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: September 23, 2021
Date Decided: December 29, 2021
Kenneth J. Nachbar, Susan W. Waesco, and Matthew R. Clark, of MORRIS,
NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL:
Antony L. Ryan, Kevin J. Orsini, Michael P. Addis, and David H. Korn, of
CRAVATH, SWAINE & MOORE LLP, New York, New York, Attorneys for
Plaintiff and Counterclaim Defendant The Williams Companies, Inc.

Rolin P. Bissel, James M. Yoch, Jr., and Alberto E. Chávez, of YOUNG CONAWAY
STARGATT & TAYLOR, LLP, Wilmington, Delaware; OF COUNSEL: Michael C.
Holmes, John C. Wander, Craig E. Zieminski, and Andy E. 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 first came before me on Plaintiff The Williams Companies, Inc.’s

(“Plaintiff” or “Williams”) motion to specifically enforce a merger agreement (the

“Merger”) with Defendant Energy Transfer LP (“ETE”). Between signing and

closing, market conditions changed, making the Merger less favorable to ETE, to

the point that ETE’s CEO and board chairman, Kelcy Warren, foresaw a credit-

ratings downgrade and regretted agreeing to the Merger. The same market

conditions caused the failure of a condition precedent: that Latham & Watkins be

able to certify that the Merger was structured in such a way that it should be a tax-

free exchange of partnership units (the “721 Opinion”).

In 2016, Williams sued to prevent ETE from terminating the merger

agreement due to the failure of this condition. Despite recognizing that ETE wanted

out of the merger agreement, I determined that the failure of the condition precedent

independently gave ETE an exit right. Left in the case was Williams’ pursuit of a

contractual breakup fee. 1 In denying specific performance, I noted ETE’s strong

desire not to close, but also that “even a desperate man can be an honest winner of

the lottery,” analogizing such luck to the tax-representation-out that had presented

itself. In this action for liquidated damages, however, I also note that even this lucky

winner must face the tax man. Having called a dirge for the Merger, ETE must pay

1
As detailed below, Williams and ETE negotiated a $410 million reimbursement that ETE was
required to pay Williams in the event that the Merger failed and certain conditions were met.
the piper. For the reasons given below, I find that ETE is contractually obligated to

pay the breakup fee.

I. BACKGROUND 2

The facts recited in this post-trial Opinion are the Court’s findings based on

the record presented at trial. The following facts were either uncontested or proven

by a preponderance of the evidence. “The reader is forewarned that this case

involves a maze of corporate entities and an alphabet soup of corporate names.”3

This Opinion includes only those facts necessary to my analysis.

A. The Parties

Plaintiff and Counterclaim Defendant Williams is a Delaware corporation

with its principal executive offices located in Tulsa, Oklahoma.4 Williams is a North

American energy company focused on providing infrastructure to deliver natural gas

products to market.5 Williams owns and operates interstate natural gas pipelines and

gathering and processing operations throughout the country. 6 Williams stock is

traded on the New York Stock Exchange (the “NYSE”) under the symbol “WMB.”7

2
Where the facts are drawn from exhibits jointly submitted at trial, they are referred to according
to the numbers provided on the parties’ joint exhibit list and with page numbers derived from the
stamp on each JTX page (“JTX-__.__”).
3
Williams Cos., Inc. v. Energy Transfer Equity, 2017 WL 5953513 (Del. Ch. Dec. 1, 2017)
(quoting Chester Cnty. Emps.’ Ret. Fund v. New Residential Inv. Corp., 2017 WL 4461131, at *1
(Del. Ch. Oct. 6, 2017)).
4
Pre-Trial Stipulation and Order, Dkt. No. 577 ¶ 10 [hereinafter “Stip.”].
5
Id.
6
Id.
7
Id.

2
Williams is a party to the Agreement and Plan of Merger entered on September 28,

2015 (the “Merger Agreement”).8

Defendant and Counterclaim Plaintiff Energy Transfer LP, formerly known

as Energy Transfer Equity, L.P., 9 is a Delaware limited partnership with its principal

executive offices located in Dallas, Texas. 10 ETE’s family of companies owns and

operates approximately 71,000 miles of natural gas, natural gas liquids, refined

products and crude oil pipelines.11 ETE’s common units are traded on the NYSE

under the symbol “ET.”12

Defendant and Counterclaim Plaintiff Energy Transfer Corp LP (“ETC”) is a

Delaware limited partnership taxable as a corporation.13 Pursuant to the Merger,

Williams would have merged with and into ETC.14 ETC is a party to the Merger

Agreement and would have been the managing member of the general partner of

ETE following the consummation of the Merger.15

8
Id.
9
On October 19, 2018, Energy Transfer, L.P. changed its name to “Energy Transfer LP.” Id. ¶ 12.
The parties agree that Energy Transfer Equity, L.P. is the same entity as Energy Transfer LP for
the purposes of this litigation. Id.
10
Id. ¶ 11.
11
Id.
12
Id.
13
Id. ¶ 13.
14
Id.
15
Id.

3
 Defendant and Counterclaim Plaintiff ETE Corp GP, LLC is a Delaware

limited liability company, the general partner of ETC, and a party to the Merger

Agreement. 16

Defendant and Counterclaim Plaintiff LE GP, LLC (“LE GP”) is a Delaware

limited liability company, the general partner of ETE, and a party to the Merger

Agreement. 17

Defendant and Counterclaim Plaintiff Energy Transfer Equity GP, LLC

(“ETE GP”) is a Delaware limited liability company and a party to the Merger

Agreement. 18 Pursuant to the Merger, ETE GP would have merged with LE GP

such that ETE GP would have been the surviving company and general partner of

ETE.19

Unless otherwise specified, I refer to these Defendants and Counterclaim

Plaintiffs collectively as “ETE.”

B. Factual Background

1. Williams Agrees to the WPZ Roll-Up

Before ETE submitted an offer to purchase Williams, Williams entered into

an agreement to undertake a separate roll-up transaction with its master limited

16
Id. ¶ 14.
17
Id. ¶ 15.
18
Id. ¶ 16.
19
Id.

4
partnership, Williams Partners, L.P. (“WPZ”).20 The Williams Board approved the

WPZ transaction on May 12, 2015.21 Williams and WPZ executed the transaction

documents that day, and the next day, May 13, 2015, they issued a joint press release

announcing the execution of the agreement. 22 The WPZ agreement required

Williams to pay WPZ a termination fee of $410 million if it later terminated the

WPZ transaction. 23

At the time the WPZ transaction was announced, ETE had not made a formal

offer to purchase Williams, though it had expressed interest in doing so.

Specifically, on May 6, 2015, a week before the WPZ transaction was announced,

ETE’s Chief Executive Officer (“CEO”), Kelcy Warren, hosted a dinner at his home

with Williams’ CEO, Alan Armstrong, Williams’ Chief Financial Officer (“CFO”)

Don Chappel, and ETE’s then-CFO, Jamie Welch for the purpose of asking whether

Williams would be interested in a merger with ETE.24 Warren did not make a formal

offer to purchase Williams at this dinner,25 nor had he decided whether he wanted to

make an offer. 26 Warren did not propose a price term for a potential offer,27 but

20
JTX-1218.0130.
21
Id.
22
Id.
23
Id.
24
Trial Tr. at 137:21–138:3(Chappel); id. at 313:23–314:3(Warren).
25
Id. at 138:4–6(Chappel).
26
Id. at 312:15–314:19(Warren).
27
Id. at 138:7–9(Chappel).

