Opinion
C.A. No. 3543-VCN.
Date Submitted: June 9, 2011.
September 29, 2011.
Joseph A. Rosenthal, Esquire, Rosenthal, Monhait Goddess, P.A., Wilmington, DE.
Richard D. Heins, Esquire, Ashby Geddes, Wilmington, DE.
Thomas W. Briggs, Jr., Esquire, Morris, Nichols, Arsht Tunnell LLP, Wilmington, DE.
Patricia R. Uhlenbrock, Esquire, Pinckney, Harris Weidinger, LLC, Wilmington, DE.
Dear Counsel:
Plaintiff Joel Gerber brought claims on behalf of Enterprise GP Holdings, L.P. ("EPE"), challenging EPE's purchase of Texas Eastern Product Partners, LLC ("Teppco GP") from Dan L. Duncan, EPE's controller. While those claims were pending, EPE was merged into Enterprise ETE LLC (the "Merger"), a wholly owned subsidiary of Enterprise Products Partners, L.P. ("Enterprise Products"). EPE no longer exists. In light of the Merger, Gerber has sought leave to amend and supplement his first amended complaint (the "Complaint"). Gerber will be granted leave to supplement his Complaint in three ways. He may: (1) describe the Merger and the entities that emerged out of it; (2) plead a double derivative claim on behalf of Enterprise Products; and (3) plead direct claims on behalf of those who held limited partnership units ("LP units") of EPE immediately prior to the Merger. Gerber, however, will be denied leave to supplement or amend the Complaint in any other way.
I. BACKGROUND
Except where noted, the descriptions of the parties and the factual background are based on allegations in the Complaint.
A. The Parties
Gerber owned EPE LP units continuously from October 24, 2006 until the Merger. Now, he holds Enterprise Products LP units.
PL's Mot. for Leave to File a Second Amend, and Suppl. Verified Compl. (PL's Mot."), Ex. A, Second Amend, and Suppl. Verified Compl. (the "Proposed Second Compl.") at 115.
EPE was a Delaware limited partnership in the oil and gas business. EPE Holdings, LLC ("EPE Holdings") was a privately held Delaware limited liability company and EPE's general partner. EPE Holdings was indirectly owned by Duncan at the time of the Merger. Since the Merger, EPE Holdings has been renamed Enterprise Products Holdings LLC ("Enterprise Products GP"). Enterprise Products GP is now the general partner of Enterprise Products.
Duncan died on March 28, 2010, and the executors of his estate have been substituted as defendants in this action. May 19, 2010 Stip. and Order under Rule 25(a)(1).
Proposed Second Compl. at ¶ 3.
EPCO, Inc. is a privately owned Texas corporation. Duncan and his family own all, or virtually all, of EPCO's stock. EPCO's principal business is to provide employees, management, and administrative services to all of Duncan's companies including Enterprise Products GP, Teppco GP, and, until the Merger, EPE.
Duncan Family Interests, Inc. ("DFI"), a Delaware corporation, and DFI GP Holdings LP ("DFI GP"), a Delaware limited liability partnership, were, until the Merger, affiliates of EPE Holdings. Now, they are affiliates of Enterprise Products GP.
Id. at ¶ 20.
Michael A. Creel, Richard H. Bachmann, W. Randall Fowler, Randa Duncan Williams, O.S. ("Dub") Andras, Charles E. McMahen, Edwin E. Smith, and Thurmon Andress (collectively, the "Board") were all directors of EPE Holdings during the relevant time.
EPE Holdings/Enterprise Products GP, EPCO, DFI, DFI GP, the executors of Duncan's estate, and the Board are collectively referred to as the "Defendants."
B. Factual Background
C. Procedural History
On September 29, 2008, all of the Defendants moved to dismiss Gerber's claims, and on April 7, 2009, they submitted a brief in support of their motion. Gerber filed an answering brief in opposition to the Defendants' motion on May 10, 2010. The Defendants filed a reply brief on June 4, 2010. Oral argument on the Defendants' motion was scheduled for October 21, 2010.
On September 7, 2010, EPE and Enterprise Products announced a definitive agreement that would result in the Merger. Oral argument was postponed to await the Merger. The Merger was completed on November 22, 2010.
