Delaware Chancery Court Finds Breach of Master Limited Partnership Agreement by General Partner for Failure to Evaluate Related Party Transaction Properly
In an April 20, 2015 memorandum opinion written by Vice Chancellor Laster, the Delaware Court of Chancery, in In Re El Paso Pipeline Partners, L.P. Derivative Litigation, found that the general partner of El Paso Pipeline Partners, L.P. (the “partnership”), a publicly traded master limited partnership (“MLP”), breached the partnership’s limited partnership agreement by improperly approving a related party transaction and ordered the general partner to pay $171 million in damages. The Court found that the independent directors serving on the conflicts committee of the general partner’s board of directors failed to form a subjective belief that a sale of assets from the partnership’s parent, El Paso Corporation (“parent”), to the partnership (a transaction commonly known as a “dropdown”) was in the best interests of the partnership, as required by the limited partnership agreement. Although the opinion is consistent with previous MLP cases in that the Court evaluated the conflicts committee’s actions under the express contractual provisions of the limited partnership agreement rather than traditional fiduciary duties applicable to directors in the corporate context, the opinion demonstrates that even when directors are subject to contractually limited fiduciary standards, their conduct will not be immune from scrutiny in conflict-of-interest transactions.