BASF Corp. v. POSM II Properties Partnership, L.P., (Del. Ch., Mar. 3, 2009), read opinion here.

Kevin Brady, a highly respected Delaware litigator,  prepared the following review of the case.

In this Chancery Court  decision, Vice Chancellor Strine dismissed an action brought by BASF Corporation, seeking to withdraw from defendant POSM II Limited Partnership, L.P. and have its interest in the Partnership bought out. The Court concluded that “the plain language of the withdrawal provision [in the agreement] does not entitle BASF to have its interest bought out simply because Lyondell has experienced a change of control. Rather, BASF only has the right to withdraw if Lyondell or one of its affiliates is no longer operating the plant.”

Under the Partnership Agreement, BASF had a contractual right to withdraw if Lyondell Chemical Company (or one of Lyondell’s affiliates) no longer operated the Partnership’s chemical plant in Texas. In its complaint, BASF argued that the December 2007 purchase of Lyondell, which was then a public company, by Basell AF S.C.A. changed this situation and triggered BASF’s contractual right to have its interest in the Partnership bought out by the general partner, POSM II Properties. BASF claimed that the buy out was triggered either because: (1) Lyondell had experienced a change in control which meant that Lyondell was no longer operating the chemical plant; or (2) LyondellBasell Industries AF S.C.A., Lyondell’s new parent company, was operating the Plant rather than Lyondell. Defendant POSM II Properties and the Partnership argued that the partnership agreement gave BASF no rights upon a change in control of Lyondell and that BASF had not adequately pled that Lyondell no longer operated the plant.

Vice Chancellor Strine in a 22-page opinion, agreed with the defendants. In referring to the specific section of the agreement, the Court noted:

Section 14(b) is only triggered if POSM II Properties ‘becomes aware that the Plant no longer is to be operated by [Lyondell] or its Affiliates.’ On its face, this asks a simple question: is Lyondell or one of its affiliates operating the Plant? Notwithstanding this obvious interpretation, BASF advances a strained reading of § 14(b) to argue that a change in control of the operator of the Plant means that there was a change in the operator itself.

Vice Chancellor Strine then noted that if BASF (or its predecessor in the agreement) wanted language consistent with what it was arguing for, it could have done that using a method that is “far more straightforward that § 14(b); it involves a change of control provision that vests certain rights in one contractual party if the other experiences a change of control as defined by the contract.”

In a theme that has become all too common in the Court of Chancery recently, Vice Chancellor Strine noted that if the parties to the agreement had reached a bargain to give BASF a right to walk away and be bought out upon a change of control, “one would have expected them to use the common technique and do that explicitly.”

Delaware law does not invest judicial officers with the power to creatively rewrite unambiguous contracts in this manner. By its plain terms, § 14(b) is not a change of control provision. Although § 14(b) contains the phrase “change in operation,” § 14(b) is not concerned with any and all changes in operation, but only a specific, albeit important, change. Section 14(b) is only triggered in the event that “the Plant no longer is to be operated by [Lyondell] or its Affiliates.” Putting to the side the question of whether LyondellBasell is an affiliate of Lyondell, the mere fact that Lyondell now has a single stockholder — LyondellBasell — rather than a disaggregated group of public stockholders, does not mean that Lyondell has stopped operating the Plant within the meaning of § 14(b).

With respect to the second issue raised by BASF — that LyondellBasell — Lyondell’s parent company — now operates the Plant, rather than Lyondell itself, Vice Chancellor Strine found that BASF had failed to meet its burden because of its “conclusory allegations” that were not supported by any pled facts.