Exhibit
99.1
CAUSE
NO. 048 233656 08
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QUICKSILVER
RESOURCES INC.
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IN
THE DISTRICT COURT OF
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PLAINTIFF,
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V.
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BREITBURN
ENERGY PARTNERS
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L.P.,
BREITBURN OPERATING L.P.,
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TARRANT
COUNTY, TEXAS
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BREITBURN
GP, LLC, BREITBURN
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OPERATING
GP, LLC, RANDALL H.
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BREITENBACH,
HALBERT S.
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WASHBURN,
GREGORY J.
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MORONEY,
CHARLES S. WEISS,
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RANDALL
J. FINDLAY, THOMAS W.
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BUCHANAN,
GRANT D. BILLING,
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48
TH
JUDICIAL DISTRICT
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AND
PROVIDENT ENERGY TRUST
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DEFENDANTS.
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ORIGINAL
ANSWER
OF
BREITBURN ENERGY PARTNERS L.P.,
BREITBURN
OPERATING L.P., BREITBURN GP, LLC, AND
BREITBURN
OPERATING GP, LLC
TO
THE
HONORABLE JUDGE OF SAID COURT:
Defendants
BreitBurn Energy Partners L.P. (“BreitBurn LP”), BreitBurn Operating L.P.
(“BreitBurn Operating”), BreitBurn GP, LLC (“BreitBurn GP”), and BreitBurn
Operating GP, LLC (collectively, “BreitBurn”) file this Original Answer and in
support thereof respectfully show the Court the following:
I.
GENERAL DENIAL
1.
Pursuant
to Rule 92 of the Texas Rules of Civil Procedure, BreitBurn generally denies
the
allegations contained in Plaintiff’s Original Petition and demands strict proof
thereof.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
1
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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II.
DEFENSES
2.
BreitBurn
first learned about Quicksilver Resources Inc.’s (“Quicksilver”) alleged claims
on October 31, 2008, when Quicksilver filed this lawsuit. Quicksilver’s claims
involve two unrelated transactions. In the first transaction in the fall of
2007, BreitBurn acquired oil and gas assets and other interests from Quicksilver
in exchange for $750 million in cash and 21,347,972 BreitBurn LP common units,
representing a 31.85% limited partner interest in BreitBurn LP.
See
Contribution Agreement between Quicksilver and BreitBurn Operating
(“Contribution Agreement”), excerpts attached as Exhibit A. In the second
transaction in June 2008, BreitBurn purchased Provident Energy Trust’s
(“Provident”) interests in BreitBurn and amended BreitBurn LP’s partnership
agreement immediately following this purchase to provide the limited partners
of
BreitBurn LP, including Quicksilver, with a new right to nominate and elect
the
directors of BreitBurn GP, the general partner of BreitBurn LP. Although these
two transactions were separate and independent events, Quicksilver accuses
all
of the defendants of scheming over the course of the last year with respect
to
these two transactions to “enrich themselves at Quicksilver’s expense.” Pet. ¶
2. Nothing could be further from the truth.
3.
Quicksilver’s
claims are based on allegations that are demonstrably false and inconsistent
with Quicksilver’s pre-suit conduct, that ignore the relevant agreements and
controlling Delaware law, and that were asserted without any warning or pre-suit
complaint. BreitBurn believes that Quicksilver filed this action to improperly
influence the market price for BreitBurn LP units or pursue other “corporate”
maneuvers unrelated to the vindication of colorable rights in this
Court.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
2
of 14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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BreitBurn
Did Not Mislead Quicksilver Regarding Provident’s Future
Role.
4.
Quicksilver’s
first six counts are all based on the singular allegation that the defendants
misrepresented Provident’s long-term, future role in BreitBurn before
Quicksilver acquired its interest in BreitBurn LP on November 1, 2007. As set
forth below, BreitBurn did not make any misrepresentation or omission or commit
any fraud with respect to Provident’s interest or intent. Quicksilver’s own
actions and public statements over the last year are inconsistent with its
newly
minted allegations of fraud and breach of contract.
BreitBurn
Did Not Misrepresent Or Omit Any Material Fact.
5.
Quicksilver’s
misrepresentation claims are not based on a specific representation in the
Contribution Agreement regarding Provident – because there are none.
See
Ex. A,
Contribution Agreement. Instead, the only specific statements Quicksilver
identifies as being allegedly misleading are those contained in BreitBurn LP’s
SEC filings. Quicksilver contends that three statements in these public
filings are inaccurate: (1) that BreitBurn was “Provident’s primary
acquisition vehicle for its upstream operations in the United States,” (2) that
BreitBurn’s “relationship with Provident and its affiliates is a significant
attribute,” and (3) that BreitBurn’s “business strategy” included “utiliz[ing]
the benefits of [its] relationship with Provident to pursue acquisitions.”
Pet. ¶ 3.
6.
Contrary
to Quicksilver’s contention, each of these statements was true when it was
made:
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BreitBurn
was Provident’s primary acquisition vehicle for its upstream operations in
the United States
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This statement was made in BreitBurn LP’s Registration Statement on Form
S-1, including Amendment No. 4 to Form S-1 filed on September 21,
2006, in
connection with its initial public offering in October 2006 at p. 3,
and its Annual Report on Form 10-K for the fiscal year ended December
31,
2006, filed on April 2, 2007 (“BreitBurn 2006 Annual Report”) at
p. 5, excerpts attached as Exhibits B and C, respectively. At both
times, this statement was true. In fact, Provident did not make any
acquisitions for its upstream operations in the United States other
than
those made through BreitBurn at any time during its ownership of
BreitBurn.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
3
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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BreitBurn’s
relationship with Provident and its affiliates was a significant
attribute
of BreitBurn
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This statement—a portion of a sentence that Quicksilver improperly
selectively quoted—was made in some of BreitBurn LP’s public filings
before November 1, 2007. The complete sentence reads: “While our
relationship with Provident and its affiliates is a significant attribute,
it is also a potential source of conflicts.” Ex. C, BreitBurn 2006 Annual
Report at p. 6. Both portions of this sentence were true when made.
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BreitBurn’s
business strategy included, among many other factors also identified
in
public filings, utilizing the benefits of its relationship with Provident
to pursue acquisitions
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This statement was made in some of BreitBurn LP’s public filings before
November 1, 2007 and it was true when made. As BreitBurn discussed
on a
number of occasions publicly, the hoped for benefits of the Provident
relationship included access to acquisition opportunities through
possible
Provident contacts, greater flexibility in pursuing large acquisitions
by
doing joint acquisitions, and providing future “drop-downs” of
property. These factors all remained applicable throughout the time
that Provident owned its interests in BreitBurn. These statements
were true when made and remained true until Provident sold its
interests.
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In
summary, Quicksilver’s allegations of misrepresentations, omissions and fraud
are baseless.
7.
Quicksilver’s
claim for breach of the Contribution Agreement is unsupportable for the same
reason. There are no specific representations regarding Provident in the
Contribution Agreement, so Quicksilver bases this claim solely on the
representation contained in Section 5.11 of the Contribution Agreement
confirming the accuracy of BreitBurn LP’s SEC filings discussed above.
See
Ex. A,
Contribution Agreement at pp. 45-46. As set forth above, BreitBurn LP’s
statements in its public filings were accurate.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
4
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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8.
Quicksilver
implies that BreitBurn knew as of November 1, 2007, that Provident would sell
its interest in BreitBurn because the change in the Canadian tax laws that
ultimately motivated Provident to sell had been announced a year earlier. On
October 31, 2006, the Canadian government announced that it intended to begin
taxing Canadian income trusts such as Provident in the same manner as
corporations beginning in 2011. Just as BreitBurn was aware of this prospective
tax-law change, Quicksilver undoubtedly was aware of it as well because
Quicksilver has extensive holdings in Canada and a subsidiary and office located
in Calgary. In addition, the announcement and its impact on Canadian trusts
were
widely discussed as early as November 2006. Equally important, Provident
publicly acknowledged in its SEC filings (available publicly and on its website)
that it was “actively engaged in strategic planning to determine the best course
of action for Provident under the proposed new tax regime.”
