IN RE TEEKAY OFFSHORE PARTNERS L.P. COMMON UNITHOLDERS LITIGATION

Background

The plaintiffs were former common unitholders in Teekay Offshore Partners L.P. (TKO), which went private through transactions involving TKO, its general partner, members of the general partner’s board, Brookfield Asset Management, Inc. (BAM), and Brookfield Business Partners L.P. (BBP). Plaintiffs alleged that defendants caused business decisions and disclosures that depressed TKO’s unit price and enabled the Brookfield Group to acquire the remaining publicly held units at an unfairly low price.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), which challenges the court’s personal jurisdiction over a defendant, and Rule 12(b)(6), which challenges whether the complaint states a legally sufficient claim. The court treated the complaint’s well-pleaded factual allegations as true for purposes of the motions.

Personal Jurisdiction

The court held that the allegations about merger negotiations and other key events occurring in New York were sufficient at this stage to establish specific personal jurisdiction over TKO, BBP, Conflicts Committee members David Lemmon and Ian Craig, and Craig Laurie. The court also found jurisdiction over Laurie because the complaint alleged that his principal office was in New York.

The court found no relevant New York business connections sufficient to establish jurisdiction over BAM, the general partner, Jim Reid, Denis Turcotte, Gregory Morrison, Walter Weathers, William Utt, Kenneth Hvid, and Bill Transier. It therefore granted the motion to dismiss for lack of personal jurisdiction as to those defendants and denied it as to TKO, BBP, Lemmon, Craig, and Laurie. The court also denied plaintiffs’ request for jurisdictional discovery.

Breach of the Partnership Agreement’s Good-Faith Requirement

The plaintiffs claimed that defendants breached Section 7.9(b) of TKO’s limited partnership agreement (LPA), which required the general partner and its affiliates to act in good faith. Applying Marshall Islands law and, where applicable, Delaware partnership law, the court concluded that TKO could be sued on this claim even though it was not a signatory to the LPA. The court held that the other nonsignatory defendants could not be sued for breach of the LPA merely because they were related to the contract.

The court found that the allegations against TKO—including allegedly misleading merger disclosures, continued communications with directors removed from the Conflicts Committee, and approval of a merger price that allegedly undervalued the public units—were sufficient to state a claim. The court rejected TKO’s argument that the LPA’s Special Approval safe harbor conclusively protected the merger because the allegations raised questions about whether the committee was properly constituted when the merger process began. The court also held that the LPA’s separate safe harbor for actions taken in reliance on professional advice did not shield a conflicted transaction governed by the Special Approval provision.

The court denied TKO’s motion to dismiss the first cause of action and granted the motion as to all other defendants on that claim.

Other Contract Claims

The court granted dismissal of the claim that defendants breached Section 7.9(a) of the LPA. It held that the provision made Special Approval permissive rather than mandatory, so the alleged failure to properly invoke that safe harbor did not itself breach the agreement.

The court allowed the implied-covenant claim against TKO to proceed. The implied covenant is a contractual promise that courts may recognize when it is clear the parties would have agreed to prohibit the challenged conduct if they had addressed it expressly. The court held that plaintiffs plausibly alleged that TKO entertained and failed to clearly reject a manipulative offer designed to take the company private at an unfair price. Because the other defendants were not parties to the LPA, the court granted dismissal of this claim as to them.

Tortious Interference

The plaintiffs alleged that BBP and BAM intentionally caused TKO to breach the LPA. Because the court lacked personal jurisdiction over BAM, it analyzed the claim against BBP. Under New York law, BBP’s economic interest in TKO protected it from an interference claim unless plaintiffs plausibly alleged malice or illegality. The court found that the complaint’s allegation that BBP intentionally and improperly caused a breach did not meet that standard and granted the motion to dismiss the tortious-interference claims.

Contractual Fiduciary Duties

The court granted dismissal of the claims alleging breaches of contractual fiduciary duties and aiding and abetting those breaches. The LPA expressly stated that the general partner and other covered persons had no duties, including fiduciary duties, unless the agreement expressly provided otherwise. The court rejected plaintiffs’ argument that the duties were restored by TKO’s filings with the Securities and Exchange Commission because the LPA was clear on the subject.

Disposition

Judge Ronnie Abrams concluded that the motion to dismiss was granted in part and denied in part. The court granted dismissal for lack of personal jurisdiction as to Reid, Turcotte, Morrison, Weathers, Utt, Hvid, Transier, the general partner, and BAM. It granted dismissal for failure to state a claim as to Lemmon, Craig, Laurie, and BBP. It denied TKO’s motion as to the Section 7.9(b) good-faith claim and the implied-covenant claim, while granting TKO’s motion as to the remaining claims. The clerk was directed to terminate the specified defendants and change the caption. Plaintiffs were permitted to seek leave to file an amended complaint within 30 days if they had a good-faith basis.