The Williams Companies, Inc. v. Energy Transfer LP

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

THE WILLIAMS COMPANIES, INC., )
)
Plaintiff and )
Counterclaim Defendant, )
)
v. ) C.A. No. 12168-VCG
)
ENERGY TRANSFER LP, formerly )
known as ENERGY TRANSFER )
EQUITY, L.P., and LE GP, LLC, )
)
Defendants and )
Counterclaim Plaintiffs. )
)
)
THE WILLIAMS COMPANIES, INC., )
)
Plaintiff and )
Counterclaim Defendant, )
)
v. ) C.A. No. 12337-VCG
)
ENERGY TRANSFER LP, formerly )
known as ENERGY TRANSFER )
EQUITY, L.P., ENERGY TRANSFER )
CORP LP, ETE CORP GP, LLC, LE GP, )
LLC and ENERGY TRANSFER )
EQUITY GP, LLC, )
)
Defendants and )
Counterclaim Plaintiffs. )

MEMORANDUM OPINION

Date Submitted: March 4, 2020
Date Decided: July 2, 2020
Kenneth Nachbar, Susan Waesco, Matthew Clark, and Zi-Xiang Shen, of MORRIS,
NICHOLS, ARSHT & TUNNELL, Wilmington, Delaware; OF COUNSEL: Antony
Ryan, Kevin Orsini, and Michael Addis, of CRAVATH, SWAINE & MOORE LLP,
New York, New York, Attorneys for Plaintiff and Counterclaim Defendant The
Williams Companies, Inc.

Rolin Bissel, James Yoch, Jr., and Benjamin Potts, of YOUNG CONAWAY
STARGATT & TAYLOR, LLP, Wilmington, Delaware; OF COUNSEL: Michael
Holmes, John Wander, Craig Zieminski, and Andy Jackson, of VINSON & ELKINS
LLP, Dallas Texas, Attorneys for Defendants and Counterclaim Plaintiffs Energy
Transfer LP, formerly Energy Transfer Equity, L.P.; Energy Transfer Corp LP; ETE
Corp GP, LLC; LE GP, LLC; and Energy Transfer Equity GP, LLC.

GLASSCOCK, Vice Chancellor
 This matter involves a failed merger between two fuel pipeline giants,

Plaintiff/Counterclaim Defendant The Williams Companies, Inc. (“Williams”) and

Defendant/Counterclaim Plaintiff Energy Transfer LP (“ETE”). That merger, slated

to close four years ago, foundered on the shoal of a declining energy market. ETE

made no secret of the fact that it wanted to avoid the deal, and—as ETE tells it, at

least—Williams saw the merger agreement primarily as an opportunity to leverage

a settlement to consent to a breakup. Williams, however, sought specific

performance of the merger agreement. Fortunately for ETE, the cash-plus-equity

structure of the consideration together with the rapid decline in the value of ETE

units (which fell in consort with the general energy industry decline) meant that its

tax advisor could no longer certify that the merger would qualify as tax free. Since

the parties had agreed in the merger agreement that such an opinion was a condition

precedent to closing, I denied Williams’ request to specifically enforce the merger

agreement via closing, after an expedited proceeding, on June 24, 2016.1 The failure

of the merger was bruising to both sides, and they sought to dress their wounds with

the balm of contractual damages; thus, this litigation proceeded. By a second

1
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 2016 WL 3576682 (Del. Ch. June 24, 2016),
aff’d, 159 A.3d 264 (Del. 2017).
Memorandum Opinion dated December 1, 2017, I dismissed in part ETE’s

counterclaim seeking a contractual breakup fee.2

Before me now are cross-motions for summary judgement concerning part of

Williams’ contractual damages claims. Williams, in order to enter the merger

agreement with ETE, had to exit another transaction, which caused it to incur a cost

of $410 million. Williams and ETE allocated the risk that this payment might prove

valueless if the Williams-ETE merger failed to go through. They provided that, if

either party terminated the merger for reasons including the passing of an outside

date (which occurred here due to the failure of the tax-free condition), and ETE was

not at that time in compliance with one of several other contractual mandates, ETE

would reimburse Williams the $410 million. This Memorandum Opinion addresses

whether ETE is liable for that reimbursement, under the record as it now exists.

While I am not able to resolve all remaining issues without a trial record, I am able

to address and clarify the contractual obligations of the parties, as I interpret the

merger agreement. My reasoning is below.

2
Williams Cos., Inc. v. Energy Transfer Equity, 2017 WL 5953513 (Del. Ch. Dec. 1, 2017)
reargument denied 2018 WL 1791995 (Del. Ch. Apr. 16, 2018).

2
 I. BACKGROUND 3

A. The Parties

Plaintiff and Counterclaim Defendant Williams is a Delaware corporation

with headquarters in Tulsa, Oklahoma. 4

Defendant and Counterclaim Plaintiff ETE, formerly known as Energy

Transfer Equity, L.P., is a Delaware limited partnership with headquarters in Dallas,

Texas.5 Defendant and Counterclaim Plaintiff ETE Corp GP, LLC (“ETE Corp”) is

a Delaware limited liability company. 6 Defendant and Counterclaim Plaintiff LE

GP, LLC (“LE GP”) is a Delaware limited liability company and the general partner

of ETE. 7 Defendant and Counterclaim Plaintiff Energy Transfer Equity GP, LLC

(“ETE GP”) is a Delaware limited liability company. 8 Defendant Energy Transfer

Corp LP (“ETC”) is a Delaware limited partnership taxable as a corporation.9 ETC

3
I recite the facts necessary to my decision of the cross-motions for summary judgment. A more
complete recitation may be found in Williams Cos., Inc. v. Energy Transfer Equity, L.P., 2016 WL
3576682 (Del. Ch. June 24, 2016), aff’d, 159 A.3d 264 (Del. 2017). I draw the facts below from
the evidence submitted under affidavit with the parties’ papers. I also draw facts from the prior
decision in this case, affirmed by the Delaware Supreme Court. See Cinerama, Inc. v. Technicolor,
Inc., 663 A.2d 1156, 1174 (Del. 1995) (holding that factual findings uncontested in appeal become
law of the case).
4
Williams, 2016 WL 3576682, at *2.
5
Id.
6
Id.
7
Id.
8
Id.
9
Id. at *1.

3
is the entity into which Williams planned to merge. 10 I refer to these Defendants and

Counterclaim Plaintiffs collectively as “ETE.”

B. Factual Background

1. Williams and ETE Agree to Merge

ETE offered to purchase Williams in an all-equity deal on May 19, 2015.11

After four months of negotiations, the parties signed the Agreement and Plan of

Merger (the “Merger Agreement”).12 The transaction the parties ultimately

negotiated (the “Merger”) included cash as well as equity components: the surviving

company would own 57% of the limited partner interest of ETE; ETE would own

the Williams assets and 19% of the surviving company’s shares; and former

Williams stockholders would “receive a right to consideration consisting of (1) ETC

shares representing approximately 81% of the surviving entity; (2) $6.05 billion in

cash; and (3) certain contingent consideration rights.”13

As a condition to its offer, ETE required that Williams terminate a roll-up

transaction to which Williams had committed with its master limited partnership,

10
Id.
11
Id.
12
Id.; Transmittal Aff. of Matthew R. Clark in Support of Pl.’s and Countercl.-Def.’s Mot. for
Partial Summ. J., D.I. 460 (“Clark Aff.”), Ex. 1, Agreement and Plan of Merger dated as of
September 28, 2015 (“Merger Agreement”).
13
Williams, 2016 WL 3576682, at *3. Getting to this final result required several complex steps
aimed at achieving a tax-free transaction. The deal mechanics, not at issue here, are described in
detail in Williams, 2016 WL 3576682, at *3–4.

4
Williams Partners, L.P. (“WPZ”) on May 12, 2015.14 Terminating that roll-up

transaction required Williams to pay WPZ a $410 million termination fee.15 Thus,

as a part of the Merger Agreement, the parties negotiated that if either party

terminated the Merger Agreement under certain conditions, ETE would reimburse

Williams in the same amount Williams had paid to WPZ to extract itself from the

roll-up transaction: $410 million (the “WPZ Termination Fee Reimbursement”).16

2. The Market Declines and ETE Issues New Equity

In late 2015, shortly after the parties executed the Merger Agreement, the

energy market “experienced a precipitous decline.” 17 The decline made the Merger

far less attractive to ETE, and it sought a way out. 18

One effect ETE feared if the Merger had negative consequences was that it

would have to cut distributions to maintain cash flow in order to prevent its credit

rating from dropping. 19 Distributions to equity holders, however, are the raison

d’etre of ETE’s business model. 20 To resolve the issue, it proposed an offering of

14
Clark Aff., Ex. 6, at -1680566.
15
Clark Aff., Ex. 5, Agreement and Plan of merger dated as of May 12, 2015 by and among The
Williams Companies, Inc., SCMS LLC, Williams Partners L.P., and WPZ GP LLC, § 7.6(a).
16
Merger Agreement, § 5.06(f).
17
Williams, 2016 WL 3576682, at *1.
18
Id.
19
See Clark Aff., Ex. 9, at -67801; Clark Aff., Ex. 11, Dep. of Thomas Long date Dec. 3, 2019, at
11:20–13:12.
20
See In re Energy Transfer Equity, L.P. Unitholder Litig., 2018 WL 2254706, at *4 (Del. Ch.
May 17, 2018) (discussing the Merger and noting the possibility of distribution cuts “spelled
5
convertible preferred units (“CPUs”) to ETE unitholders, while excluding Williams’

stockholders (the “Public Offering”). 21 The holders of the CPUs would receive

guaranteed but deferred distributions, allowing ETE to preserve cash. Williams

informed ETE that it believed such an offering would violate certain operating

covenants under the Merger Agreement, and that the offering therefore required

Williams’ consent.22 Williams believed that the Public Offering would hurt

Williams stockholders because it would allow ETE to cut common distributions to

nothing while still permitting distributions to participating ETE unitholders.23 As a

result of this belief, the Williams board of directors declined to consent to the Public

Offering.24

ETE then made a private offering of Series A Convertible Preferred Units (the

“Preferred Offering”) largely similar to the Public Offering that Williams had

rejected, but which, in ETE’s view, did not require Williams’ consent.25 The

trouble for ETE . . . ETE distributed all of its available cash to unitholders every quarter. Thus,
ETE depended on access to capital markets to fund its growth. Because credit ratings determine
access to credit and the cost of debt, it was particularly important for the ETE family of companies
to maintain its ratings.”).
21
Clark Aff., Ex. 17.
22
Clark Aff., Ex. 19, at -1697936.
23
Clark Aff., Ex. 20, at -51439; Clark Aff., Ex. 10, Dep. of Garner dated Dec. 12, 2019, at 289:10–
290:10; Clark Aff., Ex. 21, Dep. of Gary Posternack dated Oct. 24, 2019, at 115:6–17, 357:9–
358:9.
24
Clark Aff., Ex. 23, at -22330.
25
See Clark Aff., Ex. 24.