See
Provident’s Year End and Q4 2006 Earnings Release filed on March 9, 2007,
excerpts attached as Exhibit D. Quicksilver could not have been misled about
the
change in tax law or its potential impact on Provident.
9.
Moreover,
Quicksilver does not allege—and could not allege—that BreitBurn made any
misrepresentations regarding Provident’s
future
intent.
The only public statements BreitBurn made with respect to this issue make clear
that Provident
could
sell its
interest at any time without unitholder consent and pursue a strategy separate
from BreitBurn. For example, BreitBurn’s 2006 Annual Report (the very report on
which Quicksilver bases its claim) includes the following disclosures regarding
Provident:
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“[T]here
is no restriction in our partnership agreement on the ability of
Provident
to transfer its equity interest in our general partner to a third
party
. The
new equity owner of our general partner would then be in a position
to
replace the board of directors and officers of our general partner
with
their own choices and to influence the decisions taken by the board
of
directors and officers of our general
partner.”
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“Neither
our partnership agreement nor any other agreement requires Provident
or
its affiliates (other than our general partner) to pursue a business
strategy that favors us. Directors and officers of Provident and its
affiliates have a fiduciary duty to make decisions in the best interest
of
its unitholders, which may be contrary to our
interests.”
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“Furthermore,
the goals and objectives of Provident and its subsidiary relating
to us
may not be consistent with those of a majority of the public
unitholders.”
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Ex.
C,
BreitBurn 2006 Annual Report at pp. 28, 29, 31 (emphasis added). BreitBurn’s
statements with respect to Provident directly contradict Quicksilver’s
allegations of fraud.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
5
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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10.
Quicksilver’s
allegations regarding BreitBurn’s credit facility are also directly contradicted
by the underlying facts.
See,
e.g
.,
Pet. ¶
5. Quicksilver is correct that, after BreitBurn acquired Quicksilver’s assets,
it used those assets to increase its credit facility. However, this fact is
not
part of an illicit scheme, as Quicksilver now suggests. Quicksilver was fully
aware that BreitBurn intended to use the assets it acquired from Quicksilver
to
increase its credit facility, in part to finance $350 million of the $750
million cash portion of the acquisition consideration paid to Quicksilver.
Yet,
Quicksilver raised no objection and actually accepted the cash portion of the
acquisition consideration.
11.
In
short,
there were no misrepresentations; there was no fraud; and there was no illicit
scheme.
The
Alleged Importance Of A Provident/BreitBurn Relationship Is A Recent
Quicksilver
Invention.
12.
Quicksilver’s
actions before signing the Contribution Agreement are inconsistent with its
current claims about Provident.
Quicksilver
did not ask BreitBurn for due diligence materials regarding Provident’s future
with BreitBurn. Quicksilver also did not condition its purchase on the
requirement that Provident enter into a lock-up of its ownership interest.
The
Contribution Agreement does not contain any representation or commitment that
Provident maintain its relationship with BreitBurn at all.
13.
After
the
closing, Quicksilver displayed similar indifference to Provident’s continued
participation. According to Quicksilver, it learned “[s]hortly after the
Contribution Agreement closed” that Provident was contemplating selling all of
its interests in BreitBurn.
See
Pet. ¶
37. If Quicksilver’s current allegations are to be believed, one would expect
Quicksilver to have raised some objection or complaint upon learning of
Provident’s decision; yet, Quicksilver did not do so. In fact, Quicksilver’s
numerous public filings after Provident’s announcement are inconsistent with the
notion that it was misled or defrauded:
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
6
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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Quicksilver
made repeated additional public references to the BreitBurn deal,
including on February 28, 2008, June 23, 2008, and August 6, 2008.
Quicksilver never indicated, in any of these public statements, that
it
was concerned by or believed it was misled or defrauded regarding
Provident’s intentions.
See
Annual
Report on Form 10-K for the fiscal year ended December 31, 2007,
filed on
February 28, 2008 (“Quicksilver 2007 Annual Report”), excerpts attached as
Exhibit E; Quicksilver 8-K, filed June 23, 2008, attached as Exhibit
F;
Quicksilver 8-K, filed August 6, 2008, excerpts attached as Exhibit
G.
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In
fact, in its 2007 Annual Report, Quicksilver described its ownership
in
BreitBurn as follows: “We believe our ownership interest in [Quicksilver
Gas Services] and [BreitBurn] provides additional financial flexibility
for the Company while enabling us to participate in the expected
future
growth of both of these entities.” Ex. E, Quicksilver 2007 Annual Report
at p. 5.
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Quicksilver
also identified risk factors associated with its ownership in BreitBurn
in
its 2007 Annual Report and acknowledged that sales of other limited
partnership units could impact the value of its holdings: “The nature of
our ownership interest in a publicly-traded entity subjects us to
market
risks associated with most ownership interests traded on a public
exchange. Sales of substantial amounts of [BreitBurn] limited partner
units, or a perception that such sales could occur, could adversely
affect
the market price of our [BreitBurn] limited partner units, which
could
result in a temporary or permanent impairment of our limited partner
interest in [BreitBurn].”
Id.
at
20.
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In
February 2008, the BreitBurn/Quicksilver transaction received the
award
for the M&A Deal of the Year from Oil & Gas Investor Magazine.
When he received the award, Quicksilver’s CEO, Glen Darden, touted the
deal as “a creative way to monetize [the Michigan Antrim shale] assets and
still have participation,” and further noted that “[w]e still have
participation going forward in a big set of assets and a big supply
of
natural gas. We supplement that with some exposure to oil (via a
stake in
BreitBurn’s portfolio), which we didn’t have.” He also stated, “[a]nd
because our assets are 60% of the total portfolio there, we know
what kind
of cash flow they are going to kick off.” Mr. Darden never suggested that
he was concerned by Provident’s intention to sell its holdings or that
Quicksilver had been defrauded. Oil & Gas Investor Brochure, attached
as Exhibit H.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
7
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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14.
Similarly,
if Quicksilver honestly believed it had been misled, one would also expect
Quicksilver to have raised objections during Provident’s sales process and even
to have mounted some effort to stop the sale. This sale was a long, open process
involving many potential purchasers, including Quicksilver. Quicksilver teamed
up with a large private equity group to consider its own potential offer to
purchase Provident’s interest. In addition, Quicksilver representatives had
discussions with BreitBurn representatives in the winter and spring encouraging
BreitBurn management to pursue purchasing Provident’s interest.
15.
It
was
only on October 31, 2008—well after Provident sold its interest to
BreitBurn—that Quicksilver suggested that BreitBurn had breached the agreement
or committed fraud. It did so by filing this suit with no warning.
The
June 2008 Buyout Was Appropriate.
16.
In
its
Petition, Quicksilver now alleges that the acquisition of Provident’s interest
in BreitBurn LP, along with Provident, Halbert Washburn (“Washburn”), and
Randall Breitenbach’s (“Breitenbach”) interests in BreitBurn GP was an “abusive
transaction” that “allowed Washburn and Breitenbach to retain control of
BreitBurn Limited Partnership while paying themselves and Provident a premium.”
Pet. ¶ 6. This is an astonishing assertion in light of the actual facts
surrounding the transaction.
17.
BreitBurn’s
participation in the June transactions was controlled by a committee of
independent directors of BreitBurn GP. There is nothing that would suggest
that
these independent directors had any incentive to prejudice BreitBurn LP’s
interests by agreeing to buy Provident’s interests at an excessive price. And
they did not do so. The price agreed upon by the independent committee was
within the range of market prices at which BreitBurn LP units traded during
the
month the transaction closed (June 2008). The independent committee set the
price and made the offer to Provident without first disclosing the price to
management, including Washburn and Breitenbach.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
8
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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18.
