Matthew J. Dolan is partner at Sidley Austin LLP. This post is based on his Sidley memorandum, and is part of the Delaware law series; links to other posts in the series are available here.
Last month Vice Chancellor Zurn issued a significant, 200+ page decision on a motion to dismiss filed by defendants in the ongoing Pattern Energy transaction litigation, captioned In re Pattern Energy Group Inc. Stockholders Litigation, C.A. No. 2020-0357-MTZ. As we previously reported, class actions had been filed in Chancery Court and Delaware Federal District Court following the $6.1 billion going-private sale of Pattern Energy Group, Inc. to Canada Pension Plan Investment Board (“Canada Pension”). Both cases present overlapping breach of fiduciary duty claims. The Chancery Court case has moved forward faster, with that Court now issuing a decision denying defendants’ motion to dismiss. The decision is a reminder to directors and their advisers that without careful adherence to an independent sales process and transaction structure, directors risk losing the liability protections that Delaware law otherwise provides.
The Sales Process
Pattern Energy was formed nine years ago by Riverstone Pattern Energy Holdings, L.P.(“Riverstone”), a private equity fund, for the purpose of operating renewable energy facilities developed by another Riverstone affiliate. (The summary of pertinent background facts is taken from the Chancery Court’s lengthy recitation of transaction found in its Order from pages 4 to 81.) Riverstone is not a Pattern Energy stockholder. Instead, plaintiffs alleged that Riverstone exercised control through Pattern Energy’s primary upstream supplier of energy projects (“Supplier”), which provided most of Pattern Energy’s business. Pattern Energy was itself a limited partner in Supplier, and Riverstone controlled Supplier. Importantly, the applicable partnership agreement prohibited Pattern Energy from selling its stake in Supplier without Supplier’s consent, although a transaction could potentially be structured to avoid triggering this consent right. This effectively gave Riverstone (through Supplier) a veto right on a sale of Pattern Energy’s stake in Supplier.
