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Del. Supreme Court reverses ruling on stockholder suit in ETP/Regency merger

Limited unit holders in Regency Energy Partners LP deserve to have their conflict-of-interest case following the partnership's acquisition by Energy Transfer Partners LP reheard, the Delaware Supreme Court ruled Jan. 20.

The court overruled a Chancery Court decision that held that Regency's general partner informed limited partners properly about the impact of the 2015 takeover offer by ETE. The court noted that several members of the conflicts committees for the buyer, ETE, and seller, Regency, were the same people.

"The Court of Chancery was correct that the implied covenant of good faith and fair dealing cannot be used to supplant the express disclosure requirements of the partnership agreement," the Delaware Supreme Court said in its opinion. "But the court focused too narrowly on the partnership agreement's disclosure requirements. Instead, the center of attention should have been on the conflict resolution provision of the partnership agreement."

The decision has no impact on the already completed merger. Spokesmen for ETE were not immediately available for comment.

The Delaware Supreme Court ruled that limited partners had a direct interest in the makeup of the conflicts committee and that interest should be heard by the courts. "The partnership agreement's conflict resolution provision is a powerful tool in the general partner's hands because it can be used to shield a conflicted transaction from judicial review," the judges wrote. "But the conflicts resolution provision also operates for the unitholders' benefit. It ensures that, before a safe harbor is reached by the general partner, unaffiliated unitholders have a vote, or the conflicted transaction is reviewed and recommended by an independent Conflicts Committee."

The case heads back to the Chancery Court.