On February 8, 2011, Gerber moved for leave to amend and supplement the Complaint in order to plead a double derivative claim on behalf of Enterprise Products, as well as direct claims on behalf of those who held EPE LP units immediately before the Merger. Gerber also seeks to alter the language in Counts I and II to pursue breaches of "express and implied duties" instead of "fiduciary duties." Further, Gerber also wants to add two new counts to the Complaint. Count III would allege that certain members of the Board and EPCO tortiously interfered with EPE's limited partnership agreement. Count IV would allege that the same Defendants named in Count III, as well as DFI GP, were unjustly enriched in the Transaction. Finally, Gerber seeks to add to the Complaint facts about the Merger, the Transaction, and the independence of the Board when the Transaction occurred.
II. CONTENTIONS
Gerber argues that his motion is governed by Court of Chancery Rules 15(a) and 15(d), and that "[u]nder both rules, a trial court must exercise its discretion in favor of the amendment absent serious prejudice to the opposing party." Gerber suggests that Court of Chancery Rule 15(aaa) does not apply to his motion because that Rule only applies to situations where the Court has already dismissed a complaint. Moreover, even if Rule 15(aaa) does govern his motion, Gerber argues that his proposed amendments and supplements do not alter the Complaint in fundamental ways and, thus, should be permitted.
PL's Mot. at 6 (citation omitted).
The Defendants do not contest Gerber's motion "to the extent the supplemental pleadings are based on the Merger, but . . . [they do contest the motion] to the extent it seeks . . . to add allegations and new legal theories based on the same facts that led to the filing of the original complaint in February of 2008." The Defendants argue that Gerber's attempts to add new allegations and legal theories, including direct class action claims, are governed by Rule 15(aaa). That Rule, they contend, applies whenever a plaintiff chooses to respond to a motion to dismiss; a Court not need dismiss a complaint in order for Rule 15(aaa) to be applicable.
Defs.' Br. in Opp'n to PL's Mot. for Leave to File a Second Amend, and Suppl. Verified Compl. ("Defs.' Br.") at 4.
III. ANALYSIS
"Amended and supplemental pleadings are governed by Court of Chancery Rule 15. The defining difference between the two is that supplemental pleadings deal with events that occurred after the pleading to be revised was filed, whereas amendments deal with matters that arose before the filing." Gerber's requests to alter the Complaint to describe the Merger and the entities that emerged out of it, to plead double derivative claims, and to plead direct class action claims are all requests to supplement the Complaint. Those requests are in response to the Merger, an event that occurred after the Complaint was filed. Gerber's requests to alter the language in Counts I and II, to add two new counts, and to add new facts about the Transaction and the independence of the Board when the Transaction occurred are all requests to amend. Those requests deal with matters that arose before the Complaint was filed — Gerber seeks to alter the language in Counts I and II based on what duties the Defendants owed to EPE at the time of the Transaction, the counts Gerber seeks to add to the Complaint arose out of the Transaction, and the Transaction was the basis for the Complaint.A. Gerber's requests to supplement the Complaint
As a general rule, leave to amend or supplement a complaint is freely given. Although leave to supplement may be denied if a plaintiff inexcusably delayed in making his request and the defendant is prejudiced as a result, that exception to the general rule is narrowly construed.
Id. at *5 (citing Parnes v. Bally Entm't Corp., 2000 WL 193112, at *2 (Del. Ch. Feb. 8, 2000)).
Id. (citation omitted).
The Defendants do not appear to contest either Gerber's request to describe the Merger and the entities that emerged out of it or his request to plead double derivative claims. Moreover, the Defendants have made no attempt to show that Gerber's request to make those supplements was inexcusably delayed, or how the Defendants would be prejudiced by those supplements. Thus, Gerber will be granted leave to supplement the Complaint in those two ways.
The Defendants do contest Gerber's request to plead direct class action claims. In the Defendants' words, "[f]or the first time, three years after the filing of his original [c]omplaint, [p]laintiff now seeks to assert direct claims as a class action. However, nothing has changed to give rise to class action claims related to the . . . Transaction." Something, however, has changed. EPE, the entity upon whose behalf the claims in the Complaint were brought, no longer exists. As this Court recently explained, in a similar context:
Defs.' Br. at 13.
as a result of the [m]erger, the distinctions between a derivative action on behalf of Teppco for the indirect benefit of its LP unitholders and a class action on behalf of those same Teppco LP unitholders have blurred. At the singularity of the effective time, the identity of the Teppco LP unitholders became forever fixed. In light of the dual nature of the claim, I would see no reason why the plaintiffs could not have continued their action post-[m]erger as a de facto class action on behalf of holders of Teppco LP units as of the effective time.
