Delaware Business Litigation Report

Court Of Chancery Nails Down "Good Faith" By A Conflicts Committee

In re: Encore Energy Partners LP Unitholder Litigation, C.A. 6347-VCP (August 31, 2012)

Delaware limited partnership agreements frequently have provisions governing how to deal with conflict of interests between the GP, the limited partners and the owners of the GP.  This decision sets out the language needed to protect the GP and its owners from attacks in conflict transactions when the deal is approved by a conflicts committee.  If the committee acts in the subjective good faith belief the transaction is in the best interests of its constituency, an attack alleging objective unfairness will be dismissed.

This then may be the definitive guide to drafting limited partnership agreements.  And while the Court recognizes that the decision offers little protection for limited partners, it points out that is part of the risk they bear when they invest in such LPs.

This decision was affirmed on July 22, 2013.

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