Dieckman v. Regency GP LP, Regency GP LLC
155 A.3d 358
| Del. | 2017Background
- Plaintiff Adrian Dieckman, a limited partner in publicly traded Regency Energy Partners (Regency), challenged a merger between Regency and affiliated Energy Transfer entities, alleging conflicts of interest in how approval safe harbors were obtained.
- The Regency limited partnership agreement (LPA) contained conflict-resolution safe harbors: (i) Special Approval by an independent Conflicts Committee and (ii) Unaffiliated Unitholder Approval by a vote of unaffiliated common unitholders.
- The Conflicts Committee was required to be composed of directors unaffiliated with the General Partner and to meet NYSE audit-committee independence standards.
- Dieckman alleged the two-person Conflicts Committee was conflicted: one member began evaluating the deal while still on an affiliate (Sunoco) board, resigned days later to join the committee, and was reappointed to the affiliate board on the merger closing date; committee advisors (J.P. Morgan) were also allegedly conflicted.
- The General Partner issued a 165‑page proxy that described the Conflicts Committee as "independent" and stated it had given Special Approval; unaffiliated unitholders voted to approve the merger. Dieckman alleges the proxy was materially misleading and that the Special Approval process was subverted.
- The Court of Chancery dismissed the complaint, finding the LPA displaced fiduciary duties and that the LPA’s express minimal disclosure obligation precluded implying broader disclosure duties; it held Unaffiliated Unitholder Approval insulated the merger. The Supreme Court reversed dismissal, holding the implied covenant can bar using misleading conduct to obtain safe harbors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the LPA’s safe-harbor approvals are effective if obtained through misleading or deceptive conduct | Dieckman: safe harbors are unavailable if obtained through false/misleading statements or subversion of the Conflicts Committee process | Defendants: express LPA terms control; fiduciary duties were waived and minimal disclosure obligations cannot be supplemented by implied duties | Held: implied covenant can bar using misleading or deceptive conduct to procure safe harbors; plaintiff pled sufficient facts that safe harbors were unavailable |
| Whether the implied covenant of good faith can supply disclosure or conduct obligations when the LPA disclaims fiduciary duties and has a narrow disclosure clause | Dieckman: implied covenant should prevent conduct that frustrates LPA’s conflict-resolution protections (e.g., misleading proxy) | Defendants: express waiver and specific disclosure requirement leave no role for implied covenant | Held: implied covenant may imply obvious conditions necessary to give reasonable effect to safe-harbor provisions (e.g., no misleading conduct to secure approvals) |
| Whether the Conflicts Committee satisfied the LPA’s independence requirement | Dieckman: committee members were not independent at relevant times (overlap with affiliate boards, post-closing reappointments, advisor conflicts) | Defendants: committee satisfied LPA formal requirements; committee approval suffices | Held: factual allegations plausibly show committee lacked genuine independence for pleading-stage purposes; Special Approval may thus be unavailable |
| Whether the proxy’s alleged misrepresentations preclude the Unaffiliated Unitholder Approval safe harbor | Dieckman: proxy materially misled unaffiliated unitholders about the committee’s independence, vitiating the vote’s protective effect | Defendants: LPA’s narrow disclosure requirement (copy/summary of merger agreement) displaced broader disclosure duties; vote stands | Held: by issuing a proxy to obtain the vote and safe harbor, the General Partner assumed an implied obligation not to mislead; plaintiff’s allegations suffice to survive dismissal |
Key Cases Cited
- Nemec v. Shrader, 991 A.2d 1120 (Del. 2010) (describing scope and application of implied covenant of good faith and fair dealing)
- Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434 (Del. 2005) (explaining implied covenant applies when a party acts arbitrarily or unreasonably to frustrate contract's fruits)
- Bank of New York Mellon v. Commerzbank Capital Funding Trust II, 65 A.3d 539 (Del. 2013) (construes ambiguous public partnership agreements to effect investors' reasonable expectations)
- Winshall v. Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013) (standard of appellate review; contract interpretation principles)
- Norton v. K‑Sea Transp. Partners L.P., 67 A.3d 354 (Del. 2013) (construing partnership agreements against the drafter to protect later investors' expectations)
- SI Mgmt., L.P. v. Wininger, 707 A.2d 37 (Del. 1998) (uses contra proferentem principles in public partnership agreement interpretation)