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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

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Showing 45 posts in LP Agreements.

Court Of Chancery Explains Interrelationship Of MLP Exculpation Clauses

Posted In LP Agreements

Morris v. Spectra Energy Partners (DE) GP, LP, C.A. 12110-VCG (June 27, 2017)

Master limited partnership agreements typically provide protection for the general partner who engages in a self-dealing transaction with the MLP. This decision reviews the existing precedent on how to apply those provisions, especially when a conclusive presumption of good faith is available to the GP. It also explains what language should be used to invoke at least the subjective standard of good faith that is most helpful to a GP using a conflicts committee. Hence, the decision is required reading for drafters of MLP agreements.

Court Of Chancery Explains What Are Direct Claims For An LP

Posted In LP Agreements

Sehoy Energy LP v. Haven Real Estate Group LLC, C.A. 12387-VCG (April 17, 2017)

It matters whether a claim may be characterized as a direct claim belonging to the owners of an entity or as a derivative claim that may only be brought in the name of the entity. This decision explains which is which in the context of a limited partnership.

Delaware Supreme Court Issues New Standards Governing Master Limited Partnership Cases

Posted In LP Agreements

Brinckerhoff v. Enbridge Energy Company, Del. Sup. C.A. 273, 2016 (March 20, 2017, revised March 28, 2017)

Agreements for limited partnerships, in particular for publicly-traded master limited partnerships, are notoriously complicated and often hard to understand, so much so that two of the state’s judges co-wrote a detailed article calling for more standardization in this area.  One consequence is that general partners in the MLP context may expose themselves to potential liability for decisions they thought protected by the partnership agreement’s terms, which often purport to eliminate common law fiduciary duties, replace them with a contractual duty to act in “good faith,” and provide safe harbors for conflict transactions.  This is another case where that may happen.   More ›

Court of Chancery Addresses Claims Involving Distributions In The Alternative Entity Context

Posted In LP Agreements

In re Energy Transfer Equity L.P. Unitholder Litig., Cons. C.A. No. 12197-VCG (Feb. 28, 2017), affirmed March 23, 2017

The case involves the issuance of certain convertible units offered to some, but not all, the limited partnership unitholders, and whether that offering and subsequent issuance violated provisions of the partnership agreement concerning distributions. While the Court of Chancery was unable to resolve the parties’ competing theories on summary judgment, the decision offers insight into how the Court will examine contractual distribution related claims in the alternative entity context.

Delaware Supreme Court Implies Duty Of Disclosure For Limited Partnership Conflicts Provision

Posted In LP Agreements

Dieckman v Regency GP LP,  No. 208, 2016 (January 20, 2017)

Agreements for publicly-traded limited partnerships often disclaim any fiduciary duties and provide safe harbors for transactions involving a conflict for the controller.  The safe harbor provisions frequently contain minimal disclosure requirements for any minority unitholder approval. All that is fine under Delaware law. However, when the controller asks the minority unitholders to approve a transaction under the safe harbor provision and does so in a fulsome proxy statement containing more than the minimal required disclosures, the controller must act fairly.  As the Court finds here, the safe harbor provisions of the agreement necessarily imply an obligation to be honest with the investors. That is a classic example of when the covenant of good faith and fair dealing applies.

Court Of Chancery Enforces Nearly Ironclad Safe Harbor For Conflict Transactions Involving Alternative Entity

Posted In LP Agreements, Special Committees

Employee Retirement Systems of the City of St. Louis v. TC Pipelines GP Inc., C.A. 11603-VCG (May 11, 2016)

This is an important decision because it enforces a nearly ironclad protection against any attack on the decision of a special committee to approve a conflict transaction for a LLP and an LLC. More ›

Court Of Chancery Explains What Is Required To Plead Bad Faith

Posted In LP Agreements

Brinckerhoff v. Enbridge Energy Company Inc., C.A. 11314-VCS (April 29, 2016)

This is an interesting decision for at least two reasons. First, in it the new Vice Chancellor demonstrates that he is both well-versed in Delaware business entity law and fully capable of carrying out the Court of Chancery’s tradition of well-written, comprehensive decisions. Second, the decision explains what is required to adequately allege the bad faith sufficient to overcome an LLP’s exculpatory provisions for a conflicted transaction. In general, the use of a special negotiation committee, receipt of an adequate fairness opinion and use of independent counsel are sufficient to overcome mere allegations that a transaction was approved in bad faith. There is no need to also submit the transaction to a majority vote of the entity’s owners, at least when the entity is a limited partnership and when the LLP agreement does not require such a vote.

