Allen v. Encore Energy Partners, L.P.
2013 Del. LEXIS 378
| Del. | 2013Background
- The LPA for Encore Energy Partners LP contractors a contractual duty of subjective good faith replacing common law fiduciary duties.
- Section 7.9(a) provides four safe harbors for conflicts of interest, including Special Approval by a majority of the Conflicts Committee acting in good faith.
- The Conflicts Committee negotiated with Vanguard and engaged advisors during a six-week due diligence period before proposing a counteroffer.
- Vanguard controlled Encore GP and owned 46% of Encore, limiting the potential for an auction and enabling a specialized negotiation process.
- Plaintiff alleges Vanguard’s prior disclosures depressed Encore’s unit price and that the Conflicts Committee’s counteroffer and timing were not in Encore’s best interests.
- Special Approval ultimately approved the Merger, and the transaction closed with an exchange ratio below Vanguard’s initial offer, potentially impacting unitholders.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of the contractual duty of good faith | Allen argues subjective good faith governs; conduct below objective reasonableness may show breach. | Defendants contend only the subjective belief matters under the LPA; the court should accept the committee’s belief. | Subjective good faith governs; need for inference of belief in Encore’s best interests. |
| Effect of Special Approval on potential breaches | Special Approval should not immunize potential bad-faith actions or value-depressing disclosures. | Special Approval immunizes conduct that the Conflicts Committee acted upon in good faith. | Special Approval precludes claims related to the Merger itself; disclosures and other conduct are not independent breaches. |
| Pleading standard for subjective bad faith | Allegations show weak counteroffer and perceived mispricing imply bad faith. | Pleading must show the directors consciously disregarded their duty or acted against Encore’s interests. | Allegations fail to show conscious disregard or lack of subjective belief; no breach pled. |
| Relation between subjective standard and objective factors | Objective metrics (media of Jefferies, etc.) should inform bad-faith inference. | Subjective belief controls; objective metrics inform credibility but do not establish breach. | Objective factors may inform credibility but do not establish subjective bad faith. |
| Impact of the LPA’s exculpation provision | Court does not reach beyond finding no breach; exculpation does not create independent claims. |
Key Cases Cited
- Norton v. K-Sea Transp. P'rs L.P., 67 A.3d 354 (Del. 2013) (belief in best interests standard; safe harbor context)
- Gerber v. Enterprise Prods. Holdings, LLC, 67 A.3d 400 (Del. 2013) (conclusive presumption of good faith when relying on expert opinion)
- K-Sea Transportation P’rs L.P., 67 A.3d 354 (Del. 2013) (structural analysis of good-faith duties and reliance on fair opinion)
- Brinckerhoff v. El Paso Pipeline GP Co., 67 A.3d 369 (Del. 2013) (concerning conclusive vs. rebuttable presumptions of good faith)
- Lyondell Chemical Co. v. Ryan, 970 A.2d 235 (Del. 2009) (intentional dereliction constitutes bad faith under fiduciary duty)
- In re General Motors (Hughes) S’holder Litig., 897 A.2d 162 (Del. 2006) (fiduciary duty standards and business judgment context)
- In re Atlas Energy Res., LLC, 2010 WL 4273122 (Del. Ch. 2010) (contextual considerations in conflict-transaction analyses)
- In re Encore Energy P’rs LP Unitholder Litig., 2012 WL 3792997 (Del. Ch. 2012) (precedent on subjective good faith and Special Approval)