Quicksilver
is wrong when it asserts that Washburn and Breitenbach were paid a premium
for
their interests in BreitBurn GP and “retain[ed] control.” Breitenbach and
Washburn owned combined interests of less than 5% in BreitBurn GP from the
time
that BreitBurn LP was formed in 2006. Their BreitBurn GP interests had an
economic value equivalent to a fixed number of common units representing limited
partner interests in BreitBurn LP. When Provident sold its interests in
BreitBurn GP to BreitBurn LP, the board of directors also desired that
Breitenbach and Washburn transfer their interests so that BreitBurn LP would
own
100% of BreitBurn GP. Breitenbach and Washburn agreed. Unlike
Provident, Breitenbach and Washburn received no cash for their BreitBurn GP
interests. Instead, they traded their 19,955 equivalent BreitBurn GP interests
for 19,955 common units in BreitBurn LP. The price of the BreitBurn LP units
on
the date exchanged was
less
than the
per unit cash price that was received by Provident for its interests in
BreitBurn. Not only did Breitenbach and Washburn give up their minority
interests in BreitBurn GP, but they also did not receive cash or the higher
cash
value received by Provident for their identical units. Messrs. Breitenbach
and Washburn actually took a discount compared to the price received by
Provident.
19.
After
BreitBurn purchased Provident’s interests, Quicksilver’s representatives told
BreitBurn that Quicksilver was pleased with the outcome of these transactions.
Quicksilver did not suggest that BreitBurn or its directors breached any duty
owed to the unitholders until they filed suit over four months later.
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The
June 2008 Amendment To The BreitBurn Limited Partnership Agreement
Was
Properly Adopted.
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20.
In
June
2008, BreitBurn GP exercised its clear authority to amend the limited
partnership agreement governing BreitBurn LP to give BreitBurn LP unitholders
the right to nominate and elect BreitBurn GP’s directors (the “Amendment”). The
Amendment was a proper exercise of BreitBurn GP’s authority, and Quicksilver has
no basis for challenging it.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
9
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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21.
Prior
to
the Amendment, Quicksilver and the other BreitBurn unitholders had no right
to
nominate or elect BreitBurn GP’s directors. As Quicksilver publicly acknowledged
prior to the Amendment, “[w]e have no management oversight or influence over
[BreitBurn] or its financial condition, results of operations or cash flows,
and
are indirectly subject to the risks associated with [BreitBurn]’s business and
operations.” Ex. E, Quicksilver 2007 Annual Report at p. 20. After the
Amendment, Quicksilver and all the other limited partners gained a new right
to
vote for directors. Thus, the Amendment did not restrict an existing right,
but
instead provided a new right altogether.
22.
If
BreitBurn LP had not given the limited partners the right to nominate and elect
directors, then BreitBurn LP (as the sole member of BreitBurn GP) would have
the
right to elect all of the directors of BreitBurn GP, which right would be
exercised by the existing Board of Directors of BreitBurn GP. It is noteworthy
that the limited partners’ right to nominate and elect the directors of
BreitBurn LP’s general partner that is afforded under the Amendment is not a
right given to unitholders of Quicksilver Gas Services, the master limited
partnership sponsored by Quicksilver.
23.
Quicksilver
complains that the new voting right caps every limited partner’s ability to vote
for directors to 20%. Pet. ¶ 48. However, this limitation did not impair an
existing right. Rather, it defined the scope of a new right. As discussed in
BreitBurn’s special exceptions filed separately with this Court, this limitation
protects all limited partners (except one trying to gain control of the
partnership without the appropriate approvals set forth in the limited
partnership agreement) in that it prevents any one limited partner from
controlling the election of directors of BreitBurn GP and thus controlling
BreitBurn. Thus, it protects the right of each limited partner to have a
meaningful right to vote. The Amendment is proper under Delaware law.
Additionally, the previously existing voting provisions in the limited
partnership agreement were not otherwise changed.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
10
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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24.
In
granting the BreitBurn LP unitholders the additional right to nominate and
elect
the directors of its general partner, BreitBurn recognized that limited
partnerships and corporations have a well-established legal right and duty
to protect their limited partners and shareholders from improper takeover
attempts or raids. Quicksilver is familiar with the corporate governance
provisions addressing these issues, including, ironically, a number of the
same provisions it complains about with respect to BreitBurn. For
example, Quicksilver has a staggered board of directors, its directors may
be removed from office only for cause by a vote of the holders of at least
66 ⅔% of its voting stock, it is subject to the Delaware statute that
generally prohibits Delaware corporations from engaging in business combinations
with interested stockholders without board or stockholder approval, and it
has
in place a stockholder rights plan (or “poison pill”), which, if triggered,
would entitle holders of rights to buy a number of shares of common stock of
Quicksilver or, in certain circumstances, shares of common stock of the
acquiring company, having a market value of twice the exercise price of each
right.
See
Quicksilver’s Definitive Proxy Statement on Schedule 14A for the 2008 Annual
Meeting of Stockholders filed on April 18, 2008, at pp. 4-5; and Amendment
No. 2
to Quicksilver’s Registration Statement on Form 8-A filed on December 21, 2005,
at pp. 3-6, excerpts attached as Exhibits I and J, respectively.
25.
Quicksilver
raised no complaint about the Amendment at the time it was adopted. Before
filing this suit, Quicksilver made several public statements regarding the
June
2008 transactions without ever hinting at any complaint about the new structure.
Instead, Quicksilver raised these complaints with BreitBurn for the first time
by filing this lawsuit.
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ORIGINAL
ANSWER OF DEFENDANTS
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Page
11
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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AND
BREITBURN OPERATING GP, LLC
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26.
In
sum,
it is apparent that Quicksilver did not file this suit to vindicate colorable
rights. If it had that purpose, Quicksilver would have raised objections as
the
events it now complains about were occurring. It did not do so and instead
chose
to ambush BreitBurn with this surprise suit asserting after-the-fact claims,
clearly for some ulterior purpose.
27.
Quicksilver’s
claims are barred in whole or in part by the doctrine of unclean hands and
by
Quicksilver’s bad faith.
28.
Quicksilver’s
claims are barred in whole or in part under the doctrine of quasi estoppel,
equitable estoppel, and laches.
29.
Quicksilver’s
claims are barred in whole or in part because they are not ripe, because
Quicksilver lacks standing to pursue them, and because they are not
justiciable.
30.
Quicksilver’s
claims
are barred in whole or in part by Quicksilver’s actual knowledge of facts that
constitute the basis of its claims and its lack of reliance on any alleged
misrepresentation or omission by BreitBurn.
31.
Quicksilver’s
claims are barred in whole or in part by the doctrine of waiver or
ratification.
32.
Any
loss
allegedly incurred by Quicksilver is not recoverable from BreitBurn because
all
or a portion of any such loss resulted from intervening or superseding causes
other than any alleged actionable misrepresentation or omission by BreitBurn,
including the acts of third parties or events or market factors over which
BreitBurn was not responsible.
33.
Quicksilver’s
claims against BreitBurn are barred, or Quicksilver’s recovery must be reduced,
based upon its own negligence or proportionate degree of
responsibility.
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ORIGINAL
ANSWER OF DEFENDANTS
|
Page
1
2
of 14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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|
|
AND
BREITBURN OPERATING GP, LLC
|
|
III.
PRAYER
WHEREFORE,
premises considered, BreitBurn prays that Plaintiff Quicksilver Resources Inc.
take nothing by reason of this suit and that, on final hearing hereof, BreitBurn
recover its costs of court and be awarded such other and further relief, at
law
or in equity, to which it may be justly entitled.
|
|
Respectfully
submitted,
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/s/Harry
M. Reasoner
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Harry
M. Reasoner
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Texas
State Bar No. 16642000
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|
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Karl
S. Stern
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Texas
State Bar No. 19175665
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Jennifer
B. Poppe
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|
Texas
State Bar No. 24007855
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First
City Tower
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1001
Fannin St., Suite 2500
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Houston,
TX 77002-6760
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|
713.758.2358
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Facsimile:
713.615.5173
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hreasoner@velaw.com
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kstern@velaw.com
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jpoppe@velaw.com
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William
L. Kirkman
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Texas
State Bar No. 11518700
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BOURLAND
& KIRKMAN, L.L.P.
