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Delaware Court Validates Regency-ETP Merger With $1.6B Defense Win

February 17, 2021 Natalie Posgate

A Delaware court this week handed a trial defense win to Energy Transfer in a dispute that stemmed from the 2015 mega-merger between ET companies Regency Energy Partners and Energy Transfer Partners, clearing the defendants of $1.6 billion in possible damages. 

The plaintiff, Regency common unitholder Adrian Dieckman, represented a class of investors that alleged the defendants breached Regency’s partnership agreement by employing an unfair and invalid process and by forcing Regency to enter an unfair transaction. 

The Regency-ETP merger, which closed at a value close to $20 billion, was part of a series of roll-up transactions that the Energy Transfer family of master limited partnerships underwent to simplify its corporate structure. 

In a 129-page opinion issued Monday, the Delaware Court of Chancery ruled that the defendants proved that the merger was fair and reasonable, that the plaintiff failed to prove the general partner acted in bad faith or engaged in willful misconduct or fraud and that the plaintiff failed to prove its damages, calling the damages model an “apples-to-oranges analysis” that was “unreliable.” 

Vinson & Elkins partner Michael Holmes, the lead attorney for the defendants, told The Texas Lawbook that the ruling is important because it “provides a good blueprint for how to go about a fairness case,” provides a guide for “how courts will look at agreements” that involve MLPs and provides thoughtful guidance for how to “think about damages in a stock for stock transaction,” which he says is a topic that “hasn’t been addressed too often.”

The entire fairness standard is the highest level of scrutiny that a Delaware court can use when giving a corporate transaction judicial review. Because of that, defendants usually find it too daunting of a burden to prove to take all the way to trial. 

“There are other entire fairness cases that have gone to trial, but not many because of the high level of scrutiny, and sometimes, plaintiffs throw out big damage models in discovery, [which] has the not-coincidental result of coaxing the defendants into settling,” said Holmes. 

Lawyers for the plaintiff did not immediately respond to a request for comment.

The long-awaited opinion followed a December 2019 trial in Delaware and a convoluted procedural history that presented various hurdles for the defendants to jump over after the parties began litigating in 2015. 

Delaware Chancellor Andre Bouchard initially dismissed the plaintiff’s claims in 2016, but the lawsuit was renewed the following year when the Delaware Supreme Court reversed the dismissal. 

In April 2019, the court granted partial summary judgment to the plaintiff that found Regency’s conflicts committee and unitholder approval were invalid because Richard Brannon served on the conflicts committee to Regency’s board while he was serving on the board for another entity in the Energy Transfer umbrella of companies. Had the court ruled the other way for either finding, it would have precluded the transaction from judicial review.

The parties squared off in December 2019 for a five-day trial (which Holmes says is considered a long trial in Delaware Chancery Court), and, after a Covid-19 delay, they delivered their post-trial arguments remotely in May 2020. 

The V&E team defending Energy Transfer at trial also included John Wander, Craig Ziemenski, Jeff Crough, Meredith Jeanes, Virginia DeBeer, Lyndsey Pryor, Tom Mitsch and Will Stripling. All are based in Dallas except Stripling, who is based in Austin.

Local counsel was Rolin Bissell, Tammy Mercer and James Yoch from the Young Conaway firm. 

The plaintiff’s Delaware and New York-based team included Jeroen van Kwawegen, Gregory Varallo and Edward Timlin from Bernstein Litowitz Berger & Grossmann; Christine Mackintosh, Vivek Upadhya and Michael Bell from Grant & Eisenhofer.

Natalie Posgate

Natalie Posgate covers pro bono work, public service and diversity within the Texas legal community.

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