Brinckerhoff v. Tex. E. Prods. Pipeline Co., LLC, 986 A.2d 370, 383 (Del. Ch. 2010).
Moreover, in the corporate context, there are at least some instances in which an action originally brought on behalf of a corporation may be brought by the corporation's former shareholders after the corporation has been merged out of existence. Although it is quite possible that, if Gerber has any cognizable claims at all, he will only be able to plead them as either direct or double derivative, the time to decide that issue is not now. Here, Gerber merely requests to supplement the Complaint by adding direct claims that exist, if at all, as a result of the Merger. The Defendants will have an opportunity to move to dismiss Gerber's direct claims, his double derivative claims, or both. Thus, Gerber has leave to plead direct claims on behalf of those who held EPE LP units immediately before the Merger.
Lewis v. Anderson, 477 A.2d 1040, 1046 n. 10 (Del. 1984) (citing Bokat v. Getty Oil Co., 262 A.2d 246, 249 (Del. 1970); Schreiber v. Carney, 447 A.2d 17, 21-22 (Del. Ch. 1982)); see also Gentile v. Rossette, 906 A.2d 91, 99-100 (Del. 2006).
B. Gerber's requests to amend the Complaint
Although, as stated above, leave to amend is generally freely given, in certain situations, Rule 15(aaa) significantly constrains a parly's ability to amend. Rule 15(aaa) provides, in relevant part:
See supra note 10 accompanying text.
[A] party that wishes to respond to a motion to dismiss under Rules 12(b)(6) or 23.1 by amending its pleading must file an amended complaint, or a motion to amend in conformity with this Rule, no later than the time such party's answering brief in response to either of the foregoing motions is due to be filed. In the event a party fails to timely file an amended complaint or motion to amend under this subsection (aaa) and the Court thereafter concludes that the complaint should be dismissed under Rule 12(b)(6) or 23.1, such dismissal shall be with prejudice . . . unless the Court, for good cause shown, shall find that dismissal with prejudice would not be just under all the circumstances.
This Court interpreted Rule 15(aaa) in Stern v. LF Capital Partners, LLC. There, the Court explained that "Rule 15(aaa) does not contemplate the possibility of filing a motion to amend after the responsive brief is filed and before a decision by the [C]ourt dismissing the complaint." Moreover, our Supreme Court has stated that:
820 A.2d 1143, 1145-46 (Del. Ch. 2003).
Id. at 1146.
Rule 15(aaa) was written to . . . requir[e] plaintiffs, when confronted with a motion to dismiss pursuant to any of Ch. Ct. R. 12(b)(6), (c) or 23.1, to elect to either: stand on the complaint and answer the motion; or, to amend or seek leave to amend the complaint before the response to the motion was due.
Braddock v. Zimmerman, 906 A.2d 776, 783 (Del. 2006).
When confronted with the Defendants' motion to dismiss in September 2008, Gerber elected to stand on the Complaint. He filed an answering brief to the Defendants' motion, and requested that argument on that motion take place before the Merger. Rule 15(aaa) clearly bars Gerber from amending the Complaint to address issues relating to the Transaction itself. Therefore, Gerber will be denied leave to amend the Complaint to alter the language in Count I or II, to add additional counts, or to add facts about the Transaction. This leaves him, with respect to the substance of his claims, where he would have been if no merger had occurred.
In the event the claims for which amendment is sought are denied, there has been no showing yet as to why it "would not be just under all the circumstances" for the dismissal to be with prejudice.
IV. CONCLUSION
For the foregoing reasons, Gerber is granted leave to supplement the Complaint by: (1) describing the Merger and the entities that emerged out of it; (2) pleading a double derivative claim on behalf of Enterprise Products; and (3) pleading direct claims on behalf of those who held EPE LP units immediately before the Merger. Otherwise, Gerber's motion to supplement or amend the Complaint is denied.IT IS SO ORDERED.