5
Welch did outline a potential transaction structure. 28 Armstrong did not brief the

Williams board of directors (the “Williams Board”) about the dinner. 29

2. The Parties Negotiate the Merger Agreement

On May 19, 2015, ETE submitted a bid to purchase Williams in an all-equity

deal. 30 As a condition to its offer, ETE required Williams to terminate the roll-up

transaction with WPZ, which, as detailed above, would require Williams to pay

WPZ a $410 million termination fee.31 Negotiations proceeded through the summer

of 2015.32 Williams was represented by Cravath, Swaine & Moore (“Cravath”), and

ETE was represented by Wachtell, Lipton, Rosen & Katz (“Wachtell”). The

Williams Board formed a Strategic Review Administration Committee to evaluate

and oversee a potential sale.33

a. Economic Equivalence Was “Paramount” to Williams

The Merger contemplated an “Up-C” structure, in which Williams

stockholders would receive shares in a new entity, ETC, instead of receiving ETE

common units directly. 34 The Williams Board was therefore concerned that ETC

shares could trade at a discount to ETE common units.35 The Williams Board was

28
Id. at 601:24–602:6(Armstrong).
29
Id. at 603:1–3(Armstrong).
30
Stip. ¶ 17.
31
JTX-0202.0004.
32
Stip. ¶ 17.
33
JTX-1218.0134.
34
JTX-0026.0004.
35
E.g., Trial Tr. at 18:10–15(Chappel); id. at 316:24–317:9(Warren).

6
likewise concerned that, because Warren personally owned a significant number of

ETE units and would control both ETE and ETC after the Merger, he might take

actions that benefitted ETE at ETC’s expense.36

As a result, achieving economic equivalence between the ETE common units

and the ETC shares was a key point of negotiation. Warren wrote to the Williams

Board in a June 18, 2015 letter that Williams “stockholders would receive common

shares in [ETC] that would mirror the economic attributes of ETE common units.”37

Chappel testified at trial that “economic equivalence was paramount” and that there

was “engineering that was done to ensure that” ETE common units and ETC shares

“traded as closely as we possibly could.”38 Warren admitted at trial that “equality

of distributions between ETC shares and ETE units was a key aspect of the

merger.” 39 Al Garner, a financial advisor to Williams from Lazard, testified that

bargaining for economic equivalence was “the subject of most of the negotiations

on the transaction” and “the most important and time-consuming part of the[]

negotiations.” 40 Garner further testified that in the final months leading up to the

execution of the merger agreement, economic equivalence took up the “lion’s share

of the negotiation.”41

36
Trial Tr. at 482:9–483:2(McReynolds); id. at 605:7–22(Armstrong); JTX-1218.0161.
37
JTX-0026.0004.
38
Trial Tr. at 18:24–19:3(Chappel).
39
Id. at 316:24–318:17(Warren).
40
Id. at 146:11–147:6(Garner).
41
Id. at 147:24–148:3(Garner).

7
 As a result, the Merger Agreement featured various terms that were designed

to achieve economic equivalence. For instance, the parties agreed that ETC would

pay dividends on ETC shares that were equal to distributions paid on ETE common

units through 2018.42 In addition, ETE agreed to provide ETC stockholders with an

equalizing payment at the end of two years if ETC shares traded at a discount to ETE

common units.43 Finally, the parties agreed to replace a portion of the all-equity

consideration with a $6.05 billion cash payment that would be used by ETE to

purchase shares in ETC, known as “hook stock,” which ensured that ETE’s and

ETC’s interests were aligned.44 ETC would distribute this consideration to its

stockholders, formerly Williams stockholders.45

3. The Merger Agreement

The parties executed the Merger Agreement on September 28, 2015.46

Following the consummation of the Merger, ETC would own Class E Units

representing approximately 57% of the limited partner interest of ETE, and the

existing limited partners of ETE would own the remaining approximately 43%

limited partner interest.47 ETE would own the Williams assets, as well as

42
JTX-0189.0006–.0007 (§5.15(b)(iii)); Trial Tr. at 19:5–20:16(Chappel); id. at 146:11–
147:14(Garner); id. at 317:24–318:5(Warren).
43
Trial Tr. at 19:5–20:16(Chappel).
44
Id. at 20:17–21:7(Chappel); id. at 147:7–14(Garner); id. at 418:19–422:1(Welch); id. at 988:16–
989:3(Needham); id. at 1230:23–12:31:1(Whitehurst).
45
Stip. ¶ 18.
46
Id. ¶ 17. See also JTX-0209.
47
Stip. ¶ 18.

8
approximately 19% of the outstanding ETC shares. 48 The former Williams

stockholders would own the remaining approximately 81% of the ETC shares and

would receive approximately $6.05 billion in cash consideration.49 Williams and

ETE eventually agreed to a Closing Date of June 28, 2016 at 9:00 AM.50

The Merger Agreement featured several provisions that are at issue in this

litigation, including a Capital Structure Representation, an Ordinary Course

Covenant, and three Interim Operating Covenants.

a. The Capital Structure Representation

Under the Merger Agreement, ETE represented at signing that its capital

structure was composed of three classes of equity securities—common units and

Class D Units representing limited partnership interests in ETE, and a general

partner interest in ETE—as well as the number of outstanding units in each class and

the percentage of the general partner interest (the “Capital Structure

Representation”):

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

48
Id.
49
Id.
50
Id. ¶ 34.

9
 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. 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. 51

The parties agreed that the representation regarding the three existing classes

of equity—but not the representation regarding the number of outstanding units—

would be brought down to closing, “except for any immaterial inaccuracies”:

The representations and warranties of the Company set
forth in Sections 3.01(c)(i) [] (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. 52

Therefore, if ETE issued more units within its existing classes between

signing and closing, the representation would remain true. If, however, ETE created

a new class of equity interests, the representation would no longer be true at closing.

The Capital Structure Representation was a “key element . . . in addressing the

[Williams] [B]oard’s concerns about economic equivalence” because it ensured that

ETE could not “issue a new security with rights that shifted value from what was

51
JTX-0209.0030 (§3.02(c)(i)). The Merger defines “Parent” to mean ETE, and “TopCo” to mean
ETC. JTX-0209.0004.
52
Id. at .0063 (§6.03(a)(i)).

10
expected and what was modeled,” which could result in “a deal that was quite a bit

different than the deal that was bargained for.”53

b. The Ordinary Course and Interim Operating Covenants

ETE agreed to several covenants in the Merger Agreement regarding its

conduct between signing and closing, four of which are at issue here. Each of these

covenants are subject to exceptions, discussed below, identified in the Parent

Disclosure Letter for Agreement and Plan of Merger (the “Parent Disclosure

Letter”).

First, ETE agreed to operate its business “in the ordinary course” (the

“Ordinary Course Covenant”):

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
relationships with significant customers and suppliers.54

The “ordinary course” obligation in turn entailed several specific restrictions

on ETE between signing and closing (the “Interim Operating Covenants”). As with

53
Trial Tr. at 204:19–205:3(Van Ngo); id. at 28:3–11(Chappel).
54
JTX-0209.0045 (§4.01(b)) (emphasis added).

11
the general Ordinary Course Covenant, the Interim Operating Covenants were

subject to exceptions provided in the Parent Disclosure Letter:

Without limiting the generality of the foregoing, 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 not,
and shall not permit any of its Subsidiaries to . . . . 55

Three of the Interim Operating Covenants are at issue here. First, ETE agreed

that it would not take any actions resulting in new restrictions on distributions and

payments of dividends:

[Parent shall not, and shall not permit any of its
Subsidiaries to] 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[.] 56

Second, ETE agreed to refrain from certain actions regarding its equity

securities:

[Parent shall not, and shall not permit any of its
Subsidiaries to] 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[.]57

55
Id. (emphasis added).
56
Id. at .0045 (§4.01(b)(ii)).
57
Id. at .0045 (§4.01(b)(iii)).

12
 Third, ETE agreed not to amend certain organizational documents:

[Parent shall not, and shall not permit any of its
Subsidiaries to] amend (A) the organizational documents
of TopCo, (B) the Parent Certificate of Partnership or the
Parent Partnership Agreement (other than the Parent
Partnership Agreement Amendment) or (C) the
comparable organizational documents of any Subsidiary
of Parent in any material respect[.]58

Section 6.03(b) of the Merger Agreement required ETE to have “performed

or complied” with each of the Ordinary Course Covenant and the Interim Operating

Covenants “by the time of the Closing” “in all material respects”:

Performance of Obligations of TopCo and Parent. 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.59

These covenants were designed to ensure that, between signing and closing,

“the deal that was struck [wa]s preserved through the closing date” and were “part

of the package of protections that the [Williams B]oard requested to address their

concerns around economic equivalence.”60

58
Id. at .0046 (§4.01(b)(vi)).
59
Id. at .0063 (§6.03(b)).
60
Trial Tr. at 21:8–23(Chappel); id. at 203:8–23(Van Ngo).

13
 c. The Parties Negotiate the $1 Billion Equity Issuance
Exception

As I noted above, the Ordinary Course Covenant and each of the Interim

Operating Covenants were subject to exceptions “set forth in Section 4.01(b) of the