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201
Main Street, Suite 1400
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Fort
Worth, Texas 76102
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817.336.2800
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Facsimile:
817.877.1863
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billk@BourlandKirkman.com
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|
Attorneys
for BreitBurn Energy Partners
L.P.,
BreitBurn Operating L.P., BreitBurn
GP,
LLC and BreitBurn Operating GP,
LLC
|
|
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ORIGINAL
ANSWER OF DEFENDANTS
|
Page
13
of
14
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|
BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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|
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AND
BREITBURN OPERATING GP, LLC
|
|
OF
COUNSEL:
Srinivas
Raju
RICHARDS,
LAYTON AND FINGER, P.A.
One
Rodney Square
920
North
King Street
Wilmington,
DE 19801
CERTIFICATE
OF SERVICE
I
hereby
certify that a true and correct copy of
O
riginal
Answer of Defendants BreitBurn Energy Partners L.P., BreitBurn Operating L.P.,
BreitBurn GP, LLC, and BreitBurn Operating GP, LLC
has
been
forwarded to counsel of record on this the 24th day of November, 2008, addressed
as follows:
|
Gerard
G. Pecht
|
x
(a)
by certified mail, return
|
|
Darryl
W. Anderson
|
receipt
requested;
|
|
Peter
A. Stokes
|
¨
(b)
by first-class U. S. Mail;
|
FULBRIGHT
& JAWORSKI L.L.P.
|
¨
(c)
by fax transmission; or
|
|
1301
McKinney, Suite 5100
|
¨
(d)
by hand delivery
|
|
Houston,
Texas 77010-3095
|
|
|
Telephone:
(713) 651-5151
|
|
|
Facsimile:
(713) 651-5246
|
|
|
|
|
|
Dee
J. Kelly
|
¨
(a)
by certified mail, return
|
|
Dee
J. Kelly, Jr.
|
receipt
requested;
|
|
Marshall
M. Searcy
|
¨
(b)
by first-class U. S. Mail;
|
|
|
¨
(c)
by fax transmission; or
|
|
Wells
Fargo Tower
|
x
(d)
by hand delivery
|
|
201
Main Street, Suite 2500
|
|
|
Fort
Worth, Texas 76102
|
|
|
Telephone:
(817) 332-2500
|
|
|
Facsimile:
(817) 878-9280
|
|
|
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/s/William
L. Kirkman
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William
L. Kirkman
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ORIGINAL
ANSWER OF DEFENDANTS
|
Page
14
of
14
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
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|
|
AND
BREITBURN OPERATING GP, LLC
|
|
Exhibit
99.2
CAUSE
NO. 048 233656 08
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§
|
IN
THE DISTRICT COURT OF
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§
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PLAINTIFF,
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§
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§
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V.
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§
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§
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BREITBURN
ENERGY PARTNERS
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§
|
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|
L.P.,
BREITBURN OPERATING L.P.,
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§
|
TARRANT
COUNTY, TEXAS
|
|
BREITBURN
GP, LLC, BREITBURN
|
§
|
|
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OPERATING
GP, LLC, RANDALL H.
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§
|
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BREITENBACH,
HALBERT S.
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§
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WASHBURN,
GREGORY J.
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§
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MORONEY,
CHARLES S. WEISS,
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§
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RANDALL
J. FINDLAY, THOMAS W.
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§
|
|
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BUCHANAN,
GRANT D. BILLING,
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§
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48
TH
JUDICIAL DISTRICT
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|
AND
PROVIDENT ENERGY TRUST
|
§
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§
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§
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SPECIAL
EXCEPTIONS OF BREITBURN ENERGY PARTNERS L.P.,
BREITBURN
OPERATING L.P., BREITBURN GP, LLC, AND
BREITBURN
OPERATING GP, LLC
TO
THE
HONORABLE JUDGE OF SAID COURT:
Defendants
BreitBurn Energy Partners L.P. (“BreitBurn LP”), BreitBurn Operating L.P.,
BreitBurn GP, LLC (“BreitBurn GP”), and BreitBurn Operating GP, LLC
(collectively, “BreitBurn”) file these Special Exceptions and in support thereof
respectfully show the Court the following:
I.
PRELIMINARY STATEMENT
1.
BreitBurn
specially excepts to certain of Quicksilver Resources Inc.’s (“Quicksilver”)
claims asserted in its Original Petition because, as set forth in detail below,
such claims fail to state a viable claim for relief under the contract governing
the Parties’ relationship and controlling Delaware law.
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|
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SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page
1 of 19
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|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
2.
Defendant
BreitBurn LP is a master limited partnership, the limited partnership interests
of which are known as “Common Units” or “Units” and are publicly traded on
NASDAQ. BreitBurn GP is the general partner of BreitBurn LP and is governed
by
its Board of Directors. BreitBurn Operating L.P. holds title to the oil and
gas
properties owned by BreitBurn LP. BreitBurn Operating GP, LLC is the general
partner of BreitBurn Operating L.P. Quicksilver currently owns approximately
41%
of the BreitBurn LP Units.
3.
Quicksilver
asserts claims against BreitBurn based on two unrelated transactions. In the
first transaction in the fall of 2007, Quicksilver sold oil and gas assets
and
other interests to BreitBurn in exchange for Quicksilver receiving $750 million
in cash and BreitBurn LP Common Units. In the second transaction in June 2008,
BreitBurn purchased defendant Provident Energy Trust’s (“Provident”) interests
in BreitBurn and amended BreitBurn LP’s limited partnership agreement to provide
the BreitBurn LP limited partners (the “Limited Partners”), including
Quicksilver, with a new right to nominate and elect the directors of BreitBurn
GP. As set forth in BreitBurn’s Original Answer (filed separately), all of
Quicksilver’s claims are baseless.
4.
Under
the
October 10, 2006, First Amended and Restated Agreement of Limited Partnership
of
BreitBurn Energy Partners L.P. (the “Partnership Agreement,” attached as Exhibit
A), the Limited Partners had no right to either nominate or elect the directors
of BreitBurn GP. Thus, when Quicksilver purchased its ownership interest in
the
fall of 2007, it did not have any say in the election of directors for BreitBurn
GP.
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SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page 2
of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
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|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
5.
On
June
17, 2008, BreitBurn GP adopted Amendment No. 1 to the Partnership Agreement
(the
“Amendment”) to provide the Limited Partners a “meaningful right to vote in the
election of directors of [BreitBurn GP].” Amendment at 1, attached as Exhibit B.
Among other things, the Amendment provides that BreitBurn GP must be an entity
that has a classified board of directors, and the Amendment sets forth voting
requirements and rights with respect to the election of directors and procedures
for nominating and electing those directors (including advance-notice
requirements for nominations made by Limited Partners). In short, the Amendment
gave the Limited Partners rights that they had never had before—namely, the
rights to nominate and elect BreitBurn GP’s directors. In addition, to ensure
that each Limited Partner has a meaningful right to vote in the election of
directors, the Amendment places a “cap” on every Limited Partner’s voting rights
with respect to the election of directors of BreitBurn GP at 20%.
6.
Quicksilver
does not complain about the Amendment as a whole, but only this 20% cap.
Quicksilver alleges that this cap constitutes a breach of the Partnership
Agreement (Count 7) and a breach of BreitBurn’s duty of good faith and fair
dealing (Count 8). Quicksilver also seeks both declaratory and injunctive relief
(Counts 11 and 12) asking this Court to invalidate the 20% cap and allow it
to
vote its 41% ownership interest. Effectively, Quicksilver is asking the Court
to
amend the Partnership Agreement without the approval of BreitBurn GP, its board
of directors, or its committee of independent directors and to grant Quicksilver
working control of BreitBurn GP (and, therefore, BreitBurn LP) at the expense
of
the rights of the other Limited Partners.
|
|
|
SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page 3
of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
II.
