Suit Over Energy Transfer-Regency Deal Revived by Del. Court

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By Michael Greene

An investor got the green light to challenge Energy Transfer Partners’ acquisition of affiliate Regency Energy Partners LP, after the Delaware Supreme Court Jan. 20 revived his lawsuit alleging that the approximately $18 billion deal was tainted by conflicts ( Dieckman v. Regency GP LP , 2017 BL 16709, Del., No. 208, 2016, 1/20/17 ).

The state high court said that Adrian Dieckman raised sufficient doubts as to whether Regency’s general partner misled investors to secure their approval of the transaction.

The Jan. 20 ruling clarifies that even though limited partnership agreements can expressly waive fiduciary obligations, Delaware courts will read certain “obvious” terms into the agreements to protect investors.

An Energy Transfer representative told Bloomberg BNA that the company doesn’t comment on ongoing litigation. Dieckman’s law firm, Grant & Eisenhofer PA, didn’t immediately respond to a request for comment.

The Delaware Chancery Court dismissed Dieckman’s lawsuit in March 2016 after finding that safe harbor provisions in Regency’s limited partnership agreement had been triggered. The provisions bar investors from challenging a potentially conflicted transaction if the deal is ratified by a majority of unaffiliated investors.

In reversing, the Delaware Supreme Court found that there is an implied obligation to be honest with investors in order to obtain safe harbor approvals even if a partnership agreement doesn’t expressly include such a condition.

The state high court said that partnership agreements don’t usually include terms such as the promise that the general partner won’t lie to investors. “But the terms are easily implied because ‘the parties must have intended them and have only failed to express them because they are too obvious to need expression,’” it said.

Independence of Conflicts Committee

Regency was acquired by Energy Transfer in April 2015. Both entities were controlled by Dallas-based natural gas company Energy Transfer Equity LP before and after the transaction.

Dieckman alleged that Regency’s general partner failed to disclose that the directors who approved the transaction weren’t independent.

The investor claimed specifically that the chair of Regency’s two-member Conflicts Committee started reviewing the transaction while still a member of a separate affiliate’s board and was reappointed to that seat after the deal closed. The proxy statement by Regency’s general partner didn’t inform investors about the chair’s “overlapping and shifting allegiances,” he alleged.

To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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The decision is available at http://src.bna.com/lBN.

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