Reed Smith Client Alerts

In Borealis Power Holdings Inc. v. Hunt Strategic Utility Investment, L.L.C., the Delaware Supreme Court provides a helpful guide on interpreting language in an LLC agreement by parsing the sentence structure where a specific word appears in the agreement.1 In this case, the key word was “Transfer,” as in to transfer LLC units. Despite the “remarkably broad” and lengthy definition of the word in the agreement, the parties could not agree on its meaning.2 This opinion demonstrates the care and consideration the Delaware Supreme Court will apply when interpreting complicated contractual language.


This action involved a complex web of holding companies that ultimately own and control Oncor Electric Delivery Co. (Oncor).3 Approximately 80 percent of Oncor is held by Sempra Texas Holdings Corp. (Sempra).4 The remaining 20 percent is held by (i) Borealis Power Holdings, Inc. and BPC Health Corp. (collectively Borealis), (ii) Cheyne Walk Investment Ltd. (Cheyne Walk), and (iii) Hunt Strategic Utility Investment LLC (Hunt) through a holding company named Texas Transmission Investment LLC (TTI).5 Both Borealis and Cheyne Walk owned 49.5 percent of TTI and Hunt owned 1 percent.

Hunt sought to sell its holdings in TTI, which ultimately owns units of Oncor.6 Hunt’s sale of its equity interest potentially triggered conflicting rights stemming from two sources: (i) a right of first offer in the Texas Transmission Holdings Corporation Shareholders Agreement (the TTHC SA), which gives matching rights to Borealis and Cheyne Walk if Hunt seeks to transfer its interest in TTI; and (ii) a right of first refusal in Oncor’s Investment Rights Agreement (the IRA), which gives a right of first refusal to Sempra if TTI contemplates a transfer of its units in Oncor.7

Both Borealis and Sempra sought to purchase Hunt’s units in TTI.8 Borealis sought Hunt’s units because that would make Borealis the majority unitholder in TTI. Sempra wanted to purchase Hunt’s units because that would make Sempra the tiebreaker between Borealis and Cheyne Walk in decisions concerning TTI.

The Court of Chancery held on an expedited basis that Borealis’s purchase of Hunt’s shares constituted a “Transfer” under the IRA and triggered the requirement to offer the shares to Sempra.9 Because Sempra has the right to purchase the shares, and it seeks to exercise that right, selling to Borealis would breach the IRA.10 And because the TTHC SA prohibits transfers that breach the IRA, Sempra’s exercise of its right to purchase extinguished Borealis’s right to purchase.11 Consequently, the Court of Chancery found that Sempra was the only party with the right to purchase the Hunt shares and entered judgment in Sempra’s favor.12