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Delaware Supreme Court Overturns $700 Million Award in Master Limited Partnership Litigation

Boardwalk Pipeline Partners L.P. v. Bandera Master Fund LP, C.A. No. 2018-0372 (Del. Dec. 19, 2022)
Delaware Master Limited Partnerships (MLPs) can structure their organization to permit maximum flexibility, including eliminating fiduciary duties and limiting investor rights to the four corners of the MLP agreement. At issue in this case was whether the partnership's general partner properly exercised a call right to take the partnership private. Under the partnership agreement, the general partner could exercise this right if it received an opinion from counsel acceptable to the general partner that certain changes in regulation would have a specific effect on the business.

At the trial court level, the Court of Chancery held that the general partner had improperly exercised the call right because the opinion from counsel had not been issued in good faith, the wrong entity in the partnership structure determined the acceptability of the opinion, and the general partner was not exculpated from damages under the partnership agreement. However, the Delaware Supreme Court reversed, holding that the proper entity determined the acceptability of the opinion of counsel, and that the general partner reasonably relied on another law firm's opinion in determining the acceptability of the opinion and therefore was conclusively presumed to have acted in good faith under the partnership agreement. The decision illustrates the application of well-established contract principles to the unique master limited partnership context.

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