WILMINGTON, Del. (Legal Newsline) – On Oct. 23, the Court of Chancery of the State of Delaware ruled the McWane doctrine had no place in a case between previously linked companies over transactions of assets.
PPL Corp. and other related parties sued Riverstone Holdings LLC, Talen Energy Corp. and other parties. The case is very similar to one filed in Montana, where the now defendants sued several of the now plaintiffs in this current case.
Considering the similarities, the defendants filed a motion to dismiss or stay the litigation under Delaware’s McWane doctrine, which determines if a Delaware lawsuit should be dismissed or stayed in favor of a first-filed suit somewhere else.
Vice Chancellor Joseph R. Slights ruled on Oct. 23 to deny the Talen defendants' motion to dismiss with the exception of the count of breach of the implied covenant of good faith and fair dealing and denied Riverstone's motion to dismiss the claim for tortious interference.
Slights wrote, “McWane doesn’t apply because all plaintiffs in the Montana litigation, including non-parties to the separation agreement, are bound by that agreement’s mandatory Delaware forum selection clause. In addition, plaintiffs have well-pled the separation agreement is either directly implicated by the Montana claims or must be construed before the viability of the Montana claims can be determined.”
He added that since both sides agree that the current court is the only that can interpret the separation agreement, the claims in this case, even the ones concerning a breach of the agreement and requests for declaratory judgment, must move forward. Considering this, “plaintiffs’ attempt to plead a breach of the implied covenant of good faith and fair dealing based on defendants’ alleged breach of the separation agreement fails as a matter of law,” Slights wrote.
The issue of the dispute began when PPL Montana sold its hydroelectric assets to an unrelated third party in 2014. That deal came in at $904 million and the money was given to several PPL affiliates.
In the Montana case, the defendants argued that this distribution ruined PPL.
The next year, PPL “spun off certain of its assets to Talen,” according to the opinion, where Talen Montana was of the assets involved. Riverstone contributed assets to the spin, and took a 35 percent interest in the new Talen, leading it to obtain the remaining 65 percent it didn’t own when it took Talen private in 2016.
Despite Talen Montana still owning and operating two coal-fired power plants in Montana, the business is suffering financially, the ruling states. The plaintiffs allege it’s Riverstone’s fault for taking Talen private and not backing Talen Montana with financing.
The separation agreement later divided spin-related assets and liabilities into two separate areas: energy supply assets and liabilities, and excluded assets and liabilities. Under the agreement, Talen would get the energy supply assets and was responsible for the liabilities while PPL was set to keep the excluded assets and the related liabilities. The agreement also includes a forum selection clause that would select Delaware Court of Chancery as the only venue for disputes.
The Montana lawsuit started after Talen asked PPL’s CEO and general counsel to sit down with their peers at Talen and Riverstone board designee Ralph Alexander. Talen execs told PPL that Riverstone had plans to withdraw an extra $500 million from Talen and make PPL responsible for the distribution, the ruling states.. Meanwhile, Talen didn’t seek to use its right under the separation agreement that would call for PPL to provide more assets to Talen.
Three months later, PPL was sued in two different Montana lawsuits. One was a Rosebud County putative class action from Talen Montana creditors, and another was in Lewis and Clark County by Talen Montana.