Document: Gerber v. Enterprise Products Holdings, LLC, et al., C.A. No. 5989-VCN (Del. Ch. Jan. 6, 2012)
The Delaware Court of Chancery granted defendants’ motion to dismiss fiduciary and tort claims arising from the sale by Enterprise GP Holdings, L.P. (“EPE”) of its interest in a subsidiary to an affiliate and the subsequent merger of EPE into a wholly-owned subsidiary of such affiliate. EPE’s partnership agreement provided that EPE’s general partner would not breach any fiduciary duty by entering into a transaction, in which the interests of the general partner and the limited partners were not aligned if the transaction was approved by a majority of the members of the Audit and Conflicts Committee of EPE (the “Special Approval”) or satisfied one of three additional methods of resolving conflicts. The transaction at issue had received the Special Approval, and the Court found that the Special Approval provision was effective to contractually modify the general partner’s fiduciary duties. The Court further stated: “[w]hen a contract confers discretion on one party, the implied covenant [of good faith and fair dealing] requires that the discretion be used reasonably and in good faith.” Thus, according to the Court, the general partner had a duty, under the implied covenant, to act in good faith if it took advantage of the Special Approval process. However, the Court upheld a contractual presumption of “good faith.” Under the partnership agreement, the general partner was entitled to a presumption of good faith in making decisions if, among other things, it relied on a fairness opinion in determining to proceed with a conflict transaction. Here, the general partner received a fairness opinion from Morgan Stanley, and the Court declined to test the presumption. The Court noted that the implied covenant was a “gap-filler” and could not be used to infer provisions that contradicted the clear language of the contract.