Court Of Chancery Upholds Limits Of Disclosure Obligation

Posted In LP Agreements

Dieckman v. Regency GP LP, C.A. 11130-CB (March 29, 2016)

This is an interesting decision in the master limited partnership context because it shows how far a limited liability agreement may go to limit member rights to disclosures even in a conflicted deal. If the partnership agreement waives fiduciary duties and also states what disclosures are due to members asked to vote on a deal, then the specified disclosures are what they get, nothing more. Here the agreement stated that the members were to receive just the merger agreement.  Of course, the members still had the right to object to the merger and that at least gave them some say over the transaction.

Court Of Chancery Explains Partnership Distribution Rights And Power of GP

Posted In LP Agreements

ESG Capital Partners II L.P. v. Passport Special Opportunities Master Fund L.P,  C.A. 11053-VCL (December 16, 2015)

This is an interesting decision for 2 reasons. First, the Court explains what might have seemed obvious to most, that the LP agreement governs the rights of the limited partners to partnership distributions. Generally, each limited partner is to receive what each other similar limited partner receives and no side deal can alter what the LP agreement says in that respect. Second, the GP has only the rights to do what the partnership agreement says he can do. Thus, the GP cannot give some limited partners special privileges absent explicit authority to do so in the agreement.

Court Of Chancery Explains Scope Of Fiduciary Duty Waiver

Posted In LP Agreements

In Re Kinder Morgan Inc. Corporate Reorganization Litigation,  C.A. 10093-VCL (August 20, 2015)

This is a great explanation of the scope of the waiver of a general partner or other fiduciary’s duties under the terms of an LP agreement. More ›

Supreme Court Upholds Oral Resignation

Posted In LP Agreements
Biolase v. Oracle Partners L.P., No. 270, 2014 (June 12, 2014) This decision holds that a member of a board may resign orally and no writing is required to do so.

Court Of Chancery Explains How To Decide If The Implied Covenant Applies

Posted In LP Agreements
In re: El Paso Pipeline Partners L.P. Derivative Litigation, C.A. 7141-VCL (June 12, 2014) This is an important decision because it explains when to fill any contractual gaps with the duties imposed by the implied covenant to act in good faith and to deal fairly.  Of course, the short answer is the covenant rarely applies, but that does not explain how to figure out when it does. This decision looks to what the parties agreed to otherwise in analogous situations to see if the so-called gap should be filed by the covenant.  The basic question was did the GP have a duty to disclose material facts to a conflict committee absent any provision for that disclosure.  Reasoning in part that the LP agreement eliminated fiduciary duties that would have imposed such an obligation, the Court held there was no reason to add those duties back in by filling any "gap" that existed in the LP agreement as to such a duty.

Court Of Chancey Resolves Status Of Former GP

Posted In LP Agreements

Policemen's Annuity and Benefit Fund of Chicago, Illinois v. DV Realty Advisors LLC, C.A. 7204-VCN (November 27, 2013)

What is the status of a general partner in a Delaware limited partnership after that GP is removed? As this decision points out, the answer is not clear and it may be just a holder of an economic interest, but not a limited partner. That question can be resolved by a provision in the partnership agreement and that is the better course as it will then help to determine the former GP's buy out rights.

Court Of Chancery Again Affirms Use of Conflict Committee

Posted In LP Agreements

Natural Energy Development Inc. v. Shakespeare-One Limited Partnership, C.A. 4836-CS (July 22, 2013)

The Court of Chancery once again has affirmed that the proper use of a conflicts committee may immunize a transaction from attack.  This is now a common feature of LLP and LLC agreements but each agreement's terms are critical to its impact and its implementation.

Delaware Supreme Court Affirms Contractual Exculpation

Posted In LP Agreements

Norton v. K-Sea Transportation Partners L.P., No. 338, 2012 (May 28, 2013)

This decision affirms the consensus that a limited partnership agreement may set the standards for resolving a conflicted transaction and thereby absolve the controllers from any liability.