In Bandera Master Fund LP v. Boardwalk Pipeline Partners, LP (Nov. 12, 2021), the Delaware Court of Chancery ordered Loews Corporation to pay the former limited partners of Boardwalk Pipeline Partners ("Boardwalk") $690 million in damages (plus pre- and post-judgment interest, and costs) in connection with Loews' $1.56 billion take-private of Boardwalk. Boardwalk's partnership agreement permitted a takeprivate if, in the future, certain regulatory changes occurred that were reasonably likely to have a material adverse effect (MAE) on Boardwalk. The only conditions to Loews' right to effect a take-private were that it had received an opinion of legal counsel as to the MAE (the "Opinion Condition") and that Boardwalk's general partner (which Loews controlled) had deemed the opinion acceptable (the "Acceptability Condition"). Loews received the opinion (the "Opinion"), from a highly regarded national law firm (known particularly for its energy, oil and gas practice) (the "Law Firm"); Boardwalk's general partner deemed the Opinion acceptable; and Loews effected the take-private.

The court held that the Opinion Condition was not satisfied, howeverbecause the Law Firm delivered the Opinion in "bad faith" as it had been "contrived" to reach the result that Loews wanted. The court also held that the Acceptability Condition was not satisfiedbecause Loews relied on a decision-maker it controlled to make the acceptability determination. The court held, further, that (i) Loews breached the partnership agreement when it effected the take-private without the conditions having been satisfied; and (ii) Loews was not exculpated or otherwise protected from liability under the partnership agreement because its actions constituted "willful misconduct."

Key Points

  • Even when a controller's fiduciary duties are severely circumscribed by contract, the controller may be liable if it acts "manipulatively and opportunistically." The court wrote that Loews "euphemistically" characterized the take-private as having "generated ... $1.5 billion in `Value Creation,'" but that "much of [that] would be characterized more aptly as value expropriation." Loews was able to achieve this "remarkable result," the court wrote, because "a bevy of lawyers" on "its inhouse legal team and [at its] outside counsel worked hard to generate a contrived Opinion"an effort in which Loews "knowingly participated" and for which it was the "propulsive force." The court also noted that Loews "opportunistically" effected the take-private during a period of "maximum uncertainty" for the partnership and appeared to try to conceal its knowledge about how the uncertainty likely would be resolved.
  • The court found that the Law Firm went "too far" in "striving" to provide the legal opinion conclusions that Loews wanted. The court criticized the Law Firm for improperly interpreting the Opinion Condition; using "counterfactual assumptions"; creating a "simple syllogism" that "ineluctably led" to the result Loews wanted; opining in the face of significant uncertainty on key facts; and (although not a Delaware firm) opining on a complex issue of Delaware law.
  • The size of the damages award underscores the court's willingness, in the context of a conflicted controller transaction, to impose liability for the full amount of the minority's damages. The court described the very large award as "conservative" given the much larger amount that it "could have awarded."
  • The decision also serves as a reminder of: (i) the need for clear, precise drafting of agreements, with provisions carefully contextualized to the business objectives; and (ii) the critical importance of the record that is established through the parties' and their lawyers' contemporaneous emails, notes, notations on drafts, and the like. We note also the court's recent trend of criticizing individual law firms and individual lawyers, by name, in its opinions when it deems it appropriate to do so.

Background. In 2005, Loews formed Boardwalk, which it controlled through its control of Boardwalk's general partner ("Boardwalk GP"). (For ease of reference, in this Briefing we refer to Loews rather than Boardwalk GP except where a distinction between them is relevant.) Also in 2005, the Federal Energy Regulatory Commission (FERC) announced a change in a regulatory policy which made master limited partnerships (MLPs) an attractive investment vehicle for pipelines. Soon thereafter, Loews took Boardwalk public as an MLP. However, because Loews wanted to be able to take Boardwalk private again in the future (if FERC policies changed such that Boardwalk's status as a pass-through entity for tax purposes had, or was reasonably likely to have, an MAE on Boardwalk), Boardwalk's partnership agreement granted Loews the right (the "Call Right") to acquire the limited partnership interests, subject only to the Opinion Condition and the Acceptability Condition.