Parent Disclosure Letter.”61 Section 4.01(b) of the Parent Disclosure Letter, in turn,

identifies these exceptions. 62 The exceptions are organized under headers that

correspond to specific sections within Section 4.01(b) of the Merger Agreement.63

Under the header “Section 4.01(b)(v),” the Parent Disclosure Letter states, “Parent

may make issuances of equity securities with a value of up to $1.0 billion in the

aggregate” (the “$1 Billion Equity Issuance Exception”).64

The parties dispute whether the $1 Billion Equity Issuance Exception applies

to all of the Ordinary Course and Interim Operating Covenants, or just the Interim

Operating Covenant located within Section 4.01(b)(v) of the Merger Agreement,

which prohibits ETE from issuing equity between signing and closing. The

transaction documents include two provisions that are relevant to this interpretive

question. First, the Parent Disclosure Letter states that “[t]he headings contained in

this Parent Disclosure Letter are for reference only and shall not affect in any way

61
JTX-0209.0045 (§4.01(b)).
62
JTX-0194.0017–.0019.
63
Id. Specifically, there are headers titled, “Section 4.01(b)(i),” “Section 4.01(b)(ii),” “Section
4.01(b)(v),” “Section 4.01(b)(vii),” “Section 4.01(b)(ix),” “Section 4.01(b)(x),” “Section
4.01(b)(xi),” “Section 4.01(b)(xii),” and “Section 4.01(b)(xiii).” Id.
64
Id. at .0018.

14
the meaning or interpretation of this Parent Disclosure Letter.” 65 Second, the Merger

Agreement includes a savings clause stating that the disclosures in any section of

the Parent Disclosure Letter apply to the corresponding section of the Merger

Agreement, as well as to any other section of the Merger Agreement so long as the

“relevan[ce]” to the other section “is reasonably apparent on its face”:

[A]ny information set forth in one Section or subsection of
the Parent Disclosure Letter shall be deemed to apply to
and qualify the Section or subsection of this Agreement to
which it corresponds in number and each other Section or
subsection of this Agreement to the extent that it is
reasonably apparent on its face in light of the context and
content of the disclosure that such information is relevant
to such other Section or subsection[.]66

The parties also introduced extrinsic evidence at trial regarding their intent

with respect to these exceptions. Since the initial drafts, the Merger Agreement had

included a prohibition on issuing equity between signing and closing.67 ETE then

proposed adding the $1 Billion Equity Issuance Exception directly into this

prohibition, rather than adding it into the Parent Disclosure Letter. 68 The $1 Billion

Equity Issuance Exception was negotiated by Chappel and Welch, the CFOs for both

parties.69 As the parties exchanged subsequent drafts, the $1 Billion Equity Issuance

Exception remained directly within the equity issuance covenant of the Merger

65
Id. at .0002.
66
JTX-0209.0030 (§3.02).
67
JTX-0056.0064 (§5.2(b)(xi)); JTX-0058.0047 (§4.01(b)(iv)).
68
JTX-0064.0170–.0171 (§4.01(b)(iv)(A)); Trial Tr. at 408:19–409:1(Welch).
69
Trial Tr. at 22:8–15(Chappel); id. at 404:15–405:1(Welch).

15
Agreement, instead of the Parent Disclosure Letter.70 Chappel and Welch both

testified that they both understood the $1 Billion Equity Issuance Exception to apply

only to the Interim Operating Covenant prohibiting equity issuances in Section

4.01(b)(v). 71

The day before signing, on September 27, 2015, Williams and ETE each

moved several exceptions that had been drafted into individual covenants in the

Merger Agreement to their respective disclosure letters.72 When the parties did so,

they tied each exception to the corresponding Interim Operating Covenant from

which it had been moved through the use of headers identifying those individual

covenants by section.73 The $1 Billion Equity Issuance Exception was one of the

exceptions that ETE moved into its Parent Disclosure Letter. 74 ETE removed the

$1 Billion Equity Issuance Exception from Section 4.01(b)(v) of the Merger

Agreement and placed it under a header in Section 4.01(b) of the Parent Disclosure

Letter titled, “Section 4.01(b)(v).” 75

70
E.g., JTX-0146.0003; Tr.211:17–212:19(Van Ngo).
71
Trial Tr. at 24:2–25:7(Chappel); id. at 409:2–413:5(Welch).
72
Compare JTX-0139.0055–.0061, with JTX-0160.0029–.0032 (moving exceptions from Merger
Agreement §4.01(a) to Company Disclosure Letter); compare JTX-0162.0175–.0179, with JTX-
0167.0019–.0021 (moving exceptions from Merger Agreement §4.01(b) to Parent Disclosure
Letter).
73
See JTX-0160.0029–.0032 (Company Disclosure Letter); JTX-0162.0175–.0179 (Parent
Disclosure Letter).
74
JTX-0194.0018.
75
Compare JTX-0162.0176 (Merger Agreement §4.01(b)(v)), with JTX-0167.0020 (Parent
Disclosure Letter).

16
 The evidence presented at trial established that the parties moved the

exceptions into the disclosure letters to maintain their confidentiality, and that they

did not intend the moves to be substantive. Chappel testified at trial that the

exceptions were moved to the disclosure letters “to maintain confidentiality” with

respect to “sensitive issues,” and that they intended “no change in rights.” 76 Welch

agreed that the exceptions were moved for confidentiality reasons. 77 Likewise, Minh

Van Ngo, the Cravath attorney advising Williams on the Merger, testified that

Cravath told Wachtell at that time “that we were fine with th[e] movement, with the

understanding that it was nonsubstantive,” meaning, “just like it operate[d] if it were

in the body of the merger agreement, . . . the exceptions in the disclosure schedule

would apply only to the corresponding section of the merger agreement.”78 Van Ngo

also testified that he told Wachtell that he understood the disclosure letters to be

“section-specific.”79

76
Trial Tr. at 25:12–26:6(Chappel).
77
Id. at 415:19–416:5(Welch).
78
Id. at 213:13–21(Van Ngo).
79
Id. at 215:3–8 (Van Ngo). Although David Katz, one of ETE’s deal counsel at Wachtell, testified
in a deposition that he believed the $1 Billion Equity Issuance Exception applied to each of the
covenants within Section 4.01(b) of the Merger Agreement, he admitted that he was not involved
in drafting the Parent Disclosure Letter and that he did not know how his team determined the
structure of the exceptions in the letter. Katz Dep. at 88:21–91:25. Rather, his interpretation was
based solely on his reading of the Merger Agreement and Parent Disclosure Letter on the day of
the deposition. Id. Accordingly, I find this testimony to be unpersuasive regarding the parties’
intent.

17
 Van Ngo also testified that he told Wachtell he preferred the “‘reasonably

apparent on its face’ formulation for the savings clause” and Wachtell responded,

“[t]hat’s fine.” 80 Van Ngo testified that he understood the “reasonably apparent on

its face” formulation was meant “to address obvious drafting errors and[/]or manifest

errors on the parties” because “when you move sections . . . to a disclosure schedule,”

“there’s a heightened risk that you have misalignment of the sections or that . . . you

miss . . . certain cross references.” 81

In addition, the parties’ conduct after signing the Merger Agreement further

demonstrates that they intended the exceptions that were moved into the disclosure

letters to apply only to the specific covenants from which they were moved. After

signing, Williams planned its own equity issuance.82 Like ETE, Williams was also

subject to a restriction on the issuance of equity,83 and its Company Disclosure Letter

included an exception permitting Williams to issue up to $1 billion in equity

securities.84 And like the Parent Disclosure Letter, the Company Disclosure Letter

was structured so that each exception fell under a header that corresponded to a

specific covenant in the Merger Agreement. 85

80
Trial Tr. at 215:3–8(Van Ngo).
81
Id. at 215:3–23 (Van Ngo).
82
Id. at 29:13–32:10(Chappel); id. at 416:6–417:18(Welch); JTX-0246.0001–.0002.
83
JTX-0209.0042 (§4.01(a)(v)).
84
JTX-0196.0025.
85
Id. at .0025–.0029.