SPECIAL EXCEPTIONS
7.
Under
Rules 90 and 91 of the Texas Rules of Civil Procedure, BreitBurn specially
excepts to paragraphs 85-90, 93-95, and 105-114 of Quicksilver’s Petition to the
extent those paragraphs allege a claim relating to the Amendment. Quicksilver’s
allegations in these paragraphs (Counts Seven, Eight, Eleven, and Twelve) all
fail to allege essential elements of these claims as required by Delaware
law.
1
Furthermore, because Quicksilver is unable to cure many of these defects,
BreitBurn requests that this Court sustain its exceptions and dismiss these
claims or, in the alternative, order Quicksilver to amend its Petition and
attempt to cure these defects within ten days.
SPECIAL
EXCEPTION #1
:
BreitBurn
LP and BreitBurn GP Specially Except to Count Seven at Paragraphs 85-88 of
the
Petition Because Quicksilver Has Not—and Cannot—Allege Breach of the Partnership
Agreement.
8.
In
Count
Seven at ¶¶ 85-88, Quicksilver alleges that BreitBurn LP and BreitBurn GP
breached Sections 13.1, 13.2, and 13.3(c) of the Partnership Agreement by
“unilaterally” adopting the Amendment without obtaining approval from the
Limited Partners. However, Quicksilver cannot possibly establish a breach of
the
Partnership Agreement because the Amendment complied with the express terms
of
the Partnership Agreement as a matter of law and does not require limited
partnership approval.
1
Delaware
law is implicated in two respects. The Partnership Agreement provides that
it
“shall be construed in accordance with and governed by the laws of the State
of
Delaware, without regard to the principles of conflicts of law.” Ex. A,
Partnership Agreement, § 16.8. Furthermore, Delaware law applies, under the
internal-affairs doctrine, to issues relating to the relationship among the
partners in this limited partnership.
See
Tex.
Bus.
Corp. Act art. 8.02
;
see
also e.g.
,
McDermott
Inc. v. Lewis
,
531
A.2d 206, 215 (Del. 1987) (“The internal affairs doctrine requires that the law
of the state of incorporation should determine issues relating to internal
corporate affairs.”).
|
|
|
SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page 4
of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
The
Amendment was validly adopted pursuant to Section 13.1.
9.
Section
13.1(d)(i) of the Partnership Agreement authorizes BreitBurn GP to amend the
Partnership Agreement unilaterally, “
without
the approval of any Partner or Assignee
,”
so
long as BreitBurn GP “determines” that the amendment “does not adversely affect
the Limited Partners (including any particular class of Partnership Interests
as
compared to other classes of Partnership Interests) in any material respect.”
Ex. A, Partnership Agreement at 69-70 (emphasis added). Therefore, to sustain
a
cause of action, Quicksilver must allege that BreitBurn GP failed to make the
required determination.
Quicksilver
makes no allegation regarding the required determination.
10.
Quicksilver has not alleged that BreitBurn GP failed to make the required
determination. The lack of such allegation is fatal to Quicksilver’s claim that
the Amendment was not validly adopted pursuant to the Partnership Agreement.
The
Amendment did not have a material adverse effect on the Limited
Partners.
11.
Quicksilver
attempts to allege that the Amendment had an adverse effect on the Limited
Partners; however, these allegations fail on the face of the Petition. “Adverse”
is defined as “[h]urtful, injurious.”
2
Under
the allegations in the Petition, the Amendment can be neither hurtful nor
injurious to Quicksilver or any other Limited Partner as a matter of
law.
3
2
Shorter
Oxford English Dictionary
32 (5th
ed. 2002).
3
Although
Quicksilver focuses on one particular subsection of the Amendment (
i.e.
the new
Section 13.4(b)(iii)(B) of the Partnership Agreement) (Pet. ¶ 47), the entire
Amendment must be analyzed as a unitary whole. Under Delaware law, whether
the
terms of a contract are severable is purely a question of the intent of the
parties.
Tracey
v. Franklin
,
67 A.2d
56, 61 (Del. 1949). As the Delaware Supreme Court has held, “the acid test is
whether or not the parties would have entered into the [amendment] at all faced
with the knowledge” that a certain portion could be deemed invalid.
Id.
The
Amendment contains no severability provision, demonstrating that the parties
did
not intend for the Amendment to be severed.
Cf.
R.S.M.
Inc. v. Alliance Capital Mgmt. Holdings L.P.
,
790
A.2d 478, 494-95 (Del. Ch. 2001) (severing an amendment based on the Court’s
reading of the parties’ intent and giving “great weight to the Severability
Clause in the Amendment”). Furthermore, allowing Quicksilver to sever the
Amendment and evade the voting cap would contradict the express purpose of
the
Amendment. Ex. B, Amendment at 1 (providing that the Amendment was enacted
to
provide all Limited Partners a “meaningful right to vote in the election of
directors of [BreitBurn GP]”). As discussed in ¶¶ 15 below, the invalidation of
the voting cap would deprive the other Limited Partners of a meaningful right
to
vote.
|
|
|
SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page 5
of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
12.
Quicksilver
contends that the Amendment has a material adverse effect on Quicksilver because
the Amendment contains a “restriction” that puts a “cap” on Quicksilver’s voting
rights. Pet. ¶ 48. But Quicksilver is using the incorrect baseline by which
to measure the Amendment’s effect. If Quicksilver had been able—before the
Amendment—to vote all of its Units on the election of BreitBurn GP’s directors,
the Amendment might arguably have had an adverse effect on Quicksilver. Here,
however, the starting point was different. Quicksilver’s voting rights were not
eliminated, narrowed, or restricted; Quicksilver’s rights were only expanded by
the Amendment.
13.
Before
the Amendment, the Limited Partners (including Quicksilver) had
no
rights
whatsoever to nominate or elect BreitBurn GP’s directors. So the voting rights
provided under the Amendment are greater than the rights that the Limited
Partners had before the Amendment. Here, the Amendment provided all Limited
Partners with the new right to nominate and elect all of the BreitBurn GP
directors. If BreitBurn LP had not given the Limited Partners the
right to nominate and elect directors, then BreitBurn LP (as the sole
member of BreitBurn GP) would have the right to elect all the directors of
BreitBurn GP, which right would be exercised by the existing board of directors
of BreitBurn GP.
14.
The
Amendment did not, however, provide unfettered voting rights; each Limited
Partner may vote only up to 20% of BreitBurn LP’s Outstanding Partnership
Securities (as defined in the Partnership Agreement) in the election of
directors. Because the Limited Partners’ post-Amendment voting rights (even
though they contain certain restrictions) are far greater than their
pre-Amendment voting rights (which did not exist), the Amendment could not
have
had an adverse—hurtful or injurious—effect on Quicksilver or any other Limited
Partner as a matter of law.
See,
e.g.
,
R.S.M.
Inc.
,
790
A.2d at 506 (holding that a proposed amendment with the practical effect to
“make it easier—rather than more difficult—for the public unitholders to call a
meeting of the [limited partnership’s] unitholders” would not affect the public
unitholders in a materially adverse way).
|
|
|
SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page 6
of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
15.
The
limit
on the voting rights of Limited Partners with ownership interests in excess
of
20% provides
all
of the
Limited Partners with a “meaningful right to vote.” See Ex. B, Amendment at 1.
If a unitholder like Quicksilver were able to vote all of its Units in the
election of directors, it would have working control and the practical ability
to elect all BreitBurn GP directors—depriving every other Limited Partner of any
meaningful vote.
See
,
e.g.
,
Summa
Corp. v. Trans World Airlines, Inc.
,
540
A.2d 403, 404-5 (Del. 1988) (noting that owning 40% of a company’s common stock
gave a stockholder “working control”);
Robbins
& Co. v. A.C. Israel Enters., Inc.
,
No.
