Delaware’s Chancery Court has dismissed a derivative suit against the directors of Houston-based Plains All American Pipeline stemming from a costly oil spill off the California coast, but gave unitholders one more chance to bolster their complaint.
Vice Chancellor Tamika Montgomery-Reeves ruled Thursday that the complaint from investor Inter-Marketing Group USA failed to establish demand futility by alleging that a majority of the Plains board likely faced personal liability in connection with the spill. However, Montgomery-Reeves said the plaintiffs could benefit from additional information resulting from criminal convictions in California, and granted Inter-Marketing leave to amend the complaint based on recent developments.
According to court documents, more than 3,400 barrels of oil spilled in May 2015 from Plains’ Line 901 pipeline in Santa Barbara, California, which stretches 10.6 miles between onshore oil facilities owned by Exxon and Chevron.
The spill, which sent oil seeping into environmentally sensitive areas and the Pacific Ocean, caused Plains’ stock plummeting 40 percent in its aftermath. The company also reported a total of $257 million in remedial costs and a 40-percent decline in stock price, which coincided with a downturn in oil prices. Prosecutors in California indicted Plains, a Delaware master limited partnership, on 46 criminal charges in May 2016, and last September, a jury found the company guilty of one felony and eight misdemeanors related to the spill.
Inter-Marketing filed its 97-page complaint in January 2017, alleging corporate waste, violations of the implied covenant of good faith and fair dealing and breaches of fiduciary duties by the Plains directors.
The defendants moved to dismiss the case, arguing that Plains’ limited partner agreement had eliminated common law fiduciary duties and protected board members from the kind of personal liability that Inter-Marketing had alleged. The Delaware Supreme Court, the company said, had explicitly embraced the approach in the case Norton v. K-Sea Transportation Partners, which allowed a limited partnership to replace traditional duties with obligations for directors to act “in the best interest” of the partnership.
The plaintiffs, meanwhile, pointed to other decisions that, they said, held that limited partnership agreements could modify, and not eliminate, fiduciary duties, leaving room for common law claims for breaches.
In a 25-page opinion, Montgomery-Reeves ruled that “Norton remains controlling law.”
“Put simply,” she said, “the directors cannot face a substantial likelihood of personal liability for breaching duties they do not owe.”
However, Inter-Marketing did secure a key win Thursday, when Montgomery-Reeves ruled that that they could use information from the California criminal proceedings to file an amended complaint against the directors, attorney Theodore A. Kittila said in an interview Friday.
“I’m very excited about it,” said Kittila, a partner with the Wilmington firm Halloran Farkas + Kittila. “We’re pleased with the opportunity to amend in light of the criminal convictions that occurred after briefing on the matter.”
Kittila declined to say what specific information he planned to use and said the time frame from filing a revised complaint was not yet clear.
An attorney for the Plains directors did not immediately respond Friday to a call seeking comment on the ruling.
Inter-Marketing is represented by Kittila of Halloran Farkas and Gregory M. Nespole and Correy A. Kamin of Wolf Haldenstein Adler Freeman & Herz in New York.
The Plains directors are represented by Michael C. Holmes, Craig E. Zieminski, Kimberly R. McCoy and Jeffrey Crough of Vinson & Elkins in Dallas and Srinivas M. Raju and Matthew W. Murphy of Richards, Layton & Finger in Wilmington.
The case is captioned Inter-Marketing v. Armstrong.