Court of Chancery Finds Committee Did Not Believe Dropdown Transaction Was in the Best Interests of MLP
On Apr. 20, 2015, the Court of Chancery issued its opinion after trial in the El Paso Pipeline Partners L.P. derivative litigation. Plaintiffs challenged a “dropdown” transaction whereby the parent corporation (“Parent”) in a master limited partnership (“MLP”) structure sold interests in two of its subsidiaries to the limited partnership (“El Paso MLP”), and the Court found that the general partner, in engaging in the transaction with Parent, had violated the El Paso MLP limited partnership agreement. The Court held that a committee of independent members of the general partner’s board (the “Committee”) who approved the transaction (i.e., giving “special approval” in the terminology of the limited partnership agreement) failed to form the requisite subjective belief that the dropdown transaction was in the best interests of El Paso MLP. The opinion closely examined the Committee’s process and offers important lessons to conflicts committees and their advisors both as to the process and as to the appropriate factors that a committee should consider in approving or disapproving a dropdown transaction for an MLP.
Click here to download the Morris Nichols analysis of the order.