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Chancery Finds Safe Harbor Conflicts Committee Not Validly Constituted in Master Limited Partnership Dispute

Dieckman v. Regency GP LP, C.A. No. 11130-CB (Del. Ch. Oct. 29, 2019).

The Dieckman v. Regency GP LP matter has been in the Delaware courts for several years.  The Court of Chancery originally dismissed the complaint attacking a conflicted merger transaction primarily on the ground that plaintiff had failed to plead that a unitholder approval safe harbor provision contained in the limited partnership agreement was inapplicable.  The Delaware Supreme Court reversed, holding that plaintiff had adequately pleaded that unitholder approval was secured by false and misleading information and, further, that approval by a Conflicts Committee was tainted by conflicts involving its members.  Plaintiff amended his complaint and, following briefing on a motion to dismiss, the Court of Chancery sustained plaintiff’s claim that the General Partner had approved the transaction even though members of its board did not believe that the transaction was in the best interests of the limited partnership.

In this latest opinion, following discovery, the Court granted partial summary judgment to plaintiff, finding defendants could not avail themselves of any safe harbor benefit from unitholder or Conflicts Committee approval.  The Court so held because (i) a member of the Conflicts Committee served on the board of an affiliate of the General Partner while serving on the Conflicts Committee, which rendered him not independent, and (ii) the proxy statement did not disclose that conflict, while wrongly stating that the Conflicts Committee’s approval had legal significance when it did not, since the Conflicts Committee was not free of conflicts itself.  The Court held those misstatements would have been material to a unitholder considering whether to approve the transaction. 

The case now proceeds to trial in part because the Court also denied the defendants’ motion for summary judgment.  Defendants had argued that the General Partner should be conclusively presumed to have acted in good faith because its board reasonably relied on an investment banker’s fairness opinion in approving the merger.  The Court, however, found a genuine issue of material fact existed as to whether the board in fact relied upon an investment banker’s fairness opinion in approving the merger transaction and, accordingly, denied defendants’ motion.