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The Williams Companies, Inc. v. Energy Transfer Equity, L.P.

Court of Chancery of Delaware

April 16, 2018

The Williams Companies, Inc.
Energy Transfer Equity, L.P., et al.,

          Date Submitted: March 19, 2018

          Kenneth J. Nachbar, Esquire, Susan W. Waesco, Esquire, Matthew R. Clark, Esquire, Zi-Xiang Shen, Esquire, Morris, Nichols, Arsht & Tunnell LLP.

          Rolin P. Bissell, Esquire Tammy L. Mercer, Esquire James M. Yoch, Jr., Esquire Benjamin M. Potts, Esquire Young Conaway Stargatt & Taylor, LLP.

         Dear Counsel:

         The underlying action arose from a failed multi-billion-dollar merger between The Williams Companies, Inc. ("Williams") and Energy Transfer Equity, L.P. ("ETE"), both major participants in the energy pipeline business. That failure resulted in a number of legal actions, in this Court and elsewhere.[1] I initially heard this matter when Williams sought injunctive relief to force consummation of the Merger, which ultimately failed. Both parties thereafter pursued claims against each other in this action for contractual damages under the Merger Agreement. By Memorandum Opinion of December 1, 2017 (the "Memorandum Opinion"), I dismissed a portion of a counterclaim by ETE by which ETE sought a large breakup fee. I also dismissed ETE's claim for fees and costs incurred in Texas litigation, as damages for breach of a forum selection clause of the Merger Agreement. ETE now seeks reargument of those decisions.

         The Merger Agreement required the Board to enact four board recommendations, together known as the Company Board Recommendation, that approved the Merger and declared the Merger Agreement advisable to the stockholders. These were the resolutions necessary to consummate the Merger. The Board was forbidden to threaten or take action to withdraw, modify, or qualify the Company Board Recommendation in a way adverse to ETE. Any such action would lead to liquidated damages. I found that the Williams Board had not taken "formal" action―by which I meant action by the directors as a Board―committing any of the contractually forbidden actions. ETE's primary ground for reargument is that I misapprehended the facts regarding the Board's action, or misconstrued the contractual prohibition in light of the facts.

         ETE's second ground for reargument arises from my dismissal of a claim by ETE for expenses and fees incurred when Williams filed suit in Texas against a principal of ETE, allegedly breaching a forum selection clause. I dismissed the claim based on language in the Merger Agreement requiring all parties to bear their own fees and expenses in connection with the Agreement. ETE argues that my interpretation of this provision of the Merger Agreement is erroneous as a matter of law.

         I find that I did not misapprehend the law or the facts and accordingly deny the Motion for Reargument. My reasoning follows. In addition, I adopt the reasoning stated in the Memorandum Opinion.

         I. THE BREAK-UP FEE

         ETE's Motion for Reargument of its liquidated damages claim hinges on my interpretation of several provisions of the Merger Agreement. By way of brief background, according to ETE, changed economic conditions made the agreed-to union of Williams and ETE economically unattractive for both parties. Rather than renegotiate the Merger terms, Williams-in ETE's view-feigned fidelity to the Agreement, while working to undermine it, for the purpose of extorting a walk-away payment from ETE. Part of Williams' plan, presumably, was litigation in this Court seeking specific performance of the Agreement, which ETE successfully defended by invoking failure of a condition precedent. Nonetheless, ETE here claims that it was Williams that materially breached the Merger Agreement, entitling ETE to liquidated damages. In my Memorandum Opinion, I found this claim untenable.