18
 Although Williams was therefore permitted to issue equity under this

Company Disclosure Letter exception, the particular issuance that Williams planned

involved the waiver of incentive distribution rights (“IDRs”),86 which was prohibited

by a separate interim operating covenant. 87 Accordingly, before going forward with

the planned issuance, Williams requested ETE’s consent to the waiver of IDRs.88

ETE refused to consent, and Williams did not proceed with the issuance. 89 If the

parties had intended the $1 billion equity issuance exception in the Company

Disclosure Letter to apply to all of Williams’ interim operating covenants, rather

than just the equity issuance covenant, ETE’s consent would not have been required.

d. The Merger Agreement Was Conditioned on a Tax Opinion

The Merger Agreement was conditioned on ETE’s tax counsel, Latham &

Watkins LLP (“Latham”), rendering the 721 Opinion—that the contribution by ETC

of the Williams assets to ETE in exchange for the issuance of Class E units “should”

be treated as tax free under Section 721 of the Internal Revenue Code. 90

The Merger Agreement also included certain representations and covenants

related to the Section 721 tax treatment. First, ETE represented that it did not

“know[] of the existence of any fact that would reasonably be expected to prevent”

86
Trial Tr. at 29:13–33:13(Chappel); id. at 416:6–417:23(Welch); JTX-0246.0001–.0002.
87
JTX-0209.0043 (§4.01(a)(x)).
88
Trial Tr. at 32:11–33:13(Chappel); id. at 417:2–18(Welch); JTX-0246.0001–.0002.
89
Trial Tr. at 33:14–20(Chappel); id. at 417:19–23(Welch).
90
JTX-0209.0062 (§6.01(h)).

19
the Merger “from qualifying as an exchange to which Section 721(a) of the Code

applies.” 91 This representation was brought down to closing, subject to the “Parent

Material Adverse Effect” materiality standard.92 Williams also made a reciprocal

representation, which was also brought down to closing, subject to a “Company

Material Adverse Effect” materiality standard. 93 Second, the Merger Agreement

included covenants that required ETE and Williams to use reasonable best efforts to

consummate the Merger and commercially reasonable efforts to cause the

contribution to qualify as tax-free under Section 721(a).94

4. The Williams Board Approves the Merger

Following negotiations, the Williams Board met on September 24 and 25,

2015 to discuss the Merger.95 At the September 24, 2021 meeting, the Board took a

“straw poll” and preliminarily rejected the Merger by a 6-to-7 vote.96 The next day,

two Williams directors—Janice Stoney and Joe Cleveland—changed their votes, and

the Board voted to approve the Merger 8-to-5.97

ETE contends that threats of a consent solicitation from two activist directors

on the Williams Board, Keith Meister and Eric Mandelblatt, were a significant factor

91
Id. at .0038 (§3.02(n)(i)).
92
Id. at .0063 (§6.03(a)(iv)).
93
Id. at .0026 (§3.01(n)(i)), .0062 (§6.02(a)(iv)).
94
Id. at .0053 (§5.03), .0060 (§5.07).
95
JTX-0137.
96
Id. at .0005.
97
Id. at .0006.

20
in the Williams Board’s decision to approve the Merger.98 The evidence presented

at trial, however, established that Meister and Mandelblatt did not make any such

threats. Both Meister and Mandelblatt testified that they did not threaten a consent

solicitation. 99 This is consistent with testimony from other Williams directors, who

generally testified that they did not perceive or recall perceiving threats from Meister

and Mandelblatt. 100 Although one director, Kathleen Cooper, testified equivocally

during a 2016 deposition that she thought she recalled Meister stating that he and

Mandelblatt would initiate a consent solicitation if a deal was not reached, 101 her

uncertain testimony is outweighed by the testimony of the other Williams directors.

In any event, she acknowledged that to the extent there was such a threat, it did not

“affect[] [her] feelings about the deal.”102

The other evidence presented by ETE does not support their argument that

purported threats from Meister and Mandelblatt were a significant factor in the

Williams’ Board’s decision to approve the Merger. Cooper’s October 22, 2015

email to Stoney lamenting that “we succumbed to the threats just at the wrong time

rather than fighting for long-term shareholder value at [Williams]” referred to threats

98
Defs.’ and Countercl. Pl.’s Post-Trial Br., Dkt. No. 637 at 9–11 [hereinafter “ETE OB”].
99
Meister Dep. at 402:25–403:13; Mandelblatt Dep. at 377:19–25.
100
Trial Tr. at 856:18–21(Stoney); id. at 859:17–860:12(Stoney); Hinshaw Dep. at 276:9–14; Sugg
Dep. at 314:11–18 (2018); Nance Dep. at 62:19–63:10; Izzo Dep. at 107:18–24; Smith Dep. at
167:9–169:15 (2018). ETE did not depose Cleveland, whose deposition was cancelled for medical
reasons in 2019. ETE OB at 10 n.20.
101
Cooper Dep. at 31:11–33:25 (2016).
102
Id. at 32:21–23.

21
from when Meister and Mandelblatt joined the Board in early 2014, not threats in

connection with the Merger. 103 Likewise, Armstrong’s notes to himself regarding

“[t]hreatening Proxy contests” and “[t]hreatening personal liability in case of proxy

fight”104 referred to these perceived 2014 threats and his general thoughts about the

presence of activists in the Williams boardroom.105 Finally, while the September

24-25, 2015 Williams Board meeting minutes do discuss “appreciation of the

practical consequences of a rejection of the” Merger, including “the likelihood of a

consent solicitation to replace all or certain Directors” and the “expected response

of Messrs. Mandelblatt and Meister,”106 the minutes make no mention of “threats”

from Mandelblatt and Meister. This is consistent with Stoney’s testimony, during

which she stated that the Board discussed the likelihood of a consent solicitation

being launched and the likelihood of the outcome, but that no one had threatened a

consent solicitation.107 Williams disclosed to stockholders in the Form S-4

registration statement (the “S-4”) filed with the Securities Exchange Commission

(the “SEC”) that the Williams Board discussed a potential consent solicitation when

evaluating the Merger. 108

103
JTX-0235.0001; JTX-0012.
104
JTX-0223.0003.
105
Trial Tr. at 713:24–714:21(Armstrong); id. at 706:9–707:4(Armstrong).
106
JTX-0137.0004.
107
Trial Tr. at 854:7–856:21(Stoney).
108
JTX-1218.0148.

22
 On September 28, 2015, the Williams Board approved and declared advisable

the Merger. 109 As a result, Williams terminated the WPZ agreement and paid the

$410 million termination fee to WPZ. 110 Under the Merger Agreement, if the Merger

failed and certain conditions were met, ETE was required to reimburse Williams for

the $410 million termination fee (the “WPZ Termination Fee Reimbursement”).111

5. The Energy Market Deteriorates

In late 2015, commodity prices declined sharply, leading to a deterioration of

the energy market.112 As a result, both Williams and ETE reassessed the Merger in

light of their changing financial positions.

ETE was concerned about its ability to finance the Merger. Warren was

concerned that the $6.05 billion cash component of the Merger consideration was a

“problem” 113 because the debt required to finance it could lead to a “potential ratings

downgrade” to “junk status.”114 The ETE senior management team was likewise

concerned about the cash component of the Merger consideration. 115

In light of these concerns about financing the cash consideration, by January

2016, Warren no longer wanted to close the Merger as it was structured.116 On

109
Stip. ¶ 33.
110
Trial Tr. at 13:15–14:12(Chappel); JTX-0202.0004.
111
JTX-0209.0059 (§5.06(f)).
112
Trial Tr. at 33:21–34:3(Chappel).
113
Id. at 308:16–22(Warren).
114
Id. at 325:14–21(Warren).
115
Id. at 330:20–331:1(Warren).
116
Id. at 296:3–18(Warren).

