Allen v. El Paso Pipeline GP Company, L.L.C.
113 A.3d 167
Del. Ch.2014Background
- El Paso Pipeline Partners, L.P. (El Paso MLP) is a publicly traded Delaware limited partnership whose General Partner (owned by El Paso Parent) holds the 2% GP interest and all IDRs, giving the GP a rising share of incremental cash as distributions grow.
- On March 4, 2011 El Paso MLP purchased an additional 22% (then exercised option for 3% more) of Southern Natural Gas from El Paso Parent (the "Drop-Down"), financed largely by a public issuance of common units.
- The LP Agreement eliminated common-law fiduciary duties and authorized conflicted transactions if one of four contractual paths was followed; the GP chose Special Approval, requiring approval by a majority of an ad hoc Conflicts Committee that must act "in good faith" (defined subjectively as belief the transaction is in the best interests of the Partnership).
- The Conflicts Committee retained Tudor (financial) and Akin Gump (legal), met six times, received a fairness opinion from Tudor, and granted Special Approval; plaintiffs concede the Drop-Down benefited El Paso MLP as an entity and increased common-unit distributions.
- Plaintiffs allege the Conflicts Committee ignored the effects of IDRs and dilution (so the Drop-Down was insufficiently beneficial to unaffiliated limited partners), breached express LPA terms and the implied covenant, and that other defendants aided and abetted breaches. Court certified a class of common unitholders for the March 4, 2011 date.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether non‑GP defendants can be liable for breach of the LPA | Non‑GP board members aided or participated in breach | Only the General Partner is a party to the LPA; non‑parties cannot be sued for breach of contract | Judgment for non‑GP defendants — only the General Partner is party to the LPA |
| Whether Special Approval was invalid because Conflicts Committee acted in bad faith (express LPA claim) | Conflicts Committee disregarded IDRs/dilution and thus could not subjectively have believed the Drop‑Down was in Partnership's best interests | Committee members subjectively believed transaction benefited the Partnership; they consulted advisors and received Tudor opinion | Summary judgment for General Partner — no genuine issue that committee subjectively believed transaction was in the Partnership's best interests |
| Whether the implied covenant was breached by relying on a fairness opinion that did not address dilution to LPs | Tudor’s fairness opinion excluded ownership dilution and thus failed to value what LP unitholders actually received, invoking Gerber | The LPA’s Special Approval route forecloses importing an objective fairness‑opinion requirement; invoking the implied covenant would rewrite the contractual test | Implied covenant claim dismissed as inconsistent with Special Approval; Gerber construed as inapplicable beyond the distinct Conclusive Presumption context |
| Whether defendants (other than GP) can be liable for aiding and abetting a contractual breach | Third parties can be liable for aiding and abetting breaches of contractually defined duties | The LPA eliminated fiduciary duties and created purely contractual obligations; aiding‑and‑abetting breach of contract is generally not recognized | Aiding and abetting claims dismissed — no viable theory where LPA eliminated fiduciary duties and the claims are contractual |
Key Cases Cited
- Lonergan v. EPE Hldgs., LLC, 5 A.3d 1008 (Del. Ch. 2010) (explains IDRs and typical economic effects and tradeoffs for MLPs)
- Allen v. Encore Energy P’rs, L.P., 72 A.3d 93 (Del. 2013) (defines subjective "good faith" inquiry for conflicts committees under LPAs)
- Gerber v. Enter. Prods. Hldgs., LLC, 67 A.3d 400 (Del. 2013) (holds implied covenant can require fairness opinions to address specific valuation elements where LPA creates a conclusive‑presumption gap)
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (limits implied covenant where express contract terms cover the issue)
- Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160 (Del. 2002) (contract law principle that non‑parties to a contract generally cannot be sued for breach; discusses aiding and abetting in context of contractual fiduciary duties)