6
maximum potential value of the Preferred Offering was $942,508,720.26 ETE

informed Williams of the Preferred Offering after it completed. 27 The Preferred

Offering operated in the same way as the Public Offering, allowing participating

ETE units to receive a guaranteed distribution, regardless of distributions to non-

participating units.28 This meant that following the Merger, ETE could potentially

cut distributions to all common unitholders (including former Williams

stockholders), while participating unitholders—the majority of whom were ETE

insiders—would continue to receive guaranteed (but deferred) distributions. 29

Before ETE signed the Merger Agreement, it had three classes of equity. 30

The Preferred Offering represented a fourth class of equity in addition to the three

26
Transmittal Aff. of Benjamin M. Potts in Support of Defs.’ and Countercl. Pls.’ Opening Br. in
Support of Mot. for Summ. J., D.I. 463 (“Potts Aff.”), Ex. 8, Rebuttal Aff. of J.T. Atkins on Behalf
of Energy Transfer Equity, LP, and LE GP, LLC, ¶¶ 23, 32; see Potts Aff., Ex. 21, at 2 (ETE Form
8-K dated March 8, 2016 summarizing issuance).
27
Clark Aff., Ex. 25, Dep. of John W. McReynolds dated Oct. 8, 2019, at 191:11–15; Clark Aff.,
Ex. 26, Dep. of David A. Katz dated Oct. 29, 2019, at 67:9–17 (“Katz Dep.”); Clark Aff., Ex. 18,
Dep. of Donald Chappel dated Nov. 6, 2018, at 149:4–11.
28
See Clark Aff., Ex. 24 (ETE Form 8-K dated March 8, 2016 describing Preferred Offering). The
distribution was in the form of units, distribution of which would be deferred. An explanation of
the operation of these rather complex securities can be found in In re Energy Transfer Equity, L.P.
Unitholder Litig., 2018 WL 2254706, at *5–8 (Del. Ch. May 17, 2018) aff’d sub nom. Levine v.
Energy Transfer L.P., 223 A.3d 97 (Del. 2019).
29
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 2016 WL 3576682, at *4 (Del. Ch. June 24,
2016) (describing ETE’s intent to cut cash distributions to common unitholders due to the Merger
and the effect of such a distribution cut); Clark Aff., Ex. 27, at 266–67 (ETE SEC Form S-4 noting
participation by ETE’s CEO, co-founder, and other insiders in the Preferred Offering).
30
Merger Agreement, § 3.02(c)(i).

7
pre-existing classes.31 Issuing the Preferred Offering necessitated ETE amending its

limited partnership agreement.32

3. Williams’ and ETE’s Actions Prior to the Closing Date

Both Williams and ETE took actions prior to the Merger’s expected closing

date (the “Closing Date”) that the other party describes as violations of the respective

“reasonable best efforts” obligations to consummate the Merger. Among other

things, the parties had conditioned closing on the receipt of an opinion from ETE’s

tax counsel, Latham & Watkins LLP (“Latham”), that the transaction would qualify

for tax-free treatment under Section 721(a) of the Internal Revenue Code (the “721

Opinion”). 33 After the market’s decline reversed ETE’s interests in the deal, ETE’s

Head of Tax, Brad Whitehurst, reviewed the transaction and began to think that it

might not qualify for tax-free treatment. 34 Although at the time, no one else—

31
Clark Aff., Ex. 45, Private Placement Memorandum, at -199834 (ETE Private Placement
Memorandum filed with SEC representing that “Convertible Units will be a new class of units
representing limited partner interests. . .”); Clark Aff., Ex. 46, Amendment No. 5 to Third
Amended and Restated Agreement of Limited Partnership of Energy Transfer Equity, L.P., at 1
(Amendment to ETE’s limited partnership agreement describing Preferred Offering as a “new
class of units representing limited partner interest. . .”); Clark Aff., Ex. 47, Form 10-K, at F-7
through F-8 (ETE 2016 Form 10-K describing four classes of equity).
32
See Clark Aff., Ex. 46, Amendment No. 5 to Third Amended and Restated Agreement of Limited
Partnership of Energy Transfer Equity, L.P., at 1 (Amendment No. 5 to ETE’s Third Amended
and Restated Agreement of Limited partnership, adopted March 8); Williams, 2016 WL 3576682,
at *4.
33
Merger Agreement, § 6.01(h).
34
Williams, 2016 WL 3576682, at *6.

8
including Latham and Williams’ counsel—had advanced this view, Whitehurst

brought the issue to Latham’s attention.35

When it became apparent the issue was a real one that could potentially relieve

ETE of its obligation to close, ETE made little to no effort to resolve it or find a

workaround. After trial in 2016, I found that ETE “did not direct Latham to engage

earlier or more fully with Williams’ counsel, failed itself to negotiate the issue

directly with Williams, failed to coordinate a response among the various players,

went public with the information . . . and generally did not act like an enthusiastic

partner in pursuit of consummation” of the Merger Agreement.36

Williams now offers new evidence in addition to that already established at

trial in 2016 that suggests ETE’s lack of effort. The evidence indicates a possibility

that contrary to Whitehurst’s testimony, one of his subordinates, Darryl Krebs, in

fact uncovered the tax issue that ultimately led to the Merger’s failure. 37 Krebs and

Whitehurst’s correspondence on the potential inability to close the Merger describes

it as a “silver lining” and a possible “opportunity.” 38 Additionally, attorneys at

Wachtell, Lipton, Rosen & Katz (“Wachtell”) who acted as ETE’s deal counsel and

35
Id.
36
Id. at *17.
37
Transmittal Aff. of Zi-Xiang Shen in Support of The Williams Companies, Inc.’s Br. in Opp’n
to Defs.’ and Countercl.-Pls.’ Mot. for Summ. J., D.I. 479 (“Shen Aff.”), Ex. 82, Dep. of Darryl
A. Krebs dated Oct. 25, 2018, at 97:6–98:18, 100:7–102:8.
38
Shen Aff., Ex. 83, at -294226.

9
advisors, expressed serious skepticism regarding Latham’s recently-adopted

position on the tax issue, but ETE never asked Wachtell to communicate with

Latham or evaluate Williams’ proposals to resolve the issue.39

For its part, ETE alleges that Williams’ CEO, Alan Armstrong, attempted to

extract Williams from the Merger, and that he took various obstructive actions

toward that end. ETE alleges that Armstrong, without Williams’ knowledge, fed

inside information to a Williams stockholder, John Bumgarner, to assist with

litigation attempting to enjoin the merger. 40 Bumgarner sued the parties in federal

court in January 2016, asserting violations of the Securities and Exchange Act and

seeking an injunction.41 Armstrong never told the Williams board of directors about

his alleged assistance to Bumgarner.42 Two weeks prior to the 2016 trial in this

Court, Armstrong deleted his personal email account that he used to communicate

39
Shen Aff., Ex. 87, Dep. of T. Eiko Stange dated Oct. 26, 2018, at 105:22–106:6, 109:11–112:18,
120:6–23, 128:5–15 (Wachtell attorney testifying regarding his skepticism of Latham’s
perspective on the tax issue), 204:10–15 (testifying that ETE had not asked Wachtell to form an
opinion on Latham’s reasoning), 233:21–234:8 (testifying he was not asked to review Williams’
proposals to resolve the issue); Shen Aff., Ex. 88, at -42729 (Internal Wachtell email date April 7,
2016 expressing skepticism of Latham’s position).
40
Transmittal Aff. of Benjamin M. Potts in Support of Defs.’ and Countercl. Pls.’ Response to
Pl.’s Mot. for Partial Summ. J., D.I. 481 (“Potts Response Aff.”), Ex. 2, Dep. of Meister dated
Nov. 4, 2019 (“Meister Dep.”), at 309:8–22, 327:17–23; Potts Response Aff., Ex. 3, Dep. of Laura
Ann Sugg dated Nov. 22, 2019, at 36:23–37:7; Potts Response Aff., Ex. 4, Dep. of Alan Armstrong
dated Oct. 24, 2019 (“Armstrong Dep.”), at 186:22–187:3, 242:22–243:1, 270:16–24, 273:15–24.
41
Potts Response Aff., Ex. 9, Class Action Compl., at ¶¶ 1, 46.
42
Meister Dep, at 209:8–16, 327:17–23.

10
with Bumgarner.43 Ultimately, Bumgarner’s lawsuit was mooted when this Court

permitted ETE to terminate the Merger.

In addition to Armstrong’s actions with Bumgarner, ETE submits evidence

that Armstrong initially withheld information about ETE’s interest in acquiring

Williams from the Williams’ board, thus allowing it to enter the transaction with

WPZ and commit to a substantial breakup fee without this knowledge.44 ETE

contends that Armstrong thus used the WPZ transaction as a form of “poison pill”

against ETE’s advances. 45 After the Williams board nonetheless determined to sign

the Merger Agreement, Armstrong attempted to influence the board to find a way to

terminate the agreement.46 Using allies in management, he pushed for Williams’

value as a standalone company. 47 Approaching the board approval vote, Armstrong

continued to attempt to convince various directors to oppose the Merger. 48

43
Potts Response Aff., Ex. 36, Responses of Pl. the Williams Companies, Inc. to Defs.’ First Set
of Request for Admissions, at 8.
44
Potts Response Aff., Ex. 41, Dep. of Mandelblatt dated Nov. 20, 2018 (“Mandelblatt Dep.”), at
72:11–73:17; Meister Dep, at 141:20–142:7; see Potts Response Aff., Ex. 42, Minutes of a Special
Meeting of the Board of Directors Held September 28, 2015, at -52994 (Williams board minutes
showing absence of a discussion of the timing of ETE’s solicitations).
45
See Mandelblatt Dep., at 273:21–274:25, 322:6–14; Meister Dep., at 142:15–144:12.
46
Potts Response Aff., Ex. 37, at -819862 through 63; Meister Dep., at 169:3–17; Potts Response
Aff., Ex. 38, Dep. of Donald Chappel dated Nov. 6, 2018, at 88:8–17.
47
Meister Dep., at 171:6–12; Potts Response Aff., Ex. 46, at -873387; Potts Response Aff., Ex.
37, at -819862 through 63.
48
Potts Response Aff., Ex. 56, at -789293 through 94; Potts Response Aff., Ex. 93, at -795561.