23
January 7, 2016, Warren called a meeting of ETE executives and lawyers to discuss

ETE’s “rights and obligations under the merger agreement” because, “as structured,”

Warren believed the Merger “was not in ETE’s best interests.” 117 At the meeting,

Warren expressed that he believed that the Merger, as structured with a cash

consideration component, “would create a ratings downgrade” that would lead to an

“implosion.”118 Warren indicated that he was “very much opposed to the” Merger

and would “walk away” “[i]f he could, under the merger agreement.” 119

Four days later, on January 11, 2016, Warren spoke over the phone with Frank

MacInnis, the Williams Chairman.120 On the call, Warren proposed a meeting to

discuss a “restructuring” or “changes” to the Merger Agreement. 121 Warren stated

that ETE also would not be able to restructure the deal to be “all-equity.” 122 The

Williams Board minutes describing MacInnis’s summary of the call state that

Warren “discussed the possibility of terminating the transaction and had mentioned

the possibility of cutting distributions.” 123 At trial, Warren acknowledged it was

possible that he told MacInnis that ETE might have to cut distributions if the Merger

closed as structured.124 The following day, on January 12, 2016, Armstrong and

117
JTX-0331; Trial Tr. at 422:2–13(Welch).
118
Trial Tr. at 422:21–423:5(Welch).
119
Id. at 423:23–424:14(Welch).
120
JTX-0357.0005.
121
Id.
122
JTX-0378.0002; Trial Tr. at 334:13–17(Warren).
123
JTX-0378.0002; Trial Tr. at 333:18–334:17(Warren); id. at 207:7–14(Van Ngo).
124
Trial Tr. at 333:18–334:7(Warren).

24
Chappel met with Tom Long, the then-CFO of an ETE subsidiary, who proposed

changes to the terms of the deal. 125

Two days later, on January 14, 2016, Chappel and Williams’ financial advisor

from Lazard, Al Garner, met with Warren and Welch.126 At this meeting, Warren

and Welch expressed that the Merger was now “a problem.”127 In a

contemporaneous email describing the discussion, a Lazard employee wrote that

Warren and Welch stated that “ETE may be forced to cut distribution[s] to zero for

2 years.”128 Likewise, both Chappel and Garner testified at trial that at this meeting,

Warren and Welch stated “that they would have to cut distributions to zero for two

years.”129 Although Warren and Welch indicated that they “plan[ned] to ‘honor [the]

agreement,’” they stated that if Williams were to “walk, ETE would not require [a]

breakup fee” and they “also offered to ‘help’ purchase WPZ assets if [the] deal [is]

called off.”130 Welch also stated that he believed the S-4 needed to disclose that

Williams would be worth more as a standalone company than with “ETE with no

distr[ibutions].”131

125
Id. at 34:15–35:23(Chappel).
126
Id. at 35:24–36:8(Chappel); id. at 150:4–7(Garner); JTX-0374.0001.
127
JTX-0374.0001.
128
Id.
129
Trial Tr. at 36:9–23(Chappel); id. at 150:8–24(Garner); JTX-0327.0001.
130
JTX-0374.0001.
131
Id.

25
 For its part, the Williams Board and management also had some internal

dissent with respect to the merits of the Merger. As I discussed above, the Williams

Board had approved the Merger in an 8-to-5 vote.132 This internal dissent continued

during the market collapse. In December 2015, the Williams Board called a meeting

to discuss the “dire” “state of the markets.” 133 Armstrong wanted to terminate the

Merger, and he was a “strong voice” in that discussion.134

Armstrong encouraged Williams’ CFO, Chappel, to “accept forecast

assumptions for Williams” and “pessimistic forecast assumptions for ETE,” though

Chappel, who supported the Merger, had “strong support from the [B]oard to ensure

that the forecasts were thoughtfully prepared, well-vetted, and balanced between

optimism and pessimism and provided transparency to the [B]oard.”135 Armstrong

did, however, present optimistic projections of Williams as a standalone company

to the Board in February 2016 without vetting them with Chappel.136 Armstrong

and other dissenting directors also included Stoney and Cleveland on emails

expressing their disagreement regarding the merits of the Merger, including their

132
JTX-0137.0006.
133
JTX-0308.0001–.0002.
134
Trial Tr. at 120:7–23(Chappel).
135
Id. at 121:13–22(Chappel).
136
Id. at 124:10–125:2(Chappel).

26
criticism of Williams’ banker’s financial analysis.137 Stoney testified that she

nonetheless never felt pressure to reconsider her position. 138

Despite the internal dissent at Williams, the Williams Board determined at a

January 15, 2016 meeting that the Merger Agreement was a “valuable asset” and

resolved to issue a press release expressing its unanimous support for the Merger.139

The Williams Board issued that press release the same day, stating that it was

“unanimously committed to completing the transaction.”140 Williams also asked its

financial advisors, Lazard and Barclays, to assess the value of the Merger to

Williams stockholders in light of the changing market conditions, 141 and to assess to

value of a potential breakup fee from ETE. 142 Both concluded that the Merger still

provided Williams stockholders with billions of dollars in value. 143

In response to ETE’s concerns about financing the cash component of the

consideration, Williams proposed restructuring the Merger by swapping the cash

component for equity at the then-current market value of ETE units. 144 ETE refused

137
See JTX-0437; JTX-0439; JTX-0755; JTX-1019; Tr.127:8–16(Chappel); JTX-0727;
JTX-0743.
138
Trial Tr. at 865:5–866:7(Stoney). As I noted above, Cleveland did not testify at trial or
deposition, after his deposition was cancelled for medical reasons in 2019. ETE OB at 10 n.20.
139
JTX-0378.0002.
140
JTX-0379.0001.
141
JTX-0441; JTX-0449; Trial Tr. at 38:3–39:18(Chappel); id. at 157:6–158:2(Garner).
142
JTX-0742; JTX-0741; Trial Tr. at 888:3–889:6(Stoney).
143
JTX-0441.0006, .0025; JTX-0449.0085; Trial Tr. at 38:3–39:18(Chappel); id. at 159:1–
160:16(Garner).
144
JTX-0382.

27
and countered with an offer to replace the cash consideration with ETE units at a

valuation from before the energy market decline.145

a. ETE Crafts a Public Offering with a Distribution Preference

To solve its leverage issues, ETE structured two equity issuances—a public

offering, which Williams rejected (the “Proposed Public Offering”); and a private

offering, which ETE completed without Williams’ consent (the “Preferred

Offering”). The Preferred Offering ultimately became the subject of an action

brought by ETE unitholders, in which I found that ETE breached its partnership

agreement in connection with the offering (the “Unitholder action”). 146

Shortly after ETE raised the possibility of distribution cuts to Williams in

January 2016, ETE retained Perella Weinberg Partners (“Perella”) to advise ETE on

solutions to its potential leverage issues.147 One of the solutions Perella presented

was the Proposed Public Offering.148 Perella and ETE explored other options too,

such as selling assets and issuing common units, but concluded that those were not

viable. 149 Perella and ETE also raised the possibility of cutting distributions,150

145
JTX-0382; Trial Tr. at 310:24–312:1(Warren).
146
In re Energy Transfer Equity, L.P. Unitholder Litig., 2018 WL 2254706, at *22–25 (Del. Ch.
May 17, 2018), aff’d sub nom. Levine v. Energy Transfer L.P., 223 A.3d 97 (Del. 2019).
147
Trial Tr. at 152:8–153:16(Garner); JTX-0382.0001; Trial Tr. at 435:13–19(McReynolds); id.
at 458:4–459:19(McReynolds).
148
JTX-0330.0033; JTX-0426.0034; Trial Tr. at 340:9–343:2(Warren).
149
Trial Tr. at 436:19–437:14(McReynolds); id. at 438:19–439:13(McReynolds); id. at 1654:21–
1656:18(Bednar); Long Dep. at 96:9–19 (2019); Trial Tr. at 384:12–385:10(Warren).
150
Trial Tr. at 339:1–340:3(Warren); id. at 1662:18–21(Bednar); JTX-0400.0001.

