts Opinion). The Baker Botts memorandum explained that one basis for this assumption was the fact that “[t]he Revised Policy was adopted after interested parties were given notice and requested to comment on the issue” and that “FERC adopted the Revised Policy after considering the extensive comments it received.” Id. at A4835 (Baker Botts Memorandum). At that stage, “there [was] no formal procedure for requesting revision to the Revised Policy, except in connection with actual rate cases in the future in which the Revised Policy is to be applied.” Id. 117 Id. at A5125 (Baker Botts Opinion). 118 Id. at A4837 (Baker Botts Memorandum) (quoting Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 360 (Del. 2013)).

27 interstate natural gas pipelines of the Partnership.”119 According to Baker Botts, this

phrase should be interpreted “to mean the recourse rates of the Subsidiaries now and

in the future as that term is used by the FERC in its regulation, ruling and

decisions.”120 This interpretation focused the opinion on FERC-regulated recourse

rates rather than market-informed negotiated and discounted rates. Its reasoning

rested in part on the requirement that attorneys were to provide the opinion rather

than “an economist, a rate consultant or maybe an investment banker.”121 Including

the words “maximum” and “can be charged to customers” also cut against a need

“to consider actual rates considering actual or expected competitive conditions or

other economic factors.”122 Providing further support for its interpretation was the

use of the term “maximum applicable rates” in Boardwalk’s securities filings and

FERC documents that referred to recourse rates.123

Baker Botts then interpreted “‘status as an association not taxable as a

corporation’ to mean status as an entity not taxable as a corporation.” 124 As

explained in the memorandum, “for tax purposes, the term ‘association’ normally

refers to a corporation.”125 Interpreting “association” to mean “entity” helped avoid

119 App. to DOB at A5126 (Baker Botts Opinion). 120 Id. 121 App. to PAB at B529–30; App. to DOB at A4840 (Baker Botts Memorandum) (“[A] law firm would not be in a position to evaluate what rates would be market clearing rates.”). 122 App. to PAB at B529–30. 123 See App. to DOB at A4840–45 (Baker Botts Memorandum). 124 Id. at A5126 (Baker Botts Opinion). 125 See id. at A4840–45 (Baker Botts Memorandum).

28 confusion over the underlying issue of Boardwalk’s status as an MLP. 126 If

“association” did mean “corporation,” the memorandum reasoned that “the tax

related language in Section 15.1(b)(ii), including ‘not taxable as a corporation’ and

‘not otherwise subject to entity-level tax’, would not make sense.” 127

And last, Baker Botts addressed the term “material adverse effect.” It

considered “an estimated reduction in excess of ten percent in the maximum

applicable rates that can be charged to the customers of each of the Subsidiaries on

a long-term basis” to meet the threshold.128 As Baker Botts explained:

The term “material adverse effect” as used in Section 15.1(b)(ii) of the Partnership Agreement is not defined in the Partnership Agreement or in the Delaware Revised Uniform Limited Partnership Act. In rendering the opinion set forth above, we have considered Delaware case law construing such term. Our analysis leads us to the conclusion that there is no case directly applicable to this situation and no bright- line test regarding what is a “material adverse effect,” although the case law has provided us some guidance.129

In arriving at the ten percent threshold, Baker Botts reviewed cases Skadden

had flagged as important Delaware precedent.130 It also consulted with Richards

Layton & Finger, a Delaware law firm.131 As Baker Botts explained, “[t]he well-

126 See App. to PAB at B1100; see also App. to DOB at A4840 (Baker Botts Memorandum) (“The drafters of Section 15.1(b)(ii) were concerned about a situation that would cause this Partnership’s subsidiaries to lose their tax allowance. There would have been no purpose in the drafters of Section 15.1(b)(ii) requiring that all partnerships be affected whether or not they were MLPs.”). 127 App. to DOB at A4838–39 (Baker Botts Memorandum). 128 Id. at A5126 (Baker Botts Opinion). 129 Id. at A5125–26. 130 Id. at A4846 (Baker Botts Memorandum); App. to DRB at AR22. 131 App. to DOB at A4846 (Baker Botts Memorandum); see id. at A5525.

29 known case law in Delaware interpreting ‘material adverse effect’ is primarily

focused on the use of that term in connection with contracts governing mergers and

acquisitions.”132 Recognizing that the context was not the same, Baker Botts also

considered how materiality is assessed in other settings. 133 It considered federal

securities law, which provides that “something is material if an investor would

consider it important in making an investment decision[,]” and noted that “research

has established that most accountants view materiality in terms of net income,

usually 5% to 10%.”134 The long-term nature of the reduction served as a deciding

factor for its recommendation.135

H.

The Baker Botts Opinion had to be “acceptable to the General Partner.”136 To

address acceptability, Skadden was retained for its expertise in FERC and MLP

matters and for its relationship with Loews.137 Although Skadden had initially been

132 Id. at A4846 (Baker Botts Memorandum). 133 Id. at A5126 (Baker Botts Opinion); id. at A4853–54 (Baker Botts Memorandum) (“I gave relatively more weight to the merger and acquisition cases, but still gave some consideration to the other cases and accounting literature, since Section 15.1(b) of the LPA is not in a merger and acquisition agreement and provides protection against a specified risk.”). 134 App. to PAB at B531 (March 29 Memorandum); App. to DOB at A4853 (Baker Botts Memorandum); see id. at A585–86 (Rosenwasser Tr.). 135 Id. at A4853 (Baker Botts Memorandum) (“It is the fact that the change is long-term that should, in my view, decide the issue when dealing with a 10% or greater amount.”). 136 Id. at A3030 (Partnership Agreement § 1.1). 137 Id. at A577 (Rosenwasser Tr.) (“[T]hey had a deep MLP expert, and Grossman and other corporate guys had that expertise. They had a Delaware office and were known as, you know, qualified Delaware counsel. And they had a great FERC practice with Mike Naeve, who was an

30 retained by the GPGP, after the attorneys concluded that the Sole Member and not

the GPGP Board determined acceptability, Skadden shifted its representation to the

Sole Member. 138 Skadden first determined which entity at the GPGP level was

responsible for accepting the Baker Botts Opinion. Baker Botts had already

concluded that the Sole Member should make the determination rather than the

GPGP Board. 139 Skadden’s task was to “confirm” this. 140 Early deliberations

among Skadden lawyers considered possible ambiguity arguments.141 According to

internal emails, while an argument for ambiguity could be made, Skadden eventually

found that it was reasonable to conclude the Sole Member had the authority to accept

the opinion.142 Skadden arrived at this conclusion after consultation with Richards

Layton & Finger, which relied on the GPGP LLC Agreement and its governance

provisions.143

ex-Commissioner and who was very senior, very experienced in FERC rate matters.”); id. (“They were to -- in summary, to shadow us and eventually advise the -- Loews and the sole member that our opinion was acceptable.”); id. at A643 (Alpert Tr.). 138 See App. to DOB at B3451. 139 App. to PAB at B531–32 (March 29 Memorandum). 140 App. to DOB at A3730 (“Rich- on another matter, can you check with your corporate MLP specialists, and confirm they view the redemption as the sole decision of the GP—such that the board will not need to act.”). 141 Id. at A3750. 142 Id. at A3778; id. at A5102 (Skadden Opinion). 143 App. to PAB at B2457 (Alpert Dep.); id. at B1320–23 (“While there is some ambiguity and argument can certainly be made to the contrary, we think that the better view is that the [Acceptability Condition] is within the sole authority of the Sole Member pursuant to Section 5.6 of the LLC Agreement.”).

31 Next, for the acceptability of the opinion itself, Skadden “shadow[ed]” Baker

Botts as it prepared its opinion. 144 Skadden refrained from providing specific

analysis on the issues Baker Botts addressed and instead framed its review as

addressing solely the reasonableness of the analysis and the conclusion.145

When the Sole Member Board met on June 29, 2018, Skadden presented its

final opinion.146 As an initial matter, Skadden reviewed its qualifications, Baker

Botts’ qualifications, and Sullivan’s qualifications and noted Baker Botts’

consultation with Richards Layton & Finger.147 Skadden also stated at the outset:

We believe that it is reasonable for the directors of Boardwalk Holding to conclude that they have the authority . . . to make the determinations called for under Article XV of the LPA, including the exercise of the Call Right and the acceptability of Bakers Botts as counsel and of the Baker Botts Opinion.148

The Skadden Opinion then addressed the reasonableness of Baker Botts’

assumptions regarding the Revised Policy. Skadden stated it was reasonable to

assume the Revised Policy would be applied through regulatory proceedings without

relevant changes. It supported this assessment by noting that FERC had already

sought and considered comments on the issue; that the Revised Policy was in

144 App. to DOB at A577 (Rosenwasser Tr.). 145 Id. at A5121 (Skadden Opinion) (“[W]e have not been asked to undertake, and have not undertaken, any analyses for purposes of rendering the Opinion of Counsel contemplated in Section 15.1(b)(ii) of the LPA (and are not rendering such an opinion) . . . .”). 146 Id. at A5081–84; id. at A5100–22. 147 Id. at A5100–22. 148 Id. at A5102.

32 response to the D.C. Circuit’s remand order in United Airlines that left FERC “no

choice” on the matter; and that other MLP pipeline entities had begun “restructurings

demonstrating an apparent conviction that the Revised Policy Statement will

continue to apply.”149 It concluded that “notwithstanding efforts by the Partnership

and others to persuade the FERC to abandon or modify the revised policy, we think

it is reasonable for Baker Botts to assume the new FERC policy will continue to

apply.”150

Skadden then confirmed the reasonableness of the definitions Baker Botts had

applied to key terms. It concluded that Baker Bott’s interpretation of “maximum

applicable rate” to mean recourse rates was reasonable because of similar language

in Boardwalk’s public filings and FERC’s use of the term.151

The meaning of “material adverse effect” received specific attention.

Skadden first reviewed Baker Botts’ analytical process, noting that Baker Botts had

considered Delaware case law and consulted Delaware counsel on the matter.152 It

then highlighted that Boardwalk “is likely the only MLP that has a provision similar

to Section 15.1(b), requiring an opinion of counsel regarding a material adverse

effect on . . . maximum applicable rate[s].”153 Thus, it was reasonable for Baker

149 Id. at A5117. 150 Id. 151 Id. at A5119. 152 Id. at A5120. 153 Id.

33 Botts to conclude it was writing on a clean slate.154 According to Skadden, Baker

Bott’s reliance on financial data to assess a material adverse effect was also

reasonable “as it b[ore] on potential changes in each interstate pipeline’s maximum

applicable rate[.]” 155 While not rendering an opinion on whether there was a

material adverse effect, Skadden concluded that the “general processes and analyses

described in the Baker Botts Opinion . . . are reasonable.”156

In the end, Skadden advised the Sole Member Board: “[w]e believe that, based

on the factors and considerations outlined herein, it would be within the reasonable

judgment of Boardwalk Holding to find that Baker Botts is acceptable counsel and

that the Baker Botts Opinion is acceptable, as that term is used in the LPA.”157

Following Skadden’s advice, the Sole Member Board determined that the

Baker Botts Opinion was acceptable and directed the General Partner to exercise the

call right.158 Boardwalk announced the decision later that day, which meant that it

would purchase the units at a price of $12.06 per common unit, approximately $1.5

billion in total.159 The transaction closed on July 18, 2018.160

154 Id. 155 Id. 156 Id. at A5121. 157 Id. at A5122. 158 App. to DOB at A5086–87 (Sole Member Board Meeting Minutes). 159 App. to PAB at B180 (PTO). 160 Id. at B180.

34 I.

The next day, on July 19, 2018, FERC issued an order on rehearing of the

Revised Policy and a final rule on the NOPR.161 The order on rehearing stated that

MLPs would not automatically be entitled to an income tax allowance but could

argue that they were entitled to one based on the record in their case.162 FERC’s

final rule also said that if MLPs were stripped of their income tax allowance, they

could eliminate their ADIT balances.163 Other pipelines and industry associations

had argued for this result, and FERC based its ruling in part on these arguments.164

For Boardwalk, this meant there would be no immediate effect on recourse rates.

There is no evidence that anyone involved had any advance notice about the

substance of the July 19, 2018 order or FERC’s final rule.

J.

On May 24, 2018, two holders of common units – the initial plaintiffs – filed

suit in response to Boardwalk’s and Loews’ disclosure that they were considering

exercise of the call right.165 The news caused the price of Boardwalk units to decline

161 App. to DOB at A5391–400 (FERC Order on Rehearing), id. at A5189–5390 (FERC Final Rule). 162 Id. at A5392 (FERC Order on Rehearing) (“An entity such as an MLP pipeline will not be precluded in a future proceeding from arguing and providing evidentiary support that it is entitled to an income tax allowance and demonstrating that its recovery of an income tax allowance does not result in a double-recovery of investors' income tax costs.”). 163 Id. at A5275–76 (FERC Final Rule). 164 Id. at A5217, A5274; id. at A5391 (FERC Order on Rehearing). 165 App. to PAB at B1296–98, B1304 (Form 10-Q); id. at B122–23 (PTO).

