Caveat Emptor Still Rules The Day For MLPs
Just as a $700 million damages award and its accompanying sharp criticism of legal opinions garner headlines, so does reversal of that ruling. The Delaware Supreme Court closed out 2022 with its decision in Boardwalk Pipeline Partners, LP v. Bandera Master Funds LP, reversing the Court of Chancery’s sizeable post-trial award on narrow contractual grounds. The reversal is a substantial victory for the defendants. But for non-parties, of note was the Delaware Supreme Court’s decision to leave intact the trial court’s conclusions regarding law firm opinions. Taken together, both courts’ rulings offer meaningful guidance for parties and counsel negotiating complex transactions and considering inclusion of opinion of counsel conditions (or, attempting to satisfy such conditions in existing contracts).
The LPAC Strikes Back . . . When The Contract Says It Can
Many private equity partnerships utilize a limited partner advisory committee (“LPAC”) as a mechanism to approve certain transactions, particularly those where a potential conflict of interest could exist. While Delaware corporate law provides well defined rules for how a self-interested transaction can be cleansed by disinterested directors or shareholders in the context of a corporation, the rules are less well defined when it comes to conflicts of interest for partnerships including private equity funds established as limited partnerships. The decision from In re SunEdison, Inc. demonstrates that the LPAC’s role in approving conflicted transactions remains a case-by-case, contract specific analysis.
Court of Chancery Awards $700M In Opinion Highlighting Opinion Of Counsel Risks And Power Of Contra Proferentem Doctrine
Once in a while, a court decision provides not just guidance for participants in corporate transactions but also can serve as a wakeup call for the players’ legal advisors. Such is the case with the post-trial decision in Bandera Master Fund LP et al v. Boardwalk Pipeline Partners LP, in which Vice Chancellor Laster resolved various disputes regarding a transaction through which Boardwalk Pipeline Partners, LP (“Boardwalk”) was taken private by its controller, Loews Corporation (“Loews”). The resulting $700 million damages award, and sharp criticism of the legal opinions provided in support of the transaction, has garnered headlines, but the decision is also notable for its review of several long-standing principles of Delaware law that provide guidance for contract negotiations and litigation alike. (more…)