11
 Although the initial vote to enter the Merger Agreement had garnered a

contested 8-5 approval, Williams’ board issued a press release that it was

“unanimously committed to completing the transaction with [ETE] per the merger

agreement. . .”49 ETE contends that Williams’ strategy at this point was already to

position itself for a breakup fee.50 Some members of the Williams board questioned

the Merger’s value for Williams’ stockholders, and Williams began to discuss the

value of a breakup fee with its financial advisors.51

Williams took several other actions ETE contends were aimed at obstructing

the Merger. It sued ETE’s Chairman in Texas, alleging he engaged in self-dealing

transactions. 52 When ETE approached it regarding the Public Offering, Williams

declined to give its consent, thus ensuring the Public Offering could not be made.53

ETE also alleges that Williams obstructed its efforts to talk with Williams’ board or

49
Potts Response Aff., Ex. 60, at -543388.
50
See Potts Response Aff., Ex. 56, at -789293 through 94 (Armstrong writing that “some will
claim that we should just hold the course, forcing [ETE founder] Kelcy to the alter [sic].”).
51
Potts Response Aff., Ex. 62, at -167054 (Williams director stating that “[b]enefits to
shareholders [are] . . . now much diminished, if not gone.”); see Potts Response Aff., Ex. 67, at -
69170 through 71 (analysis prepared for Armstrong suggesting Merger was no longer valuable and
valuing breakup fee); Potts Response Aff., Ex. 68, at -467599 (Williams advisor estimating
potential breakup fee).
52
Potts Response Aff., Ex. 69, Williams v. Warren, No. DC-1603941 (Apr. 6, 2016 Tex. Dist.
Ct.).
53
Potts Response Aff., Ex. 38, Dep. of Donald Chappel dated Nov. 6, 2018, at 217:7–218:5.

12
management about alternative financing resolutions to alleviate the tax issues that

had arisen. 54

4. ETE Terminates the Merger

On April 12, 2016, Latham informed Williams that it would likely be unable

to deliver the 721 Opinion, which was, as described, a condition precedent to

closing.55 Williams attempted to work through the issue, suggesting alternatives to

achieve tax-free status, and when these discussions failed, it filed suit in this Court

to compel ETE to close under the Merger Agreement. 56

On June 24, 2016, I declined to compel ETE to close, finding that it was

“contractually entitled to terminate the Merger Agreement.” 57 I concluded that

Latham’s inability to issue the 721 Opinion was in good faith, and that ETE did not

contribute materially to Latham’s inability to issue it.58 I also found that neither

party breached the “Tax Representation” clauses found in § 3.01(n)(i) and §

3.02(n)(i), meaning there were no facts regarding tax aspects of the transaction that

54
See Potts Response Aff., Ex. 78, Minutes of a Telephonic Special meeting of the Board of
Directors Held February 17, 2016, at -1944124 through 25.
55
See Merger Agreement, § 6.01(h); Clark Aff., Ex. 30, at -196308 through 10.
56
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 2016 WL 3576682, at *8 (Del. Ch. June 24,
2016); Clark Aff., Ex. 31, at -665882 through 83.
57
Williams, 2016 WL 3576682, at *2, *21.
58
Id. at *16 (“[T]he record is barren of any indication that the action or inaction of [ETE] (other
than simply drawing Latham’s attention to the problem) contributed materially to Latham’s
inability to issue the 721 Opinion.”).

13
either party had failed to disclose.59 These findings were later affirmed by the

Supreme Court.60 However, the Supreme Court disagreed with my analysis of

ETE’s best efforts, writing, “covenants like the ones involved here impose

obligations to take all reasonable steps to solve problems and consummate the

transaction.”61 The Supreme Court found the language in the best efforts covenants

“not only prohibited the parties from preventing the merger, but obligated the parties

to take all reasonable actions to complete the merger.” 62 The Supreme Court stated

that a focus on the absence of affirmative Merger-scuttling acts by ETE was in error

and noted that “[t]here was evidence, recognized by the Court of Chancery, from

which it could have concluded that ETE did breach its [efforts] covenants. . .” 63 This

issue was not case dispositive, however, and so the Court affirmed.

On, June 27, 2016, the Williams stockholders voted in support of the

Merger. 64 That same day, Latham sent ETE “an execution version of the tax

officer’s certificate to support the [721 Opinion],” and Whitehurst informed Latham,

“I have reviewed the revised officer’s certificate and I continue to be unable to sign

59
Id. at *18–19.
60
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264, 268 (Del. 2017).
61
Id. at 272.
62
Id. at 273.
63
Id.
64
Clark Aff., Ex. 38, at 2.

14
the officer’s certificate as drafted.”65 The day after that, June 28, was the Closing

Date. 66 Williams attempted to close the transaction on the Closing Date, but ETE

refused, relying on the absence of Latham’s 721 Opinion, a condition precedent

under the Merger Agreement. 67 Latham reaffirmed that it could not deliver the 721

Opinion at that time. 68 ETE terminated the Merger Agreement on June 29, after the

Outside Date provided in the Merger Agreement. 69 ETE’s CEO confirmed that in

terminating the Merger Agreement, ETE relied solely on Latham’s inability to

deliver the 721 Opinion.70 Williams wrote a letter to ETE, stating that it had been

willing to waive conditions set forth in § 6.03(a)-(b) in the Merger Agreement and

proceed with closing, but that it would now pursue the WPZ Termination Fee

Reimbursement.71

5. Termination Clauses and Fees in the Merger Agreement

As noted, the parties agreed that ETE would pay Williams the WPZ

Termination Fee Reimbursement if either party terminated the Merger Agreement

65
Clark Aff., Ex. 71, at -87794.
66
Clark Aff., Ex. 39, at -1174715; see also Merger Agreement, § 1.02.
67
Clark Aff., Ex. 40, Declaration of Richard Hall, ¶¶ 3–4; Clark Aff., Ex. 41, at -1002872.
68
Clark Aff., Ex. 42, at -290751 through 52.
69
Clark Aff., Ex. 44, at -87881 through 82.
70
Clark Aff., Ex. 15, Dep. of Kelcy Warren dated Dec. 4, 2019, at 104:21–22.
71
Potts Aff., Ex. 24 (Letter from Williams General Counsel stating, “Williams was prepared
yesterday to waive the failure of the conditions in Sections 6.03(a) and 6.03(b) and close, but in
light of ETE’s refusal to close and subsequent termination, Williams is now entitled to receive the
WPZ Termination Fee Reimbursement.”).

15
under certain circumstances. In the Merger Agreement provisions that follow,

“Company” means Williams, “Parent” means ETE, and “TopCo” means ETC.72

Specifically, § 5.06(f) of the Merger Agreement states:

If the Company or Parent terminates this Agreement pursuant to (A)
Section 7.01(b)(ii), (B) Section 7.01(d), or (C) Section 7.01(b)(i) and,
at the time of any such termination pursuant to this clause (C) any
condition set forth in Section 6.01(b), 6.01(c), 6.01(d), 6.01(e), 6.03(a)
or 6.03(b) shall not have been satisfied, then, in each case, Parent shall
reimburse the Company for $410.0 million (the “WPZ Termination Fee
Reimbursement”). . . 73

Section 7.01(b)(i)—one of the possibilities listed above for termination that triggers

the obligation set out in § 5.06(f)—provides:

This Agreement may be terminated at any time prior to the Effective
Time, whether before or after receipt of the Company Stockholder
Approval, by delivery of written notice to the other parties hereto under
the following circumstances . . . (b) by either of Parent or the Company
(i) if the Merger shall not have been consummated on or before the date
that is nine months after the date of this Agreement (as it may be
extended from time to time by the mutual written agreement of Parent
and the Company, the “Outside Date”) . . . provided . . . however, that
the right to terminate this Agreement pursuant to this Section 7.01(b)(i)
shall not be available to any party if the failure of such party (and in the
case of Parent, TopCo) to perform any of its obligations under this
Agreement has been a principal cause of or resulted in the failure of the
Merger to be consummated on or before such date[.] 74

72
Merger Agreement, Recitals.
73
Id., § 5.06(f).
74
Id., § 7.01(b)(i).

16
The parties do not dispute that ETE terminated the Merger Agreement under §

7.01(b)(i) because the defined “Outside Date,” June 28, 2016, passed without the

Merger having consummated. 75

6. ETE’s Representations and Covenants in the Merger Agreement

In the Merger Agreement, ETE made several contractual representations and

operating covenants that are now at issue in these cross-motions for summary

judgment.

a. Ordinary Course of Business Operating Covenants

ETE represented it would carry on in the ordinary course of business, which

entailed several specific “ordinary course” covenants, discussed below. Under §

6.03(b) of the Merger Agreement, ETE agreed that:

Each of TopCo and Parent shall have, in all material respects,
performed or complied with all obligations required by the time of the
Closing to be performed or complied with by it under this Agreement,
and the Company shall have received a certificate signed on behalf of
Parent by the chief executive officer or the chief financial officer of
Parent to such effect.76

These performance obligations described in § 6.03(b) required ETE to abide by

several further, specific operating covenants under § 4.01(b). ETE represented, first

of all, that it would carry on its business “in the ordinary course”:

75
As described above, I found in 2016 that ETE had no obligation to close the merger by the
Outside Date because the condition precedent to closing described in § 6.01(h)—Latham’s 721
Opinion—had not been met.
76
Merger Agreement, § 6.03(b).

