Delaware Business Litigation Report

Court Of Chancery Explains How To Overcome Claim Of Subjective Good Faith

In Re: El Paso Pipeline Partners L.P. Derivative Litigation, C.A. 7141-VCL (April 20, 2015)

Limited partnership agreements often only require that the general partner act with subjective good faith in doing a deal with a parent entity. That is because the standard seems an easy one to meet. But as this decision shows all too well, even that lax standard has its limits and ignoring objective evidence of unfairness will expose the GP to liability. This decision shows how to use the evidence of past transactions to establish the objective unfairness of a newer deal.  Hence, it is a tale of how not to act.

The opinion is also interesting for the way it explains the duties of a fiduciary in valuing a proposal. Just because the deal is accretive from a cash flow or EPS prospective does not make it fair. That is an important point to remember.

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