A case that accused the controlling companies behind Boardwalk Pipeline Partners LP of artificially depressing the master limited partnership's share price is on hold until Boardwalk's parent decides if it will buy out the MLP.
"I'm going to stay this case. The case is going to remain stayed until there's some change in circumstances and someone applies to lift the stay for good cause shown," Delaware Court of Chancery Vice Chancellor J. Travis Laster told attorneys on both sides of the issue. "I think you all ought to sit back and wait until you actually have something to litigate."
Laster denied a pair of Boardwalk investors' request for an expedited trial in their class action lawsuit against the partnership, its holding company and Loews Corp., and also rejected the defendants' suggestion to speed up a potential motion to dismiss the charges.
TAM Capital Management Inc. President Tsachy Mishal and Paul Berger alleged May 24 that Loews and subsidiary Boardwalk Pipelines Holding Corp. artificially depressed the MLP's stock price to enable Loews to buy it at a heavy discount in the wake of federal tax changes. The investors said the move violated a contractual provision allowing the company to buy Boardwalk's units at the average daily closing price for the 180 days preceding the purchase.
When the Federal Energy Regulatory Commission decided in March that oil and gas pipeline MLPs would no longer be able to recover an income tax allowance on cost-of-service rates, Boardwalk said it would not experience a material impact. Loews, however, announced six weeks later that it was considering exercising its call right due to a potential negative impact from FERC's policy on future rates. During the week after that statement, the Boardwalk unit price fell from $11.37 to $9.56. The stock has recovered somewhat and closed June 8 at $10.49 per unit, below its pre-FERC decision value of $11.30 on March 14. Mishal personally owned 529,938 common units of Boardwalk as of May 22, according to the complaint, while co-plaintiff Berger held 4,000 Boardwalk common units. They are asking the court to award damages and legal costs.
During May 29 oral arguments via telephone, Friedlander & Gorris PA attorney Jeffrey Gorris argued for the plaintiffs that Loews' disclosures were "designed to create maximum uncertainty and drive down Boardwalk's unit price," meaning that public investors could incur major losses if the company decides to buy out the partnership in the near future. Lawrence Portnoy of Davis Polk & Wardwell LLP countered for Boardwalk Pipelines Holding Corp. that there was no "wrongful conduct" since market uncertainty is not a feature of the contract.
In his decision to deny Mishal and Berger's request to expedite the proceedings, Laster said that Loews' right to buy out Boardwalk is cemented in the contract.
"This is a case that has been filed at a time when it is not clear what the general partner's going to do," he said. "The whole thing, to my mind, has an air of the manufactured about it."
