## Facts

- Joel A. Gerber owned limited partnership units in Enterprise GP Holdings, L.P. (EPE), a publicly traded Delaware master limited partnership in the oil and gas business.
- EPE’s general partner was Enterprise Products Holdings, LLC, controlled (with affiliates) by Dan L. Duncan.
- Gerber brought a putative class action challenging two affiliated transactions:
  - EPE’s 2009 sale of Texas Eastern Products Pipeline Company, LLC (Teppco GP) to an affiliate for $100 million after EPE had acquired it in 2007 for about $1.1 billion.
  - A 2010 triangular merger in which EPE was merged into a subsidiary of an affiliate, converting EPE units into affiliate units.
- The complaint alleged the transactions were conflicted, delivered inadequate value to public unitholders, and that the merger was structured to eliminate derivative claims arising from the 2009 sale.
- The EPE limited partnership agreement (LPA) eliminated traditional fiduciary duties and substituted a contractual “good faith” standard requiring a belief that the action was in the partnership’s best interest.
- The LPA provided contractual protections for conflicted transactions, including (i) a safe harbor if a conflicts committee granted “Special Approval,” and (ii) a conclusive presumption of good faith when the general partner relied on specified expert opinions.
- The Court of Chancery dismissed all claims under Rule 12(b)(6), concluding the LPA’s procedures and protections barred liability.
- On appeal, the Delaware Supreme Court affirmed in part, reversed in part, and remanded.

## Issues

1. Whether the LPA’s safe harbor and related exculpatory provisions barred claims for breach of express contractual duties and fiduciary duties arising from conflicted transactions.
2. Whether the LPA’s conclusive presumption of good faith also defeated an implied covenant of good faith and fair dealing claim as a matter of law.
3. Whether the complaint adequately pled an implied covenant breach and, if so, whether aiding-and-abetting and tortious-interference claims could proceed.

## Decision

- The Delaware Supreme Court affirmed dismissal of the express contractual and fiduciary duty claims, holding the LPA’s contractual standards and safe harbor protections, as invoked, foreclosed those theories on the pleadings presented.
- The court reversed dismissal of the implied covenant claim against the general partner, holding the conclusive-presumption provision did not bar implied covenant review.
- The court also reinstated related claims for aiding and abetting and tortious interference to the extent they depended on the revived implied covenant theory.
- The case was remanded for further proceedings on the surviving claims.

## Legal Principles

- Delaware alternative-entity agreements may modify or eliminate default fiduciary duties and replace them with contractual standards; courts generally enforce those provisions as written.
- Contractual safe harbors (including conflicts-committee “Special Approval”) can insulate conflicted transactions from liability for breach of express duties when the agreement’s conditions are satisfied and noncompliance is not well pled.
- The implied covenant of good faith and fair dealing is a mandatory, narrow gap-filling doctrine that cannot be waived or eliminated by contract.
- A contractual “conclusive presumption of good faith” tied to a defined contractual duty does not automatically defeat an implied covenant claim, which addresses conduct that frustrates the parties’ reasonable expectations without violating an express term.
- At the pleading stage, allegations that a general partner used contractual discretion and reliance-on-expert mechanisms in a manner that failed to account for value reasonably expected to be considered (including the treatment of potential claims) can state an implied covenant claim.

## Conclusion

The Delaware Supreme Court enforced the LPA’s exculpatory framework to bar express-duty and fiduciary-duty challenges to conflicted transactions, but held that the implied covenant remains an independent constraint; because the complaint plausibly alleged underhanded use of contractual discretion and fairness-opinion reliance to deny unitholders expected value, the implied covenant and related tort claims were allowed to proceed on remand.


Gerber v. Enter. Prods. Hldgs., LLC, 67 A.3d 400 (Del. 2013)