35 – a benefit to Loews due to the call right’s pricing being based on a trailing market

average. 166 To limit the impact of the disclosures on the unit price, the parties

entered settlement negotiations and agreed in principle to a settlement with an

exercise date on or before June 29, 2018, reducing the negative price impact of the

call right exercise announcement to forty-four days post-disclosure.167

The current Bandera plaintiffs objected to the proposed settlement as

inadequate, and the Court of Chancery declined to approve it.168 They took over the

litigation from the initial plaintiffs and filed an amended class action complaint on

October 14, 2020. 169 In the amended complaint, Bandera first alleged that

Boardwalk and the General Partner had breached the Partnership Agreement through

their exercise of the Section 15.1(b) call right without meeting the Opinion of

Counsel requirements.170 A second breach of contract claim alleged that Boardwalk

and the General Partner breached the Partnership Agreement by paying a deflated

price per unit upon exercise of the call right.171 Bandera alleged alternatively that

166 See id. at B1339 (Deutsche Bank Research Bulletin) (“Stakeholders could expect no higher price for shares of BWP than $11.50 unless Loews chose voluntarily to tender at a higher share price (or chose not exercise at all). Given that the probable “best” the stakeholders could do seemed to be around $11.50 in August 2017, there seemed to be little incentive to hold onto BWP shares above that price. And so the stock has begun to fall. However, as the stock falls, so too does the 180-average price for which Loews can demand tender.”). 167 App to DOB at A5437–43; id. at A661 (Alpert Tr.). 168 Id. at A236; id. at A233. 169 See id. at A236; id. at A356. 170 Id. at A549–53. 171 Id. at A553–55.

36 Boardwalk and the General Partner had breached the implied covenant of good faith

and fair dealing by causing a decline in the price of Boardwalk units and then paying

only $12.06 per unit.172 Finally, Bandera alleged tortious interference and unjust

enrichment claims against the GPGP, the Sole Member, and Loews.173

K.

The Court of Chancery held a four-day trial.174 The central questions were

whether the General Partner had breached the Partnership Agreement when it

exercised the call right, and if so, whether the defendants were exculpated from

damages under the Partnership Agreement, and if not, the damages caused by the

improper exercise of the call right.

The court ruled that the General Partner had not received “a bona fide

‘Opinion of Counsel’ that could satisfy the Opinion Condition.” 175 This was,

according to the court, because “the Opinion did not reflect a good faith effort to

discern the actual facts and apply professional judgment.”176 The court pointed to a

series of what it characterized as unsupported counterfactual assumptions and a

misleading Rate Model Analysis as part of an effort by Baker Botts and Boardwalk

172 Id. at A555–57. 173 Id. at A557–59. 174 Id. at A562–871. 175 Bandera, 2021 WL 5267734, at *52. 176 Id. at *55.

37 to set up a biased analytical framework.177 It then criticized Baker Botts’ strained

interpretation of key terms within that framework as evidence of “motivated

reasoning” that resulted in a “flawed imitation” of an opinion. 178 The court

concluded “[t]he Opinion was a contrived effort to reach the result that the General

Partner wanted.”179

The Court of Chancery next addressed whether the General Partner had

properly accepted the opinion. It found the language of the Partnership Agreement

ambiguous as to whether the Sole Member or the GPGP Board made the decision to

accept the Opinion of Counsel. 180 Although the court recognized that the Sole

Member as decisionmaker had greater textual support, this interpretation, the court

found, would render the acceptability requirement surplusage by negating the

apparent protection it offered to limited partners.181 Also, according to the court, the

LLC Agreement delegated management responsibilities to the GPGP Board, and the

177 Id. at *67, *71. The court took issue with assumptions that the Revised Policy was final, that recourse rates would change without a rate case, that hypothetical indicative rates are the same as recourse rates, and that FERC would treat ADIT a certain way. See id. at *55–63. The court also viewed the connection between the tax allowance and rates underlying the Rate Model Analysis as overly simplified. See id. at *64. As a result, the Rate Model Analysis “departed from ratemaking principles” and, in the court’s view, “avoided any meaningful assessment of how, if at all, a change in the cost of service might impact any of” Boardwalk’s recourse rates. See id. at *65. The court’s criticism stems from the fact that Boardwalk’s model did not replicate the complex and intensive process of a rate case, which, should one be initiated, would consider demand-side adjustments across various geographic zones before setting recourse rates rather than focusing solely on costs. Id. at *65–66. 178 Id. at *67–71. 179 Id. at *55; see id. at *71. 180 Id. at *78. 181 Id. at *74.

38 acceptability requirement was more closely related to the management of the

partnership. 182 Finding both readings reasonable, the court applied contra

proferentem – interpreting the agreements against the drafter – and concluded that

the GPGP Board and not the Sole Member should have determined acceptability of

the Baker Botts Opinion.183 The court believed this outcome “meshe[d] better with

the overall structure of the agreements” despite having “fewer textual supports” than

the reading granting the Sole Member acceptance authority.184

The Court of Chancery then turned to whether the Partnership Agreement

exculpated the defendants from damages. Two provisions were relevant: the

Exculpation Provision in Section 7.8(a) and the Reliance Provision in Section

7.10(b). 185 Section 7.8(a) shielded the General Partner from monetary liability

absent fraud, bad faith, or willful misconduct.186 Boardwalk argued that the willful

misconduct must rest with the Sole Member Board—Siegel, Keegan, and Wang—

182 Id. at *76. 183 Id. at *78 (“Because the question of who could make the acceptability determination was ambiguous, well-settled interpretive principles require that the court construe the agreement in favor of the limited partners. . . . Because the GPGP Board did not make the acceptability determination, the General Partner breached the Partnership Agreement by exercising the Call Right.”); id. at *71 (“Both readings are reasonable.”). 184 Id. at *71. 185 App. to DOB at A3090, A3092 (Partnership Agreement §§ 7.8(a), 7.10(b)). 186 Id. at A3090 (Partnership Agreement § 7.8(a)) (exculpating the General Partner unless there has been a finding that it “acted in bad faith or engaged in fraud, willful misconduct, or, in the case of a criminal matter, acted with knowledge that [its] conduct was criminal”).

39 and that a showing of scienter was necessary for all three individuals.187 The court

was not persuaded by this argument because, according to the court, the plaintiffs

were seeking to recover from the General Partner rather than from those

individuals.188 Further, the court pointed to “[a] basic tenet of corporate law, derived

from principles of agency law, . . . that the knowledge and actions of the

corporation’s officers and directors, acting within the scope of their authority, are

imputed to the corporation itself.”189 The court found that Alpert, Siegel, McMahon,

and Johnson, as agents of Loews, the Sole Member, the GPGP, the General Partner,

and Boardwalk, acted “in a manner sufficient to impute scienter to the General

Partner.” 190 The court also pointed to Baker Botts’ knowledge, and held that a

“lawyer’s knowledge is imputed to the client for matters within the scope of the

lawyer’s agency.”191 Because the General Partner pushed Baker Botts to provide the

opinion that it wanted, the court found, Baker Botts’ scienter could be imputed to

187 Bandera, 2021 WL 5267734, at *79 (“[T]he defendants argue that the court must (i) focus on the three individuals who comprised the Holdings board (Siegel, Keegan, and Wang), (ii) examine their individual states of mind when deciding to exercise the Call Right, and (iii) deny any recovery to the class unless all three acted with scienter.”). 188 Id. at *80. 189 Id. (quoting Stewart v. Wilm. Tr. SP Servs., Inc., 112 A.3d 271, 302–03 (Del. Ch. 2015), aff’d, 126 A.3d 1115 (Del. 2015); then citing Teachers’ Ret. Sys. of La. v. Aidinoff, 900 A.2d 654, 671 n.23 (Del. Ch. 2006); and finally citing Restatement (Third) of Agency § 5.03 Westlaw (Am. L. Inst. database updated Oct. 2021)). 190 Bandera, 2021 WL 5267734, at *80; see also id. (“[They] orchestrated the sham Opinion, supported the sham Opinion with the inadequate Rate Model Analysis, and diverted the acceptability determination for the sham Opinion from the GPGP Board to Holdings.”). 191 Id.

40 the General Partner. Imputing willful misconduct to the General Partner “render[ed]

the exculpatory provision inapplicable.”192

Under Section 7.10(b) of the Partnership Agreement, the General Partner was

conclusively presumed to act in good faith if it took an action in reliance on the

advice or opinion of legal counsel.193 The Court of Chancery found that the General

Partner did not rely on the Baker Botts Opinion because it knew “that the opinion in

question was contrived to generate a result.”194 It also could not rely on the Skadden

Opinion to escape liability. 195 First, the court held, it was unclear whether the

General Partner could use a secondary opinion to cover up the flaws in the first

opinion.196 Second, the issues with reliance still held, according to the court, because

the General Partner was not actually relying on the Skadden Opinion, but rather

“manufactur[ing] the [first] opinion and then get[ting] another opinion to whitewash

the first one.”197 Finally, the court ruled that, even if the General Partner relied on

the Skadden Opinion, the wrong decisionmaker made the acceptability

determination. Thus, the court held, the General Partner did not “validly [rely] on

Skadden’s advice.”198

192 Id. 193 App. to DOB at A3092 (Partnership Agreement § 7.10(b)). 194 Bandera, 2021 WL 5267734, at *81. 195 Id. 196 Id. 197 Id. 198 Id.

41 The Court of Chancery awarded $689,827,343.38 in damages, pre- and post-

judgment interest on that amount, and an award of fees.199

II.

A Delaware master limited partnership “allow[s] sponsors and public

investors to take advantage of favorable tax laws” with the “benefit under Delaware

law [of] the ability to eliminate common law duties in favor of contractual ones,

thereby restricting disputes to the four corners of the limited partnership

agreement.” 200 Section 17-1101(f) of the Delaware Revised Uniform Limited

Partnership Act (the “DRULPA”) allows a partnership to eliminate “any and all

liabilities for breach of contract and breach of duties (including fiduciary duties) of

a partner or other person to a limited partnership or to another partner or to another

person that is a party to or is otherwise bound by a partnership agreement” other than

for “any act or omission that constitutes a bad faith violation of the implied

contractual covenant of good faith and fair dealing.”201

Delaware courts respect the terms of a partnership’s governing agreements to

preserve the “maximum flexibility” of contract.202 Our strict approach to contract

199 Id. at *82. 200 Brinckerhoff v. Enbridge Energy Co., Inc., 159 A.3d 242, 245 (2017). 201 6 Del. C. § 17-1101. 202 Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 170 (Del. 2002) (quoting Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 291 (Del. 1999)); see 6 Del. C. § 17-1101(c) (The “policy” of the DRULPA is “to give maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements.”).

42 interpretation and enforcement “puts investors on notice” regarding the primacy of

partnership agreements “and therefore that investors should be careful to read

partnership agreements before buying units.”203

It is common for MLP sponsors to “[take] advantage of DRULPA’s

flexibility” to concentrate power in the general partner, to limit liabilities, and to

waive fiduciary duties.204 A consequence is that MLPs “severely limit[] the limited

partners’ ability to challenge or change the general partner’s management of the

MLP’s business.”205 Within a limited partnership, “[g]eneral partners and limited

partners invariably have different governance rights,”206 and “severe consolidation

of governing power in the general partner is standard.”207 The customizability of

governance structures and business relationships in this way might be one reason for

the popularity of MLPs.208

203 Miller v. Am. Real Est. P’rs, L.P., 2001 WL 1045643, at *8 (Del. Ch. Sept. 6, 2001). 204 Allen v. Encore Energy P’rs, L.P., 72 A.3d 93, 100 (Del. 2013); Dieckman v. Regency GP LP, 155 A.3d 358, 366 (Del. 2017) (“One freedom often exercised in the MLP context is eliminating any fiduciary duties a partner owes to others in the partnership structure”); John Goodgame, Master Limited Partnership Governance, 60 Bus. Law. 471, 491 (2005) [hereinafter Goodgame] (“One noncorporate quality of almost every MLP is the degree of control exercised by the general partner and the exclusion of the common unitholders from much, if not all, control.”); Sandra K. Miller & Karie Davis-Nozemack, Toward Consistent Fiduciary Duties for Publicly Traded Entities, 68 Fla. L. Rev. 263, 271 (2016) (“MLP agreements are often drafted to maximize the GP’s control and to minimize the limited partners’ remedies.”). 205 Goodgame, at 493. 206 Bamford v. Penfold, L.P., 2020 WL 967942, at *17 (Del. Ch. Feb. 28, 2020). 207 Goodgame, at 491. 208 Sonet v. Timber Co., L.P., 722 A.2d 319, 323 (Del. Ch. 1998) (“One might reasonably conclude that the statutory authority granted to limited partnerships to contract around—or to enhance— fiduciary duties goes a long way in explaining this popularity.”).

43 Boardwalk made full use of the MLP structure to limit fiduciary duties and to

consolidate governing power in its general partner. Section 7.1(a) of the Partnership

Agreement allowed the General Partner “to do all things and on such terms as it

determines to be necessary or appropriate to conduct the business of the Partnership”

and provided a non-exhaustive list of decisions over which the General Partner has

“full power and authority.” 209 Consolidation continues up Boardwalk’s chain of

control as shown by Section 5.6 of the LLC Agreement that grants the Sole Member

“exclusive authority” over important General Partner decisions.210

Further, Section 7.1(b) frees the General Partner and its controlling entities

from “any duty that the General Partner may owe the Partnership or Limited Partners

. . . or any duty stated or implied by law or equity” in its performance of the

Partnership Agreement.211 Section 7.9 sets forth the standards of conduct and duties

that do apply. Section 7.9(b) explains that actions by the General Partner “in its

capacity as the general partner . . . as opposed to in its individual capacity” are only

subject to a duty of good faith, a defined duty that requires an action to be taken

under the “belie[f] that the determination or action is in the best interests of the

Partnership.”212 On the other hand, under Section 7.9(c), the General Partner can

209 App. to DOB at A3082–84 (Partnership Agreement § 7.1(a)). The Section 7.1(a) list covers topics such as securities issuances, cash distributions, and agreements with affiliates. Id. 210 App. to DOB at A1317–18 (LLC Agreement § 5.6). 211 App. to DOB at A3084 (Partnership Agreement § 7.1(b)). 212 Id. at A3091 (Partnership Agreement § 7.9(b)).