17
 Except as set forth in Section 4.01(b) of the Parent Disclosure Letter,
expressly permitted by this Agreement, required by applicable Law or
consented to in writing by the Company (such consent not to be
unreasonably withheld, conditioned or delayed), during the period from
the date of this Agreement to the Effective Time, Parent shall, and shall
cause each of its Subsidiaries to, carry on its business in the ordinary
course and shall use commercially reasonable efforts to preserve
substantially intact its current business organizations, maintain its
rights, franchises and Parent Permits and to preserve its relationship
with significant customers and suppliers. . . . 77

Carrying on “its business in the ordinary course,” in turn, entailed several specific

restrictions. First, ETE represented that it would not take any actions resulting in

new restrictions in the form of distributions and payments of dividends:

[D]uring the period from the date of this Agreement to the Effective
Time, Parent shall not, and shall not permit any of its Subsidiaries to . .
. (ii) take any action that would result in Parent or any of its Subsidiaries
becoming subject to any restriction not in existence on the date hereof
with respect to the payment of distributions or dividends[.]78

Second, ETE represented that it would refrain from certain actions regarding

manipulation of its equity securities:

[D]uring the period from the date of this Agreement to the Effective
Time, Parent shall not, and shall not permit any of its Subsidiaries to . .
. (iii) split, combine or reclassify any of its equity securities or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for equity securities, other than transactions by a wholly
owned Subsidiary of Parent which remains a wholly owned Subsidiary
after consummation of such transaction[.]79

77
Id., § 4.01(b).
78
Id., § 4.01(b)(ii).
79
Id., § 4.01(b)(iii).

18
Third, ETE represented it would not amend its organizational documents:

[D]uring the period from the date of this Agreement to the Effective
Time, Parent shall not, and shall not permit any of its Subsidiaries to . .
. (vi) amend (A) the organizational documents of TopCo, (B) the Parent
Certificate of Partnership or the Partnership Agreement (other than the
Parent Partnership Agreement Amendment) or (C) the comparable
organizational documents of any Subsidiary of Parent in any material
respect[.] 80

b. Capital Structure Representations

ETE made certain representations regarding its capital structure. In §

6.03(a)(i), ETE agreed:

The obligation of the Company to effect the Merger is further subject
to the satisfaction or (to the extent permitted by Law) waiver at or prior
to the Effective Time of the following conditions: . . . (a)(i) The
representations and warranties of TopCo and Parent set forth in
Sections 3.02(c)(i) and 3.02(c)(ii) (Capital Structure) shall be true and
correct as of the Closing Date as though made on such date (except to
the extent any of such representations and warranties speak as of an
earlier date, in which case such representations and warranties shall be
true and correct as of such earlier date), except for any immaterial
inaccuracies. . . . 81

Under § 3.02(c)(i), ETE represented that it had three classes of equity:

(c) Capital Structure. (i) The authorized equity interests of Parent
consist of common units representing limited partner interests in Parent
(“Parent Common Units”), Class D Units representing limited partner
interests in Parent (“Parent Class D Units”) and a general partner
interest in Parent (“Parent General Partner Interest”). At the close of
business on September 25, 2015 (the “Parent Capitalization Date”), (i)
1,044,764,836 Parent Common Units were issued and outstanding, of

80
Id., § 4.01(b)(vi).
81
Id., §6.03(a)(i).

19
 which 5,776,462 consisted of Parent Restricted Units, (ii) 2,156,000
Parent Class D Units were issued and outstanding and (iii) there was an
approximate 0.2576% Parent General Partner Interest. Except as set
forth above, at the close of business on the Parent Capitalization Date,
no equity securities or other voting securities of Parent were issued or
outstanding. Since the Parent Capitalization Date to the date of this
Agreement, (x) there have been no issuances by Parent of equity
securities or other voting securities of Parent, other than the conversion
of Parent Class D units outstanding as of the Parent Capitalization Date
and (y) there have been no issuances by Parent of options, warrants,
other rights to acquire equity securities of Parent or other rights that
give the holder thereof any economic interest of a nature accruing to
the holders of Parent Common Units. 82

c. Tax Representations

ETE made certain representations regarding tax matters in the Merger

Agreement. Section 6.03(a)(iv) set out certain specific materiality limitations that

would govern representations under that section:

each of the other representations and warranties of TopCo and Parent
set forth in this Agreement shall be true and correct (disregarding all
qualifications or limitations as to “materiality”, Parent Material
Adverse Effect” and words of similar import set forth therein) as of the
Closing Date as though made on such date . . . except, solely in the case
of this clause (iv), where the failure of such representations and
warranties to be so true and correct would not reasonably be expected
to have, individually or in the aggregate, a Parent Material Adverse
Effect. The Company shall have received a certificate signed on behalf
of Parent by the chief executive officer or the chief financial officer of
Parent to such effect.83

82
Id., § 3.02(c)(i).
83
Id., §6.03(a)(iv).

20
One of the representations that came under the provision above was certain

representations that ETE made in § 3.02(n)(i) regarding tax matters related to the

transaction:

None of TopCo, Parent or any Subsidiaries of Parent has taken or
agreed to take any action or knows of the existence of any fact that
would reasonably be expected to prevent (A) the Merger from
qualifying for the Intended Tax Treatment or (B) the Contribution and
Parent Class E Issuance from qualifying as an exchange to which
Section 721(a) of the Code applies.84

d. Best Efforts Covenants

The parties also represented that they would use best efforts to consummate

the Merger. As described above, § 6.03(b) required ETE to have “in all material

respects, performed or complied with all obligations required by the time of the

Closing to be performed or complied with by it under this Agreement.” 85 One of

these requirements, found in § 5.03, was to use “reasonable best efforts” to

consummate the transaction “in the most expeditious manner practicable”:

Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties hereto shall use its reasonable best
efforts to, and shall cause their respective Affiliates to use reasonable
best efforts to, take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Transactions,
including using reasonable best efforts to accomplish the following: (i)

84
Id., § 3.02(n)(i).
85
Id., § 6.03(b).

21
 the taking of all acts necessary to cause the conditions to Closing to be
satisfied as promptly as practicable. . . . 86

This requirement also encompassed several specific best efforts, among them

qualification for tax-free treatment in § 5.07(a)(ii):

The Company, TopCo and Parent shall cooperate and each use its
commercially reasonable efforts to cause (i) the Merger to qualify for
the Intended Tax Treatment . . . 87

7. The Parent Disclosure Letter and the Company Disclosure Letter

The Parent Disclosure Letter and the Company Disclosure Letter were

incorporated into the Merger Agreement by reference.88 These disclosure letters,

among other things, enumerated carve-outs to the representations and covenants

made in the Merger Agreement, permitting the parties to take certain actions that

might otherwise be prohibited. Pertinent here, § 4.01(b)(v)(1) of the Parent

Disclosure Letter permitted ETE to issue equity while the Merger was pending:

“[ETE] may make issuances of equity securities with a value of up to $1.0 billion in

the aggregate.”89

86
Id., § 5.03(a).
87
Id., § 5.07(a)(ii).
88
Id., § 8.07(a) (“This Agreement (including the Company Disclosure Letter and the Parent
Disclosure Letter and all other exhibits and schedules hereto), the Confidentiality Agreement and
the CCR Agreement constitute the entire agreement. . .”).
89
Potts Aff., Ex. 2, Parent Disclosure Letter for Agreement and Plan of Merger (“Parent Disclosure
Letter”), § 4.01(b)(v)(1).

22
 II. PROCEDURAL HISTORY AND CLAIMS

A. Procedural History

Williams filed its original complaint seeking specific performance of the

Merger Agreement on April 6, 2016. 90 ETE filed counterclaims. 91 I held a two-day

trial in June 2016 and issued a post-trial Memorandum Opinion denying Williams’

request to enjoin ETE from terminating the Merger. 92 Williams appealed.93 The

Supreme Court affirmed the decision on March 23, 2017.94

Meanwhile, Williams and ETE filed amended claims and counterclaims. 95 On

December 1, 2017, I granted in part Williams’ Motion to Dismiss ETE’s

counterclaims, foreclosing ETE’s efforts to obtain a breakup fee as a result of the

Merger it had terminated. 96 I then denied ETE’s Motion for Reargument of that

decision.97 The parties proceeded on the remaining claims, centered largely on

Williams’ right to the WPZ Termination Fee Reimbursement. The parties filed

90
Verified Compl. Seeking Specific Performance and Other Relief, D.I. 1.
91
Defs.’ Answer, Affirmative Defenses, and Original Verified Countercl., D.I. 58.
92
Mem. Op. and Order, D.I. 185.
93
Notice of Appeal to Supreme Court, D.I. 191.
94
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264 (Del. 2017).
95
Verified Am. Compl., D.I. 215 (“Am. Compl.”); Defs.’ and Countercl. Pls.’ Sec. Am. and Suppl.
Affirmative Defenses and Verified Countercl., D.I. 219 (“Am. Countercl.”).
96
Mem. Op., D.I. 288.
97
Letter Op. and Order, D.I. 321.

23
cross-motions for summary judgment on January 14, 2020.98 I heard argument on

March 5, 2020, and I considered the matter fully submitted at that time. 99 After the

motions were fully submitted, ETE filed a Motion for Sanctions on May 20, 2020.100

B. The Parties Claims and the Cross Motions for Summary Judgement

In its Amended Complaint, Williams brings two counts for breach of contract

against ETE. Count I relates to ETE’s actions regarding the termination of the

Merger: Williams alleges that ETE failed to use best efforts as required under § 5.03

and § 5.07 of the Merger Agreement to close the Merger. 101 Under Count I, Williams

seeks damages arising from the deprivation “of the benefits of the Transaction” in

“an amount to be proved at trial.”102 Williams has not moved for summary judgment

on Count I, but ETE has moved for summary judgment on Count I. In Count II,

Williams alleges that ETE was in breach of the Merger Agreement as of the Closing

Date, entitling Williams to the WPZ Termination Fee Reimbursement under §

5.06(f).103 The parties have cross-moved for summary judgment of Count II.

98
Pl.’s and Countercl.-Def.’s Mot. for Partial Summ. J., D.I. 460; Defs.’ and Countercl. Pls.’ Mot.
for Summ. J., D.I. 464.
99
D.I. 495.
100
Defs.’ and Countercl. Pls.’ Mot. for Sanctions or, Alternatively, an Evidentiary Hr’g on
Spoliation of Evid., D.I. 503.
101
Am. Compl., ¶¶ 216–32.
102
Id. ¶ 231.
103
Id. ¶¶ 233–52.

24
 ETE filed its amended counterclaim and affirmative defenses (“Amended

Counterclaim”), also containing two counts, on September 23, 2016.104 In Count I,

ETE seeks declaratory judgments under 10 Del. C. § 6501 regarding the parties’

actions in the Merger. 105 In Count II, ETE alleges breach of contract against

Williams. 106 I dismissed or struck parts of the Amended Counterclaim and issued a

final judgment on November 14, 2018.107 The chief effect was to deny ETE’s

counterclaims supporting its sought-after $1.48 billion termination fee.108 In ETE’s

remaining counterclaims, it alleges breach of contract and seeks declaratory

judgment for the following: that Williams breached the Merger Agreement (1) by

failing to use its best efforts to consummate the transaction; (2) by withholding its

consent from the Public Offering; and (3) by refusing to reasonably cooperate with

ETE’s requests to find financing solutions.109 ETE does not seek summary judgment

on its counterclaims. Thus, the cross-motions for summary judgment are largely a

contest over whether Williams has a right as a matter of law to the WPZ Termination

Fee Reimbursement.

