Boardwalk Pipeline v. Bandera Master Fund LP
Annotate this CaseThe Boardwalk Master Limited Partnership's (“MLP”) limited partnership agreement (the “Partnership Agreement”) disclaimed the general partner’s fiduciary duties, and included a conclusive presumption of good faith when relying on advice of counsel. At issue in this appeal was whether Boardwalk’s general partner properly exercised a call right to take the Boardwalk MLP private. Under the Partnership Agreement, the general partner could exercise a call right for the public units if it received an opinion of counsel acceptable to the general partner that a change in FERC regulations “has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers.” The Boardwalk MLP general partner received an opinion of counsel from Baker Botts that a change in FERC policy met the call right condition. Skadden advised that: (1) it would be reasonable for the sole member, an entity in the Boardwalk MLP structure, to determine the acceptability of the opinion of counsel for the general partner; and (2) it would be reasonable for the sole member, on behalf of the general partner, to accept the Baker Botts Opinion. The sole member followed Skadden’s advice and caused the Boardwalk MLP general partner to exercise the call right and to acquire all the public units through a formula in the Partnership Agreement. The Boardwalk MLP public unitholders filed suit and claimed that the general partner improperly exercised the call right. In a post-trial opinion, the Delaware Court of Chancery concluded the general partner improperly exercised the call right because the Baker Botts Opinion had not been issued in good faith; the wrong entity in the MLP business structure determined the acceptability of the opinion; and the general partner was not exculpated from damages under the Partnership Agreement. After its review, the Delaware Supreme Court agreed with the Boardwalk entities that: (1) the sole member was the correct entity to determine the acceptability of the opinion of counsel; (2) that the sole member, as the ultimate decisionmaker who caused the general partner to exercise the call right, reasonably relied on Skadden’s opinion, and that the sole member and the general partner were therefore conclusively presumed to have acted in good faith in exercising the call right. Thus, the general partner and others were exculpated from damages under the Partnership Agreement. The Court of Chancery’s judgment was reversed and the matter remanded for further proceedings.
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