## Facts

- Regency Energy Partners LP was a publicly traded master limited partnership whose general partner was indirectly controlled by Energy Transfer Equity, L.P. (ETE).
- In 2015, the general partner proposed a unit-for-unit merger in which Energy Transfer Partners, L.P. (ETP), another ETE-controlled MLP, would acquire Regency, creating a conflict of interest because buyer and seller shared indirect control.
- The partnership agreement eliminated common-law fiduciary duties and substituted contractual conflict-resolution “safe harbors,” including:
  - “Special Approval” by a conflicts committee of independent directors of the general partner; and
  - “Unaffiliated Unitholder Approval” by a majority of unaffiliated unitholders.
- The general partner sought both safe harbors by obtaining conflicts committee approval and then soliciting unaffiliated unitholder approval via a proxy statement.
- Dieckman, a Regency unitholder, alleged the conflicts committee was not independent under the agreement because a committee member (Richard Brannon) served on the board of an ETP-controlled affiliate when appointed, resigned after appointment, and rejoined that board on the merger’s closing date.
- Dieckman also alleged the proxy statement contained materially misleading disclosures by portraying the conflicts committee as independent and the process as robust while omitting facts showing the committee failed the agreement’s independence criteria.

## Issues

1. Whether the general partner could invoke the partnership agreement’s safe harbors at the pleading stage despite allegations that Special Approval was obtained from a non-independent conflicts committee and Unaffiliated Unitholder Approval was procured through misleading disclosures.
2. Whether the implied covenant of good faith and fair dealing applies to the safe-harbor framework to prohibit conduct that undermines the protections those approvals are intended to provide, notwithstanding the agreement’s elimination of fiduciary duties and limited express merger-disclosure language.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery’s dismissal of Counts I and II and remanded.
- The Court held the complaint adequately pled that neither safe harbor was available because:
  - Special Approval was allegedly obtained using a conflicts committee that did not satisfy the contract’s independence requirements; and
  - Unaffiliated Unitholder Approval was allegedly obtained through false and misleading proxy disclosures.
- The Court concluded the Court of Chancery erred by treating the dispute as controlled solely by the agreement’s narrow merger-disclosure clause rather than by the function of the conflict-resolution provisions and the implied covenant’s application to them.

## Legal Principles

- In alternative-entity agreements that eliminate fiduciary duties, the implied covenant of good faith and fair dealing may still operate to prevent a party from using contractual mechanisms in a manner that defeats the bargain’s expected protections.
- Where a partnership agreement provides a safe harbor conditioned on approval by unaffiliated unitholders, and the general partner seeks that approval through a proxy solicitation, an obligation not to mislead unitholders may be implied as part of obtaining the contractual approval.
- A safe harbor based on conflicts committee approval depends on a committee constituted in compliance with the agreement’s independence criteria; alleged manipulation or noncompliance can render “Special Approval” ineffective at the pleading stage.
- The implied covenant does not reinstate eliminated fiduciary duties; it fills contractual gaps to prevent conduct that would frustrate the intended operation of expressly negotiated conflict-resolution protections.

## Conclusion

The court held that, even with fiduciary duties disclaimed, a general partner cannot obtain contractual safe-harbor protection for a conflicted MLP transaction by using a conflicts committee that fails the agreement’s independence requirements or by securing unaffiliated unitholder approval through misleading proxy disclosures, because the implied covenant prohibits undermining the safe harbors’ protective purpose.


Dieckman v. Regency GP LP, 155 A.3d 358 (Del. 2017)