104
Am. Countercl.
105
Id. ¶¶ 191–96.
106
Id. ¶¶ 197–203.
107
Order Granting in Part and Denying in Part Williams’ Mot. to Dismiss and Strike, D.I. 399.
108
See id.
109
See id.

25
 III. ANALYSIS

Summary judgment may be granted if there is “no genuine issue as to any

material fact” and the moving party is “entitled to a judgment as a matter of law.”110

The Court “must view the evidence in the light most favorable to the non-moving

party.” 111 The Court must not weigh evidence and instead must “determine whether

or not there is any evidence supporting a favorable conclusion to the nonmoving

party.” 112 This requires the non-moving party to “set[] forth specific facts

demonstrating that there is a genuine issue for trial.” 113 Where the parties file cross-

motions for summary judgment and “have not presented argument to the Court that

there is an issue of fact material to the disposition of either motion, the Court shall

deem the motions to be the equivalent of a stipulation for decision on the merits

based on the record submitted with the motions.” 114 Nonetheless, there is no right

to summary judgment; the court in its discretion may determine that a trial record is

necessary in the interests of justice. 115

110
Ct. Ch. R. 56(c).
111
Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2017 WL 3168966, at
*2 (Del. Ch. July 26, 2017) (quoting Mentor Graphics Corp. v. Quickturn Design Sys., Inc., 1998
WL 731660, at *2 (Del. Ch. Oct. 9, 1998)).
112
Id. (quoting In re El Paso Pipeline Partners, L.P. Derivative Litig., 2014 WL 2768782, at *8
(Del. Ch. June 12, 2014)).
113
Klig v. Deloitte LLP, 36 A.3d 785, 793 (Del. Ch. 2011).
114
Ct. Ch. R. 56(h).
115
Telxon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002); El Paso Pipeline, 2014 WL
2768782, at *9.

26
 Contract interpretation is often amenable to summary judgment because “the

interpretation of a contract is a question of law.” 116 Generally, only in ambiguous

contracts where the contractual language is “fairly susceptible [to] different

interpretation[s]” is summary judgment improper. 117 However, “the intent of the

parties as to [the contract’s] scope and effect are controlling, and the court will

attempt to ascertain their intent from the overall language of the document.” 118

Because the cross-motions for summary judgment here concern the same

Merger Agreement provisions, I address both motions at once except where noted.

Although the parties dispute each alleged breach separately, ETE raises two

overarching arguments that Williams’ claims are entirely foreclosed as a matter of

law. I address these first before proceeding to the specific alleged breaches.

A. The Merger Agreement Permits Williams the Opportunity to Recover the
WPZ Termination Fee Reimbursement Even Though ETE Validly
Terminated the Merger for Failure of the 721 Opinion

ETE’s first overarching argument is that the contractual scheme in the Merger

Agreement forecloses any recovery for Williams because the Merger terminated as

a result of Latham’s inability to issue the 721 Opinion, not from any of the alleged

116
Deloitte LLP v. Glanagan, 2009 WL 5200657, at *5 (Del. Ch. Dec. 29, 2009).
117
ITW Glob. Invs. Inc. v. Am. Indus. Partners Capital Fund IV, L.P., 2017 WL 1040711, at *6
(Del. Super. Mar. 6, 2017) (quoting GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P.,
36 A.3d 776, 780 (Del. 2012)).
118
Id. (quoting Riverbend Cmty., LLC v. Green Stone Eng’g, LLC, 55 A.3d 330, 336 (Del. 2012)).

27
breaches at issue here. 119 As with any highly negotiated transaction, the parties

allocated risks in the Merger Agreement. To enter the transaction with ETE,

Williams first needed to extract itself from a different transaction with WPZ. 120 That

extraction required paying WPZ a $410 million termination fee.121 To compensate

for this risk, the parties negotiated that if either party terminated the Merger under

certain circumstances, then ETE would reimburse Williams that $410 million

termination fee.

Section 5.06(f) describes the circumstances in which ETE must reimburse

Williams the WPZ Termination Fee Reimbursement:

If the Company or Parent terminates this Agreement pursuant to (A)
Section 7.01(b)(ii), (B) Section 7.01(d), or (C) Section 7.01(b)(i) and,
at the time of any such termination pursuant to this clause (C) any
condition set forth in Section 6.01(b), 6.01(c), 6.01(d), 6.01(e), 6.03(a)
or 6.03(b) shall not have been satisfied, then, in each case, Parent shall
reimburse the Company for $410.0 million (the “WPZ Termination Fee
Reimbursement”). . . 122

The parties agree that ETE terminated the Merger Agreement under § 7.01(b)(i) due

to the passing of the Outside Date. Sections 6.03(a) and 6.03(b)—which set forth

the conditions Williams alleges ETE breached—describe various representations

119
Defs.’ and Countercl. Pls.’ Opening Br. In Support of Their Mot. for Summ. J., D.I. 462 (“ETE
Opening Br.”), at 11–13.
120
Clark Aff., Ex. 6, at -1680566.
121
Clark Aff., Ex. 5, § 7.6(a).
122
Merger Agreement, § 5.06(f).

28
and operating covenants that Williams claims ETE was in breach of at the time of

termination.

The language of § 5.06(f) is unambiguous and provides clear instructions: if

either party terminates due to, among other reasons, the passing of the Outside Date,

and when this happens, various conditions are unmet, then ETE must reimburse

Williams $410 million. The language provides a simple formula: has a party

terminated pursuant to §§ 7.01(b)(ii), 7.01(d), or 7.01(b)(i)? If yes, do any of several

“conditions” remain unsatisfied? If yes, ETE must pay Williams $410 million.

Section 5.06(f) contains no causal language that suggests that to trigger the WPZ

Termination Fee Reimbursement, the termination must result from the unsatisfied

condition. By contrast, other termination fees in the Merger Agreement do contain

causal language, suggesting its absence here is intentional. 123 Thus, a plain reading

of § 5.06(f), based on the facts here, is as follows: ETE terminated the Merger

Agreement under § 7.01(b)(i) due to the passing of the Outside Date; if at the time

123
See id. § 5.06(d)(ii) (permitting ETE to recover a $1.4 billion termination fee if “this Agreement
is terminated . . . as a result of [Williams’] breach of its obligations. . .”). ETE unsuccessfully
pursued this $1.4 billion termination fee in its counterclaims. See Williams Cos., Inc. v. Energy
Transfer Equity, 2017 WL 5953513 (Del. Ch. Dec. 1, 2017) reargument denied 2018 WL 1791995
(Del. Ch. Apr. 16, 2018). One principle of contract interpretation in Delaware is that the use of
different language in different sections of a contract suggests the difference is intentional—i.e.,
the parties intended for the sections to have different meanings. See MicroStrategy Inc. v. Acacia
Research Corp., 2010 WL 5550455, at *7 (Del. Ch. Dec. 30, 2010).

29
it did so, it had not satisfied conditions set forth in § 6.03(a)-(b), then it must

reimburse Williams the WPZ Termination Fee Reimbursement. 124

ETE nonetheless argues, for two reasons, that this is not so.

First, ETE argues that the exclusion of § 6.01(h) (the 721 Opinion condition

precedent) from § 5.06(f) shows that the parties were not allocating the

reimbursement risk to ETE if—as happened—the lack of the 721 Opinion ultimately

proved the Merger’s undoing. 125 In other words, ETE argues that because the

Merger’s termination did not result from the failure of one of the sections listed in §

5.06(f), Williams is not entitled to collect the WPZ Termination Fee

Reimbursement.126 It argues that Williams is “attempt[ing] to collect a Termination

Fee based on purported breaches that had nothing to do with the termination of the

Merger Agreement.” 127 ETE argues that the inclusion of four conditions precedent,

§§ 6.01(b)-(e) (each having to do with regulatory approval) and the exclusion of four

other conditions precedent demonstrates the risk allocation scheme. According to

ETE, the WPZ Termination Fee Reimbursement is only triggered if the failure of

something listed in § 5.06(f) itself unraveled the Merger. Such an argument ignores

124
See Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 145 (Del. 2009) (“In interpreting contract
language, clear and unambiguous terms are interpreted according to their ordinary and usual
meaning.” (quoting Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006))).
125
ETE Opening Br., at 12–13.
126
Id.
127
Id. at 13.

30
the plain text, which here is unambiguous and therefore must control. Nowhere does

§ 5.06(f) connect the cause of the termination to the failure to satisfy the other

conditions that trigger the WPZ Termination Fee Reimbursement. The only

requirement is that the Merger is terminated “pursuant to . . . Section 7.01(b)(i),”

which undisputedly occurred. Therefore, if “at the time of any such termination” a

condition enumerated in any of §§ 6.01(b)-(e) or §§ 6.03(a)-(b) was not satisfied,

ETE owes the WPZ Termination Fee Reimbursement. ETE’s preferred

construction—a preference arising I assume from a potential $410 million liability—

would require a rewriting of the contract for which the parties bargained. This I may

not do.128

Second, ETE argues that Latham’s inability to issue the 721 Opinion excuses

it from any further performance of any part of the Merger Agreement because “[t]he

failure of a condition precedent excuses a party from its remaining obligations under

a contract.”129 Thus, according to ETE, because its obligation to “effect the Merger”

was “subject to the satisfaction” of the 721 Opinion under § 6.01(h), when the 721

128
ETE has not sought reformation of the Merger Agreement. See Am Gen. Hldgs. LLC v. The
Renco Grp., Inc., 2020 WL 3484069, at *5 (Del. Ch. June 26, 2020) (“[T]o the extent this
distinction represents a ‘bad deal’ for [defendant], it must be remembered that Delaware courts
‘will not rewrite the contract to appease a party who later wishes to rewrite a contract he now
believes to have been a bad deal. Parties have a right to enter into good and bad contracts; the law
enforces both.’” (quoting Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010))).
129
ETE Opening Br., at 13 (citing REJV5 AWH Orlando, LLC v. AWH Orlando Member, LLC,
2018 WL 1109650, at *3 n.22 (Del. Ch. Feb. 28, 2018); 13 Williston on Contracts § 39:4 (4th ed.
1990)).

31
Opinion failed to appear, this “extinguished ETE’s conditional obligations to

perform any further task or requirement related to the conclusion of the Merger. .