In 2018, FERC announced proposed policy changes (the "FERC Actions") that potentially could have an MAE on Boardwalk. Following the announcement, as was typical, industry participants aggressively lobbied FERC to change the proposed policy in various ways. All of the parties acknowledged that, until FERC had, at a minimum, clarified a certain tax issue (namely, how under the new policy FERC would treat a pipeline's outstanding balance for accumulated deferred income taxes (the "Tax Issue")), it was impossible to know whether the FERC Actions would have a negative, neutral, or positive effect on Boardwalk. During this period of uncertainty (with Boardwalk's unit price declining), Loews obtained the Opinion and exercised the Call Right. The acquisition closed the day before FERC announced the full, final package of policy changes. Based on that package, it was clear that the FERC Actions would have no effect on Boardwalk. Certain former Boardwalk limited partners brought litigation challenging the takeprivate. Vice Chancellor J. Travis Laster, Jr. rejected a settlement proposed by the parties and the case proceeded to trial with the current plaintiffs. In a 200-page post-trial decision, the court held in favor of the plaintiffs. Loews has publicly stated that it intends to appeal.

The Boardwalk partnership agreement provided as follows:

  • "Call Right." Loews had the right to exercise the Call Right subject to the "Opinion Condition" and the "Acceptability Condition." If the conditions were satisfied, Loews' decision whether to exercise the Call Right could be made in its sole discretion, free of any fiduciary duty or express contractual standard.
  • "Opinion Condition." This condition required that Loews had received an Opinion of Counsel that Boardwalk's status as a pass-through entity for tax purposes "ha[d] or [would] reasonably likely in the future have a material adverse effect on the maximum applicable rate that [could] be charged to customers." (As the court noted, and as created numerous interpretive issues, the drafting, by focusing on a rate that could be charged to customers, "meshed imperfectly" with Loews' business goal of, more broadly, protecting against future regulatory action that would have an MAE on Boardwalk.)
  • "Acceptability Condition." This condition required that Boardwalk GP (which was a limited liability company) had determined that the Opinion of Counsel was "acceptable." (As the court noted, the drafting left unanswered whether the acceptability determination could be made by Boardwalk GP's sole member (which Loews controlled) or by Boardwalk GP's eight-member board (which included four outside directors).)
  • "Opinion of Counsel." This term was defined as "a written opinion of counsel (who [could] be regular counsel to [Boardwalk, Boardwalk GP, Loews, or any of their Affiliates])."
  • Exculpation. Loews was exculpated from monetary liability "unless it engaged in fraud, bad faith acts, or willful misconduct"; and would be "conclusively presumed" to have acted in good faith if it "relied on opinions, reports, or statements provided by someone that [it] reasonably believed to be an expert," including reliance on "the advice or opinion of [legal counsel] (including an Opinion of Counsel)."


Loews was not exculpated or otherwise protected from liability under the partnership agreement. The court held that Loews was not protected under the exculpation provision because Loews' actions, in combination, constituted "willful misconduct." These actions included Loews' participating knowingly in the effort to create the "contrived" Opinion to satisfy the Opinion Condition; relying on Boardwalk GP's sole member (which it controlled) rather than Boardwalk GP's board (which included outside directors) to determine acceptability of the Opinion; and exercising the Call Right at a time of "maximum uncertainty" for the partnership. The court also held that Loews was not protected under the provision granting it a conclusive presumption of good faith when relying on legal opinions because Loews had "participated knowingly" in the contrived Opinion process and "provided the propulsive force that led the outside lawyers to reach the conclusions that Loews wanted."

