Norton v. K-Sea Transportation Partners L.P.
67 A.3d 354
Del.2013Background
- K-Sea Transportation Partners L.P. merged with Kirby Corp.; K-Sea GP, KSGP, and K-Sea Board defendants allegedly benefitted from IDRs, creating conflicts of interest.
- Conflicts stem from a phantom-unit grant to Conflicts Committee members, which potentially tainted merger consideration.
- LPA allowed K-Sea GP to exercise merger discretion under a broad “sole discretion” standard, subject to good faith belief and contractual safe harbors.
- Stifel issued a fairness opinion deeming the consideration to unaffiliated unitholders fair; opinion did not address officer/director compensation fairness.
- Section 7.9(a) creates a conflicts-of-interest safe harbor rather than an affirmative obligation; Section 14.2 governs merger approval discretion; Section 7.10(d) and 7.10(b) shape good-faith standards and conclusive presumptions.
- Norton sued Counts I-III alleging fiduciary breaches related to the merger and conflicts; the Vice Chancellor dismissed, granting Rule 12(b)(6) relief; Court of Chancery affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does 14.2’s discretion standard trump 7.9(a)’s conflicts provision? | Norton argues 7.9(a) imposes a fair/reasonable standard that conflicts with 14.2 discretion. | K-Sea GP contends 7.9(a) is a permissive safe harbor, not an affirmative duty. | 14.2 controls; 7.9(a) is permissive safe harbor, not a mandatory obligation. |
| Does Section 7.9(a) impose an affirmative obligation to prove fairness? | Norton asserts Merger required fair/conflict resolution under 7.9(a). | Defendants argue 7.9(a) allows resolution if fair, but does not mandate fairness in every case. | 7.9(a) is a permissive safe harbor; does not impose an affirmative fairness duty. |
| Does reliance on the Stifel fairness opinion create a conclusive presumption of good faith? | Norton contends no presumption because IDR Payment not explicitly addressed. | 7.10(b) provides conclusive presumption when reliance on a competent expert’s opinion; Stifel addressed overall fairness. | K-Sea GP is conclusively presumed to have acted in good faith. |
| Do Norton’s remaining claims against the Board members and KSGP survive? | Board/KS GP caused GP to approve Merger despite potential conflicts. | GP’s good-faith presumption extends to Merger; others lack independent breach. | Claims against remaining defendants dismissed. |
Key Cases Cited
- Gelfman v. Weeden Investors., L.P., 792 A.2d 977 (Del.Ch. 2001) (conflict of interest provisions and discretionary standards interplay)
- Sonet v. Timber Co., L.P., 722 A.2d 319 (Del.Ch. 1998) (merger-discretion vs. conflict provisions; voting mechanics)
- In re General Motors (Hughes) S’holder Litig., 897 A.2d 162 (Del.2006) (implied covenant and fiduciary duties standards in mergers)
- SI Mgmt. L.P. v. Wininger, 707 A.2d 37 (Del. 1998) (contract interpretation and safe harbors in MLPs)
- Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 795 A.2d 1 (Del.Ch. 2001) (contractual safe harbor effects on fiduciary duties)