28
though they deemed that “an option of last resort” due to the potential negative

“longer-term implications” of cutting distributions, including on ETE’s credit

rating. 151 However, ETE received positive responses from its credit rating agencies

when it previewed to them the Proposed Public Offering.152 As originally conceived,

participants would forgo distributions on their common units for a set period.153 In

exchange for forgoing such distributions, participants would receive preferred units

that paid discretionary distributions of up to 40% of the distributions paid on

common units.154 At the end of the period, the distributions on participants’ common

units would become unrestricted, and the participants’ preferred units would convert

into additional common units, calculated based on the amount of distributions that

participants forwent. 155

Perella first presented the Proposed Public Offering to ETE at a meeting with

Warren on January 27, 2016.156 As originally proposed, the offering did not feature

any distribution preference for participants. 157 Warren testified at trial that, at the

time, ETE had considered the possibility of a two-year distribution cut, even though

151
Trial Tr. at 1648:22–1652:8(Bednar); id. at 438:3–18(McReynolds); id. at 1565:3–
17(Bramhall); id. at 301:14–23(Warren); McGovern Dep. at 32:24–34:9 (2018); JTX-0598.0016;
Long Dep. at 65:23–67:3 (2016); JTX-0399.0006.
152
JTX-0679.0002.
153
JTX-0330.0033.
154
Id.
155
Id.
156
Id.; JTX-0426.0034; Trial Tr. at 340:9–343:2(Warren).
157
JTX-0330.0033; JTX-0426.0034; Trial Tr. at 340:9–343:2(Warren).

29
distribution cuts are “the last bucket you go to.”158 As the holder of over 190 million

ETE units, however, Warren would lose over $200 million per year in personal cash

flow if ETE eliminated distributions. 159 Warren therefore proposed that Perella add

a distribution preference for participants in the offering. 160 In response, ETE’s

advisors revised the offering to feature an 11 cent per quarter distribution

preference, 161 a reduction from ETE’s historic distribution of 28½ cents per

quarter. 162

Despite Warren’s support for a distribution preference, ETE’s CFO, Welch,

expressed reservations. 163 Welch expressed to Warren and other ETE executives

that he believed there was no justification for a distribution preference, and that a

distribution preference would create “a superpriority class of holders versus all other

common holders.”164 Welch believed that Warren was “looking to . . . ensure that

there was a certain amount of cash, annual cash flow, that he would receive with

certainty to, basically, support his living” if ETE cut distributions. 165 Warren

insisted, however, that “there needed to be a minimum level of certainty on cash

158
Trial Tr. at 339:1–340:8(Warren); id. at 347:9–348:4(Warren); see also id. at 426:4–
429:19(Welch).
159
Trial Tr. at 334:18–335:24(Warren); id. at 388:6–389:24(Welch).
160
JTX-0434.0001; Trial Tr. at 464:24–466:6(McReynolds); id. at 399:3–401:24(Welch).
161
JTX-0434.0001; JTX-0457.0008; Trial Tr. at 464:24–466:6(McReynolds); id. at 1668:4–
1671:5(Bednar).
162
JTX-0430.0001.
163
Trial Tr. at 399:3–401:24(Welch).
164
Id. at 390:22–393:3(Welch); id. at 398:21–400:10(Welch); id. at 401:4–24(Welch).
165
Id. at 402:1–14(Welch); id. at 428:14–429:19(Welch).

30
flow on a going-forward basis, if he was to support” an offering. 166 Warren asserted

that “the preferred payment was a necessary core part of [the] program . . . which

was needed for him to support it.” 167

On February 8, 2016, Perella presented a revised proposal to the ETE

Board. 168 This time, the proposal featured the 11-cent cash distribution preference,

which would be paid regardless of whether ETE cut distributions on common

units.169 One ETE director, John McReynolds, questioned whether the offering

would “really save up to $1B[illion] if distributions actually later get cut.”170 At

trial, he acknowledged that if distributions were cut to zero, the offering would not

save ETE any money during that period. 171

In its February 8 presentation, Perella also posed distribution cuts as a

potential alternative that would have “[n]o execution risk” and would “[s]atisf[y]

rating agencies.”172 ETE sought additional advice from a second financial advisor,

Goldman Sachs & Co. (“Goldman Sachs”), who gave a February 12, 2016

presentation suggesting a “[s]ubstantial distribution / dividend cut” if the Merger

closed, among other alternatives.173 Goldman Sachs advised that a distribution cut

166
Id. at 389:5–24(Welch).
167
Id. at 390:22–391:12(Welch).
168
JTX-0482.0002–.0016; Trial Tr. at 343:3–10(Warren).
169
JTX-0482.0008, .0012; Trial Tr. at 343:3–345:10(Warren).
170
JTX-0465.0003.
171
Id.; Trial Tr. at 468:13–17(McReynolds).
172
JTX-0486.0004–.0005.
173
JTX-0506.0003.

31
was “likely to be well received by [the] market given current trading levels and

investor concerns.”174 In February 2016, ETE also ran models evaluating

distribution cuts. 175

ETE sent the terms of the Proposed Public Offering to Williams on

February 12, 2016. 176 ETE was not able to complete the offering unless Williams

instructed its independent registered accounting firm to provide consent to the

incorporation by reference of the firm’s report on Williams’ audited financial

statements.177 ETE therefore requested Williams’ auditor’s consent to file with the

SEC.178 The next day, on February 13, 2016, Williams responded that it believed

the Proposed Public Offering would violate the Merger Agreement and that the

Board was required to assess it. 179 Chappel also noted that Williams “reviewed

potential additional actions that we could take to strengthen the WPZ and [Williams]

credit profile.”180

In the meantime, the ETE Board met again on February 15, 2016, and

discussed the Proposed Public Offering. 181 At this meeting, the ETE Board revised

174
Id.
175
JTX-0461.0002; JTX-0475.0002; JTX-0579; JTX-0500.0001; Trial Tr. at 1579:7–
1583:15(Bramhall).
176
JTX-0507; Trial Tr. at 52:6–13(Chappel).
177
Stip. ¶ 25.
178
Trial Tr. at 52:14–20(Chappel).
179
JTX-0517.0001; Trial Tr. at 208:11–20(Van Ngo); id. at 53:10–22(Chappel); JTX-0537.0002.
180
JTX-0517.0001.
181
JTX-0535; JTX-0536.0001–.0002.

32
the distribution preference to include an additional 17½ cents of accrual credits,

toward new units, per quarter, in addition to the 11-cent cash distribution. 182 This

had the effect of preserving ETE’s historic distribution of 28½ cents for Proposed

Public Offering participants, and therefore eliminated the risk of a distribution cut

for those participants. Although ETE asserts that it added the accrual credits to

ensure that the Proposed Public Offering would be marketable,183 the elimination of

downside risk was an advantage to ETE insiders, including Warren and ETE senior

management, who had pledged to “commit their units to th[e] program.” 184

ETE made this change itself before consulting Perella. 185 After ETE informed

Perella of the change, a Perella analyst remarked that “[i]f cash distributions on

common units are cut to zero, the preferred [payment in kind (“PIK”)] distributions

don’t conserve cash in and of themselves—rather, they represent a wealth transfer

from non-participating to participating units.” 186

b. Williams Declines to Consent to the Proposed Public
Offering

The Williams Board asked its financial advisors, Lazard and Barclays, to

assess the Proposed Public Offering. 187 On February 17, 2016, both advisors

182
JTX-0535.0019; JTX-0538.0002; Trial Tr. at 351:1–352:10(Warren).
183
ETE OB at 26–27; Trial Tr. at 1656:19–1658:3(Bednar); id. at 441:17–442:11(McReynolds);
id. at 450:3–21(McReynolds).
184
JTX-0518.0001; JTX-0512.0001.
185
Trial Tr. at 1677:2–19(Bednar); JTX-0532.0001.
186
JTX-0537.0001.
187
Trial Tr. at 53:10–55:1(Chappel).