44 take individual capacity decisions “free of any fiduciary duty or obligation

whatsoever to the Partnership” and without a requirement to act in good faith.213 For

further clarity, Section 7.9(e) reiterates that the General Partner is subject to no duties

or obligations “[e]xcept as expressly set forth in this Agreement.” 214

The Court of Chancery has noted that “the doctrine of caveat emptor . . . is

fitting given that investors in limited partnerships have countless other investment

opportunities available to them that involve less risk and/or more legal

protection.”215 Our Court echoed this sentiment in Norton and highlighted that the

plaintiff “willingly invested in a limited partnership that provided fewer protections

to limited partners than those provided under corporate fiduciary duty principles.”216

In that case, we found that the plaintiff was “bound by his investment decision.”217

More recently in Dieckman v. Regency GP LP, this Court again warned of the

sponsor-friendly nature of typical MLP agreements:

With the contractual freedom accorded partnership agreement drafters, and the typical lack of competitive negotiations over agreement terms, come corresponding responsibilities on the part of investors to read carefully and understand their investment. Investors must appreciate that “with the benefits of investing in alternative entities often comes the limitation of looking to the contract as the exclusive source of protective rights.” In other words, investors can no longer hold the general partner to fiduciary standards of conduct, but instead must rely on the express language of the partnership agreement to sort out the 213 Id. at A3091–92 (Partnership Agreement § 7.9(c)). 214 Id. at A3092 (Partnership Agreement § 7.9(e)). 215 Sonet, 722 A.2d at 323. 216 Norton, 67 A.3d at 368. 217 Id.

45 rights and obligations among the general partner, the partnership, and the limited partner investors.218

The sale of MLP units on a public exchange requires an MLP to comply with

the filing requirements of securities laws. A section covering the risks of a particular

investment is a standard part of a prospectus and regular filings.219 As noted earlier,

Boardwalk used these filings to highlight the concentration of power in the general

partner and how the call right could be exercised to the disadvantage of the public

investors.

III.

Before the General Partner could take Boardwalk private, the General Partner

had to receive “an Opinion of Counsel that the Partnership’s status as an association

not taxable as a corporation and not otherwise subject to an entity-level tax for

federal, state and local income tax purposes has or will reasonably likely in the future

have a material adverse effect on the maximum applicable rate that can be charged

to customers.”220 The Partnership Agreement defined “Opinion of Counsel” as “a

written opinion of counsel acceptable to the General Partner.”221

If the General Partner breached the Partnership Agreement, under Section

7.8(a) the General Partner would not be “liable for monetary damages . . . unless

218 Dieckman, 155 A.3d at 366. 219 Goodgame, at 506. 220 App. to DOB at A3117 (Partnership Agreement § 15.1(b)). 221 Id. at A3030 (Partnership Agreement § 1.1).

46 there [was] a final and non-appealable judgment” that it “acted in bad faith or

engaged in fraud [or] willful misconduct.”222 Relatedly, Section 7.10(b) provides

that the General Partner is “conclusively presumed” to have acted in good faith when

it relies on advice of counsel “as to matters the General Partner believes to be within

[counsel’s] professional or expert competence.”223 In other words, when the General

Partner acts in reliance on advice from competent counsel, it is conclusively

presumed to have acted in good faith and is exculpated from damages.

The General Partner received an opinion from Baker Botts that Section

15.1(b)’s call right conditions had been satisfied, and that the General Partner could

repurchase the public units. Skadden gave an opinion to the Sole Member Board –

the Board it advised was the proper decisionmaker to determine acceptability – that

“based on the factors and considerations outlined [in Skadden’s Board presentation],

it would be within the reasonable judgment of [the Sole Member Board] to find that

Baker Botts is acceptable counsel and that the Baker Botts Opinion is acceptable, as

that term is used in the [Partnership Agreement].”224

The Court of Chancery found that the General Partner breached the

Partnership Agreement by exercising the call right. According to the court, Baker

Botts offered a contrived opinion that failed to satisfy the Opinion Condition.

222 Id. at A3090 (Partnership Agreement § 7.8(a)). 223 Id. at A3092 (Partnership Agreement § 7.10(b)). 224 Id. at A5122 (Skadden Opinion).

47 Because the General Partner acted “intentionally and opportunistically” in securing

the opinion, its breach constituted willful misconduct.225 As the court held, knowing

participation in securing the contrived opinion also meant the General Partner could

not rely on the Baker Botts Opinion and the conclusive presumption that followed

from such reliance.226 The court also held that the General Partner failed to satisfy

the Acceptability Condition, because the Sole Member and not the GPGP Board

made the determination.

On appeal, the Boardwalk entities argue that even if the Court of Chancery

rejected the Baker Botts Opinion, the General Partner nonetheless relied in good

faith on the Skadden Opinion, both in identifying the acceptability decisionmaker

and in expressing its opinion that it was reasonable for the Sole Member Board to

determine that the Baker Botts Opinion was acceptable. As they argue, the General

Partner acted through the Sole Member and was the ultimate beneficiary of

Skadden’s advice. Importantly, the Court of Chancery did not find, nor did Bandera

contend, that the Skadden Opinion was the product of bad faith or willful

misconduct. Thus, according to the Boardwalk defendants, the General Partner was

presumed to have acted in good faith and is exculpated from damages.

225 Bandera, 2021 WL 5267734, at *3. 226 Id.

48 We address the proper decisionmaker and exculpation arguments in turn. In

considering the arguments on appeal, “[w]e review questions of law and contractual

interpretation . . . de novo.”227 “We defer to the Court of Chancery’s factual findings

supported by the record” and review them for clear error.228

Under the Partnership Agreement, an Opinion of Counsel had to be acceptable

to the General Partner. The Partnership Agreement did not address the details of

how the General Partner would make the determination. Based on this perceived

gap, the Court of Chancery found that “[a] limited partner . . . could not readily

determine from the Partnership Agreement who would make the acceptability

determination on behalf of the General Partner” and that the Partnership Agreement

was therefore ambiguous.229 The court also found that, even if the court looked to

the GPGP’s LLC Agreement to answer the question, “the LLC Agreement also does

not clearly address what decisionmaker would make the acceptability

determination.”230 Given the perceived ambiguity and what the court believed was

the need to interpret the LLC Agreement in an investor-friendly way, the court

concluded that the Baker Botts Opinion was contrived because, among other things,

227 CompoSecure, L.L.C. v. CardUX, LLC, 206 A.3d 807, 816 (Del. 2018); see also AB Stable VIII LLC v. MAPS Hotels & Resorts One LLC, 268 A.3d 198, 209 (Del. 2021). 228 AB Stable VIII LLC, 268 A.3d at 209 (quoting Heartland Payment Sys., LLC v. Inteam Assocs., LLC, 171 A.3d 544, 557 (Del. 2017)); CompoSecure, L.L.C., 206 A.3d at 816. 229 Bandera, 2021 WL 5267734, at *72. 230 Id. at *73.

49 the law firm steered the acceptability determination away from the GPGP Board and

towards the more receptive Sole Member and its board.

Our disagreement with the Court of Chancery begins with its assumption that

the Partnership Agreement’s silence about the mechanics of the General Partner’s

acceptability review means an ambiguity existed in the Partnership Agreement. The

Partnership Agreement placed the acceptability determination in the hands of the

General Partner. Having directed the acceptability determination to the General

Partner, the LLC Agreement dictated how it was to make the acceptability

determination.

In our view, the Court of Chancery’s analysis went off track when the court

read the Partnership Agreement in isolation and not as part of the MLP’s overall

governance structure. An MLP can be organized as a limited partnership managed

by a general partner that is often ultimately controlled by a limited liability company.

The governing agreements – the Partnership Agreement and the LLC Agreement –

were both disclosed to investors in the offering documents.231 This makes sense as

both agreements work together to spell out how the General Partner managed

Boardwalk.232

231 See, e.g., App. to DOB at A1660–61 (Form S-1 Registration Statement); id. at A2036 (Amend. No. 4 to S-1); id. at A2573–74 (Amend. No. 5 to S-1); id. at A3392 (2017 Form 10-K). 232 See Urdan v. WR Cap. P’rs, LLC, 244 A.3d 668, 674–75 (Del. 2020) (reading separate agreements together when there is evidence “that might imply an intent to treat [them] as a unitary transaction”). In addition to the reference to governing documents in Section 7.9(c), both

50 For instance, the Partnership Agreement directs attention to the “General

Partner’s organizational documents” – of which the LLC Agreement is a part – to

ascertain who at the General Partner decides whether to take action when the General

Partner exercises its individual as opposed to general managerial authority.233 The

call right exercise, being an individual capacity determination, directly implicates

the LLC Agreement. 234 The LLC Agreement also has many other provisions

addressing how the General Partner exercises its authority under the Partnership

Agreement. 235 It would have been redundant to spell out in the Partnership

Agreement how the General Partner executed its partnership authority – the

instruments came into force in 2005 for Boardwalk’s initial public offering and were by and between affiliated entities. App. to DOB at A1327–28 (Initial Prospectus); id. at A1306 (LLC Agreement § 1.1); id. at A1299, A2482, A2554. 233 App. to DOB at A3091–92 (Partnership Agreement § 7.9(c)) (“The General Partner’s organizational documents may provide that determinations to take or decline to take any action in its individual, rather than representative, capacity may or shall be determined by . . . the members or stockholders of the General Partner's general partner, if the General Partner is a limited partnership.”). 234 Section 7.9(c) of the Partnership Agreement states “[b]y way of illustration and not of limitation, whenever the phrase, ‘at the option of the General Partner,’ or some variation of that phrase, is used in this Agreement, it indicates that the General Partner is acting in its individual capacity.” Id. at A3091 (Partnership Agreement § 7.9(c)). The Call Right states that it is “exercisable at [the General Partner’s] option.” Id. at A3117 (Partnership Agreement § 15.1(b)). Given this “signaling language,” the Court of Chancery acknowledged that “the decision whether to exercise the Call Right is a decision that the General Partner makes in its individual capacity.” Bandera, 2021 WL 5267734, at *72. 235 See, e.g., App. to DOB at A1316 (LLC Agreement § 5.6) (granting the GPGP Board authority in accordance with the restrictions of the Partnership Agreement); id. (requiring Sole Member approval of an amendment to the Partnership Agreement through Section 10.5); id. at A1317 (LLC Agreement § 5.6(iii)) (giving the Sole Member exclusive authority over General Partner’s decision to make additional capital contributions to Boardwalk per Section 5.2(b) of the Partnership Agreement); id. at A1317 (LLC Agreement § 5.6(vi)) (conferring on the Sole Member exclusive authority over General Partner’s decision to make certain loans per Section 7.6(a) of the Partnership Agreement).

51 mechanics were set forth in the LLC Agreement. Further, when the Partnership

Agreement drafters assigned specific matters to the GPGP Board, they did so

expressly.236 Absent a specific direction in the Partnership Agreement about how

the General Partner exercised its authority, it was a matter for the General Partner

and its internal governance according to the LLC Agreement.

Turning to the LLC Agreement, the drafters divided managerial

responsibilities between the GPGP Board and the Sole Member. Section 5.2 of the

LLC Agreement gave the GPGP Board general authority to exercise the business

and affairs of the GPGP.237 But Section 5.6 contained extensive carveouts to that

general managerial authority.238 Of relevance here is the “exclusive authority” of

the Sole Member “over the business and affairs of the Company that do not relate to

the management and control of the MLP.”239 Under this Section, the Sole Member

had “exclusive authority to cause the Company to exercise the rights of the Company

and those of the MLP General Partner, as general partner of the MLP.” 240 The

236 See, e.g., App. to DOB at A3061 (Partnership Agreement § 5.11(f)) (assigning responsibility to the GPGP Board over determining fair market value of common units in connection with an exchange or tender offer); id. at A3090–91 (Partnership Agreement § 7.9(a)) (assigning role to the GPGP Board in resolution of conflicts of interest). 237 Id. at A1313–14 (LLC Agreement § 5.2). 238 Id. at A1315–18 (LLC Agreement § 5.6). 239 Id. at A1316 (LLC Agreement § 5.6). 240 Id. at A1316–18 (LLC Agreement § 5.6). Section 5.6 also states that “the type of matter” falling under the Sole Member’s “exclusive authority” includes repurchases of any equity in the General Partner or GPGP, emphasizing an overall scheme to consolidate decision-making in Boardwalk’s controlling entity. Id. at A1316.

52 Section listed eleven references to sections of the Partnership Agreement – one of

which is “Section 15.1 (‘Right to Acquire Limited Partner Interests’).”241 In other

words, the Sole Member, acting for the General Partner in its individual capacity and

free from fiduciary duties, had the “exclusive authority to cause” the General Partner

to exercise the call right and to acquire all outstanding limited partnership

interests.242

An integral part of the General Partner’s “exclusive authority to cause” the

call right exercise was obtaining an opinion of counsel acceptable to the General

Partner. As the Court of Chancery noted, “[i]f the Opinion was not acceptable, then

the Acceptability Condition could not be met and the General Partner could not

exercise the Call Right.”243 The possibility that the GPGP Board could find the

opinion unacceptable and then obstruct the exercise of the call right is at odds with

the Sole Member having “exclusive authority to cause” the exercise of the call right.

Two further points dispel any surprise or doubt that the Sole Member was to

determine the acceptability of the Opinion of Counsel. First, Boardwalk’s public

disclosures stated that “[a]ctions of [its] general partner, which are made in its

241 Id. at A1317–18 (LLC Agreement § 5.6). 242 The Court of Chancery observed that including the exclusive authority provision hinted at the underlying ambiguity over the correct decisionmaker. Bandera, 2021 WL 5267734, at *72. (“[W]ithout the Authority Provision it would be unclear whether the decision to exercise the Call Right fell within the purview of the GPGP Board or Holdings.”). We do not see how including a provision addressing an issue leads to evidence of ambiguity. 243 Bandera, 2021 WL 5267734, at *70.

