Contractual Standard of Review Satisfied

Michael P. Maxwell
Business Law Today

In Dieckman v. Regency GP LP et al., 2021 WL 537325 (Del. Ch. Feb. 15, 2021), the Delaware Court of Chancery resolved a longstanding dispute involving Regency Energy Partners LP (the “Partnership”) and its general partner (the General Partner”) with certain of the Partnership’s unitholders (“Plaintiffs”) for claims of breaches of the Partnership's limited partnership agreement (the “LPA”) in connection with a merger pursuant to which Energy Transfer Partners L.P. (“ETP”) acquired the Partnership (the “Merger”). At the time of the Merger, ETP and the General Partner, were under common control. In prior decisions it was found that the approvals of the Merger by a conflicts committee and a majority of unaffiliated unitholders did not satisfy the safe harbors under the conflict provision of the LPA because the conflicts committee was not properly constituted and the unaffiliated unitholders relied on a proxy statement that contained inadequate disclosures.  Although the safe harbors approval mechanisms of the LPA did not apply, the conflict provision also contained “standards of review that provided that, among other things, a conflict of interest would not be a breach of the LPA or of any duty if such conflict of interest was fair and reasonable to the Partnership.  

In the current opinion, the Court determined that the contractual fair and reasonable standard was the appropriate standard of review, similar to the “entire fairness” standard, and that notwithstanding certain deficiencies that existed in connection with the approval process for the Merger, defendants demonstrated that the Merger was fair and reasonable to the Partnership and its unitholders.  It also found that although the deficiencies in the special approval and unitholder approval processes resulted in breaches of the implied covenant of good faith and fair dealing, the Plaintiffs failed to prove that the General Partner acted in bad faith or engaged in willful misconduct or fraud and therefore the General Partner was exculpated from monetary damages under the LPA The Court entered judgement in favor of the defendants.  

This article was originally published by Business Law Today in March 2021 and can be read here.

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