33
recommended that the Williams Board decline to consent.188 Although Williams

believed that the Proposed Public Offering would have a positive impact on ETE’s

leverage issues, 189 the advisors determined that because the Proposed Public

Offering would allow participants to benefit disproportionately over

nonparticipating unitholders (including future ETC stockholders) in the event of a

distribution cut, it “would have an extraordinary detrimental impact on Williams

shareholders.”190 Chappel agreed with this analysis.191 The Williams Board

therefore declined to provide consent.192

On February 18, 2016, Williams informed ETE that it would not provide

consent. 193 Although ETE contends that it was surprised by this news,194 ETE’s

CFO admitted in the Unitholder action that Chappel had already informed him on

February 13, 2016 that “he was not going to allow [Williams Co.’s] auditors to

provide the consent.”195 The next day, Chappel and Williams’ general counsel met

with Welch and ETE’s general counsel, and Chappel stated that Williams was open

to other solutions, “including an offering that Williams shareholders could

participate in on an equivalent basis to ETE shareholders, one that would treat

188
Id. at 54:5–22(Chappel).
189
Id. at 113:5–16(Chappel).
190
Id. at 54:9–22(Chappel); id. at 162:22–168:23(Garner); JTX-0551.0008, .0010.
191
Trial Tr. at 54:23–55:1(Chappel).
192
Stip. ¶ 25. JTX-0549.0003.
193
Trial Tr. at 54:5–55:16(Chappel); JTX-0561.0002.
194
ETE OB at 27.
195
Energy Transfer, 2018 WL 2254706, at *6.

34
Williams shareholders fairly and so they would be in the same class as ETE

shareholders.”196

ETE refused this proposal.197 Instead, ETE devised the private Preferred

Offering, featuring a similar distribution preference, which I found in the Unitholder

action was “a hedge meant to protect insiders from the anticipated bad effects of the

coming merger.” 198

c. ETE Makes the Private Preferred Offering

Unlike the Proposed Public Offering, the private Preferred Offering did not

require the consent of Williams’ auditors. 199 On February 25, 2016, a few days

before the ETE Board approved the Preferred Offering, Warren was asked on

earnings call about potential distribution cuts at ETE and an ETE affiliate, ETP.200

Warren stated that there were “no contemplated distribution cuts at ETP

whatsoever.” 201 With respect to ETE, however, Warren stated that although “ETE

is very healthy” and “distribution cuts are not required,” “everybody knows

obviously that that’s an option.”202 Warren added that “[i]t would be one of the last

[buckets] that we would reach to, but it’s certainly possible.”203

196
JTX-0561; Trial Tr. at 56:1–57:7(Chappel).
197
Trial Tr. at 57:8–14(Chappel).
198
Energy Transfer, 2018 WL 2254706, at *1.
199
Id. at *8.
200
JTX-0595.0013; Trial Tr. at 355:9–357:8(Warren).
201
JTX-0595.0013.
202
Id.
203
Id.

35
 The next day, on February 26, 2016, Warren called an ETE Board meeting to

discuss the Preferred Offering.204 The ETE Board met on February 28, 2016 and

approved the Preferred Offering, 205 in a process which I found in the Unitholder

action breached ETE’s limited partnership agreement because it involved, among

other things, a “fatally flawed” conflicts committee and “untrue” board

resolutions.206 ETE instructed its counsel not to inform Williams of the Preferred

Offering until after it closed.207

ETE closed the Preferred Offering on March 8, 2016.208 The Preferred

Offering created a new class of equity—Series A Convertible Preferred Units 209—

which featured an increased distribution preference of 28½ cents.210 17½ cents of

this was to be an accrual credit toward PIK distributions, saving ETE cash if common

unit cash distributions continued without diminution.211 Unlike the Proposed Public

Offering, the Preferred Offering was made available only to ETE insiders.212

Warren, McReynolds, and Ray Davis, ETE’s co-founder, received over 85% of the

204
JTX-0606.
205
Id. at .0002; JTX-0638; Trial Tr. at 357:9–360:2(Warren).
206
Energy Transfer, 2018 WL 2254706, at *12, 20, 24–25.
207
Trial Tr. at 209:2–15(Van Ngo); Katz Dep. at 64:4–65:10; McReynolds Dep. at 191:11–192:17
(2019).
208
Stip. ¶ 26.
209
Id.
210
JTX-0713.0008; Trial Tr. at 169:9–172:3(Garner); id. at 490:13–492:11(Ruback).
211
JTX-1218.0045–.0046.
212
Trial Tr. at 169:9–170:10(Garner); JTX-0713.0008.

36
total preferred units. 213 Those to whom the Preferred Offering was extended were

invited to participate pro rata based on their holdings of existing units.214 Warren

and McReynolds participated in the Preferred Offering with respect to substantially

all of their units.215

The market’s reaction to the Preferred Offering was mixed. One ETE investor

suggested that the Preferred Offering could be a “sub-rosa plan to give management

the ability to preserve payments to itself while shutting off distributions to common

unit-holders entirely,” which “would not be consistent with [ETE’s] well-earned

reputation.”216 An analyst wrote to McReynolds that “it looks to me (and the market,

apparently) that [Warren] has insulated himself from a distribution cut, but ETE

common holders are still on the hook for a potential distribution cut should one be

required.”217

Williams and its stockholders were also concerned. One Williams

stockholder admonished that “[t]he insiders at ETE are enriching themselves at the

expense of the rest of the ETE shareholders” and decried the Preferred Offering as

“something similar” to a “fraudulent conveyance.” 218 Garner testified that he

213
Trial Tr. at 1648:16–1750:18(Atkins).
214
JTX-1218.0045.
215
Trial Tr. at 1748:16–19(Atkins); id. at 449:2–450:10(McReynolds); JTX-1218.0046.
216
JTX-0702.0001.
217
JTX-0705.0001. Trial Tr. at 474:9–24(McReynolds).
218
JTX-0711.0001–.0002; Trial Tr. at 475:1–17(McReynolds).

37
believed the Preferred Offering was “more outrageous than the prior one,” 219 and

Chappel testified that he believed it “was a complete game changer with respect to

what was bargained for in the merger agreement.”220 Likewise, Stoney described

the Preferred Offering “as a sweetheart deal” for “the CEO of ETE and some small

selected group of people.” 221

Meanwhile, ETE’s credit ratings agencies responded positively to the

Preferred Offering. 222 Indeed, Fitch, one of the three major rating agencies,

described the Preferred Offering as “a proactive step in enhancing [ETE’s] liquidity

and managing acquisition leverage in a credit neutral manner.” 223

d. ETE Announces Plans to Cut Distributions

In February and April 2016, Williams provided ETE with financial

projections. 224 The February 10, 2016 projections, which were ratings agency

updates, included both base-case and downside case forecasts. 225 Dylan Bramhall,

ETE’s Vice President of Financial Planning and Analysis, 226 testified at trial that

these forecasts indicated to ETE that Williams had “bottomed out” from late 2015

declines, “the numbers had stepped back up a little bit,” and ETE “felt that business

219
Trial Tr. at 169:16–18(Garner).
220
Id. at 58:21–59:10(Chappel).
221
Id. at 866:17–867:5(Stoney).
222
JTX-0716.
223
Id. at .0001; Energy Transfer, 2018 WL 2254706, at *14.
224
JTX-0495.
225
Id. at .0010, .0022.
226
Trial Tr. at 1564:17–20(Bramhall).

38
was performing well enough to cover current distribution levels.”227 Bramhall

testified that ETE understood the base-case projections to reflect Williams’ view “as

[to] what was most expected.”228

In late March and early April 2016, ETE asked Williams to provide updated

projections to incorporate in an amendment to the S-4. 229 Williams sent updated

projections to ETE on April 7, 2016.230 Williams’ April 7 projections were bleaker

than its projections from February 10. Compared to the February 10 base-case

forecast, Williams’ April 7 forecast projected lower distributable cash flows for

WPZ—by 15.8% in 2016 and 21.7% in 2017.231 But when compared against the

February 10 downside forecast, the April 7 projections for WPZ’s distributable cash

flows were lower by just 5.9% in 2016 and 11.3% in 2017.232

When Chappel sent the projections to ETE, he presented them as “based on

the Downside Case that we presented . . . in February.”233 However, Long asked

Chappel on April 15, 2016 whether the updated projections “represent [Williams’]

most realistic projections,” or whether there were additional “adjustments that

should be made to the projections to reflect [Williams’] most realistic

227
Id. at 1571:6–1572:5(Bramhall).
228
Id. at 1632:16–1633:3(Bramhall).
229
Id. at 1572:6–20; JTX-0807.
230
JTX-0846.
231
Plaintiff’s Demonstrative Ex. 5 at 3.
232
Id. at 4.
233
JTX-0846.0001.

