Delaware Chancery Court Sanctions Waiver of Fiduciary Obligations

Delaware Chancery Court Sanctions Waiver of Fiduciary Obligations

      In what may be ultimately a quite important decision, the Delaware Court of Chancery has sanctioned a particular formulation as having clearly and therefore effectively waived fiduciary duties.  Hite Hedge LP v. El Paso Corp., Civ. Act. No. 7117- VCG (Oct. 9, 2012).

      This case involved a master limited partnership and allegations by certain of the limited partners that the general partner breached its fiduciary obligations in connection with its own acquisition.  When El Paso was acquired, the likelihood of continued “drop down” transactions from the limited partnership’s general partner was effectively eliminated.  As such, the limited partnership would not enjoy future opportunities for growth and appreciation.  The limited partners asserted, inter alia, that the general partner’s agreement to be acquired without, at minimum, an agreement that the acquirer would continue to do drop downs to the limited partnership, was a breach of fiduciary duty.

      In an amazingly short (the slip opinion runs to only 12 pages) decision, the Court of Chancery was able to dismiss that claim by reference to the language of the limited partners:

First, the Partnership Agreement, in plain and unambiguous terms, expressly eliminates any fiduciary duties owed by El Paso to EPB’s minority unitholders.  The Delaware Revised Uniform Limited Partnership Act, DRULPA, permits the elimination of fiduciary duties by contract where the intent to do so is explicit.  Section 7.9(e) of the Partnership Agreement does so, and the language is explicit:

Except as expressly set forth in this Agreement, neither the General Partner nor any other Indemnitee shall have any duties or liabilities, including fiduciary duties, to the Partnership or any Limited Partner or Assignee and the provisions of this Agreement, to the extent that they restrict, eliminate or otherwise modify the duties and liabilities, including fiduciary duties, of the General Partner or any other Indemnitee otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of the General Partner or such other Indemnitee.  Slip op. at 9, citations omitted, emphasis in original.

       We should expect that this language, having now been sanctioned by the Delaware Court, to be the touchstone upon which future agreements hoping to waive fiduciary duties are based.