.” 130

As I understand ETE’s argument, it is thus: Latham was unable to provide the

721 Opinion as of closing, a condition precedent. As a result, ETE was able to

terminate the Merger Agreement, which it did. At that point, the trigger conditions

in § 5.06(f)—those set forth in §§ 6.01(b), (c), (d), (e) and §§ 6.03(a) and (b)—were

no longer conditions binding on ETE; all its obligations fell away due to the failure

of the condition precedent, the Latham tax opinion, as a matter of law. Thus, there

is nothing left to trigger the WPZ Termination Fee Reimbursement.

ETE’s argument ignores the survival clause in § 7.02. Under that provision,

the parties agreed:

In the event of termination of this Agreement . . . this Agreement shall
forthwith become void and have no effect, without any liability or
obligation on the part of TopCo, Parent or the Company, other than the
provisions of . . . [several Sections, including] Section 5.06 . . . which
provisions shall survive such termination. 131

Latham’s inability to provide the 721 Opinion relieved ETE of the “obligation . . .

to effect the Merger.” 132 It was, therefore, permitted to terminate after the passing

130
Id. at 14 (emphasis added).
131
Merger Agreement, § 7.02.
132
Id. § 6.01.

32
of the Closing Date. The parties agreed in § 7.02, however, that “any liability and

obligation” provided in § 5.06(f)133—that is, the WPZ Termination Fee

Reimbursement—would survive termination.134 For the WPZ Termination Fee

Reimbursement to survive requires reference to the underlying conditions that

trigger that fee. To say that those enumerated conditions became a null set because

they were extinguished by the termination would be oxymoronic, and inconsistent

with a plain reading of the Merger Agreement as a whole. That is because the

benefits of § 5.06(f) would be illusory if (as ETE argues) the termination, or the

failure of the condition that permitted the termination, relieved ETE of all the

conditions that could trigger the WPZ Termination Fee Reimbursement. 135 In

interpreting the contract, I must harmonize its parts, including § 5.06(f), § 7.01(b)(i)

and § 7.02.136 I reject ETE’s argument that the Merger’s legitimate failure to close

“extinguished” all its obligations, including those referenced in § 5.06(f).137

133
Among other sections.
134
Merger Agreement, § 7.02.
135
See Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1160 n.21 (Del. 2010) (citing Gore v.
Beren, 867 P.2d 330, 337 (Kan. 1994)) (“In placing a construction on a written instrument,
reasonable rather than unreasonable interpretations are favored by law. Results which vitiate the
purpose or reduce terms of the contract to an absurdity should be avoided.”).
136
See Elliott Assocs., L.P. v. Avatex Corp., 715 A.2d 843, 854 (Del. 1998) (“It is well established
that a court interpreting any contractual provision . . . must give effect to all terms of the instrument,
must read the instrument as a whole, and, if possible, reconcile all the provisions of the
instrument.”).
137
I also note that the failure of the 721 Opinion under § 6.01(h) relieved both parties of the
obligation to close. Thus, under ETE’s argument, Williams was relieved of its “obligation to
perform any further task or requirement related to the conclusion of the Merger.” ETE Opening
33
 In sum, I find the language in § 5.06(f) unambiguous, and that the obligations

it imposes survive termination. ETE terminated the Merger Agreement under §

7.01(b)(i). If, as Williams alleges, ETE failed to satisfy its material obligations under

a condition enumerated in any of §§ 6.01(b)-(e) or §§ 6.03(a)-(b), then, subject to

affirmative defenses, it is obliged to pay Williams the WPZ Termination Fee

Reimbursement. The pertinent question therefore becomes whether it failed to

satisfy any of these conditions.

B. Williams Did Not Concede the Immateriality of ETE’s Alleged Breaches

ETE’s second overarching argument is that Williams conceded that any

possible breach ETE may have committed was not material, and thus cannot trigger

the WPZ Termination Fee Reimbursement. On the Closing Date, Williams made

itself available to consummate the Merger. 138 When the Merger nonetheless failed,

it stated that it would have waived any of ETE’s breaches under §§ 6.03(a)-(b) had

ETE agreed to close.139 Thus, according to ETE, because each of the provisions at

Br., at 14. Nonetheless, following termination, ETE maintained its countersuit against Williams
for performance failures completely unrelated to the 721 Opinion. That action tends to
demonstrate that ETE understood the plain meaning of the survival clause and its intended
operation.
138
Clark Aff., Ex. 40, Declaration of Richard Hall, ¶¶ 3–4; Clark Aff., Ex. 41, at -1002872.
139
Potts Aff., Ex. 24 (Letter from Williams General Counsel stating, “Williams was prepared
yesterday to waive the failure of the conditions in Sections 6.03(a) and 6.03(b) and close, but in
light of ETE’s refusal to close and subsequent termination, Williams is now entitled to receive the
WPZ Termination Fee Reimbursement.”). I note that Williams’ letter appears to reflect its belief
that ETE’s breaches excused Williams’ performance under the Merger Agreement, suggesting
34
issue contain materiality qualifiers, as a matter of law, it cannot have been in breach

of those provisions.

Faced with a material breach of a contract, a non-breaching party has two

options: it may choose to cease performance, or it may continue performance of the

contract.140 Continuing performance waives the argument that the waiving party’s

performance obligation was discharged, but it does not waive recovery for the

material breach.141 By extension of this logic, the non-breaching party’s continued

performance does not admit or concede or conclusively establish that a breach was

immaterial. ETE cites no case law for the proposition that a party’s willingness to

proceed with an agreement must mean that any violations did not matter to it.142 And

such a construction makes no sense as a matter of English usage. Merriam-

Webster’s first definition of “material” (in the sense obviously intended by the

parties) is “being of real importance or consequence – SUBSTANTIAL.” 143 This

Williams had a contemporaneous belief that such alleged breaches were material. I need not make
a finding on this issue at this time.
140
14 Williston on Contracts § 43:15 (4th ed.). This principle of contract law has been cited
approvingly by this Court in In re Mobilactive Media, LLC, 2013 WL 297950, at *14 (Del. Ch.
Jan. 25, 2013).
141
14 Williston on Contracts § 43:15 (4th ed.) (“While the acceptance of the defective performance
operates to waive the right to declare that the material breach discharged the obligor from further
performance, it does not waive the right to obtain damages for the breach.”).
142
See Defs.’ and Countercl. Pls.’ Response to Pl.’s Mot. for Partial Summ. J., D.I. 480 (“ETE
Answering Br.”), at 42–44.
143
Material, Webster’s 3d Third New International Dictionary (1961) (capitalization in original).

35
comports, for instance, with our jurisprudence in the realm of disclosure by a

company to its stockholders: information of substantial importance must be

disclosed regardless of whether it would necessarily change the vote of a stockholder

on the issue presented.144 A contractual breach may be “substantial” to a

counterparty without necessarily causing that counterparty to conclude that the

consummation of the contract is against its interests as a result. What is material is

a matter of context.145

Cast correctly, ETE’s argument is really a factual one: did Williams’ perfervid

desire to proceed despite the alleged breaches indicate that it found ETE’s alleged

violations immaterial? I need not resolve this question at this juncture: this factual

argument will resurface later. Having addressed ETE’s two overarching arguments

and rejected them, I now turn to the four specific allegations of breach by which

144
Morrison v. Berry, 191 A.3d 268, 283 (Del. 2018), (finding that a “fact is material if there is ‘a
substantial likelihood that the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the ‘total mix’ of information made available.’
But, to be sure, this materiality test ‘does not require proof of a substantial likelihood that
disclosure of the omitted fact would have caused the reasonable investor to change his vote.’”
(quoting Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985))); see also City of Fort Myers
Gen. Emps.’ Pension Fund v. Haley, 2020 WL 3529586 (Del. June 30, 2020) (holding that
materiality in the context of information owed by a director to her board includes information
“relevant and of a magnitude to be important” to the board’s determination) (internal citations
omitted).
145
This is a general discussion on materiality as it relates to ETE’s overarching argument here.
The Merger Agreement specifically defines several different materiality qualifiers, and these are
discussed separately below. Nothing here precludes any party from arguing a particular meaning
of “material” in context.

36
Williams seeks to recover the WPZ Termination Fee Reimbursement and other

damages.

C. The Best Efforts Clauses

ETE (but not Williams) has moved for summary judgment as to whether it

breached its obligations under § 5.03 and § 5.07 to use its best efforts to close the

Merger, as alleged in Count I of Williams’ Amended Complaint. ETE argues that

its best efforts are now law of the case, based on my 2016 trial opinion (the “2016

Trial Opinion”). In that opinion, I stated:

There is simply nothing that indicates to me that [ETE] has manipulated
the knowledge or ability of Latham to render the 721 Opinion, or failed
to fully inform Latham, or do anything else, whether or not
commercially reasonable, to obstruct Latham’s issuance of the
condition-precedent 721 Opinion, or that had a material effect on
Latham’s decision. Therefore, I have no basis to find that [ETE] is in
material breach of the commercially reasonable efforts requirement. .
.146

In affirming the 2016 Trial Opinion, the Supreme Court found, “ETE did meet its

burden of proving that any alleged breach of covenant did not materially contribute

to the failure of the [721 Opinion].” 147 In other words, ETE successfully proved it

did not cause the failure of the 721 Opinion. ETE argues that Williams is foreclosed

146
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 2016 WL 3576682, at *17 (Del. Ch. June
24, 2016).
147
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264, 268 (Del. 2017).

37
by the law of the case from continuing to litigate best efforts issues. For two reasons

discussed below, I disagree. Disputes of material fact remain.

First, my analysis in the 2016 Trial Opinion focused exclusively on §

5.07(b). 148 That provision required both parties to “each use its commercially

reasonable efforts to obtain the Tax opinion[] described in Section[] 6.01(h),” i.e.,

the 721 Opinion. 149 As described, I found that ETE was not in breach of § 5.07(b)

because it had taken no affirmative actions preventing Latham from issuing the 721

Opinion and there were no “actions available to [ETE] that would have caused

Latham, acting in good faith, to issue the 721 Opinion.” 150 This is the finding that

ETE relies on as law of the case. But § 5.07(b) is not the only efforts clause. There

is the general “Reasonable Best Efforts” clause in § 5.03(a), which requires each

party to “use its reasonable best efforts to . . . take . . . all actions . . . to consummate

and make effective in the most expeditious manner practicable, the Transactions. .

.” 151 Then, there is the more specific tax-related efforts clause in § 5.07(a), requiring

each party to “use its commercially reasonable efforts to cause (i) the Merger to

148
See Williams Cos., 2016 WL 3576682, at *16. In my analysis, I found that ETE “was
contractually obligated to use commercially reasonable efforts to obtain the 721 Opinion from
Latham,” and I cited to § 5.07(b). I continued, “Williams argues that [ETE] is in material breach
of that contractual provision.” Id. (emphasis added).
149
See id. at *16–17; Merger Agreement, § 5.07(b).
150
Williams Cos., 2016 WL 3576682, at *16–17.
151
Merger Agreement, § 5.03(a).