53 individual capacity, will be made by [Holdings], the sole member of [the GPGP],

rather than by [the GPGP] Board” and noted multiple times that the call right

exercise was an individual capacity matter. 244 There is no mention of separate

treatment of the Acceptability Condition. 245 That the filings do not treat the

acceptability determination as distinct from the exercise “provides helpful context

regarding what [Boardwalk] contemplated . . . and what the public unitholders

accepted by purchasing” their units.246 And second, and perhaps conclusively, in the

LLC Agreement, “Opinion of Counsel” was defined as “a written opinion of counsel

. . . acceptable to the Sole Member.”247

We respectfully disagree with the Court of Chancery’s reasons supporting its

ambiguity finding. First, the court acknowledged that the opinion of counsel

definition in the LLC Agreement – “a written opinion of counsel . . . acceptable to

the Sole Member” – provided textual support for the Sole Member to make the

acceptability determination. But the court dismissed the opinion of counsel

244 App. to DOB at A2987 (2006 Form 10-K); id. at A2695, A2703, A2719 (Final Prospectus). 245 See id. at A2596 (Final Prospectus) (stating the call right may be exercised “if [the] general partner receives an opinion of outside counsel” but excluding mention of an acceptability determination). 246 Allen v. El Paso Pipeline GP Co., L.L.C., 113 A.3d 167, 191 (Del. Ch. 2014). 247 App. to DOB at A1309 (LLC Agreement § 1.1).

54 definition as a “stray definition” because the drafters did not use the term “opinion

of counsel” in other sections of the LLC Agreement.248

If the opinion of counsel definition was a stray definition devoid of meaning,

however, it would more likely have read “opinion of counsel acceptable to the GPGP

Board” – the entity having general management responsibilities over the General

Partner. But the drafters identified the Sole Member as the entity determining

acceptability. In keeping with our duty to give meaning to agreement terms

whenever possible, and reading the agreements together, we conclude that the

drafters more likely chose “acceptable to the Sole Member” and not the GPGP Board

to reinforce that, when it came to the acceptability of an Opinion of Counsel for the

call right exercise, the Sole Member and not the GPGP Board controlled all aspects

of the General Partner’s call right exercise.249

Second, the court found that the acceptability determination was a better fit

under “the management and control” of the GPGP LLP. According to the court,

corporate law principles would consider a going private transaction part of the

248 Bandera, 2021 WL 5267734, at *73. The court did agree that a reading in favor of the Sole Member as decisionmaker “had the added benefit of giving some purpose to the” otherwise “stray definition.” Id. 249 See Sunline Com. Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836, 846 (Del. 2019) (“The contract must also be read as a whole, giving meaning to each term . . . .”); Martin Marietta Mat’ls, Inc. v. Vulcan Mat’ls Co., 68 A.3d 1208, 1225 (Del. 2012) (proper interpretation “compelled . . . by the canon of construction that requires all contract provisions to be harmonized and given effect where possible”).

55 business and affairs of the corporation.250 But that analogy divorces the acceptability

determination from the call right exercise. Section 5.6 confers exclusive authority

on the Sole Member to “cause” the General Partner to exercise the call right under

Section 15.1 of the Partnership Agreement.251 The acceptability determination is

both incorporated into Section 15.1 and is a necessary condition to exercising the

call right – a right that falls within the Sole Member’s “exclusive” authority to

“cause” the exercise of the call right.252 Detaching the Acceptability Condition from

the Opinion Condition as the Court of Chancery suggests would make the Sole

Member’s exclusive authority non-exclusive and would equate causing the exercise

with the exercise itself.253

Third, the court reasoned that, under the Partnership Agreement, the

acceptability determination and the call right exercise had to be made separately by

the GPGP Board and the Sole Member, respectively. Otherwise, according to the

court, there would be surplusage in the Partnership Agreement as the Sole Member

“always had the ability to make a de facto acceptability determination” by not

250 Bandera, 2021 WL 5267734, at *76. 251 App. to DOB at A1315–18 (LLC Agreement § 5.6). 252 See Borealis Power Hldgs. Inc. v. Hunt Strategic Util. Inv., L.L.C., 233 A.3d 1, 11 (Del. 2020) (Vaughn and Montgomery-Reeves, JJ., concurring) (incorporating defined term into contractual provision to “ma[ke] [it] a part thereof as if set forth therein”). 253 The Court of Chancery found that because the acceptability determination is a condition that must be satisfied before the right to exercise the call right arises, it is wholly distinct from the decision to exercise the call right. Bandera, 2021 WL 5267734, at *75. But the acceptability determination precondition is why it should be encompassed within the exclusive authority of the Sole Member to “cause” the exercise of the call right.

56 exercising the call right.254 To avoid the acceptability determination “serving as a

redundant condition,” the Court of Chancery believed that it “exist[ed] to protect the

Partnership” by “ensur[ing] that the General Partner cannot obtain a contrived

opinion.”255 The GPGP Board, having four independent members, could thus serve

as a protective check, giving it, in the Court of Chancery’s view, responsibility for

the acceptability determination.256

But the fact that the GPGP Board had four independent directors was by

happenstance rather than a feature dictated by the LLC Agreement, which only

requires three out of a maximum of eight directors of the GPGP Board to be

independent.257 Thus, the court’s interpretation lacks textual support and creates

254 Bandera, 2021 WL 5267734, at *74. 255 Id. 256 Id. (“[T]he acceptability determination logically belongs to the GPGP Board. Only the GPGP Board has outside directors, and only the GPGP Board can inject a measure of independence into the determination of acceptability.”). To add further support for its interpretation that the Acceptability Condition protected the limited partners, the Court of Chancery pointed to the call right provision in Section 15.1(a) that the General Partner could exercise without an Opinion of Counsel if it owned 80% of the outstanding units. Id. The court reasoned that “[t]he difference between the two call rights indicates that the Opinion Condition and the Acceptability Condition were intended as meaningful limitations on the General Partner’s ability to exercise the Call Right at the lower ownership level.” Id. But this overlooks the fact that an Opinion of Counsel is itself a meaningful limitation regardless of who accepts it. See Gerber v. Enter Prods. Hldgs., LLC, 67 A.3d 400, 409, 422 (Del. 2013) (finding a breach of the implied covenant of good faith and fair dealing where a party relies on an insufficient fairness opinion), overruled on other grounds by Winshall v. Viacom Int’l Inc., 76 A.3d 808, 816 n.13 (Del. 2013). 257 App. to DOB at A1313–14 (LLC Agreement §§ 5.1, 5.2(c)(ii)). The number of directors is also subject to the discretion of Holdings. As Sole Member, Holdings can change the number of directors through a resolution. Id. at A1313 (LLC Agreement § 5.1).

57 protections untethered to the language of the LLC Agreement.258 It also conflicts

with the overall scheme of Boardwalk’s sponsor-friendly MLP framework, which

allowed a streamlined privatization process in the event of changes to FERC policies

adversely affecting Boardwalk. 259 Further, as the Boardwalk entities point out,

acceptance and exercise are separate steps – “[o]ne creates an option; the other

addresses whether to exercise it.” 260 Even after the General Partner deemed the

opinion acceptable, commercial circumstances could intervene that might cause the

General Partner not to exercise the call right. Boardwalk’s public disclosures

explained that receipt of the opinion gives the General Partner “the right . . . but not

the obligation” to exercise the call right.261 As distinct steps, neither acceptance nor

258 See Dieckman, 155 A.3d at 366; see also Re DG BF, LLC v. Ray, 2020 WL 3867123, at *4 (Del. Ch. July 9, 2020) (“When this Court has found the language of a contract clear and unambiguous, it has refused to expand the contract’s scope to include rights not expressly granted. Indeed, where ‘the relevant contracts expressly grant the [parties] certain rights ... the court cannot read the contracts as also including an implied covenant to grant [a party] additional unspecified rights . . . .’” (footnote omitted) (quoting Aspen Advisors LLC v. United Artists Theatre Co., 843 A.2d 697, 707 (Del. Ch. 2004))). 259 Allen v. El Paso Pipeline GP Co., L.L.C. is illustrative of the Court of Chancery’s refusal to create minority protections when doing so would contradict the drafters’ intentions. 113 A.3d 167, 192 (Del. Ch. 2014) (“The drafters of the LP Agreement chose a framework that maximized the General Partner’s freedom and minimized the opportunities for litigation and judicial oversight. . . . [T]he parties would not have agreed to . . . a requirement that the Conflicts Committee obtain a fairness opinion that would be subject to judicial review for the sufficiency of its contents and analytical rigor.”). It is unlikely that the drafters intended an independent check on the call right, a critical issue for Loews, when there was no need to have such a check. 260 DRB at 38–39. 261 App. to DOB at A1452 (Draft Prospectus); id. at A1813 (Amend. No. 4 to Draft Prospectus); id. at A2361 (Amend. No. 5 to Draft Prospectus); id. at A2719 (Final Prospectus).

58 exercise would be “mere surplusage” under a single decisionmaker.262 Surplusage

means a provision has no meaning.263 If there is a reasonable construction, it is not

for courts to assign a meaning beyond what was written.

Finally, the Court of Chancery discussed internal law firm emails where

attorneys went back and forth about what advice should be offered about the proper

decisionmaker to accept the Opinion of Counsel. That attorneys considered

ambiguity arguments does not make the acceptability determination ambiguous.264

It is what attorneys do – explore arguments as part of their professional advice. Here,

we have found that the Partnership Agreement and the LLC Agreement, when read

together, were unambiguous. Thus, we do not consider what attorneys might have

discussed as part of their internal deliberations before rendering their opinion.

The Court of Chancery erred when it decided that the GPGP Board had to

make the acceptability determination. The Sole Member Board, and not the GPGP

262 Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (quoting Kuhn Const., Inc. v. Diamond State Port Corp., 990 A.2d 393, 397 (Del. 2010)); see also Fillip v. Centerstone Linen Servs., LLC, 2014 WL 793123, at *4 (Del. Ch. Feb. 27, 2014) (holding that “all language in a contract is to be given meaning so far as possible” before finding surplusage); Sunline, 206 A.3d at 846. 263 See Osborn, 991 A.2d at 1159; see also Oceanport Indus., Inc. v. Wilmington Stevedores, Inc., 636 A.2d 892, 900 (Del. 1994) (words are not surplusage if there is a reasonable construction which will give them meaning). 264 See AT & T Corp. v. Faraday Cap. Ltd., 918 A.2d 1104, 1108 (Del. 2007) (“The fact that the parties disagree on the meaning of a term does not render that term ambiguous.”); Manti Hldgs., LLC v. Authentix Acquisition Co., Inc., 261 A.3d 1199, 1208 (Del. 2021) (“The parties’ steadfast disagreement over interpretation will not, alone, render the contract ambiguous.” (quoting Osborn, 991 A.2d at *1160)).

59 Board, exercised ultimate authority to cause the exercise of the call right. Thus, the

General Partner did not breach the Acceptability Condition.

The Court of Chancery also found that the General Partner breached Section

15.1(b) because Baker Botts gave a contrived opinion at the behest of individuals

associated with the Boardwalk entities. Our colleagues in concurrence raise

important concerns about the Court of Chancery’s analysis of the Baker Botts

Opinion. But we choose a different path to decide this appeal.

Under Section 7.8(a), the plaintiffs cannot recover damages from the General

Partner unless it acted in bad faith or engaged in fraud or willful misconduct. 265

Under Section 7.10(b), the General Partner is “conclusively presumed” to have acted

in good faith when it relies on advice of counsel “as to matters that the General

Partner reasonably believes to be within [counsel’s] professional or expert

confidence.”266

The General Partner, through the Sole Member, obtained advice from

Skadden that the Baker Botts Opinion was reasonable and that it would be

reasonable to accept the Opinion and cause the General Partner to exercise the call

right. Skadden staffed the engagement with a team of FERC policy experts and

265 App. to DOB at A3090 (Partnership Agreement § 7.8(a)). 266 Id. at A3092 (Partnership Agreement § 7.10(b)).

60 Delaware law experts and delivered a comprehensive written presentation to the Sole

Member Board. 267 It included a thorough analysis of Boardwalk’s governing

documents and a complete review of the Baker Botts Opinion.268 Three other law

firms, Davis Polk, Richards Layton & Finger, and Vinson & Elkins, provided advice

regarding the Acceptability Condition, bolstering the credibility of Skadden’s

opinion. 269 In our view, the General Partner’s decisionmaker for the call right

exercise – the Sole Member – reasonably relied on the Skadden Opinion to cause the

call right exercise. Thus, the General Partner is presumed to have acted in good faith

and is immune from damages. For the reasons explained below, we find

unpersuasive the Court of Chancery’s reasons for disregarding the Skadden Opinion

and the Sole Member Board’s reliance on the Opinion.

1.

As an initial matter, we disagree with the Court of Chancery’s conclusion that

agency law should take precedence over the MLP’s contractual scheme. The Court

of Chancery lumped together a number of individuals and found that their scienter

as management-level officers and agents of Loews, the Sole Member, the GPGP, the

267 See id. at A5103 (Skadden Opinion). 268 See id. at A5081–93 (Sole Member Board Meeting Minutes); id. at A5100–22 (Skadden Opinion). 269 See id. at A660 (Alpert Tr.) (“Ramey Layne weighed in at Vinson & Elkins, as well as Davis Polk”); id. at A4593–94 (Boardwalk Board Meeting Minutes); id. at A766 (Raju Tr.) (“Baker Botts, Skadden, Davis Polk, and Vinson & Elkins agreed with [Richards Layton & Finger’s] analysis.”); App. to PAB at B1333–37 (Richards Layton & Finger Analysis).