Civ. A. 7919, 1985 WL 149627, at *5 (Del. Ch. Oct. 2, 1985) (“This Court and
others have recognized that substantial minority interests ranging from 20%
to
40% often provide the holder with working control.”).
16.
Quicksilver
is in effect seeking to wield working control over BreitBurn LP, but that would
be inconsistent with the stated purpose of the Amendment, which was to provide
the Limited Partners a “meaningful right to vote in the election of directors of
[BreitBurn GP].” Ex. B, Amendment at 1. That purpose applies to
all
Limited
Partners. Were Quicksilver to appropriate control for itself, the purpose and
intent of the Amendment itself would be thwarted and the rights of all other
Limited Partners would be diminished.
|
|
|
SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page 7
of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
The
Amendment did not have a material adverse effect on any class of Partnership
Interests as compared to other classes of Partnership
Interests.
17.
As
a
matter of law, the Amendment also cannot be said to adversely affect any
particular class of Partnership Interests as compared to other classes of
Partnership Interests. Quicksilver contends that its Units were materially
adversely affected by the Amendment, because the Amendment affords
“Quicksilver’s Units less than one-half the per-Unit voting rights granted to
all other Units, and had a material adverse effect on the Quicksilver
Partnership Interests.” Pet. ¶ 50. Quicksilver further contends that this
transformed its Partnership Interests into a different “class” of Partnership
Interests.
Id.
Quicksilver’s contentions are, however, contrary to Delaware law and the terms
of the Partnership Agreement.
18.
Quicksilver’s
Partnership Interests have not been converted into a separate “class” of Units
because the Amendment applies equally to all Partnership Interests and all
Limited Partners. The Amendment provides that, with respect to the election
of
directors, any person or group beneficially owning 20% or more of the
Outstanding Partnership Securities of any class then Outstanding may not vote
their Partnership Securities in excess of 20% of the Outstanding Partnership
Securities of the applicable class. Ex. B, Amendment, § 7. Thus, under the
Amendment, Quicksilver—a holder of approximately 41% of the Outstanding
Partnership Securities—may vote up to 20% of the total Units entitled to vote in
the election of directors.
Id.
;
Pet. ¶
48. But the Amendment is not, in any manner, specific to Quicksilver. If
Quicksilver were to own less than 20% of the Outstanding Partnership Securities,
then the above provision would not apply to Quicksilver. Similarly, if other
Limited Partners accumulate more than 20% of the Outstanding Partnership
Securities, the provision will be applicable to them.
|
|
|
SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page 8
of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
19.
The
Amendment’s method of affording voting rights based on how Partnership Interests
are held, rather than based on the Partnership Interests themselves, has been
approved by Delaware courts in similar circumstances and does not constitute
the
creation of separate classes of interests. In
Providence
& Worcester Co. v. Baker
,
378
A.2d 121 (Del. 1977), the Delaware Supreme Court upheld a scaled voting
provision that capped the number of votes a stockholder could exercise based
on
the number of shares held, a provision very similar to this Amendment. The
Court
upheld the scaled voting provision because the “restrictions are limitations
upon the voting rights of the stockholder, not variations in the voting powers
of the stock per se.”
Id.
at 123.
In addition to scaled voting provisions, Delaware courts have also upheld
tenured voting provisions that grant voting rights based on the length of time
that the stockholder held its shares.
See,
e.g.
,
Williams
v. Geier
,
671
A.2d 1368, 1384-85 (Del. 1996).
4
20.
Furthermore,
the treatment of Limited Partners is consistent under both the Amendment and
the
Partnership Agreement. BreitBurn GP has the authority pursuant to the
Partnership Agreement to create classes of Units (
see
Ex. A,
Partnership Agreement, § 5.6(a), (b) and (c)). But BreitBurn GP has never
exercised its authority to create classes of Units separate from the Common
Units, and the Partnership Agreement does not provide for any separate “class”
of Quicksilver Units or for any separate “class” of any Units. Nonetheless, the
Partnership Agreement consistently refers to classes of ownership interests
at
the “Unit” level, rather than at the holder level.
4
Other lines of Delaware authority confirm the significant distinction
between the rights of shares and the rights of holders of shares. For example,
the rights of a controlling stockholder are not rights inherent in the shares
themselves but rather arise from the aggregation of a controlling block and
are
unique to the holder of the shares.
See
Paramount
Commc’ns Inc. v. QVC Network Inc.
,
637
A.2d 34, 42 (Del. 1994). Delaware courts similarly have held that Delaware
corporations may discriminate against or in favor of individual holders of
shares, notwithstanding the identical “rights, powers and privileges” of their
underlying shares.
See
Unocal
Corp. v. Mesa Petroleum Co.
,
493
A.2d 946, 954 (Del. 1985) (upholding discriminatory self-tender; noting that
a
“Delaware corporation may deal selectively with its stockholders”);
In
re
Sea-Land Corp. S’holders Litig.
,
642
A.2d 792, 799 n.10 (Del. Ch. 1993) (upholding transaction involving higher
price
for large block of shares with lower price for remaining shares; noting that
“Delaware law permits shareholders (as distinguished from shares) to be treated
unequally”),
aff’d
,
633
A.2d 371 (Del. 1993) (TABLE).
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SPECIAL
EXCEPTIONS OF DEFENDANTS
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Page 9
of 19
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BREITBURN
ENERGY PARTNERS, L.P.,
|
|
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
21.
In
summary, BreitBurn LP has no classes of Units other than its single class of
Common Units, and the Amendment does not create any new class of Units or other
Partnership Interests. Quicksilver’s Units, which are designated as “Common
Units,” have the same rights and are subject to the same restrictions as all
other Common Units, no more and no less.
22.
Given
that the Amendment applies equally to
all
Common
Units and the holders thereof, Quicksilver cannot be said to hold any separate
class of Units or Common Units that has been adversely affected in relation
to
other classes of Units or Common Units. Quicksilver owns part of the “single
class”—the only class—of Limited Partner Partnership Interests issued by
BreitBurn LP.
23.
Similarly,
Quicksilver’s contention that its Units have less than half the voting rights
granted to all other Units (Pet. ¶ 50) is misleading. Quicksilver appears
to suggest that its voting rights were halved, while other Limited Partners
received full voting rights—but that is incorrect. All Limited Partners are
limited to voting 20% of the Outstanding Partnership Securities with respect
to
the election of directors of BreitBurn GP.
24.
For
these
reasons, Quicksilver’s allegation that the Amendment was not validly adopted
pursuant to Section 13.1 of the Partnership Agreement fails as a matter of
law.
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SPECIAL
EXCEPTIONS OF DEFENDANTS
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Page
10 of 19
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
The
Amendment was validly adopted pursuant to Sections 13.2 and 13.3.
25.
Quicksilver
alleges that Section 13.2 required that the Amendment receive the Limited
Partners’ approval. Pet. ¶ 54. But Section 13.2 provides that amendments do
not need approval of the Limited Partners if those amendments are adopted
pursuant to Section 13.1. Similarly, Section 13.3(c), which requires a class
vote in certain circumstances, contains no limit on BreitBurn GP’s “authority to
adopt amendments to this Agreement without the approval of any Partners or
Assignees
as
contemplated in Section 13.1.
”
Ex.
A,
Partnership Agreement, § 13.3(c) (emphasis added). Because, as explained
above, the Amendment was validly adopted pursuant to Section 13.1 of the
Partnership Agreement, Quicksilver’s contentions that Sections 13.2 and 13.3(c)
of the Partnership Agreement were breached (Pet. ¶¶ 51, 54) are
unsustainable as a matter of law.
26.
In
sum,
Quicksilver cannot, as a matter of law, allege a breach of the Partnership
Agreement. Therefore, BreitBurn LP and BreitBurn GP respectfully request that
Count 7 and paragraphs 85-88 be dismissed. In the alternative, BreitBurn LP
and
BreitBurn GP request that this Court order Quicksilver to replead and attempt
to
cure this defect within ten days.
