It’s fair to say that last year proved to be fertile ground for lawsuits among energy companies to spring up due to economic fallouts with other parties.
Energy trial lawyers might be so busy with 2020-triggered work that they have forgotten about an important, high-dollar dispute that is still unresolved from the 2015 energy pricing fallout that caused a $38 billion mega-merger to be called off.
Enter the five-year saga between Dallas-based Energy Transfer and Tulsa, Oklahoma-based The Williams Companies, who are about to face off in the final chapter of their nine-figure legal battle in the Delaware Court of Chancery. The parties and their lawyers begin a six-day trial Monday before Vice Chancellor Sam Glasscock III.
You may be experiencing a sense of déjà vu right now: Didn’t these parties already go to trial regarding their failed 2016 merger like five years ago?
The answer is yes, but that dispute — over whether Energy Transfer Equity (as it was known at the time) would be legally bound to carry the deal through — occurred in an expedited manner, days before the deadline to close the deal.
It left many more legal issues to brew into a rich, full-bodied dispute over the course of several years. Most notably, the second trial is about whether Energy Transfer will be required to reimburse Williams for the $410 million breakup fee it incurred when the deal fell through after ETE called off the merger. That doesn’t include the prejudgment interest, costs and attorneys’ fees that could get tacked on should Energy Transfer be found liable.
Energy Transfer, the defendant, brings its own counterclaims in the case, including that Williams purposely sabotaged the deal in an effort to get ETE to cough up the $410 million breakup fee.
Lawyers for Williams did not respond to requests for comment. Energy Transfer’s lead lawyer, Michael Holmes of Vinson & Elkins, said the dispute has been long-running and that his client looks forward to resolving the matter at trial.
The Background
ETE and Williams entered an all-stock merger agreement in September 2015 that at the time was valued at around $33 billion, including $6 billion in cash ETE agreed to pay. But after the oil prices tanked that fall, the burgeoning relationship between ETE and Williams began to crumble.
In the months that followed, Williams claims ETE quickly got buyer’s remorse and tried to get out of the deal, which included breaching key covenants of the parties’ merger agreement. Williams sued ETE in the spring of 2016 to try to compel a deal close, but after a two-day trial in June 2016 before Vice Chancellor Glasscock, the court ruled on June 24 that it would deny Williams’ request to enjoin ETE to close the transaction. On the closing date four days later, ETE backed out of the deal.
At the center of the 2016 trial was a tax opinion by ETE’s counsel, Latham & Watkins, that Latham said it was unable to deliver, which ETE said was a condition precedent to closing.
In determining who is on the hook for the $410 million breakup fee, Vice Chancellor Glasscock will assess in next week’s trial whether ETE wrongfully issued a private stock offering that was allegedly in violation of the merger agreement and whether ETE followed its own interests in the tax issue by not trying hard enough to resolve it in time for closing. Vice Chancellor Glasscock will also assess multiple counterclaims by ETE to determine whether he will issue declaratory judgments that ETE fully complied with its obligations, Williams materially breached its obligations and Williams is not entitled to the termination fee.
Who the Lawyers Are
Williams is being represented by Antony Ryan, Kevin Orsini and Michael Addis of Cravath, Swaine & Moore as well as Ken Nachbar, Susan Waesco, Matthew Clark and Zi-Xiang Shen of Morris, Nichols, Arsht & Tunnell.
Energy Transfer is being represented by V&E’s Holmes, John Wander, Craig Zieminski and Andy Jackson of the firm’s Dallas office, as well as Rolin Bissell, James Yoch and Alberto Chavez of Young Conaway Stargatt & Taylor.
Who is Testifying
Key witnesses anticipated to testify in the case from Williams include Chief Executive Officer Alan Armstrong, Senior Vice President and Chief Financial Officer Don Chappel and directors Keith Meister and Eric Mandelblatt. Energy Transfer executives on the witness list include Chief Executive Kelcy Warren, General Counsel Tom Mason and Executive Vice President and Head of Tax Brad Whitehurst.
But perhaps most notably, the companies’ outside tax lawyers are expected to testify at the trial, providing a rare peek into the normally off-limits communications between lawyer and client. Latham tax partners Tim Fenn of the firm’s Houston office and Larry Stein of the firm’s Los Angeles office are both on the witness list as ETE advisors. On Williams’ behalf, Cravath corporate partner Minh Van Ngo and tax partners Andrew Needham and Steve Gordon could get called to the witness stand.
Trial Details
That said, it’s not a guarantee that all of these witnesses will testify within earshot of the public. Because it’s a bench trial that will be entirely virtual, Vice Chancellor Glasscock said during a pretrial hearing Tuesday that he will review all lengthy video depositions on his own time.
The trial, which will be conducted over Zoom and orchestrated by legal services firm CourtScribes, is slated to last for six days. Each side has 18 hours to put on its case.
Similar to recent trials in U.S. District Judge Alan Albright’s court, there will be a telephone line that members of the public can dial into should they wish to follow along by audio only.
Don’t expect the testimony format to unfold like a typical jury trial in Texas. Court documents show that the parties have agreed that if one side calls an adverse witness, direct examination will occur first. For example, if Williams calls Kelcy Warren to the stand, ETE would handle the first round of questioning. On the flip side, the parties agreed that the scope of cross-examination will not be limited to the scope of the direct examination, leaving the door open for all kinds of topics to be covered.
Vice Chancellor Glasscock said during the pretrial hearing that the daily schedule will consist of six 60-minute sessions with 10-minute breaks, and a 50-minute lunch break.
What to Watch For
One of the most hotly contested issues anticipated to unfold at trial will be a spoliation issue that Energy Transfer has raised. In court documents, ETE argues it’s entitled to a spoliation presumption regarding misconduct by Williams’ Armstrong because he allegedly deleted evidence from a personal email account that proves he schemed to “thwart the merger agreement from the moment it was first proposed.”
ETE says the evidence includes nonpublic material information he fed to former Williams officer John Bumgarner that laid out why the merger was bad for Williams’ stockholders and how two of Williams’ directors obtained the necessary votes only after threatening the directors with legal action. ETE says Bumgarner then funneled this information to a Wall Street Journal reporter and used it in his federal securities lawsuit against Williams and ETE.
ETE’s filings say Armstrong denied existence of these communications, among others, in a 2016 deposition and deleted his personal email account that contained most of these communications two days after the depo.
Williams argues ETE’s spoliation argument is merely a “sideshow” and is only intended to distract the court from ETE’s own conduct.
“Nothing about Williams’ conduct permits ETE to avoid its failures to live up to its own contractual responsibilities,” Williams says in court documents. “ETE must pay Williams the reimbursement.”