Dieckman v. Regency General Partner Lp

155 A.3d 358 (2017)

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Nature of the Case

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Facts

P is a limited partner/unitholder in the publicly-traded master limited partnership (MLP). The general partner proposed that the partnership be acquired through merger with another limited partnership in the MLP family. The seller and buyer were indirectly owned by the same entity, creating a conflict of interest. P is a unitholder of Regency. The ETP and ETE boards met to discuss a merger between ETP and Regency. ETP eventually made a merger proposal to Regency, where Regency would be merged into ETP for a combination of cash and stock. Because of the undisputed conflicts of interest in the proposed merger transaction, D looked to the conflict resolution provisions of the LP Agreement. Under § 7.9(a) of the LP Agreement, the General Partner can resort to several safe harbors to immunize conflicted transactions from judicial review. D sought the protection of the safe harbors by Special Approval under § 7.9(a)(i) and Unaffiliated Unitholder Vote under § 7.9(a)(ii). D appointed Brannon and Bryant to the Conflicts Committee. P alleges that before the proposed transaction, Brannon was a Sunoco director. On January 16, 2015, ETE appointed Brannon to the General Partner's board, while still a director of Sunoco. P claims that, from January 16-20, while a member of both boards, Brannon consulted informally on the proposed transaction. According to the complaint, Brannon then temporarily resigned from the Sunoco board on January 20, and on January 22, became an official member of the Conflicts Committee when formal resolutions were passed creating the Committee. Brannon and Bryant then negotiated on behalf of Regency with ETP and recommended the merger transaction to the General Partner. On April 30, 2015, the day that the merger closed, Brannon was reappointed to the Sunoco board, and Bryant was also appointed to Sunoco board. The complaint also alleges that the Conflicts Committee retained a conflicted financial advisor, J.P. Morgan. J.P. Morgan was supposedly chosen by Regency's CFO, Long, and not by the Conflicts Committee. Because it was allegedly known that Long was expected to become the CFO of ETP GP LLC, P claims that J.P. Morgan was beholden to Long and would favor its long-term relationship with the Energy Transfer entities. The negotiations between the Conflicts Committee and ETP were ceremonial and only lasted a few days. The Conflicts Committee made a perfunctory and slightly increased counteroffer to ETP's offer, which would have achieved a 15% premium to the closing price of common units. ETP rejected the counteroffer, and the parties settled on ETP's opening bid of a 13.2% premium to the January 23 closing price. The Conflicts Committee recommended that the General Partner pursue the transaction on the original terms proposed by ETP, which the General Partner approved on January 25. The plaintiff alleges that the entire process from start to finish, lasted nine days. The proxy statement stated that the 'Conflicts Committee consists of two independent directors: Richard D. Brannon (Chairman) and James W. Bryant. It also stated that the Conflicts Committee approved the transaction, and such approval 'constituted 'Special Approval' as defined in the Regency partnership agreement. D sought to avoid the conflict by two of the safe harbor conflict resolution provisions of the partnership agreement-'Special Approval' of the transaction by an independent Conflicts Committee, and 'Unaffiliated Unitholder Approval.' A Conflicts Committee composed of independent members review the transaction and make a recommendation to the partnership board whether to approve the transaction. Unaffiliated Unitholder Approval is where a majority of unitholders unaffiliated with the general partner and its affiliates approve the transaction. Under the partnership agreement, if either safe harbor is satisfied, the transaction is deemed not to be a breach of the agreement. The partnership agreement required Conflicts Committee members be independent, meaning that its members could not be serving on affiliate boards and were independent under the audit committee independence rules of the New York Stock Exchange. The Court of Chancery held that, even though the proxy statement might have contained materially misleading disclosures, fiduciary duty principles could not be used to impose disclosure obligations on the general partner beyond those in the partnership agreement because the partnership agreement disclaimed fiduciary duties. P appealed. P argues that the Court of Chancery erred when it concluded that the general partner satisfied the Unaffiliated Unitholder Approval safe harbor because P alleged sufficient facts to show that the approval was obtained through false and misleading statements.