SPECIAL
EXCEPTION #2:
BreitBurn
Specially Excepts to Count Eight at Paragraphs 89-90 and 93-95 Because BreitBurn
Did Not Breach Any Duties to Act in Good Faith and Deal Fairly with Respect
to
the Voting Rights Amendment.
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SPECIAL
EXCEPTIONS OF DEFENDANTS
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Page
11 of 19
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
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AND
BREITBURN OPERATING GP, LLC
|
|
27.
Quicksilver’s
Count Eight (Pet. ¶¶ 89-90, 93-95) alleges a breach of the duty of good
faith and fair dealing by each of the defendants. Quicksilver appears to base
this claim under both contractual and common law duties. But Quicksilver’s
contentions fail as a matter of law under either standard. First, to the extent
that Quicksilver is referring to the covenant of good faith and fair dealing
implied in all contracts by the Delaware courts, Quicksilver’s contentions fail
because Quicksilver alleges only breaches of specific express terms in the
Partnership Agreement. Second, to the extent that Quicksilver is referring
to
any fiduciary duty on BreitBurn GP’s part, Quicksilver’s contentions fail
because fiduciary duties were expressly eliminated in the Partnership Agreement,
which Quicksilver agreed to accept as part of its initial purchase into
BreitBurn LP in September 2007.
Delaware’s
implied covenant of good faith and fair dealing does not apply
here.
28.
The
implied covenant of good faith and fair dealing may provide a basis to imply
terms in a limited partnership agreement, but only if the agreement does not
expressly provide for the disputed obligation.
See
Cincinnati
SMSA Ltd. P’ship v. Cincinnati Bell Cellular Sys. Co.
,
708
A.2d 989, 990-94 (Del. 1998);
see
also
Izquierdo
v. Sills
,
No.
15505-NC, 2004 WL 2290811, at *13 (Del. Ch. June 29, 2004) (“It is well
established that a party ‘cannot assert a claim for breach of [an] implied
covenant [of good faith and fair dealing] that is based on exactly the same
acts
which are said to be in breach of express covenants.’” (alterations in original)
(footnote omitted)). Since Quicksilver’s allegations of bad faith and unfair
dealing relate to BreitBurn GP’s actions under the express terms of the
Partnership Agreement (
i.e.
,
Section
13.1, 13.2, 13.3(c), and 7.9(b)), the terms of the Partnership Agreement
control, and Delaware law does not imply any additional duties.
See
Id.
;
see
also Dunlap v. State Farm Fire & Cas. Co.
,
878
A.2d 434, 441 (Del. 2005) (“Existing contract terms control, however, such that
implied good faith cannot be used to circumvent the parties’ bargain, or to
create a ‘free-floating duty . . . unattached to the
underlying legal document.’ Thus, one generally cannot base a claim for breach
of the implied covenant on conduct authorized by the terms of the agreement.”
(omission in original) (footnotes omitted)).
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SPECIAL
EXCEPTIONS OF DEFENDANTS
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Page
12 of 19
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BREITBURN
ENERGY PARTNERS, L.P.,
|
|
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
The
Partnership Agreement eliminates any fiduciary duties to
Quicksilver.
29.
To
the
extent that Quicksilver’s claims suggest some amorphous fiduciary obligation of
good faith, the claims must fail as a matter of law because any fiduciary duties
that BreitBurn GP might have owed have been eliminated in the Partnership
Agreement.
30.
Section
7.9(e) of the Partnership Agreement provides in part that, “[e]xcept as
expressly set forth in this Agreement,
neither
[BreitBurn GP] nor any other Indemnitee shall have any duties or liabilities,
including fiduciary duties, to the Partnership or any Limited
Partner
.
”
Ex.
A,
Partnership Agreement, § 7.9(e) (emphasis added). The Partnership Agreement
contains no other provision expressly imposing fiduciary obligations on
BreitBurn GP. Hence, Section 7.9(e) of the Partnership Agreement establishes
that BreitBurn GP has no fiduciary duty to act in good faith. This disclaimer
of
fiduciary duties is fully enforceable under Delaware law.
31.
The
Delaware Revised Uniform Limited Partnership Act (“DRULPA”) is based upon and
reflects a strong policy favoring broad freedom of contract in connection with
almost all aspects of the formation, operation and termination of a Delaware
limited partnership and, in particular, relationships among the partners.
Consistent with this central principle, it is well established that a limited
partnership agreement may modify the fiduciary duties that would otherwise
be
owed by a general partner to the limited partnership and to other partners.
32.
Section
17-1101(d) of DRULPA, which authorizes the modification of fiduciary duties
of
general partners in a limited partnership agreement, states in pertinent part
that:
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SPECIAL
EXCEPTIONS OF DEFENDANTS
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Page
13 of 19
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BREITBURN
ENERGY PARTNERS, L.P.,
|
|
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
To
the
extent that, at law or in equity, a partner or other person has duties
(including fiduciary duties) to a limited partnership or to another partner
or
to another person that is a party to or is otherwise bound by a partnership
agreement, the partner’s or other person’s duties may be expanded or restricted
or eliminated by provisions in the partnership agreement. . . .
6
Del.
C.
§
17-1101(d).
5
The only
qualification to the foregoing is that a “partnership agreement may not
eliminate the implied contractual covenant of good faith and fair dealing,”
id.
,
which,
as
demonstrated above, does not provide a basis for challenging the
Amendment.
33.
Pursuant
to the express statutory authorization to modify fiduciary duties, courts look
to the parties’ partnership agreement to determine what fiduciary duties (if
any) are owed in deciding cases in which limited partners raise fiduciary duty
claims.
See
Sonet v. Timber Co., L.P.
,
722
A.2d 319, 324 (Del. Ch. 1998);
Gotham
Partners, L.P. v. Hallwood Realty Partners, L.P.
,
No.
Civ. A. 15754, 2000 WL 1476663, at *1 (Del. Ch. Sept. 27, 2000) (stating that
“the partnership agreement sets forth the standards that govern transactions
between the partnership and general partner affiliates, and such contractual
standards and not default fiduciary standards form the measure by which the
general partner’s conduct must be evaluated.”).
6
5
Prior
to
2004, Section 17-1101(d) provided that fiduciary duties “may be expanded or
restricted by provisions in the partnership agreement,” and there was some doubt
as to whether fiduciary duties could be completely “eliminated.” That doubt was
eliminated with the 2004 amendments to DRULPA, which made it clear that
fiduciary duties “may be expanded or restricted
or
eliminated
by the
provisions in the partnership agreement.”
Id.
(emphasis added).
6
Furthermore,
to the extent that Quicksilver seeks to enforce a duty on BreitBurn GP arising
from their contractual relationship, any fiduciary-duty claim is precluded
as a
matter of Delaware law.
See
,
e.g.
,
Brown
v. T-Ink, LLC
,
No.
Civ. A. 3190-VCP, 2007 WL 4302594, at *15 n.69 (Del. Ch. Dec. 4, 2007) (holding
that “such a fiduciary duty claim is precluded as a matter of law”);
Solow
v. Aspect Res., LLC
,
No.
Civ. A. 20397, 2004 WL 2694916, at *4 (Del. Ch. Oct. 19, 2004) (“Because of the
primacy of contract law over fiduciary law, if the duty sought to be enforced
arises from the parties’ contractual relationship, a contractual claim will
preclude a fiduciary claim.”).
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SPECIAL
EXCEPTIONS OF DEFENDANTS
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Page
14 of 19
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BREITBURN
ENERGY PARTNERS, L.P.,
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
34.
For
example, in the
Sonet
case,
the Delaware Court of Chancery held that “principles of contract preempt
fiduciary principles where the parties to a limited partnership have made their
intention to do so plain.” 722 A.2d at 322. The Court considered a limited
partnership agreement that unambiguously provided that the general partner
had
sole discretion over setting and approving the terms of any merger transaction
and provided that the limited partners had the power to veto any such merger
transaction as a function of a supermajority vote requirement. The plaintiff,
who was a limited partner in the partnership, challenged the merger as a
self-dealing and interested transaction between the partnership and the general
partner and argued for the application of an entire fairness standard. The
court
rejected plaintiff’s argument and found that the limited partnership agreement
had set up a structure that effectively supplanted fiduciary duties.
