Dieckman v. Regency GP LP, Regency GP LLCAnnotate this Case
The plaintiff was a limited partner/unitholder in a publicly-traded master limited partnership (“MLP”). The general partner proposed that the partnership be acquired through merger with another limited partnership in the MLP family. The seller and buyer were indirectly owned by the same entity, creating a conflict of interest. The general partner in this case sought refuge in two of the safe harbor conflict resolution provisions of the partnership agreement: “Special Approval” of the transaction by an independent Conflicts Committee, and “Unaffiliated Unitholder Approval.” The plaintiff alleged in its complaint that the general partner failed to satisfy the Special Approval safe harbor because the Conflicts Committee was itself conflicted. The general partner moved to dismiss the complaint and claimed that, in the absence of express contractual obligations not to mislead investors or to unfairly manipulate the Conflicts Committee process, the general partner need only satisfy what the partnership agreement expressly required: to obtain the safe harbor approvals and follow the minimal disclosure requirements. The Court of Chancery “side-stepped” the Conflicts Committee safe harbor, but accepted the general partner’s argument that the Unaffiliated Unitholder Approval safe harbor required dismissal of the case. The court held that, even though the proxy statement might have contained materially misleading disclosures, fiduciary duty principles could not be used to impose disclosure obligations on the general partner beyond those in the partnership agreement, because the partnership agreement disclaimed fiduciary duties. On appeal, the plaintiff argued that the Court of Chancery erred when it concluded that the general partner satisfied the Unaffiliated Unitholder Approval safe harbor, because he alleged sufficient facts to show that the approval was obtained through false and misleading statements. The Supreme Court determined that the lower 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 Supreme found that the plaintiff pled sufficient facts, that neither safe harbor was available to the general partner because it allegedly made false and misleading statements to secure Unaffiliated Unitholder Approval, and allegedly used a conflicted Conflicts Committee to obtain Special Approval. Thus, the Court reversed the Court of Chancery’s order dismissing Counts I and II of the complaint.