June 2020: Appellate Victory for OMERS Pension Fund in Delaware Supreme Court

The firm obtained a recent appellate victory in the Delaware Supreme Court on behalf of Canadian pension fund OMERS, which represents Ontario’s firemen, paramedics, and other municipal employees.  The dispute concerned the right to purchase a minority stake in OMERS’ joint venture in a Texas utility, Oncor.

In 2008, OMERS partnered with Singapore’s sovereign wealth fund, GIC, to purchase a 20% stake in Oncor.  OMERS’ entities Borealis Power Holdings Inc. and BPC Health Corporation (collectively, “Borealis”), and GIC’s entity Cheyne Walk, would each own 49.5% of the joint venture, Texas Transmission Holdings Corporation (“TTHC”).  The remaining 1% of TTHC was held by Hunt Consolidated.  The three owners of TTHC executed a shareholders agreement which provided each with a right of first offer (“ROFO”) over any sales of shares in TTHC.

TTHC is the sole owner of Texas Transmission Investment LLC (“TTI”), which in turn owned a 20% stake in Oncor.  The remaining 80% of Oncor is owned by energy giant Sempra. Sempra and TTI, as co-owners of Oncor, also have a shareholders agreement.  That agreement provides Sempra with a right of first refusal (“ROFR”) over TTI’s 20% stake in Oncor.  

In 2019, Hunt sought to sell its 1% stake in TTHC to Sempra.  While Cheyne Walk declined to exercise its ROFO, Borealis invoked its rights and sought to purchase the stake.  When Sempra and Hunt sought to close their transaction, Borealis sued in Delaware Chancery Court to enforce its superior purchase rights.

Quinn Emanuel argued at trial that Sempra’s ROFR, which by its plain language applied only to transfers of Oncor LLC units made by TTI, did not apply to a transfer by Hunt of its minority stake in TTHC.  Hunt’s sale of its equity in TTHC could not constitute a transfer by TTHC’s subsidiary TTI, nor were any Oncor LLC units being transferred.  Despite the plain language, however, Vice Chancellor Glasscock found that Sempra’s ROFR applied, and ordered that the sale of Hunt’s stake to Sempra be completed.

Borealis and Cheyne Walk appealed the decision, and on May 22, 2020, the Delaware Supreme Court reversed.  Although the Chancery Court is rarely overturned, here the Delaware Supreme Court issued a 5-0 ruling in favor of OMERS.  In an en banc opinion, the Delaware Supreme Court explained that by the plain language, Sempra’s ROFR applied only to sales by TTI and that “[t]o hold otherwise would be to impute the contractual intentions of a minority member of a company’s controller to the company itself—a result that runs contrary to settled corporate-law principles.”