Thursday, March 04, 2021

Columbia Pipeline stockholders may proceed with action challenging TransCanada merger

By Anne Sherry, J.D.

Former stockholders of Columbia Pipeline, which was acquired by TransCanada in 2016, defeated motions to dismiss their fiduciary-duty and aiding-and-abetting claims against Columbia’s former officers and TransCanada, respectively. Although the lawsuit leverages information that came to light from discovery in an appraisal proceeding, the plaintiffs are not bound by the appraisal decision or legal rulings in a federal securities action. The Delaware Court of Chancery concluded that the complaint supports an inference that Columbia’s former CEO and CFO breached their duty of loyalty to the company by orchestrating a merger so that they could retire, and that TransCanada aided and abetted those breaches (In re Columbia Pipeline Group, Inc. Merger Litigation, March 1, 2021, Laster, J.).

Columbia became a public company in 2015 when it was spun off from NiSource Inc. The company anticipated that it would become an acquisition target after the spinoff, and it had several interested suitors by late 2015, but it called them off to conduct an equity offering at $17.50 per share. Columbia then resumed its sale efforts. Ultimately, the board unanimously approved a merger agreement between Columbia and TransCanada on in March 2016. That June, nearly three-fourths of the outstanding shares voted in favor of the merger, which was an all-cash deal at $25.50 per share.

The merger attracted an unsuccessful stockholder fiduciary suit as soon as it was announced. A group of hedge funds brought an appraisal proceeding, and the chancery court appraised the company at the deal price of $25.50. Another stockholder group sued in federal court asserting claims under the federal securities laws as well as under Delaware law; the court dismissed the federal claims and declined to reach the state-law fiduciary duty claims.

Relying on discovery from the appraisal proceeding, the current group of plaintiffs filed their own fiduciary action in the chancery court. They allege that the former CEO and CFO of Columbia wanted to retire in 2016 and engineered a sale of the company to trigger change-in-control benefits, then persistently favored TransCanada to make sure the deal happened while preventing the company from developing alternatives to the transaction. The action also alleges that TransCanada aided and abetted the breaches.

The defendants moved to dismiss the chancery court fiduciary claims, arguing that the appraisal decision and federal securities action bind the plaintiffs under principles of collateral estoppel. Alternatively, the defendants argued that dismissal is warranted under the doctrine of stare decisis because they ruled on the issues presented in the instant case. The court disagreed on both counts. Collateral estoppel did not apply because the current plaintiffs have no relationship with the petitioners in the appraisal proceeding or the plaintiffs in the federal securities action that would support the application of issue preclusion. The decisions may serve as persuasive authority, but neither had preclusive effect.

As to stare decisis, the appraisal decision addressed a narrow question in valuing the company and did not determine whether the officers breached their fiduciary duties or explore whether the company could have obtained a higher deal price if the officers had acted differently. Likewise, the rulings in the federal securities decision do not bind the plaintiffs here because the district court applied the federal pleading standard to claims that required particularized allegations. The fiduciary duty allegations in the instant action are not subject to particularized pleading, and the court is not evaluating their plausibility.

The case is No. 2018-0484-JTL.