38
qualify for the Intended Tax Treatment,” i.e., to be tax-free. 152 These efforts clauses

implicate issues of material fact not resolved by my findings in the 2016 Trial

Opinion, which focused on ETE’s actions related to Latham’s inability to issue the

721 Opinion. Here, additional questions are at issue.153

Second, and more fundamentally, the Supreme Court, while affirming the

ruling permitting termination, disagreed with my analysis of ETE’s best efforts,

writing, “covenants like the ones involved here impose obligations to take all

reasonable steps to solve problems and consummate the transaction.”154 The

Supreme Court found that the language in the best efforts covenants “not only

prohibited the parties from preventing the merger, but obligated the parties to take

all reasonable actions to complete the merger.” 155 Because my finding that ETE did

not cause the condition precedent to fail was itself sufficient for the Supreme Court

to affirm, it did so. However, the Court stated that my focus on the absence of

affirmative Merger-scuttling acts by ETE to find compliance with best efforts was

in error and noted that “[t]here was evidence, recognized by the Court of Chancery,

152
Id. § 5.07(a).
153
Williams points to new evidence casting doubt on who at ETE in fact discovered the issue with
the 721 Opinion and to what extent ETE’s laissez-faire approach actively prevented the parties
from finding a solution. E.g., Shen Aff., Ex. 82, Dep. of Darryl A. Krebs dated Oct. 25, 2018, at
97:6–98:18, 100:7–102:8; Shen Aff., Ex. 87, Dep. of T. Eiko Stange dated Oct. 26, 2018, at
105:22–106:6, 109:11–112:18, 120:6–23, 128:5–15, 204:10–15, 233:21–234:8.
154
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264, 272 (Del. 2017).
155
Id. at 273.

39
from which it could have concluded that ETE did breach its [efforts] covenants. .

.” 156 This referred to my finding that ETE “generally did not act like an enthusiastic

partner in pursuit of consummation of the [Merger Agreement].” 157 I confirmed to

the parties in August 2017 that a potential breach by ETE of the efforts clauses was

a “live” issue due to the Supreme Court’s commentary. 158

Based on the foregoing, I deny ETE’s Motion for Summary Judgment on this

issue. 159 Disputes of material fact remain as to whether ETE’s approach to

consummating the Merger fulfilled its contractual duties.

D. The Tax Representation Clause

Williams and ETE have cross-moved for summary judgment as to whether

ETE was in breach of its tax representation obligations as of the Merger termination,

triggering liability for the WPZ Termination Fee. To recapitulate, where, as here, a

party has withdrawn from the Merger due to the passing of the Outside Date, ETE

is liable to Williams for the WPZ Termination Fee Reimbursement if, but only if,

any of several enumerated “conditions” remain “[un]satisfied.” 160 Included among

156
Id.
157
Williams Cos., 2016 WL 3576682, at *17.
158
See Tr. of Aug. 29, 2017 Telephonic Status Conference, D.I. 287, at 4:2–23.
159
Accordingly, Count I of Williams’ Amended Complaint, which addresses the best efforts
clauses, remains for trial. I note that ETE’s Counterclaim regarding Williams’ alleged failure to
use its best efforts also remains.
160
Merger Agreement, § 5.06(f).

40
such conditions are those “set forth” in §§ 6.03(a) and (b).161 Section 6.03(a)

provides one such condition: that certain representations and warranties shall be true

as of the Closing Date. The Section, at 6.03(a)(i)-(iii), enumerates several

representations which, if false162 as of closing, excuse performance. With respect to

non-enumerated representations and warranties, § 6.03(a)(iv) imposes the following

condition:

each of the other representations and warranties of [ETE not
enumerated in §§ 6.03(a)(i)-(iii)] set forth in this Agreement shall be
true and correct . . . as of the Closing Date [June 28, 2016] as though
made on such date . . . except . . . where the failure of such
representations and warranties to be so true and correct would not
reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect.”163

One such un-enumerated representation and warranty subject to § 6.03(a)(iv)

is set out in § 3.02(n)(i), where the parties represent that they do not “know[] of the

existence of any fact that would reasonably be expected to prevent (A) the Merger

from qualifying for the Intended Tax Treatment or (B) the Contribution and Parent

Class E Issuance from qualifying as an exchange to which Section 721(a) of the

161
Id. § 6.03.
162
The falsehood of these enumerated representations is qualified by its materiality: § 6.03(a)(i)
must be “true and correct . . . except for any immaterial inaccuracies,” (ii) must be “true and correct
in all material respects,” and (iii) must simply be true and correct. Id. §§ 6.03(a)(i)-(iii).
163
Id. § 6.03(a)(iv).

41
Code applies.” 164 That condition remained unsatisfied as of the Closing Date and at

the time ETE terminated the Merger Agreement.

As ETE points out, in the 2016 Trial Opinion, I noted that the purpose of

ETE’s tax representation as of the time of signing was “that all sides can be fully

informed as of the time the agreement is reached. There are no facts here that [ETE]

failed to disclose. Both [ETE] and Williams understood all the facts at issue.”165 I

found that Latham’s future analysis of the transaction—which gave rise to its

inability to issue the 721 Opinion—was not a “fact,” and thus that ETE had not

breached it tax representation as of the time of signing.166 However, under §

6.03(a)(iv), a condition of the Merger is that such representations must also be “true

and correct . . . as though made on” the Closing Date, which the parties agreed would

be June 28, 2016. As of that date, ETE was aware of facts that “would reasonably

be expected to prevent” the equity component of the deal from qualifying under

Section 721(a): The value of the unit equity component of the Merger consideration

had shrunk, and its own tax advisor, Latham, had informed ETE that it could not

certify that the deal qualified under Section 721(a). Knowing these facts, ETE, as

164
Id. § 3.02(n)(i).
165
Williams Cos., 2016 WL 3576682, at *18.
166
Id. at *19.

42
of the Closing Date, could not make a representation, truthfully, consistent with §

3.02(n)(i).

However, the tax representation just referred to is not among those

enumerated in §§ 6.03(a)(i)-(iii); a failure of such a representation, under §

6.03(a)(iv), shall be considered a condition excluding merger obligations—and a

trigger to liability for the WPZ Termination Fee Reimbursement—only where the

failure 167 could reasonably be expected to cause a “Parent Material Adverse Effect.”

The Merger Agreement defines Parent Material Adverse Effect as follows:

“Parent Material Adverse Effect” means any change, effect, event,
occurrence, circumstance, development or state of facts that, with all
other changes, effects, events, occurrences, circumstances,
developments and states of fact, is or would reasonably be expected to
be materially adverse to the business, financial condition or results of
operations of Parent and its Subsidiaries, taken as a whole, other than
any change, effect, event, occurrence, circumstance, development or
state of facts to the extent relating to (i) the economy in general, (ii) the
Energy Product gathering, processing, treating, transportation, storage
and marketing industries generally or related products and services . . .
(viii) the announcement of this Agreement or the Transactions or the
consummation of the Transactions . . . provided, however, that the
changes, effect, events, occurrences, circumstances, developments or
states of facts set forth in the foregoing clauses . . . shall be taken into
account in determining whether a “Parent Material Adverse Effect” has
occurred to the extent such changes, effects, events, occurrences,
circumstances, developments or states of facts have a disproportionate
effect on Parent and its Subsidiaries, taken as a whole, when compared

167
Considering such failure “individually or in the aggregate. . .” Merger Agreement, §
6.03(a)(iv).

43
 to other participants in the industries in which Parent and its
Subsidiaries operate.168

The question of whether the failure of the tax representation amounted to such a

Parent Material Adverse Effect is intensely factual, and should, to my mind, be based

on a trial record.

E. The “Ordinary Course” Operating Covenant Provisions

Williams and ETE have cross-moved for summary judgment regarding

whether ETE breached its operating covenants. The WPZ Termination Fee

Reimbursement obligation is triggered by a failure of “conditions” including those

in § 6.03(b) of the Merger Agreement. In that section, ETE agreed that it “shall

have, in all material respects, performed or complied with all obligations required

by the time of the Closing to be performed or complied with by it under this

Agreement. . .”169 Lack of compliance (absent affirmative defenses) would trigger

ETE’s obligation to pay Williams the WPZ Termination Fee Reimbursement.

Section 6.03(b) required ETE, among other things, to abide by its “Covenants

Relating to Conduct of Business” under § 4.01(b). Section 4.01(b) requires that

“Except as set forth in Section 4.01(b) of the Parent Disclosure Letter,” ETE “shall

. . . carry on its business in the ordinary course. . .” 170 Section 4.01(b) also contains

168
Id. § 8.03, Parent Material Adverse Effect.
169
Id. § 6.03(b).
170
Id. § 4.01(b).

44
several subsections with more specific operating covenants. Williams asserts that

as a result of the Preferred Offering, ETE breached its operating covenants in four

ways, each relating to the Preferred Offering.

First, Williams argues that ETE breached its general obligation in § 4.01(b)

to operate “in the ordinary course.” It bases its argument on my finding in another

matter, In re Energy Transfer Equity, L.P. Unitholder Litig.,171 later affirmed by the

Supreme Court, that the Preferred Offering breached ETE’s limited partnership

agreement.172 Based on the testimony of ETE’s own personnel, breaching its limited

partnership agreement is not “ordinary course” for the company. 173

Second, § 4.01(b)(ii) provides that ETE would not “take any action that would

result in [ETE] . . . becoming subject to any restriction not in existence on the date

hereof with respect to the payment of distributions or dividends[.]” 174 The Preferred

Offering required ETE to make distributions to the participating preferred

unitholders regardless of distributions to the common unitholders. 175

171
2018 WL 2254706 (Del. Ch. May 17, 2018), aff’d sub nom. Levine v. Energy Transfer L.P.,
223 A.3d 97 (Del. 2019).
172
See id. at *25.
173
E.g., Clark Aff., Ex. 15, Dep. of Kelcy Warren dated December 4, 2019, at 97:9–12; Clark Aff.,
Ex. 25, Dep. of McReynolds dated Oct. 8, 2019, at 189:7–10.
174
Merger Agreement, § 4.01(b)(ii).
175
See Clark Aff., Ex. 45, at -199855.