The Opinion Condition was not satisfied because the Opinion was rendered "in bad faith." "Viewed as a whole, outside counsel's conduct went too far to constitute a good faith effort to render a legal opinion," the court wrote. The Opinion "did not reflect a good faith effort by [the Law Firm] to discern the actual facts and apply professional judgment." To the contrary, "[t]he Opinion was a contrived effort to reach the result that [Loews] wanted." Specifically, according to the court:

  • The Law Firm, "stretching" to provide the opinion Loews wanted, improperly interpreted the Opinion Condition. The parties agreed that the term "maximum applicable rates" used in the Condition was ambiguous as it had no established meaning in FERC regulatory parlance. The Law Firm interpreted the term to permit a focus on hypothetical rates that could be charged. In the court's view, however, the business rationale for the Condition (i.e., to protect Loews against an actual MAE) required an assessment as to whether there had been or likely would be an MAE based on actual rates that Boardwalk would be charging "in the real world."
  • The Opinion was based on a series of "counterfactual assumptions"because they were needed to reach the conclusions Loews wanted. For example: The Law Firm assumed for purposes of the Opinion that the FERC Actions were sufficiently final to assess their effecteven though "everyone knew the proposals were not final." The Law Firm also assumed that the Tax Issue would be resolved unfavorably for Boardwalk (i.e., that no allowance for accumulated deferred taxes would be permitted)even though (as Boardwalk was contemporaneously stating in its comments to FERC and in its public filings) the Tax Issue was completely open and "it was impossible to determine the effect on Boardwalk's rates until [the Tax Issue was resolved]." The Law Firm also assumed that, with the Tax Issue resolved unfavorably, Boardwalk's rates would go downeven though rates actually would go down only if rate cases were brought against Boardwalk, which was known to be very unlikely.
  • The Law Firm created and deployed a "simple" and "fundamentally flawed" syllogism that, by definition, produced the desired conclusion. The syllogism reflected that, "because a tax allowance had been part of the cost-of-service calculation [that would determine rates], a policy change eliminating the tax allowance [would] lead ineluctably to a [material and adverse] change in th[e] abstract concept [of maximum applicable rates]." In other words, just by assuming resolution of the Tax Issue such that there would be no income tax allowance (a conclusion that all acknowledged it was impossible to reach at the time the Opinion was issuedand that ultimately turned out to be incorrect), an MAE ostensibly was established.
  • Other issues. The court noted that the Law Firm issued the Opinion at a time of "fatal uncertainty" relating to the key underlying factual issuesand, moreover, that the uncertainty would have been substantially mitigated simply by waiting a short time (rather than acquiescing to Loews' timing demands which served its self-interest in exercising the Call Right during "a fleeting period of maximum uncertainty"). The court also observed that the Law Firm, which was not a Delaware firm, issued a "non-explained opinion on a complex issue of Delaware law" (namely, whether an event constituted an MAE)as to which, moreover, the two other firms that Loews had consulted (a national firm with a Delaware office and a Delaware firm) had refused to opine.

The Acceptability Condition was not satisfied because Boardwalk wrongly interpreted ambiguity in the drafting in its interest rather than the limited partners' interest. As noted, the Condition did not specify whether Boardwalk GP's sole member (a Loews subsidiary, with a board comprised entirely on Loews insiders) or Boardwalk GP's board (with outside directors holding half the seats) was the entity that should determine the acceptability of the Opinion. Loews initially wanted the sole member to make the determination. Loews changed its mind when additional outside counsel brought in to look at the issue advised that the better view was that the board should make the determination (given that the condition likely had been intended to protect the limited partners rather than to further cement Loews' ability to exercise the Call Right in its sole discretion). When the outside directors raised issues with respect to the Opinion, Loews changed course again and relied on the sole member. The court held that ambiguity in the partnership agreement had to be resolved in favor of the limited partners' interests because Loews was the party that had imposed and drafted the Condition. (Loews had been so advised by the two other outside law firms it had consulted, although the Law Firm viewed either entity as being acceptable.)

The court calculated damages based on the stream of distributions that the limited partners were deprived of because the Call Right was impermissibly exercised. The court thus measured the damages as the difference between the present value of those future distributions (which the court determined to be $17.60 per unit) and the take-private transaction price ($12.06 per unit), amounting to a total of $689.83 million. The plaintiffs' expert had estimated the present value of the future distributions at $17.87 to $19.30 per unit, resulting in damages between $720 million and $901.6 million. The court characterized its $689.83 million damages award as "conservative" given the much higher amount that it "could have awarded under the wrongdoer rule" (which resolves uncertainty about the extent of damages against the breaching party).

