Delaware Supreme Court Applies Good Faith Obligation to MLP General Partner in <em>Dieckman</em>--But We Believe the Decision Will Have Limited Impact on GPs

Delaware Supreme Court Applies Good Faith Obligation to MLP General Partner in Dieckman--But We Believe the Decision Will Have Limited Impact on GPs


By: Abigail Pickering Bomba, Warren S. de Wied, Aviva F. Diamant, Steven Epstein, Arthur Fleischer, Jr., David J. Greenwald, Scott B. Luftglass, Philip Richter, Robert C. Schwenkel, Peter L. Simmons, Gail Weinstein

In Dieckman v. Regency (Jan. 20, 2017), the Delaware Supreme Court, reversing the Court of Chancery, refused to dismiss, at the pleading stage, the plaintiff MLP unitholder's claims against a general partner that had relied on safe harbor provisions in the master limited partnership agreement to approve a merger between the MLP and one of the general partner's affiliates. The Supreme Court found that, although the MLP agreement (as is typical) disclaimed all fiduciary duties of the general partner, the implied covenant of good faith and fair dealing applied to the general partner's actions in obtaining safe harbor approvals of the conflicted transaction. Some have commented that the decision could have significant consequences for general partners. In our view, however, the decision does not suggest that the Supreme Court intends to expand application of the implied covenant of good faith to general partners' actions more generally. Rather, we believe that the opinion is limited to establishing that the Court will view a general partner as having breached the implied covenant of good faith when the general partner engaged in “misleading or deceptive conduct” that undermined the (typically minimal) protections afforded to unitholders in an MLP agreement.  In the attached Fried Frank M&A Briefing, we discuss the case and offer related practice points.

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