61 General Partner, and Boardwalk could be imputed to the General Partner. 270 To

support its agency theory, it relied in part on the Court of Chancery’s decision in

Dieckman v. Regency GP LP, where the court found that “[a]n entity … can only

make decisions or take actions through the individuals who govern or manage it.”271

Relying again on Dieckman, the court found that the General Partner could be

charged with the wrongdoing of its agents and others when they “engaged in

‘intentional wrongdoing … designed to … seek an unconscionable advantage.’”272

The Dieckman decision, however, requires the court to focus on the state of mind of

the decisionmaker – here, the Sole Member – and not agents of the General

Partner.273

The Court of Chancery in Dieckman did not sanction an agency theory to

extend the exculpation inquiry beyond those who govern a partnership or limited

liability company. The “govern and manage it” quote relied on by the court comes

from Gerber v. EPE Holdings, LLC, where the Court of Chancery made clear that

those who govern and those who manage means board-level actors. 274 Quoting from

Gerber: “[a]n entity, such as Enterprise Products GP, can only make decisions or

take actions through the individuals who govern or manage it. In this case,

270 Bandera, 2021 WL 5267734, at *80. 271 Id. (quoting Dieckman v. Regency GP LP, 2021 WL 537325, at *36 (Del. Ch. Feb. 15, 2021), aff’d, 264 A.3d 641 (Del. 2021)). 272 Id. (omissions in original) (quoting Dieckman, 2021 WL 537325, at *36). 273 See Dieckman, 2021 WL 537325, at *36. 274 2013 WL 209658, at *13 (Del. Ch. Jan. 18, 2013).

62 Enterprise Products GP is managed by its board of directors.”275 The same holds

true in Dieckman, where the Court of Chancery made clear that “it is the Board that

governs and manages the General Partner and in turn, Regency.”276

Regency, the MLP in Dieckman, had a structure similar to Boardwalk’s – a

general partner, Regency GP LP; and a general partner LLC of the general partner,

Regency GP LLC.277 Regency had “governance documents vest[ing] the board of

directors of Regency GP LLC . . . with the authority to govern and manage

Regency.” 278 Authority flowed to Regency GP LLC through the Regency LP

partnership agreement, but at the LLC level, the sole member delegated its authority

to the LLC board. 279 The partnership agreement also contained an exculpation

provision nearly identical to the one here.280 The Court of Chancery found after trial

that the General Partner breached the implied covenant of good faith and fair dealing

by manipulating the special approval and safer harbor MLP provisions. When

reviewing whether the General Partner engaged in fraud or willful misconduct for

275 Id. 276 Dieckman, 2021 WL 537325, at *36. 277 Id. at *2. 278 Id. 279 See id. at *2 n.8 (“Article VI of the Amended and Restated Agreement of Limited Partnership of Regency GP LP provides, subject to certain exceptions not relevant here, that ‘all powers to control and manage the business and affairs of [Regency GP LP] shall be vested exclusively in [Regency GP LLC].’ Under Section 7.1(c) of the Amended and Restated Limited Liability Agreement of Regency GP LLC, the sole member of Regency GP LLC, subject to certain limitations not relevant here, ‘delegated ... to the Board of Directors of [Regency GP LLC] (the “Board”) ... all of [Regency GP LLC’s] power and authority to manage and control the business and affairs of [Regency].’” (omissions in original)). 280 Id. at *36.

63 exculpation purposes, the Court of Chancery looked to the Board that approved the

transaction and not to the conduct of the agents of the general partner:

Here, it is the [LLC] Board that governs and manages the General Partner and, in turn, Regency. Thus, determining whether the General Partner acted in bad faith or engaged in fraud or willful misconduct turns on the state of mind of the directors on the [LLC] Board who voted to approve or otherwise authorized a challenged action. Consistent with the default rules governing the [LLC] Board, to the extent the directors who voted to approve an action had different states of mind with respect to a particular matter, the determination of whether the General Partner acted with scienter inimical to the Partnership’s interests would turn on the state of mind of a majority of directors who voted to approve the challenged action.281

In this appeal, we have decided that the Sole Member, acting for the General

Partner, caused the General Partner to exercise the call right and therefore “voted to

approve or otherwise authorized a challenged action.” Allowing agency law to

displace the Sole Member Board and the MLP’s contractual terms undermines the

approval structure in the Partnership Agreement and the LLC Agreement. The

proper review centers on the Sole Member Board – the entity responsible for the call

right exercise – and not non-decisionmaker agents of the General Partner.282

281 Id. at *36. 282 The Court of Chancery also imputed Baker Botts’ scienter to the General Partner. For the same reasons explained above, any wrongful conduct cannot be imputed to the General Partner because the law firm did not “vote[] to approve or otherwise authorize[] a challenged action.” Id. The Partnership Agreement also immunizes the General Partner from “any misconduct or negligence on the part of any . . . agent appointed by the General Partner in good faith.” App. to DOB at A3090 (Partnership Agreement § 7.8(b)). Finally, we note that the case relied on by the Court of Chancery to impute counsels’ misconduct to the General Partner only addressed whether “notice given to a retained lawyer-agent may be viewed as notice to the client-principal.” Vance v. Irwin, 619 A.2d 1163, 1165 (Del. 1993). It does not support imputing scienter from a lawyer to a client.

64 2.

The Court of Chancery also held that the General Partner could not rely on

the Skadden Opinion for purposes of Section 7.10(b) because the Sole Member

Board received the Opinion and not the General Partner. But the Skadden Opinion

still redounds to the benefit of the General Partner because the Sole Member Board

was acting for the General Partner when it caused the call right exercise.

We addressed a similar situation in Norton.283 There, the plaintiffs challenged

a merger between K–Sea Transportation Partners L.P. (“K–Sea”) and Kirby

Corporation. K–Sea’s general partner was K–Sea General Partner L.P. (“K–Sea

GP”). K–Sea GP’s general partner was K–Sea General Partner GP LLC (“KSGP”).

KSGP ultimately controlled K–Sea. KSGP’s conflicts committee secured a fairness

opinion addressing the adequacy of the merger consideration. 284 Like here, a

conclusive presumption of good faith applied to the general partner when relying on

professional advice.285 The Court reasoned that even though a conflicts committee

of the KSGP board obtained the fairness opinion, the presumption nonetheless

applied to K–Sea’s general partner:

Although the Conflicts Committee of the K–Sea Board actually obtained the fairness opinion, it is unreasonable to infer that the entire K–Sea Board did not rely on the opinion that a K–Sea Board subcommittee obtained. Similarly, because K–Sea GP is a “pass-

283 Norton, 67 A.3d at 367. 284 Id. at 366–67. 285 Id.

65 through” entity controlled by KSGP, the only reasonable inference is that K–Sea GP relied on the fairness opinion. K–Sea GP is therefore conclusively presumed to have acted in good faith when it approved the Merger and submitted it to the unitholders for a vote.286

The same reasoning applies here with equal force. The General Partner is a

“pass-through entity” controlled by the GPGP. For purposes of the call right, the

Sole Member, rather than the GPGP Board, controlled the GPGP and accepted

Skadden’s opinion for the General Partner. Thus, “the only reasonable inference” is

that if the Sole Member relied on Skadden’s opinion, then so did the General Partner.

3.

The Court of Chancery described the Skadden Opinion as a “whitewash” of

the Baker Botts Opinion. But other than using a colorful word and speculating that

Skadden was brought in to lend credibility to the Baker Botts Opinion, the Court of

Chancery did not find that Skadden acted in bad faith, and Bandera does not argue

that Skadden acted in bad faith.287

The court also described the Skadden Opinion as an “opinion about an

opinion,” and cast doubt on whether multiple opinions were contemplated by Section

7.10(b).288 We find nothing disqualifying about Skadden giving “an opinion about

286 Id. at 367. 287 Oral Argument at 51:38, Boardwalk Pipeline P’rs, L.P., v. Bandera Master Fund LP, No. 1, 2022 (Del. argued Sep. 14, 2022), https://livestream.com/delawaresupremecourt/events /10612698/videos/232917888 (“The [Court of Chancery] doesn’t find that Skadden acted in bad faith, and we wouldn’t argue that they did.”). 288 Bandera, 2021 WL 5267734, at *81.

66 an opinion.” Ultimately, under the Partnership Agreement and the LLC Agreement,

the Sole Member Board had to determine whether the Baker Botts Opinion was

acceptable before it caused the General Partner to exercise the call right. Skadden

provided an opinion of counsel on both the reasonableness of the Baker Botts

Opinion and the reasonableness of accepting the Opinion.289

Skadden concluded that it would be reasonable for the Sole Member Board to

accept the Baker Botts Opinion. It did so having full knowledge of Baker Botts’

analytical framework, including its assumptions, models, and its interactions with

Boardwalk’s officers. Implicit in this acceptability opinion is Skadden’s conclusion

that the Baker Botts Opinion was not contrived and that it was rendered in good

faith. That the Court of Chancery found otherwise after intensive litigation, which

included the testimony of fourteen witnesses (including six experts) and a four-day

trial, does not retroactively negate the Sole Member Board’s reasonableness in

relying on the Skadden Opinion – an opinion not independently challenged by

Bandera.

289 The court also faulted Skadden for not “opin[ing] on the core issue” whether there was a material adverse effect on Boardwalk from the change in FERC Policy. Bandera, 2021 WL 5267734, at *81. But Skadden was not offering a duplicate opinion on the substance of each of the matters considered by Baker Botts. Instead, Skadden’s Opinion addressed the ultimate question required by the governing agreements and considered by the Sole Member Board before it could cause the call right exercise – whether the Baker Botts Opinion should be considered reasonable and acceptable to that Board. See App. to DOB at A5121 (Skadden Opinion).

67 4.

The Court of Chancery also found that “the General Partner cannot invoke the

Reliance Provision for purposes of the Acceptability Condition because the wrong

decisionmaker considered the issue” and “with the wrong decisionmaker having

acted, the General Partner cannot claim to have relied validly on Skadden’s

advice.” 290 Our earlier finding that the Sole Member Board was the proper

decisionmaker negates this basis for disregarding the Sole Member Board’s reliance

on the Skadden Opinion.

5.

Unlike a rebuttable presumption, Section 7.10(b)’s conclusive good faith

presumption is, as its name denotes, conclusive.291 Interpreting a nearly identical

provision in Gerber, this Court explained that “Section 7.10(b) is a contractual

provision that establishes a procedure the general partner may use to conclusively

establish that it met its contractual fiduciary duty.”292 In other words, once Section

7.10(b) is validly triggered through reliance on expert advice, good faith is

290 Bandera, 2021 WL 5267734, at *81. 291 See Morris v. Spectra Energy P’rs (De) GP, LP, 2017 WL 2774559, at *10 (Del. Ch. June 27, 2017) (distinguishing conclusive presumptions from rebuttable presumptions); see also Sun Equities Corp. v. Computer Memories Inc., 1988 WL 13565, at *1–2 (Del. Ch. Feb. 16, 1988) (equating an irrebuttable presumption with a conclusive presumption). 292 Gerber, 67 A.3d at 420.

68 “conclusively establish[ed]” and no longer subject to challenge.293 Here, the Sole

Member Board received the Skadden Opinion, followed its advice that it would be

reasonable to accept the Baker Botts Opinion, and caused the call right exercise. The

conclusive presumption was triggered and therefore required a finding of good faith

by the Sole Member Board. In turn, the Sole Member Board’s good faith actions on

behalf of the General Partner exculpate the General Partner from damages.

6.

Finally, leaving aside the conclusive presumption, the Court of Chancery did

not find that a majority of the Sole Member Board engaged in fraud, bad faith, or

willful misconduct. Kenneth Siegel, Jane Wang, and Peter Keegan made up the Sole

Member Board. The Court of Chancery addressed the alleged misconduct of one

board member, Kenneth Siegel.294 But there were no findings about the other two

directors. The Court of Chancery did not review the conduct of Jane Wang and Peter

Keegan, finding their states of mind irrelevant to whether the limited partners could

293 See Sun Equities, 1988 WL 13565, at *1–2 (explaining that a “[party] may attempt to come forward and meet the burden [of] negat[ing] a presumption” if “it is not a conclusive presumption”); see also Emps. Ret. Sys. of City of St. Louis v. TC Pipelines GP, Inc., 2016 WL 2859790, at *5 (Del. Ch. May 11, 2016) (explaining that satisfying a contractual mechanism for establishing a transaction’s fairness is “conclusive evidence that such transaction is fair and reasonable, and . . . therefore, preclusive of further judicial review”), aff’d sub nom. Emps. Ret. Sys. of the City of St. Louis v. TC Pipelines GP, Inc., 152 A.3d 1248 (Del. 2016). 294 Bandera, 2021 WL 5267734, at *80.

69 recover from the General Partner.295 The court only referred to them in passing,

noting their positions on the Sole Member Board and in relation to the Loews and

the Boardwalk entities.296 A further reference to Jane Wang was in a footnote with

excerpts from Kenneth Siegel’s trial testimony that included a question where Siegel

was asked if “Barclays gave input to Ms. Wang about the model” and to which he

responded “I don’t know.”297

For the first time on appeal, Bandera asserts that Jane Wang “also knew the

score.”298 It claims there is “ample evidence” in the record demonstrating her willful

misconduct. 299 But the record Bandera points us to shows only that Wang was

involved in the diligence process for the call right, as her duties as a Loews SVP and

Sole Member director would require.300 It does not show that she manipulated the

process or forced desired outcomes as the court found for Alpert, Siegel, McMahon,

and Johnson.301 Her involvement in drafting the press release is also tenuous – no

295 Id. (“If the court were deciding whether to hold Siegel, Keegan, or Wang personally liable for their decision to exercise the Call Right, such as under a tortious interference theory, then that mode of analysis might be warranted. But the plaintiffs are seeking to recover damages from the General Partner, not those three individuals.”). 296 Id. at *9–10. 297 Id. at *86 n.37. 298 PAB at 77–78. 299 Id. at 77. 300 See, e.g., App. to PAB at B2410, B2418 (Alpert Dep.); id. at B303. 301 See Bandera, 2021 WL 5267734, at *80.

