Buckeye Wins Affirmance of Dismissal of Claims Challenging its Acquisition by IFM

On October 3, 2022, the Supreme Court of the State of Delaware issued an order affirming the Delaware Court of Chancery’s dismissal of claims brought against Cravath clients Buckeye Partners, L.P., Buckeye GP LLC, and Buckeye GP LLC’s board of directors (collectively, “Buckeye”) by a former unitholder, Walter E. Ryan, Jr.

In the putative class action, Ryan challenged the acquisition of Buckeye by a subsidiary of IFM Global Infrastructure Fund (“IFM”). In the transaction, Buckeye’s unitholders received $41.50 in cash for each of their units, which were at the time publicly traded, representing a 27.5% premium to Buckeye’s closing unit price the day before the transaction was announced. The transaction closed after receiving fully informed approval from 96% of Buckeye’s voting unitholders. Ryan brought breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty claims against Buckeye, as well as aiding and abetting and tortious interference claims against IFM. He generally asserted that the defendants structured the transaction to capture earnings and favorable tax treatment for IFM while avoiding paying distributions to Buckeye’s unitholders. Both Buckeye and IFM moved to dismiss all claims under Chancery Rule 12(b)(6), and the motions were granted with prejudice.

The Court of Chancery found that (i) Ryan’s breach of contract claim failed because he did not cite a single provision of the Limited Partnership Agreement (the “LPA”) that Buckeye allegedly breached, and in any event, the provisions of the LPA foreclosed Ryan’s breach of contract claim; (ii) Ryan failed to plead a gap in the LPA that could be filled by the implied covenant, and therefore, Ryan’s claim for breach of the implied covenant failed as a matter of law; and (iii) the language in the LPA eliminated fiduciary duties, but even if they existed, the business judgment rule would apply and would warrant dismissal. Ryan appealed and, in a brief decision looking to the Court of Chancery’s opinion, the Supreme Court of the State of Delaware affirmed.

The Cravath team included partner Gary A. Bornstein and associates Ali Z. Klein, Jill E. Greenfield and Chanel C. Thomas.

The case is Walter E. Ryan, Jr. v. Buckeye Partners, L.P., et al., No. 77, 2022 (Del.).