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Investor lawsuit over alleged MLP price manipulation can proceed

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Investor lawsuit over alleged MLP price manipulation can proceed

A lawsuit accusing Loews Corp. of tanking Boardwalk Pipeline Partners LP stock price to buy it out at a discount is getting a second chance after a Delaware judge denied the companies' request to throw out claims that they acted in bad faith and breached a key agreement.

J. Travis Laster, vice chancellor the Delaware Court of Chancery, said that minority investors Bandera Master Fund LP and its affiliates, Lee-Way Financial Services Inc. and James McBride, could move forward with allegations that Boardwalk, Loews subsidiary Boardwalk Pipelines Holding Corp. and affiliated companies violated a contractual provision of an agreement allowing Loews to buy Boardwalk's units at the average daily closing price for the 180 days preceding the purchase.

"A party in control of an enterprise should not be able to transfer value from a particular constituency to itself. ... That type of value expropriation more closely resembles theft," he wrote in an Oct. 7 decision. "The allegations of the complaint support a reasonable inference that the defendants delayed the exercise of the call right to manipulate the unit price."

Boardwalk and Loews had not responded to requests for comment by the time of publication. Bandera Partners LLC Managing Director Jeff Gramm declined to comment.

Boardwalk shareholders Paul Berger and TAM Capital Management Inc. President Tsachy Mishal filed the initial lawsuit in May 2018 after Loews and Boardwalk reversed their positions on the Federal Energy Regulatory Commission's March 15, 2018, decision to no longer allow pipeline master limited partnerships to recover an income tax allowance for cost-of-service rates.

Boardwalk that month said the tax benefit's elimination would not materially impact revenues, but a month later, a Loews' statement that potential negative impacts on future rates could necessitate a buyout sent the MLP's stock price into a tailspin, prompting accusations that management engineered the fluctuation.

The parties reached a settlement at the end of June 2018 enabling Loews to announce a buyout for about $1.5 billion without legal protests and the transaction closed the following month. In September 2018, however, Laster rejected the settlement and Bandera, Lee-Way and McBride took over as plaintiffs.

"I had a bad feeling about this case at the outset," he said during a Sept. 28 hearing. "I am also not at all satisfied that there was sufficient investigation into what happened here."

FERC, meanwhile, modified its ruling on July 18, 2018, to grant pipeline partnerships a partial reprieve by giving them a chance to argue that they should recover an income tax allowance.