         Section 4.02(d) of the Merger Agreement provides that:

Neither the Board of Directors of the Company nor any committee thereof shall (i)(A) withdraw (or modify or qualify in a manner adverse to Parent), or publicly propose to withdraw (or modify or qualify in a manner adverse to Parent), the Company Board Recommendation or (B) recommend the approval or adoption of, or approve or adopt, declare advisable or publicly propose to recommend, approve, adopt or declare advisable, any Company Takeover Proposal (any action described in this clause (i) being referred to as a "Company Adverse Recommendation Change").[2]

"Company Board Recommendation" is defined in Section 3.01(d)(i):

The Board of Directors of the Company duly and validly adopted resolutions (A) approving and declaring advisable this Agreement, the Merger and the other Transactions, (B) declaring that it is in the best interests of the stockholders of the Company that the Company enter into this Agreement and consummate the Merger and the other Transactions on the terms and subject to the conditions set forth herein, (C)directing that the adoption of this Agreement be submitted to a vote at a meeting of the stockholders of the Company and (D) recommending that the stockholders of the Company adopt this Agreement ((A), (B), (C) and (D) being referred to herein as the "Company Board Recommendation"), which resolutions, as of the date of this Agreement, have not been rescinded, modified or withdrawn in any way.[3]

ETE contends that the remedy for a breach of Section 4.02(d) is liquidated damages of $1.48 billion.[4]

         By contrast, Section 5.01(b) requires that Williams "shall use reasonable best efforts to obtain from its stockholders the Company Stockholder Approval in favor of the adoption of this Agreement."[5] The remedy for a breach of this provision is actual damages arising from the breach itself.[6] ETE alleges that Williams violated Sections 4.02(d) and 3.01(d)(i) through several actions described below. Williams denies any breach, and argues that ETE's allegations, at most, implicate Section 5.01(b).

         A. Alleged Actions

         ETE points to the following actions, individually and cumulatively, as breaches of Section 4.02(d):

         1. Press Releases

         ETE argues that the Williams Board used press releases "as a weapon to extract a walk-away payment" despite splits in opinion among the directors about the value of the Merger.[7] ETE tries to convert these facially positive statements into negative statements about the transaction by highlighting changes through time, such as:[8]

January 15, 2016 press release

April-May 2016 press releases

The [Williams Board] is unanimously committed to completing the transaction with Energy Transfer Equity, L.P. (NYSE: ETE) per the merger agreement executed on September 28, 2015 as expeditiously as possible and delivering the benefits of the transaction to Williams' stockholders.

The Williams Board is unanimously committed to enforcing its rights under the merger agreement entered into with ETE on September 28, 2015 and to delivering the benefits of the merger agreement to Williams' stockholders.

         ETE argues that the press releases from April to May 2016 violated Section 4.02(d) by omitting the "commit[ment] to complet[e] the transaction" language of the January press release. According to ETE, against a "backdrop" of internal director dissension, "the Williams Board's public statements regarding unanimity cannot be understood as anything but a litigation-driven attempt to obtain a walk-away payment."[9] ETE makes a similar argument for press releases issued by Williams regarding litigation in this Court and in Texas.[10]

         2. Media Campaign

         ETE alleges that Williams engaged in a "media campaign" against the Merger.[11] Williams purportedly did this by "planting media reports disfavoring ETE" through its attorney and through interactions with the Wall Street Journal by a Williams public relations employee.[12] ETE also contends that "Williams made a number of disparaging statements concerning ETE's management team in multiple public lawsuits and (upon information and belief) through its public relations firm, Joele Frank."[13] ETE argues that "Williams or its public relations consultant, Joele Frank, leaked confidential information to the media in a further effort to denigrate ETE and its managers."[14] To the extent these media statements disparaged Warren, ETE suggests they were especially egregious in light of the Form S-4 Williams filed regarding the Merger, which touted Warren's anticipated leadership of the combined entity.[15] ETE makes the same argument with respect to disparaging statements in various lawsuits, described below.

         3. Lawsuits

         In response to an issuance of equity by ETE during the pendency of the Merger, Williams sued Warren in Texas state court (the "Texas action"). The complaint-which ETE avers was approved by Williams' Board-described Warren as a "'malicious' executive who has 'exploited' his leadership position at ETE."[16] According to ETE, the litigation and its averments constitute a Company Adverse Recommendation Change. ETE makes a similar allegation regarding the Merger Actions filed in this Court, by which Williams sought to enforce the Merger Agreement, noting that filings by Williams accuse ETE of "sabotage, " "fabrication, " "illegitimate" avoidance of contractual obligations, and other unethical behavior.[17]ETE states that these "extreme and unnecessary descriptions are contrary to the Company Board ...

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