Document:  In re Encore Energy Partners LP Unitholder Litig., C.A. No. 6347-VCP (Del. Ch. Aug. 31, 2012)

The Delaware Court of Chancery granted defendants’ motion to dismiss plaintiffs’ claims that the general partner of a master limited partnership, Encore Energy Partners LP (the “Partnership”), and the general partner’s directors breached a contractual duty of good faith owed to the Partnership’s unaffiliated unitholders under the Partnership’s limited partnership agreement.  This action arose from the acquisition of the Partnership by Vanguard National Resources LLC (“Vanguard”) for consideration which represented a ten percent discount to the preannouncement trading price of the Partnership’s units.  At all relevant times, an affiliate of Vanguard served as the general partner of the Partnership and was the Partnership’s controlling unitholder.  Because the merger posed a conflict of interest, the general partner sought and obtained approval from its independent directors (collectively, the “Conflicts Committee”) pursuant to a provision in the Partnership’s limited partnership agreement absolving the general partner and its directors from liability for breach of any duty owed at law or equity to the Partnership’s unitholders in connection with a conflict transaction approved by the “Conflicts Committee acting in good faith.”  The Partnership’s limited partnership agreement defined the term “good faith” for these purposes as a determination or other action taken by any person based on the belief that “such determination or other action is in the best interests of the Partnership.”  Relying on precedent interpreting nearly identical language in a partnership agreement, the Court held that the plaintiffs’ claims would fail unless they showed that the Conflicts Committee members subjectively believed that they were acting against the Partnership’s best interests.  According to the Court, plaintiffs’ allegation that the Conflicts Committee was a shoddy negotiator did not meet this standard.