45
 Third, § 4.01(b)(iii) provides that ETE would not “split, combine or reclassify

any of its equity securities or issue or authorize the issuance of any other securities

in respect of, in lieu of or in substitution for equity securities. . .” 176 Through the

Preferred Offering, ETE issued one preferred unit for each participating common

unit, and thus, Williams contends, issued “securities in respect of . . . equity

securities.”177

Fourth, in § 4.01(b)(vi), ETE represented it would not “amend (A) the

organizational documents of [ETC, or] (B) the [ETE] Certificate of Partnership or

the Partnership Agreement. . .” 178 To make the Preferred Offering, ETE amended

its limited partnership agreement. 179

ETE does not dispute any of the facts cited above regarding the Preferred

Offering and its effect with regard to the operating covenants. Simply put, the

Preferred Offering did not comport with the requirements set forth in the operating

covenants. ETE raises two arguments as to why the Preferred Offering nonetheless

did not cause it to breach these operating covenants. The first is that any violations

of the operating covenants were immaterial, and that the Merger Agreement does

176
Merger Agreement, § 4.01(b)(iii).
177
Clark Aff., Ex. 25, Dep. of McReynolds dated October 8, 2019, at 202:11–14.
178
Merger Agreement, § 4.01(b)(vi).
179
See Clark Aff., Ex. 46, at 1; Williams Cos., Inc. v. Energy Transfer Equity, L.P., 2016 WL
3576682, at *4 (Del. Ch. June 24, 2016).

46
not prohibit immaterial noncompliance with the operating covenants. ETE’s second

argument is that the Merger Agreement was explicitly modified by another

agreement, the Parent Disclosure Letter, which specifically authorized “issuances of

equity securities with a value of up to $1.0 billion” notwithstanding the prohibition

on equity issuances in the Merger Agreement. The Preferred Offering was an

issuance of just under $1 billion. ETE reasons that, to the extent that any acts

undertaken in connection with the Preferred Offering are in apparent material

violation of the operating covenants, therefore, those covenants are overridden by

the equity-issuance carve-out in the Parent Disclosure Letter.

I discuss each in turn.

1. Materiality Qualifiers in the Operating Covenants

ETE argues that if it violated any operating covenants, it did not do so in a

way material to Williams. Under § 6.03(b), ETE agreed that it “shall have, in all

material respects, performed or complied with all [operating covenants].” 180 This

provision covers the performance obligations detailed in § 4.01(b). ETE argues that

the Preferred Offering—which is the source of the alleged violations—would have

had no serious effect on Williams, and, further, that Williams knew about it and was

nonetheless eager to close. The parties disagree about the meaning of “in all material

180
Merger Agreement, § 6.03(b) (emphasis added).

47
respects,” a disagreement I need not address here, because applying any standard

awaits resolution of issues of fact.

The parties contest what effect the Preferred Offering actually would have had

on Williams, and thus whether the violations it represented were material. The

factual nature of this issue is complicated by the way events transpired. The Merger

failed to close, and so Williams’ stockholders were never subjected to the effects of

the Preferred Offering. Moreover, the market rebounded, and so even ETE common

units were not subjected to the effects of the Preferred Offering.181 As a result,

neither party can point to a concrete effect to demonstrate its materiality or

immateriality as a matter of law. Williams cites to ETE’s financial advisors, who

noted that if ETE had cut distributions as it anticipated would be required, the

Preferred Offering would “represent a wealth transfer from non-participating to

participating units.”182 Williams asserts that the Preferred Offering would have

created a price differential that would devalue and dilute the Williams

stockholders.183 ETE argues that Williams’ willingness to close is the strongest kind

181
See In re Energy Transfer Equity, L.P. Unitholder Litig., 2018 WL 2254706, at *14 (Del. Ch.
May 17, 2018) (“ETE ended up not cutting distributions: About a month after the merger was
terminated, ETE announced that its distributions to common unitholders would stay flat at $0.285
per unit. On October 26, 2017, ETE announced that it would increase its quarterly distributions to
$0.295 per common unit.”) (internal citations and footnotes omitted).
182
Clark Aff., Ex. 55, at -6114.
183
See Clark Aff., Ex. 13, at -011.

48
of evidence that the Preferred Offering was not material. Addressing the issue, to

my mind, requires a trial record.

2. The Parent Disclosure Letter

ETE argues that even if its actions in connection with the Preferred Offering

appear to be in material violation of its operating covenants, any such violation is

excused under the terms of the Parent Disclosure Letter. That document,

incorporated into the Merger Agreement, per ETE contains a carve-out that permits

the Preferred Offering. In general, the Parent Disclosure Letter provides disclosures

and permits ETE to take enumerated actions otherwise explicitly prohibited by the

Merger Agreement. Section 4.01(b)(v)(1) of the Parent Disclosure Letter provides,

“[ETE] may make issuances of equity securities with a value of up to $1.0 billion in

the aggregate.”184 ETE argues that because the Preferred Offering has a maximum

potential value underneath the $1 billion ceiling, the offering was permitted,

regardless of whether it otherwise violated any operating covenant.185

The relationship between the Parent Disclosure Letter and the Merger

Agreement is, both parties agree, a matter of contract interpretation. It is clear that

the agreement between the parties was that ETE was prohibited by § 4.01(b)(v) from

issuing new equity, per the Merger Agreement, but that such prohibition was

184
Parent Disclosure Letter, § 4.01(b)(v)(1).
185
See ETE Opening Br., at 24–29; see also Potts Aff., Ex. 21, at 2 (noting maximum value of
$942,508,720 for the Preferred Offering).

49
overridden by the specific permission incorporated into the Merger Agreement via

the Parent Disclosure Letter. What is less clear is to what extent that permission also

overrode the four operating conditions cited by Williams here.

The parties address at great length in briefing the interplay between the

various sections of the Parent Disclosure Letter and the Merger Agreement in way

of the operating-condition covenants. To my mind, at this stage, the effort is

misdirected. Trial in this matter will create a factual record, informing me of the

potential effect on Williams of any breaches of the covenants inherent in the

Preferred Offering. To the extent I find any nominal breaches to be material under

the meaning of that term in the Merger Agreement, I must then evaluate whether

those nominal breaches are nonetheless permitted under the equity issuance

provision in the Parent Disclosure Letter. Addressing the latter issue in the abstract

risks an advisory opinion, and I decline to do so here.

***

Based on the foregoing, I deny the parties’ cross-motions for summary

judgment regarding ETE’s alleged violations of the operating covenants.

F. The Capital Structure Representation Clause

Williams and ETE have cross-moved for summary judgment regarding

whether ETE breached its representation regarding its capital structure. Under §

6.03(a) of the Merger Agreement, ETE agreed that “[t]he representations and

50
warranties of [ETC] and [ETE] set forth in Sections 3.02(c)(i) and 3.02(c)(ii)

(Capital Structure) shall be true and correct as of the Closing Date as though made

on such date . . . except for any immaterial inaccuracies. . . .” 186 In § 3.02(c)(i), ETE

represented that as of the signing date, it had three classes of equity, as well as a

specific number of shares in each class:

The authorized equity interests of Parent consist of common units
representing limited partner interests in Parent (“Parent Common
Units”), Class D Units representing limited partner interests in Parent
(“Parent Class D Units”) and a general partner interest in Parent
(“Parent General Partner Interest”). At the close of business on
September 25, 2015 (the “Parent Capitalization Date”), (i)
1,044,764,836 Parent Common Units were issued and outstanding, of
which 5,776,462 consisted of Parent Restricted Units, (ii) 2,156,000
Parent Class D Units were issued and outstanding and (iii) there was an
approximate 0.2576% Parent General Partner Interest. 187

The bring-down clause in § 6.03(a) meant that ETE’s representation regarding the

number of classes of equity was made on both the signing and the Closing Date. 188

It is undisputed that the Preferred Offering created a fourth class of equity. 189

Thus, at the Closing Date, ETE could no longer represent that the three-class equity

186
Merger Agreement, §6.03(a)(i).
187
Id. § 3.02(c)(i).
188
Id. §6.03(a)(i). However, as Williams points out, the representations regarding the number of
shares in each equity class was only represented to be accurate as of the signing date. See id. §
3.02(c)(i) (representing number of shares only “[a]t the close of business on September 25, 2015”)
(emphasis added). I agree that this suggests the parties intended to permit the number of shares to
change, but not the number of classes of shares (subject, of course, to exceptions in the Parent
Disclosure Letter).
189
Clark Aff., Ex. 45, at -199834; Clark Aff., Ex. 46, at 1; Clark Aff., Ex. 47, at F-7 through F-8.

51
structure described in § 3.02(c)(i) was accurate. The language providing the

materiality standard for the capital structure representation differs from that of the

operating covenants. It requires that ETE’s representations be true as of the Closing

Date “except for any immaterial inaccuracies.”190 Williams argues that “immaterial

inaccuracies” here is limited to a “de minimis” breach—essentially, a small error as

to the accuracy of the number of shares.191

ETE offers the same counterarguments regarding the capital structure

representation as it offered for the operating covenants. First, it argues that a new

class of equity is an immaterial inaccuracy. Second, it argues that the Parent

Disclosure Letter permits the change. The same reasons underlying my denial of

summary judgment regarding the operating covenants apply here. I require a trial

record to resolve these disputes. Based on the foregoing, I deny the parties’ cross-

motions for summary judgment regarding ETE’s alleged violations of its capital

structure representations.

G. ETE’s Affirmative Defenses and Motion for Sanctions

As noted, ETE has brought counterclaims for breach of contract and

declaratory judgment. It also asserts affirmative defenses based on several issues in

those counterclaims, including that Williams failed to substantially comply with the

190
Merger Agreement, §6.03(a)(i).
191
Williams Opening Br., at 30–31.

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Merger Agreement, that Williams has unclean hands, and that even if ETE’s

Preferred Offering violated the Merger Agreement, it was Williams’ wrongful

refusal to consent to the Public Offering that caused that breach. Having denied

Williams’ requested relief at this stage, I need not address these affirmative defenses

at this time.

More than two months after arguing the cross-motions for summary judgment,

ETE filed a Motion for Sanctions against Williams. The Motion for Sanctions brings

allegations of litigation misconduct, chiefly against Williams’ CEO Armstrong,

conduct that ETE wishes to impute to Williams. After review, I find that the Motion

for Sanctions will not alter the outcome of the cross-motions for summary judgment

at issue here, and that the allegations should be dealt with at trial or a separate

evidentiary hearing.

IV. CONCLUSION

Based on the foregoing, the parties’ cross-motions for summary judgment are

denied except with respect to the contractual issues resolved here. The parties should

confer and submit a form of order consistent with this Memorandum Opinion.

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