70 direct action is attributable to her except for passing on Loews’ collective comments

to Boardwalk.302

The ADIT and rate case risk evidence Bandera relies on shows at most that

Wang was aware of a degree of uncertainty regarding the impact of the FERC

policies.303 A degree of uncertainty is not enough to show that Wang engaged in

willful misconduct.304 Thus, even if we consider arguments raised for the first time

on appeal and put aside the fact that the Sole Member Board, and therefore the

General Partner, could have reasonably relied on Skadden’s opinion, the record does

not support a bad faith or willful misconduct finding for two out of the three

members of the Sole Member Board.

IV.

Under the Partnership Agreement and the LLC Agreement, the General

Partner could exercise the call right to repurchase the public units if it received an

Opinion of Counsel that was acceptable to the Sole Member. When exercising the

call right, the Sole Member acted in its individual capacity, meaning it was free from

fiduciary duties. If it complied with the Partnership Agreement and the LLC

302 App. to PAB at B375. 303 Id. at B373; id. at B507. 304 See Bandera, 2021 WL 5267734, at *80 (“[Willful misconduct] requires a showing of ‘intentional wrongdoing, not mere negligence, gross negligence or recklessness.’” (quoting Dieckman, 2021 WL 537325, at *31)).

71 Agreement, it was free to exercise the call right, even if the timing of the exercise

was disadvantageous to the public unitholders.

Even though the Court of Chancery found after trial that Baker Botts provided

a compromised opinion, under the Partnership Agreement and LLC Agreement, the

proper focus was on the Sole Member and the opinion it received from Skadden.

Skadden found the Baker Botts Opinion reasonable and advised that the Sole

Member Board would be acting reasonably if it accepted the Baker Botts Opinion.

The Sole Member Board followed Skadden’s advice and caused the call right

exercise. Having reasonably relied on Skadden’s advice, the General Partner,

through the Sole Member, is conclusively presumed to have acted in good faith and

is exculpated from damages.

The Court of Chancery severed and stayed Counts II, III, IV, and V of

Bandera’s complaint pending appeal. Thus, we reverse the Court of Chancery’s

partial final judgment and remand for further proceedings consistent with this

72 VALIHURA, Justice, concurring, with LEGROW, Judge, joining:

I agree with the Majority that the trial court erred in holding that Boardwalk GP,

LLC’s Board was the correct decision-maker as to the Acceptability determination. As the

Majority concludes, the General Partner, acting through the Sole Member, was the correct

decision-maker.

Although I concur in the decision to reverse, and, thus, in the judgment, I write

separately because I would reverse the trial court’s decision that the opinion of counsel (the

“Opinion”) of Baker Botts LLP (“Baker”) was not rendered in good faith (the “Breach

Holding”). I do not address the exculpation issues and express no view as to the correctness

of the Majority’s analysis, particularly as to the various findings of bad faith which the

Majority allows to remain standing.1 The issues presented regarding the Breach Holding

were the focal point of the case and are important to both practitioners and their corporate

clients. The Breach Holding has the potential to fundamentally alter the legal environment

in which opinions of counsel are prepared.

1 In addition, it is unclear to me, under the Majority’s view, how the Call Right in Section 15.1 of the Partnership Agreement can even be deemed to have been triggered. As Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) observed in its opinion, “[a]s a pre-condition to exercising the Call Right, Section 15.1(b)(ii) requires that the General Partner receive an ‘Opinion of Counsel,’ to the effect that the Partnership’s status as a pass-through entity for tax purposes has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers by the Partnership’s subsidiaries[.]” A5102. Skadden opined that Baker’s Opinion conforms to the requisite language in Section 15.1(b). See A5110. However, Skadden did not opine on whether there was an MAE. In fact, Skadden stated expressly that “we have not been asked to undertake, and have not undertaken, any analyses for purposes of rendering the Opinion of Counsel contemplated in Section 15.1(b)(ii) of the LPA (and are not rendering such an opinion)[.]” A5121 (emphasis added). And because the Majority leaves the findings regarding Baker’s Opinion in place, according to my reading of the Majority’s opinion, Baker’s Opinion did not satisfy Section 15.1(b)(ii), and, thus, a necessary precondition to the exercise of the Call Right was not satisfied. I believe the trial court misapplied our existing law in analyzing Baker’s Opinion.

It viewed the Opinion through a de novo lens, instead of the more deferential standard set

forth in Williams.2 The trial court rejected Baker’s view of what Section 15.1(b) required.

Instead, it substituted its own legal analysis of Section 15.1(b)’s analytical framework and

then measured Baker’s work product against that standard. Baker’s legal analysis —

whether it was substantively correct or not — was entitled to deference unless it was so far

off the mark substantively as to warrant rejection, or unless it was the product of bad faith.

The trial court undertook extensive fact-finding after reviewing a vast trial record.

Notwithstanding its impressive effort, I do not believe that its findings of bad faith on

Baker’s part are entitled to our usual deference for several reasons.3

First, many of the key findings are a function of the court’s misapplication of

Williams and its rejection of Baker’s model. In particular, many of the court’s findings of

bad faith depend upon its critique of Baker’s interpretation of the Call Right and Baker’s

assumptions in its model. However, Delaware case law regarding opinions of counsel does

not permit a trial court to substitute its legal interpretation for one reached by counsel in

good faith. The trial court then applied its interpretation of the Call Right to Baker’s

assumptions and concluded that they were unreasonable. But several key facts suggest that

Baker’s assumptions and its interpretation of Section 15.1(b) were not the product of bad

2 Williams Cos., Inc. v. Energy Transfer Equity, L.P., 2016 WL 3576682 (Del. Ch. June 24, 2016), aff’d, 159 A.3d 264 (Del. 2017) [hereinafter Williams, 2016 WL 3576682, at _]. 3 Notwithstanding the Majority’s silence on the Breach Holding and the proper standard of review, I would urge that Williams is, and remains, the proper standard.

2 faith. For one, Plaintiffs’ Federal Energy Regulatory Commission (“FERC”) expert

testified at trial that the assumptions employed by Baker in its analysis were reasonable.

In addition to Plaintiffs’ FERC expert, two law firms previously engaged by Plaintiffs

agreed that the Call Right had been triggered. Further, the Plaintiffs’ representative even

agreed that Baker’s reading of the contractual language was the correct reading.

Second, Baker’s analysis was confirmed by its Delaware counsel. Richards, Layton

& Finger, P.A. (“Richards Layton”) agreed with Baker that recourse rates meant

“maximum applicable rates.”4

Third, Skadden opined that Baker’s Opinion was acceptable and that Baker’s

assumptions were reasonable. Not a single finding of bad faith was made against Skadden.

Although the evidence suggests that Loews’ Alpert “threatened to fire Skadden,” beat them

up until they fell in line, and sidelined them by terminating their representation of GPGP,

Skadden’s lead corporate partner testified that the firm did not experience pressure or

“bullying” from its client. And though the record amply supports the conclusion that

Loews was an aggressive client, the record also contains clear testimony from the lead

corporate partner that the firm’s advice and independence were not affected by any such

behavior.

Notwithstanding what I perceive to be a legal error that permeates the court’s factual

analysis, the record is far from perfect for Appellants. Here, the unveiling of the legal

privileges and attorney work product communications revealed to all the sausage-making

4 Richards Layton advised that the “[b]etter [r]eading” of the Call Right was to “look [at] rates more, not effects[.]” B1126.

3 process. But one should recognize that what emerges as the end product may differ

significantly from earlier drafts, and that earlier drafts may reflect differences of views

among the working group members, and theories and views may change over time.5 The

drafting of a legal opinion may involve numerous lawyers and client representatives across

multiple disciplines and areas of the business. The process may demand an exploration of

issues, exchanges of ideas, discussions, and numerous drafts — including research and

drafts by team members less senior and those not responsible for the ultimate decision-

making. Basing findings of bad faith on preliminary drafts and internal discussions when

views may develop differently and change as a result of the give-and-take during the

process could potentially chill the free exchange of ideas, analysis, and discussion needed

to undertake such complicated tasks.6

My reasoning on these points is set forth more fully below.

5 For example, the trial court, citing JX 800 at 2, which is an April 10, 2018 email from C. Naeve to F. Bayouth (both of whom are Skadden lawyers), stated that Naeve believed that “maximum applicable rate” could mean either “the maximum rate applicable to customers taking into consideration discounted contracts that have been filed at FERC” or “the maximum rate contained in the tariff which the pipeline could have charged and is free to charge other customers[.]” Bandera Master Fund LP v. Boardwalk Pipeline P’rs, LP, 2021 WL 5267734, at *60 (Del. Ch. Nov. 12, 2021) [hereinafter Trial Opinion, 2021 WL 5267734, at _]. But the record shows that this internal email between and among Skadden lawyers was sent before Naeve had reviewed the relevant documents. A4250. After reviewing the documents, Naeve agreed that “recourse rate” was the more reasonable reading. Id. Skadden’s ultimate opinion given to its client stated that, “[w]e believe that it is reasonable for Baker Botts to conclude that the ‘maximum applicable rate that can be charged to customers by subsidiaries that are regulated interstate natural gas pipelines of the Partnership’ means ‘recourse rates of the Subsidiaries now and in the future as that term is used by the FERC in its regulations, rulings and decisions.’” A4751. 6 A de novo review of an opinion of counsel — rather than the deferential review currently required under Delaware law — also has the potential to discourage clients from seeking out and relying upon opinions of counsel to inform their business decisions.

4 A. The Trial Court Applied the Wrong Standard of Review

In Williams Cos. Inc. v. Energy Transfer Equity, L.P.,7 the Court of Chancery

correctly articulated the standard of review for a trial court’s review of an opinion of

counsel. There, the Court of Chancery observed:

“Therefore, it is Latham’s subjective good-faith determination that is the condition precedent. As a result, it is not appropriate for me to substitute my judgment on the Section 721(a) issue for that of Latham; my role is to determine whether Latham’s refusal, thus far, to issue a ‘should’ opinion is in good faith, that is, based on Latham’s independent expertise as applied to the facts of the transaction.”8

Similarly, in NHB Advisors, Inc. v. Monroe Capital LLC,9 the Court of Chancery

applied the same deferential standard focused on the good faith of counsel as opposed to

the legal correctness of the opinion itself.10 There, “[u]nder [a] Trust Agreement, the

Trustee was authorized to take ‘any action that, based upon the advice of counsel, it

determine[d] it is obligated to take (or fail to take) in the performance of any fiduciary or

7 2016 WL 3576682 (Del. Ch. June 24, 2016), aff’d, 159 A.3d 264 (Del. 2017). 8 Id. at *11. 9 2013 WL 3790745 (Del. Ch. July 19, 2013). 10 See also Site 35 Redev. Assocs. No. 1 by Marcus v. Kretchmer, 559 N.Y.S.2d 911, 914 (N.Y. Sup. Ct. 1989) (determining that if there is no demonstrated lack of independence, and the opinions of counsel are reasonable in light of the law and the facts, then they should be respected by the court). “An opinion [of counsel] is an expression of professional judgment, not a guarantee that a court will reach the same conclusion as opining counsel. The recipient of a legal opinion, unlike the holder of an insurance policy, has no claim simply because the opinion proves to be incorrect. Lawyers may be liable for negligence, but they are not liable merely for being wrong.” Scott Fitzgibbon & Donald W. Glazer, Opinions of Counsel: What They Are and Why American Companies Ask for Them, 1991 Int’l Bus. L.J. 873, 877 (emphasis added).

5 similar duty which the [Trustee] owes to the Beneficiaries or any other person or entity.’”11

“The Trustee sought the advice of independent counsel, Grover C. Brown, Esquire, who

opined that ‘the Trustee can be said to have a ‘fiduciary duty or similar duty’ to accept the

settlement proposal.’”12

In NHB Advisors, the “Defendants argue[d] that [the Court of Chancery] should

review the substance of Mr. Brown’s decision to determine whether Mr. Brown was correct

in opining that the Trustee has a duty to accept the settlement.” 13 In refusing to do so, the

Court of Chancery stated:

“Defendants argue that Mr. Brown’s determination as to the Trustee’s duty is incorrect. I need not review the substance of Mr. Brown’s decision for its correctness under Delaware law, however. In this matter, the Plaintiff seeks a declaratory judgment as to whether it is empowered to accept the settlement offer.”14

“The relevant language of the Trust Agreement provides that the Trustee may so act if counsel advises that the Trustee has a fiduciary duty to so act; the contract does not require the Trustee to seek court approval or to ensure that the advice it received from counsel was legally correct.”15

The trial court’s “review of the substance of Mr. Brown’s opinion would render the advice-of-counsel provision of the agreement superfluous. The Trustee has sought, and received, advice of counsel under the Trust Agreement.”16

11 NHB Advisors, 2013 WL 3790745, at *1. 12 Id. 13 Id. at *2 (emphasis added). 14 Id. at *3. 15 Id. (emphasis added). 16 Id.

6 “A good-faith determination by the Trustee that it has a fiduciary duty to accept the settlement, based on advice of counsel, triggers the Trustee’s authority. The Plaintiff need not demonstrate that [counsel’s] advice is correct in order to demonstrate its authority under the Trust Agreement.”17

The trial court below erred when it departed from Williams and NHB Advisors in

deciding the Breach Holding. Rather than deferring to counsel’s view as to what kind of

opinion Section 15.1(b) requires, the trial court engaged in its own substantive, de novo

legal analysis.18 Our law does not require that Baker’s advice be legally correct, although

that is certainly desirable. What it requires is a good faith effort to render an opinion of

counsel on the potential exercise of the Call Right.

B. The Court Substituted Its Own View of Section 15.1(b) for that of Counsel

The opinion below reveals that the trial court had a different view of what the

Opinion should consider. For convenience, I repeat the text of Section 15.1(b), as it drives

the legal analysis:

“Section 15.1 Right to Acquire Limited Partner Interests.