Practice Points

  • Clearly, a legal opinion should reflect the law firm's careful, reasoned, objective judgment. A law firm should not reach conclusions in an opinion based on pressure from its client.
  • As a general matter, in rendering an opinion, a law firm should not rely on facts that it knows to be untrue; and should not rely on factual representations, or make assumptions that certain facts are true, if the represented facts or the assumptions effectively establish the legal conclusions that are the subject of the opinion. While counterfactual assumptions can be appropriate in some circumstances (for example, if the fact may become true), the assumption and the rationale for making it should be explicitly expressed in the opinion. When delivering an opinion such as the one at issue in Boardwalk Pipeline, which called for a conclusion regarding the actual present or future effect of an event (i.e., whether the FERC Actions had or were reasonably likely to have an MAE), the opinion giver can make good faith predictions about the future but cannot assume what will happen in the futurethat is, an opinion will not satisfy an opinion condition if the opinion giver constructs a set of assumptions about the existence of future facts that would generate the conclusion that the condition requires.
  • Other opinion-related guidance arising from Boardwalk Pipeline includes the following:
    • Factual context. Legal counsel should be mindful that, although it is reaching legal conclusions in an opinion, the overall factual context should be considered and (depending on the legal issues involved) detailed factual analysis may be required. (Note that some law firms have a policy of not rendering opinions that require in-depth factual analysis, such as opinions on whether an MAE has occurred.)
    • Business rationale. A law firm rendering an opinion to satisfy a closing condition, when interpreting ambiguity in the condition, should consider the business rationale for the condition having been included. Generally, any interpretations of the drafting (and the rationales therefor) should be explicitly stated in the opinion.
    • Uncertainty. Legal counsel, when rendering an opinion during a time of significant uncertainty relating to the facts underlying the conclusions in the opinion, should take into account whether the uncertainty is likely to be resolved or mitigated in the near-term. In Boardwalk Pipeline, the court noted that the "fatal uncertainty" relating to key facts would have been mitigated if the Law Firm had simply waited (in this case, just one day) to render the Opinion.
    • Other counsel. Legal counsel should be wary if other counsel has raised issues about, or refused to provide, a requested opinion. A law firm may want to be proactive in asking whether other counsel has been consulted with respect to a requested opinion on non-routine issues.
    • Delaware expertise. Law firms not expert in Delaware law generally should not issue opinions on complex issues of Delaware law.
  • As we consistently emphasize, emails, notes, notations on drafts, and other contemporaneous communicationsby the parties and their lawyersmay become an important part of the evidentiary record in the event a transaction is challenged. In this case, the court's conclusion that the Law Firm delivered the Opinion in bad faith was based in large part on the record that was established regarding pressure that the client exerted on the firm, the firm's thought process, and the client's and the firm's misgivings about the validity of the positions taken in the Opinion. For example, the court highlighted that "notes taken by a [Law Firm] partner...reveal[ed] that everyone [had] focused on the core issue" that was problematic for the Opinion. The note, reproduced in the court's opinion in the partner's handwriting, read: "Qualitative pieceHypothetical Rates, not analyzedNo actual changeno effect yet screw minorityChallenging Fact."
  • ETE decision. We note that, in the court's 2016 ETE decision, the court found that a buyer was excused from closing the merger because the tax opinion condition was not satisfied. In that case, after the buyer had decided it did not want to go ahead with the deal for various business reasons, its outside counsel decided that it could not give an opinion reaffirming its previous advice that the deal likely would receive tax-free treatment. The court emphasized, however, the absence of evidence indicating that the client had pressured the law firm to reach its conclusion that it could not deliver the opinion. In addition, in that case, the court noted that the counsel had done extensive substantive work to reach its conclusion and that there was no evidence that the law firm did not subjectively believe that there was an issue as to the receipt of tax-free treatment.