Id.
at 324;
see
also
Gelfman
v. Weeden Investors, L.P.
,
792
A.2d 977 (Del. Ch. 2001) (finding that the express terms of the limited
partnership agreement supplanted default fiduciary duties).
35.
Thus,
in
the context of a Delaware limited partnership, the traditional common law
fiduciary duties function only as defaults that may be modified in the
partnership agreement. Here, the Partnership Agreement follows Delaware’s
freedom of contract principle and modifies those duties. Ex. A, Partnership
Agreement § 7.9(e). Quicksilver accepted Units and agreed to become a Limited
Partner under the Partnership Agreement, which did not provide for any vote
by
the Limited Partners in the election of directors of BreitBurn GP. The
Partnership Agreement also provided a clear provision permitting BreitBurn
GP to
amend the Partnership Agreement without Limited Partner approval in a number
of
circumstances. The Amendment is in accordance with the terms of the Partnership
Agreement. The express terms of the Partnership Agreement preempt any amorphous
implied claim of fiduciary duty to the contrary.
Quicksilver’s
contentions to the contrary therefore fail as a matter of law.
See
Miller v. Am. Real Estate Partners, L.P.
,
No.
Civ. A. 16788, 2001 WL 1045643, at *8 (Del. Ch. Sept. 6, 2001) (stating that
where a limited partnership agreement exempts the general partner from
traditional fiduciary duties, the limited partners will have been put on notice,
and the court “will not [be] tempted by the piteous pleas of [investors] who are
seeking to escape the consequences of their own decisions to become investors”
in such a limited partnership).
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SPECIAL
EXCEPTIONS OF DEFENDANTS
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Page
15 of 19
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|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
36.
Quicksilver
has failed to allege a claim for breach of the duty of good faith and fair
dealing in paragraphs 89-90 and 93-95 relating to the voting rights amendment,
and this claim should be dismissed. In the alternative, this Court should order
Quicksilver to replead and attempt to cure this defect within ten
days.
SPECIAL
EXCEPTION #3
:
BreitBurn
LP and BreitBurn GP Specially Except to Count 11 at Paragraphs 105-111 Because
Quicksilver Is Not Entitled to the Declaratory Relief It
Seeks.
37.
Quicksilver
also requests that this Court enter a declaratory judgment that, among other
relief, Quicksilver may vote all of its Units in the director election. Pet.
¶ 109. For all the reasons discussed above, the Amendment was validly
adopted, and Quicksilver is not entitled in any director election to vote the
Units it owns in excess of the 20% threshold. As such, BreitBurn LP and
BreitBurn GP specially except to these paragraphs because, as a matter of law,
Quicksilver has not adequately alleged a valid case or controversy and this
portion of Count 11 should therefore be dismissed.
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SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page
16 of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
SPECIAL
EXCEPTION #4
:
BreitBurn
LP and BreitBurn GP Specially Except to Count Twelve at Paragraphs 112-114
Because Quicksilver Has Not Adequately Alleged a Violation of the Partnership
Agreement.
38.
Finally,
in Count Twelve, Quicksilver seeks injunctive relief permitting Quicksilver
to
vote all of its Units in the election of directors. Pet. ¶ 112-114. For all the
reasons already discussed, Quicksilver has failed to allege any basis for the
injunctive relief it seeks.
Sands
v. Estate of Buys
,
160
S.W.3d 684, 690 (Tex. App.—Fort Worth 2005, no pet.) (holding that district
court abused its discretion in granting temporary injunction where plaintiff
failed to demonstrate probability of success on underlying claim);
see
also E.I. du Pont de Nemours & Co. v. Bayer CropScience
L.P.
,
—
A.2d
—, No. Civ. A. 3741-VCL, 2008 WL 4808908, at *9 (Del. Ch. July 29, 2008) (party
was not entitled to preliminary injunctive relief because it failed to
demonstrate reasonable probability of success on merits of underlying contract
claim). Count Twelve should therefore be dismissed.
III.
CONCLUSION
39.
BreitBurn
requests that this Court sustain its special exceptions and dismiss
Quicksilver’s claims relating to the voting rights Amendment.
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SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page
17 of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
|
BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
|
|
Respectfully
submitted,
|
|
|
|
|
|
/s/Harry
M. Reasoner
|
|
|
|
Harry
M. Reasoner
|
|
|
Texas
State Bar No. 16642000
|
|
|
Karl
S. Stern
|
|
|
Texas
State Bar No. 19175665
|
|
|
Jennifer
B. Poppe
|
|
|
Texas
State Bar No. 24007855
|
|
|
Vinson
& Elkins llp
|
|
|
First
City Tower
|
|
|
1001
Fannin St., Suite 2500
|
|
|
Houston,
TX 77002-6760
|
|
|
713.758.2358
|
|
|
Facsimile:
713.615.5173
|
|
|
hreasoner@velaw.com
|
|
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kstern@velaw.com
|
|
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jpoppe@velaw.com
|
|
|
|
|
|
William
L. Kirkman
|
|
|
Texas
State Bar No. 11518700
|
|
|
Bourland
& Kirkman, L.L.P.
|
|
|
201
Main Street, Suite 1400
|
|
|
Fort
Worth, Texas 76102
|
|
|
817.336.2800
|
|
|
Facsimile:
817.877.1863
|
|
|
billk@BourlandKirkman.com
|
|
|
|
|
|
Attorneys
for
BreitBurn
Energy Partners
L.P.,
BreitBurn Operating L.P., BreitBurn
GP,
LLC and BreitBurn Operating GP,
LLC
|
OF
COUNSEL:
Srinivas
Raju
Richards,
Layton and Finger, P.A.
One
Rodney Square
920
North
King Street
Wilmington,
DE 19801
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SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page
18 of 19
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BREITBURN
ENERGY PARTNERS, L.P.,
|
|
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|
CERTIFICATE
OF SERVICE
I
hereby
certify that a true and correct copy of
Special
Exceptions of Defendants BreitBurn Energy Partners L.P., BreitBurn Operating
L.P., BreitBurn GP, LLC, and BreitBurn Operating GP, LLC
has
been
sent on this 24th day of November, 2008, as set forth below:
|
Gerard G. Pecht
|
¨
(a) by certified mail, return
|
|
Darryl W. Anderson
|
receipt requested;
|
|
Peter A. Stokes
|
x
(b) by first-class U. S. Mail;
|
|
Fulbright & Jaworski L.L.P.
|
¨
(c) by fax transmission; or
|
|
1301 McKinney, Suite 5100
|
¨
(d) by hand delivery.
|
|
Houston, Texas 77010-3095
|
|
|
Telephone: (713) 651-5151
|
|
|
Facsimile: (713) 651-5246
|
|
|
|
|
|
Dee J. Kelly
|
|
|
Dee J. Kelly, Jr.
|
¨
(a) by certified mail, return
|
|
Marshall M. Searcy
|
receipt requested;
|
|
Kelly Hart & Hallman LLP
|
¨
(b) by first-class U. S. Mail;
|
|
Wells Fargo Tower
|
¨
(c) by fax transmission; or
|
|
201 Main Street, Suite 2500
|
x
(d) by hand delivery
|
|
Fort Worth, Texas 76102
|
|
|
Telephone: (817) 332-2500
|
|
|
Facsimile: (817) 878-9280
|
|
|
|
/s/William L. Kirkman
|
|
|
|
William L. Kirkman
|
|
|
|
SPECIAL
EXCEPTIONS OF DEFENDANTS
|
Page
19 of 19
|
|
BREITBURN
ENERGY PARTNERS, L.P.,
|
|
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BREITBURN
OPERATING, L.P., BREITBURN GP, LLC,
|
|
|
AND
BREITBURN OPERATING GP, LLC
|
|