(b) Notwithstanding any other provision of this Agreement, if at any time: (i) the General Partner and its Affiliates hold more than 50% of the total Limited Partner Interests of all classes then Outstanding and (ii) the General Partner receives an Opinion of Counsel that the Partnership’s status as an association not taxable as a corporation and not otherwise subject to an entity-level tax for federal, state or local income tax purposes has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers by subsidiaries of the 17 Id.; see also Cruden v. Bank of N.Y., 957 F.2d 961, 972 (2d Cir. 1992) (pursuant to certain trust indentures, which required indenture trustees to obtain opinions of counsel, the Second Circuit stated that “[n]or is the Trustees’ good faith put in question merely by virtue of the fact that the opinion relied upon may have been wrong; to so hold would eviscerate the opinion of counsel defense.”). 18 To be fair to the trial court, this was a case of first impression where counsel conceded that there was no precedent involving language similar to Section 15.1(b).

7 Partnership that are regulated interstate natural gas pipelines, then the General Partner shall then have the right, which right it may assign and transfer in whole or in part to the Partnership or any Affiliate of the General Partner, exercisable at its option within 90 days of receipt of such opinion, to purchase all, but not less than all, of all Limited Partner Interests then Outstanding held by Persons other than the General Partner and its Affiliates, at a purchase price for each class of Limited Partner Interests equal to the average of the daily Closing Prices per Limited Partner Interest of such class for the 180 consecutive Trading Days immediately prior to the date three days prior to the date that the notice described in Section 15.1(c) is mailed.”19

The trial court construed Section 15.1(b) as calling for an analysis of whether there

was a material adverse effect on the business. A few of the court’s findings on this point

suggest that this is the case:

“The Opinion Condition required counsel to address a mixed question of fact and law: whether an event had or was reasonably likely in the future to have a material adverse effect on the maximum applicable rate that Boardwalk could charge its customers. By focusing on a rate that could be charged to customers, the Opinion Condition meshed imperfectly with Loews’ business goal of protecting against future regulatory action that would have a material adverse effect on Boardwalk.”20

“The Call Right sought to protect Loews against a regulatory change that would have a materially adverse effect on Boardwalk.”21

“As described in the Factual Background, Rosenwasser developed his syllogism so that Baker Botts could render the Opinion. Rosenwasser knew that the Call Right was intended to address a business issue by protecting Loews against a regulatory change that would have a materially adverse effect on Boardwalk. Rates were relevant because they led to revenue. The Call Right was not intended to create a regulatory trapdoor that could be triggered by a change that ‘wasn’t substantive, wasn’t meaningful.’ In fact, Rosenwasser did not believe that ‘rates’ were what the Call Right was designed to protect. The Call Right was intended to provide Loews with an

19 A3117 (LPA § 15.1(b)) (emphasis added). 20 Trial Opinion, 2021 WL 5267734, at *1 (emphasis added). 21 Id. at *21 (emphasis added).

8 ‘off-ramp’ if FERC changed its policy in a way that materially threatened Boardwalk as an entity.”22

“Rosenwasser’s syllogism ignored that the Call Right was drafted to address a business issue, not an abstract legal question. The syllogism ignored the absence of any real-world effect on revenue in favor of focusing on recourse rates. It ignored the question of rate case risk and the real-world events that would have to take place before there was any effect on recourse rates. The syllogism was a contrived exercise designed to achieve a particular result.”23

The trial court’s different view of the proper focus of Section 15.1(b) then formed

the basis upon which the court evaluated Baker’s conduct. In this regard, the court’s

approach to Section 15.1(b) surpassed its mandate under Williams. “[I]t is not appropriate

for [the Court of Chancery] to substitute [its own] judgment” on the merits of an opinion

of counsel.24 The principle articulated in Williams makes practical sense. The parties to

the LPA required an opinion of counsel in order to trigger the Call Right. They did not

bargain for an opinion of a court to do so.25

Although there may be circumstances where a legal opinion is so deficient on its

face that a court may properly determine that it is not sufficiently reliable, I do not think

that this is such a case. My view is reinforced by the record below, where, as noted above,

22 Id. at *63 (internal citations omitted) (emphases added). 23 Id. at *65. 24 Williams, 2016 WL 3576682, at *11. 25 This principle of judges not substituting their own views and judgment for that of the lawyers in the trenches can be found in other areas of practice, including intellectual property litigation, for example. See, e.g., Graco, Inc. v. Binks Mfg. Co., 60 F.3d 785, 793 (Fed. Cir. 1995) (“Whether or not an opinion was legally correct is not the proper focus.”); Ortho Pharm. Corp. v. Smith, 959 F.2d 936, 944 (Fed. Cir. 1992) (“While an opinion of counsel letter is an important factor in determining the willfulness of infringement, its importance does not depend upon its legal correctness.”).

9 even Plaintiffs’ counsel, expert, and representative all agreed with Baker’s view that the

Call Right was easily triggered, was likely triggered here, and that Baker’s assumptions

were reasonable or, at least, not unreasonable.

For example, Plaintiffs’ representative agreed with Baker’s reading of the contract:

“I think this is a winning argument in court and that Loews’ attorneys will tell them so, which is why I think they will exercise the option now and I think we should be buying. The reason why I think it is a winning argument is twofold: First, it is a reasonable reading of the contractual language, without importing any ideas about fairness to rewrite the text. Any other reading makes the 90-day requirement meaningless. Second, despite the elimination of fiduciary duties in the MLP agreement, which Delaware courts will enforce, Loews is still subject to the duty of ‘good faith and fair dealing.’ Although Delaware courts haven’t given this duty a very expansive reading, even they agree that this duty requires complying with ‘implicit requirements naturally inferred from the express terms’ of the MLP agreement. I think that reinforces the notion that Loews has an implied requirement to act promptly after the change of law that is naturally inferred from the express 90-day requirement.”26

Plaintiffs’ representative also stated that the Call Right could be triggered “even if [] the

change in law won’t affect rates until 1,000 years from now[.]”27

Further, Plaintiffs’ prior counsel acknowledged that the Call Right was easy to

trigger. At a settlement hearing early in this case, counsel stated that the Call Right is “a

pretty easy option to trigger. I mean, on the face of it . . . the way this crazy option is

worded is if FERC changes the maximum rate, the option is available, even if it doesn’t

have any impact on the business.”28

26 A4346 (emphasis added). 27 Id. 28 A158 (Settlement Hearing Trans. at 9:9–14).

10 Then at trial, Plaintiffs’ FERC expert testified that the assumptions and inputs relied

upon by Baker were reasonable, or, at least, not unreasonable. The following chart shows

the lack of disagreement between Baker and Plaintiffs’ FERC expert as to Baker’s

assumptions.29

Baker’s Assumptions Plaintiffs’ FERC Expert Testimony “The Revised Policy [by FERC] was “Q. If we look at Slide 57, these final.”30 unsound assumptions include that ‘the Revised Policy will not be revised, reversed,’ et cetera, et cetera. A. Right. Q. Ms. Court, since the revised policy statement and Opinion 511-C, no MLP has successfully argued to FERC that it should retain their income tax allowance; right? A. I don’t know that for a fact. Q. But you aren’t aware of any contrary examples; right? A. That’s correct.”31

“Q. And to this date, FERC has not reversed the revised policy statement; correct? A. That is correct.”32 “Recourse rates are the same as “Q. Ms. Court, you would agree that it hypothetical indicative rates.”33 was reasonable for Baker Botts and Skadden to equate the terms ‘maximum applicable rate’ – to equate the term ‘maximum applicable rate’

29 Plaintiffs’ FERC expert did not agree with Baker’s second assumption, which was that “the rates that Boardwalk’s subsidiaries could charge would change to the subsidiaries’ detriment without a rate case.” Trial Opinion, 2021 WL 5267734, at *58. See also A778 (Susan Court Trial Test. at 864:13–865:10). But Baker’s view of Section 15.1(b), which requires an analysis of events “in the future,” encompassed a view that rate cases would take place in the future. See A584 (Michael Rosenwasser Trial Test. at 91:8–10) (noting that Baker looked at “if Boardwalk decided to file a rate case in the future, what would be their maximum applicable rates if they filed that rate case in the future[.]”) (emphasis added). 30 Trial Opinion, 2021 WL 5267734, at *55. 31 A787–88 (Susan Court Trial Test. at 901:18–902:5). 32 A788 (Susan Court Trial Test. at 903:6–8). 33 Trial Opinion, 2021 WL 5267734, at *60.

11 Baker’s Assumptions Plaintiffs’ FERC Expert Testimony with recourse rate; right? A. Was it reasonable for them in the circumstances? Yes.” 34

“[H]ow FERC would treat ADIT was a “Q. Would it have been unreasonable known fact and that FERC would use for Baker Botts to have assumed the Reverse South Georgia Method.”35 Reverse South Georgia Method prior to the July 18th rulings? A. Not unreasonable.”36

C. Many of the Court’s Key Findings of Bad Faith Derive From its Super-Imposition of its Model over Baker’s Legal Analysis

Appellants contend that “[t]he trial court then convicted Baker of ‘bad faith’ for

having answered the question 15.1(b) does ask—evaluating the ‘reasonably likely’ impact

of tax status on recourse rates at any point ‘in the future’ based on neutral rate models.” 37

To use an analogy raised at oral argument, the trial court used its own, different “Scantron”

and graded Baker’s conduct according to its interpretation of Section 15.1(b). 38 In other

words, its factual findings are inextricably intertwined with its different, de novo

interpretation of Section 15.1(b).

The trial court summarized its findings of bad faith as follows:

“Loews achieved this remarkable result because its in-house legal team and outside counsel worked hard to generate a contrived Opinion. The Opinion that outside counsel provided did not satisfy the Opinion Condition because outside counsel did not render it in good faith. Outside counsel knowingly made unrealistic and counterfactual assumptions, knowingly relied on an

34 A787 (Susan Court Trial Test. at 901:2–7). 35 Trial Opinion, 2021 WL 5267734, at *62 (emphasis in original). 36 A786 (Susan Court Trial Test. at 894:2–5). 37 Appellants Reply Br. at 10 (emphasis in original). 38 See Oral Argument, at 9:00–11:30, https://livestream.com/delawaresupremecourt/events/10612698/videos/232917888.

12 artificial factual predicate, and consistently engaged in goal-directed reasoning to get to the result that Loews wanted. Among other noteworthy decisions detailed in this opinion, outside counsel determined that the regulatory proposals were sufficiently final to trigger the Call Right, even though everyone knew the proposals were not final. And outside counsel determined that the proposals were reasonably likely to have a material adverse effect on Boardwalk’s rates, even as Boardwalk stated in its comments to FERC that it was impossible to determine the effect on Boardwalk’s rates until FERC made a decision on the treatment of ADIT. To address the issue that management deemed impossible to assess, outside counsel examined hypothetical indicative rates, failed to incorporate the admittedly low chance that Boardwalk’s rates actually would change, and derived the magnitude of the assumed change from a simple syllogism. Viewed as a whole, outside counsel’s conduct went too far to constitute a good faith effort to render a legal opinion.”39

The findings, for the most part, can be grouped into three categories: (i) model-

based findings; (ii) public comment findings; and (iii) pressure/bullying findings. It may

be that even when deferring to Baker’s model and disregarding the court’s different

construct, the record does not necessarily justify giving Baker an “A.” The Vice

Chancellor’s careful and detailed examination of the record reveals aggressive tactics by

the client and other evidence that, if viewed in a short-term perspective, creates some

dissonance with Baker’s analyses. However, it is not necessary to say where on the grading

scale Baker’s effort falls because — when viewing the record as a whole — the conduct,

in my view, does not equate to bad faith.

1. The Model-Based Findings

Courts should be especially cautious about wading into the thickets of a highly

complex, regulatory arena, like the FERC arena. One of the prime examples of where the

39 Trial Opinion, 2021 WL 5267734, at *2.

13 trial court did so was in its interpretation of “maximum applicable rates” for Baker’s

interpretation. The trial court opined that:

“A threshold question was the meaning of ‘maximum applicable rates.’ If ‘maximum applicable rates’ meant the real-world rates applicable to the shippers who purchased capacity on the subsidiaries’ pipelines, then the March 15 FERC Actions—even if they become final—would not have a meaningful effect, because the majority of the shippers on Boardwalk’s pipelines paid negotiated or discounted rates. As discussed in greater detail below, Baker Botts sidestepped that issue by interpreting ‘maximum applicable rates’ to mean ‘recourse rates.’ But that solution created another problem: Recourse rates do not change without a rate case.”40

“Yet to reach the conclusion that the phrase meant ‘recourse rates,’ Baker Botts declined to apply the doctrine of contra proferentem . . . If Baker Botts had reached that interpretive judgment, assessed each pipeline’s risk of a rate case, relied on a full ratemaking analysis, and rendered opinions about the reasonably likely effect on recourse rates, then Baker Botts’ decision to interpret ‘maximum applicable rates’ as ‘recourse rates’ would not have fatally undermined the Opinion . . . Baker Botts thus could have reached a reasoned conclusion that it was appropriate under the circumstances to consider extrinsic evidence in the form of Boardwalk’s Form S-1, and Baker Botts could have concluded in good faith . . . that when drafting the Call Right, Rosenwasser meant to refer to recourse rates.”41

“But Baker Bott did not do those things. Baker Botts made an unstated assumption that resulted in the Opinion not actually interpreting the phrase ‘maximum applicable rate’ as ‘recourse rates.’ Baker Botts instead considered the highest rates that FERC would allow Boardwalk to charge in a hypothetical world that assumed there was a full market for the pipelines’ services.”42

40 Id. at *58. 41 Id. at *61. 42 Id.

14 Contrary to the court’s interpretation of “maximum applicable rates,” all witnesses agreed

the term meant recourse rates.43

In its analysis of Baker’s model, the trial court looked to the model’s underlying

assumptions and took issue with each of the four assumptions. As discussed in more depth

below, the court elaborated on its disagreement with all four “counterfactual

assumptions,”44 finding that they reflected a bad faith effort to generate a particular result

in the Opinion.

