In re Energy Transfer Equity L.P. Unitholder Litigation
CA 12197-VCG
| Del. Ch. | Mar 1, 2017Background
- Energy Transfer Equity, L.P. (ETE), an MLP, issued Series A convertible preferred units ("Convertible Units") on March 8, 2016 to a subset of accredited common unitholders in a private placement after a planned public offering was blocked by Williams (the would‑be merger counterparty).
- The Convertible Units altered distribution timing and rights relative to Common Units; most went to insiders (about 31.5% participation; Kelcy Warren received a large share). Amendment 5 to the Limited Partnership Agreement (LPA) was adopted concurrently to create and define the Convertible Units.
- Plaintiffs (common unitholders) allege the Offering (dissemination of the PPM) and Issuance were non‑pro rata "distributions" in breach of the LPA’s distribution rules and that the Conflicts Committee/Special Approval process to authorize the conflicted transaction was defective.
- Defendants contend the transactions were issuances of securities under Section 5.8 of the LPA (not "distributions"), and that conflicted elements were addressed via the Conflicts Committee and contractual safe harbors; they also argue certain LPA amendment powers permit Amendment 5.
- The Court denied cross‑motions for partial summary judgment, finding key questions (whether the actions were contractual "distributions," whether Special Approval complied with the LPA, and whether conflicted actions were "fair and reasonable") raise material factual disputes that require a developed trial record.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Offering and Issuance were a contractual "distribution" subject to pro‑rata rules | The PPM dissemination and March 8 Issuance allocated partnership value to some partners in their capacity as partners, so they are non‑pro rata distributions forbidden by the LPA | The transactions were exchanges for consideration — issuances of securities under Section 5.8 — not distributions; distributions mean gratuitous payments of partnership wealth | Denied: Court declined to decide as a matter of law; factual record unresolved on whether the transactions were effectively distributions or fair issuances |
| Whether Special Approval via the Conflicts Committee complied with the LPA | The Conflicts Committee was improperly constituted (two appointees were affiliates and not qualified); no valid majority Special Approval was obtained | Defendants say a one‑member committee (Williams) acted and rendered Special Approval; Special Approval is an optional safe harbor among alternatives | Denied: Court found material factual disputes about who constituted the committee and whether valid Special Approval occurred; further factual development required |
| Whether Amendment 5 (changing distribution regime and adding Convertible Units) was permissible under the General Partner’s amendment power (Section 13.1(g)) | Amendment 5 effected conflicted changes that violated LPA provisions and required proper conflicted‑transaction safeguards | Defendants assert Section 13.1(g) authorizes amendments necessary to issue securities and such amendments are permissible | Denied: Court rejected resolving under summary judgment because Section 13.1(g) amendments remain subject to good‑faith review (Section 7.9(b)) and facts are disputed |
| Whether conflicted transactions meet the LPA’s "fair and reasonable" standard (and other safe harbors) | Plaintiffs contend the process and terms were not fair and reasonable and no applicable safe harbor was satisfied | Defendants rely on safe harbors (Special Approval, market terms, fairness) and the Conflicts Committee review/financial advisor work | Denied: Court found questions of fact about process, conflicts committee conduct, and whether terms were fair and reasonable — trial needed |
Key Cases Cited
- Norton v. K‑Sea Transp. Partners L.P., 67 A.3d 354 (Del. 2013) (limited partnership agreements are contracts and construed to give effect to parties’ intent)
- Allen v. Encore Energy Partners, L.P., 72 A.3d 93 (Del. 2013) (each limited partnership agreement’s specific language controls; prior cases provide principles but not dispositive text)
- Shuba v. United Servs. Auto. Ass'n, 77 A.3d 945 (Del. 2013) (cross‑motions for summary judgment require absence of any genuine material fact dispute)
- Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728 (Del. 2006) (courts may consult dictionary and ordinary usage to interpret undefined contractual terms)