For example, the trial court found that Baker “knowingly made unrealistic and

counterfactual assumptions, knowingly relied on an artificial factual predicate, and

consistently engaged in goal-directed reasoning to get to the result that Loews wanted.”45

The trial court took issue with the very predicate upon which the Opinion was based,

finding that Baker’s Rate Model Analysis “did not provide an adequate factual basis for

the Opinion.”46 A snapshot of a few findings on the counterfactual assumptions

demonstrates the point:

43 See A574 (Michael Rosenwasser Trial Test. at 52:18–19) (noting that “maximum applicable rates” “referr[ed] to the technical term ‘recourse rates[.]’”); A614 (Gregory Wagner Trial Test. at 209:4–5) (“Maximum applicable rate signaled to me the recourse rate in a gas pipeline[’]s tariff.”); A787 (Susan Court Trial Test. at 901:2–7) (noting that “recourse rate” was an appropriate interpretation of “maximum applicable rate”); A4250 (noting that Skadden’s Mike Naeve agreed “maximum applicable rates” meant “recourse rates”); A5748 (Suedeen G. Kelly Dep. Trans. at 69:3–4) (noting that “maximum applicable rate” “can also mean the overall recourse rate.”). 44 See Trial Opinion, 2021 WL 5267734, at *55 (first counterfactual assumption); id. at *58 (second counterfactual assumption); id. at *59 (third counterfactual assumption); id. at *61 (fourth counterfactual assumption). 45 Id. at *2. 46 Id. at *66.

15 “The plaintiffs proved that the Opinion did not reflect a good faith effort to discern the actual facts and apply professional judgment. Instead, Baker Botts made a series of counterfactual assumptions that were designed to generate the conclusion that Baker Botts wanted to reach. Baker Botts then deployed those assumptions as part of a syllogism that turned on elementary subtraction. In the process, Baker Botts stretched its analysis in myriad other ways. The Opinion was a contrived effort to reach the result that the General Partner wanted.”47

“The timing of the Opinion points in the same direction. Given the non-final nature of the Revised Policy, the avalanche of comments that FERC received, the direct linkage between the Revised Policy and the ADIT NOI that Boardwalk itself identified, and the uncertainty regarding the treatment of ADIT, Baker Botts could not have believed in good faith that it could render the Opinion before FERC provided further guidance. There were too many known unknowns. And an opportunity for clarity on these unknowns was on the horizon: FERC was likely to provide more guidance at its meeting on July 19, 2018. Baker Botts needed to wait.”48

“The analysis of the Opinion is necessarily holistic. Although this decision has discussed various aspects of the Opinion individually, it is the totality of the evidence that results in the finding that the Opinion did not reflect a good faith effort. If Baker Botts had only stretched once or twice, or made an isolated counterfactual assumption, then it would not be possible to reject the Opinion. Under those circumstances, the court might have disagreed with Baker Botts’ assessments, but those disagreements would not have been sufficient to support a lack of good faith. But here, the record as a whole depicts a contrived effort to generate the client’s desired result when the real- world facts would not support it. Baker Botts produced a simulacrum of an opinion, and that flawed imitation did not satisfy the Opinion Condition.”49

Contrary to the results-driven approach the court ascribed to Baker’s conduct, the

Baker model did not preordain the answer to the Call Right analysis. There had to be a

finding of material adverse effect on the rates Boardwalk could charge in the future due to

47 Id. at *55. 48 Id. at *69. 49 Id. at *70–71.

16 FERC regulatory changes. Baker considered the various data points made available to the

lawyers and concluded that Boardwalk likely would suffer an MAE in the future — which

is the event that would trigger the Call Right. The record suggests that the Opinion was

the product of an intensive effort to analyze the Call Right and was not rushed50 nor devoid

of supporting information. Although Baker’s Opinion was relatively short, it was

supported by a 50-page memorandum, which itself was supported by 200 pages of

documentary evidence.51 Skadden opined “that, based on the factors and considerations

outlined herein, it would be within the reasonable judgment of Boardwalk Holding to find

that Baker Botts is acceptable counsel and that the Baker Botts Opinion is acceptable, as

that term is used in the LPA.”52

2. The Public Comment Findings

The second category of findings by the trial court relates to Boardwalk’s public

comments. I acknowledge that these findings are, to be frank, not favorable to the

Appellants. In short, they demonstrate that Boardwalk was telling its regulators and the

market one thing, while taking a different position with its counsel in drafting the Opinion.

50 Baker was first contacted on March 16, 2018, to discuss providing the Opinion. See id. at *18. The Opinion was ultimately provided on June 29, 2018 — over three months later. See A5123 (Baker Opinion). 51 See A4825–5080. 52 A4736. Skadden listed the following factors and considerations that formed the basis of its opinion: “Framework for Boardwalk Holding’s deliberations;” “[t]he actual ‘Opinion of Counsel’ Delivered by Baker Botts;” “Baker Botts’ Qualifications;” “Baker Botts Consulted with Delaware Counsel;” “Baker Botts Retained and Consulted with an Expert Consultant;” “No Time Constraints;” “No Predetermined Outcome;” “Full Access to Information;” “Reasonableness of Assumptions;” “Reasonableness of Definitions;” and “Material Adverse Effect.” A4740.

17 I recount some of these findings below. But I believe that these findings are not sufficient

to render the Opinion a product of bad faith.

For example, in its comments to FERC on the Notice of Proposed Rulemaking

(“NOPR”) on March 15, 2018, Boardwalk stated that “[u]ntil the Commission provides a

final decision on the treatment of ADIT, Boardwalk cannot correctly assess the impact of

the Revised Policy Statement and ADIT on its pipelines’ costs of service, and any response

in the Form No. 501-G will be misleading and inaccurate.”53 Skadden noted that

Boardwalk’s public comments were “relatively unhelpful” and “could be problematic[.]”54

In response to the March 15 NOPR, Boardwalk scrambled to draft a press release,

realizing that other pipeline companies had done the same.55 Boardwalk’s draft press

release, circulated among its senior team, focused solely on rates. As the trial court noted,

Boardwalk’s team wanted to make “the release stronger by stating that the overall impact

to Boardwalk and its rates would not be material.”56

But when the time came to issue the press release, it was changed in a significant

way. As the trial court noted, “Loews changed the wording of the release to address

revenues rather than rates.”57 “In changing the language of the press release, Loews

focused on the fact that the language of the Call Right did not mention revenues.” 58 This

53 B1228 (Boardwalk Public Comments to FERC at 14). 54 B1310–11. 55 See Trial Opinion, 2021 WL 5267734, at *16. 56 Id. (emphasis added). 57 Id. at *19 (emphasis added). 58 Id.

18 version of the press release was the version released to the public. In handwritten notes

associated with a counsel call, one of the lawyers wrote “Hypothetical Rates — not

analyzed” and that even though Boardwalk faced “no actual change — no effect” on rates,

such view would “screw min[ority unitholders.]”59

Although this evidence is not helpful to Appellants, the focus of the public

comments was on the impact of the business in the near term.60 But the focus of the Call

Right did not center on the near term impact; it centered on the impact “in the future[.]”61

In my view, this mitigates, to some degree, the impact of the public comments. Although

this extrinsic evidence may provide a view of what occurred in the periphery — as

Boardwalk lobbied its regulators for favorable treatment — the design of the Call Right

was quite simple: it asked for an opinion of counsel on whether certain action by FERC

would have a material adverse effect on the maximum applicable rate Boardwalk could

charge in the future. At the end of the day, Baker concluded that it would. And the other

lawyers agreed with Baker’s conclusion.

59 B1126. 60 See Trial Opinion, 2021 WL 5267734, at *40 (“Loews also pushed for language focusing on the effects on Boardwalk’s rates, rather than on revenue or other aspects of Boardwalk’s business . . . [Loews’] analyses projected a short-term bump in the trading price, followed by a steady decline over time.”); id. at *41 (“Boardwalk’s initial press release had not limited the absence of a material impact to the near term, and the record does not suggest any additional analysis that would have shortened the time horizon of any effect. In reality, Boardwalk did not anticipate any material impact on revenue for the foreseeable future.”). 61 A3117 (LPA § 15.1(b)) (emphasis added).

19 3. The Pressure/Bullying Findings

The third and final category of bad faith findings by the trial court are those related

to client pressure and bullying. These findings are directly related to the court’s broader

conclusion that bad faith undergirded Baker’s Opinion from the start. The trial court

connected the dots from client pressure to the supposed bad faith actions taken by Baker.

To illustrate a few of these findings, the trial court found:

“In the Opinion, Baker Botts made a series of counterfactual assumptions. One was explicit. The rest were not. Baker Botts did not make those assumptions legitimately because its client asked for a hypothetical opinion about a set of alternative facts. Instead, Baker Botts made those assumptions because Baker Botts knew they were the only way that the firm could purport to reach the outcome that its client wanted.”62

“Baker Botts acted as if it was rendering a third-party closing opinion on a routine issue, which it plainly was not. The fact that Baker Botts rendered a non-explained opinion on the existence of a material adverse effect itself suggests that Baker Botts was serving Loews’ interests.”63

“Baker Botts strived to conclude that the General Partner could exercise the Call Right because that is what its client wanted. Rosenwasser had an additional, personal incentive to push the limits. He drafted the Call Right, and he understandably wanted that provision to accomplish what his client thought it should do. And Loews was a forceful client. Throughout the events giving rise to this litigation, Alpert demonstrated that he knew how to manipulate his outside counsel so that counsel would deliver the answers that he wanted to receive.”64

The above findings do demonstrate that Loews exerted some pressure on Baker. It

is not a far-fetched idea that Loews desired a certain result: it wanted to exercise the Call

62 Trial Opinion, 2021 WL 5267734, at *55. 63 Id. at *69. 64 Id. (internal citation omitted).

20 Right.65 The trial court described Baker’s work as a type of “getting to yes” analysis, but

the record, in my view, does not suggest blind obedience to client demands. I see no record

evidence that Baker changed course due to Loews’ actions.66 What is in the record,

however, are over 250 pages of support underlying the conclusion reached in the Opinion.

A finding that client pressure forced Baker’s hand in interpretating Section 15.1(b)

is further negated by the arrival of two additional firms at the same conclusion. Once

Richards Layton was brought in, the firm undertook its own analysis and reached the same

conclusion on what Section 15.1(b) required: “[l]ess than twenty-four hours later, Raju

and his team gave advice orally to Baker Botts via teleconference. Raju advised that the

‘[b]etter [r]eading’ was to ‘look [at] rates more, not effects.’”67 Skadden’s team — which

included a former FERC commissioner — also reached the consensus that maximum

applicable rate meant recourse rates.68 No one on the Baker team, the Richards Layton

team, or the Skadden team testified that they felt pressure from Loews and acted

accordingly. In fact, the record evidence demonstrates the exact opposite.69

65 “[L]awyers tend to be responsive to the interests of their clients.” Williams, 2016 WL 3576682, at *11. 66 The Skadden presentation observed that “Baker Botts’ fees are not contingent on the delivery of an opinion.” A4743. The presentation also stated that Skadden understood “from Baker Botts that no predetermined outcome was conveyed or mandated to Baker Botts[.]” A4746. 67 Trial Opinion, 2021 WL 5267734, at *34 (internal citation omitted). 68 See id. at *28. 69 See A578 (Michael Rosenwasser Trial Test. at 66:4–6) (“Neither Loews nor Boardwalk pressured us with respect to anything related to the substance of the opinion. Not anything.”); A766 (Srinivas Raju Trial Test. at 817:18–21) (“Q. Did you feel that anyone at Loews or Boardwalk put pressure on you with regard to your advice on the acceptability question? A. No.”); 21 Appellees spent time in their briefing70 and again at oral argument71 painting a

picture of Loews as a Goliath-type client, who bent its counsel to its every whim. The trial

court agreed with them, but only with respect to Baker, not Skadden72 or Richards Layton.

And sworn deposition and trial testimony from lawyers from all three firms indicates that

no one changed course due to any client pressure.73 For the foregoing reasons, I do not

agree with the trial court that Loews pressured its lawyers into reaching a certain result.

D. Conclusion

In sum, I believe that the trial court erred in holding that the Opinion was rendered

in bad faith. Under existing Delaware law, opinions of counsel are entitled to deference.

It is not the place of a trial court, or this Court, to substitute our own judgment for that of

the lawyers who are asked to render legal opinions. Although lawyers should always strive

to reach the legally correct answer, the law does not require that opinions of counsel be

substantively correct. What the law requires is that lawyers undertake a good faith effort.

Such good faith effort is entitled to deference. Although there are, for sure, outer limits to

A5552 (Richard Grossman Dep. Test. at 234:13–16) (“Q. Did Skadden reach that conclusion because of pressure from Loews? A. No. We reached that conclusion on our own.”). 70 Appellees Ans. Br. at 73. In an internal email, Alpert — Loews’ general counsel — wrote that he “[r]eally had to beat on Skadden, but they fell in line finally . . . I will look to other firms re potential litigation.” B1247. 71 See Oral Argument, at 55:10–56:10, https://livestream.com/delawaresupremecourt/events/10612698/videos/232917888. 72 See Trial Opinion, 2021 WL 5266734, at *27 (noting Skadden’s careful analysis). Appellees conceded at oral argument that there were no bad faith findings as to Skadden. See Oral Argument, at 51:22–43, https://livestream.com/delawaresupremecourt/events/10612698/videos/232917888. 73 See supra n.69.

22 this deference, this case does not push beyond that boundary in my view. Because the trial

court’s findings of bad faith are inextricably intertwined and dependent upon this legal

error, I would reverse. In the aggregate, the record rather supports the conclusion that

Baker’s Opinion was rendered in good faith and, at a minimum, was not rendered in bad

faith.