39
projections.” 234 Chappel replied that Williams viewed the April 7 projections “as

appropriately capturing a discount for customer credit risk, a realistic risk in this

environment,” and that he “d[id] not believe that additional adjustments [were]

necessary.” 235 Bramhall testified that the projections in the April 7 update were a

“surprise” that “caught everyone off guard” and demonstrated to ETE that “it was

going to be difficult for WPZ to maintain [its] current distribution levels and keep

leverage below five times.” 236 But he also acknowledged that by this point, ETE

had already been “looking at what would happen on the [Williams] downside case

as well.”237

In addition to Williams’ declining projections, ETE also revised its synergies

estimates downward between February and April 2016. On February 23, 2016, ETE

estimated Merger synergies between $195–$879 million annually.238 ETE increased

its synergies estimate to between $403–889 million on March 9, 2016, 239 but on

April 15, 2016, it reduced its base-case estimate to $126 million. 240

On April 18, 2016, six weeks after closing the Preferred Offering, ETE

announced publicly in an amendment to the S-4 that if the Merger closed, it expected

234
JTX-0963.0001.
235
Id.
236
Trial Tr. at 1572:6–1575:6(Bramhall).
237
Id.
238
JTX-0581.0003.
239
JTX-0686.0004.
240
JTX-0957.0002.

40
to eliminate common unit distributions for two years.241 ETE restated this

expectation in the amended S-4 filed on May 24, 2016.242

The parties dispute what precipitated this announcement. Williams contends

that ETE had anticipated a potential distribution cut since January 2016, shortly after

the energy market began to crater.243 In contrast, ETE asserts that it only decided to

cut distributions in April 2016, after a confluence of the bleaker financial projections

from Williams on April 7, 2016 and the decreased synergies estimates in April

2016. 244

The evidence presented at trial demonstrated that ETE anticipated the

potential distribution cuts as early as January 2016. As I noted above, Warren and

Welch both raised the possibility of distribution cuts in January 2016, including

specifically a two-year distribution cut mirrored by the anticipated cut that ETE

ultimately announced. 245 Warren also testified that when Perella first presented the

Proposed Public Offering in late January 2016, ETE had been considering the

possibility of a two-year distribution cut.246 In February 2016, both of ETE’s

advisors, Goldman Sachs and Perella, suggested distribution cuts as possible

241
JTX-0992.0046; Trial Tr. at 362:17–364:1(Warren).
242
JTX-1218.0046; Trial Tr. at 483:3–11(McReynolds).
243
Pl.’s and Countercl. Def.’s Posttrial Br., Dkt. No. 630 at 37–43 [hereinafter “Williams OB”].
244
ETE OB § II.D.4.
245
See supra notes 123–24, 128–29 and accompanying text.
246
See supra note 158 and accompanying text.

41
alternatives,247 and ETE ran models involving distribution cuts.248 On the

February 25, 2016 earnings call, Warren definitively ruled out a distribution cut at

ETP, but equivocated regarding an ETE distribution cut.249

ETE’s evidence that it only began to expect post-closing distribution cuts in

April 2016 is unconvincing. When Long testified at the Unitholder trial that ETE

only expected a distribution cut after it received Williams’ April 7 projections, he

asserted that the new projections showed a “huge” “50 percent” drop in distributable

cash flow.250 That was incorrect: As discussed above, even when compared to the

more positive February 10 base-case projections instead of the downside case

projections, the drop was actually 15.8% in 2016 and 21.7% in 2017.251 When

deposed in this matter, Long acknowledged that the drop “wasn’t nearly as large” as

what he had previously testified.252 Bramhall also admitted at trial that what Long

characterized “as a 50 percent decrease . . . was, in fact, a 21 percent decrease.”253

Moreover, although Bramhall testified on direct examination that ETE did not

begin to expect distribution cuts until early April 2016 and that before then,

“executives at Energy Transfer were very opposed to distribution cuts,” 254 he

247
See supra notes 172–74 and accompanying text.
248
See supra note 175 and accompanying text.
249
See supra notes 200–03 and accompanying text.
250
JTX-1387.0274:16–.0275:4 (Long Unitholder testimony).
251
See supra note 231 and accompanying text.
252
Long Dep. at 164:23–165:12 (2019).
253
Id. at 1594:6–20(Bramhall).
254
Id. at 1565:3–12(Bramhall); id. at 1567:5–12(Bramhall).

42
admitted on cross-examination that distribution cuts were “above [his] pay grade”

and he “did not know what the executive team was discussing.” 255 Bramhall also

conceded at trial that, even before receiving Williams’ April 7 projections, ETE had

already incorporated Williams’ February 10 downside projections—which more

closely approximated the April 7 projections—into its S-4 projections.256

As of the Closing Date, ETE continued to state that it expected to cut

distributions on common units, including common units held by former Williams

stockholders, to zero until March 31, 2018.257 Meanwhile, ETE expected that

participants in the Preferred Offering would receive 28½ cents in value per quarter

during the same period—including up to 11 cents in cash, 258 which would amount

to over $150 million in cash flow for Warren personally. 259

6. Williams Defends Stockholder Actions

Between signing and closing, Williams faced multiple stockholder actions

challenging the Merger. Williams managed to prevent each of them from blocking

the Merger by obtaining either a dismissal or settlement.260

255
Id. at 1576:4–1578:19(Bramhall).
256
Id. at 1572:6–20(Bramhall).
257
See JTX-1218.0046.
258
Id. at .0045–.0046, .0054.
259
Trial Tr. at 371:20–373:1(Warren); JTX-1218.0046.
260
In re The Williams Cos., Inc. Merger Litig., No. 11844-VCG (Del. Ch. dismissed July 19,
2017); In re The Williams Cos., Inc. Stockholder Litig., No. 11236-VCG (De. Ch. dismissed Mar.
31, 2016); City of Birmingham Retirement & Relief Sys. v. Armstrong, No. 16-17-RGA, Dkt. No.
59, (D. Del. dismissed Mar. 7, 2016); Bumgarner v. Williams Cos., Inc., 2016 WL 1717206 (N.D.
Okla. Apr. 28, 2016).

43
 One of those lawsuits, brought by Williams stockholder and former executive

John Bumgarner,261 was at issue in this litigation. ETE contends that Armstrong,

who was “tasked with executing the Board’s directive to close the transaction,”262

flouted this directive by working covertly with Bumgarner to support his lawsuit and

put a stop to the Merger.263 But the evidence presented at trial demonstrated that,

although Armstrong did regularly communicate with Bumgarner, he did so in an

attempt to allay Bumgarner’s opposition to the Merger, not in connection with a

clandestine plot to thwart it. 264

Bumgarner had worked at Williams for approximately 25 years, retiring

around 2001.265 At one time, Bumgarner was in charge of mergers and acquisitions

at Williams and he was an advisor to the then-CEO. 266 After the Merger was

announced, Bumgarner approached Armstrong and threatened litigation regarding

the synergies estimates contained in joint press release announcing the Merger.267

In particular, Bumgarner took issue with a $2 billion estimate made by ETE that was

261
See generally Bumgarner, 2016 WL 1717206.
262
Trial Tr. at 657:2–7(Armstrong).
263
ETE OB § II.B.1.
264
This is not to say that Armstrong’s tactics in attempting to assuage Bumgarner’s concerns
represented a model of corporate governance best practices.
265
Trial Tr. at 903:6–904:11(Bumgarner); id. at 620:6–23(Armstrong).
266
Id. at 903:11–904:11(Bumgarner); id. at 620:6–23(Armstrong).
267
Id. at 625:3–626:19(Armstrong); id. at 699:6–700:3(Armstrong); id. at 719:22–
720:3(Armstrong).

44
referenced in the press release. 268 As former colleagues, Armstrong and Bumgarner

were friends.269 Armstrong testified that, leveraging this relationship, he tried to

explain to Bumgarner that the $2 billion estimate came from ETE, and that the

Williams Board relied on its own synergies estimate of $200 million, which would

be disclosed in the S-4. 270

Armstrong did not notify Williams’ counsel of Bumgarner’s threats, though

he did inform the Chairman of Williams’ Board, Frank MacInnis. 271 At trial,

Armstrong testified that he did not notify Williams’ counsel because he thought that

it would lead to a counterproductive “very aggressive fight,” and he believed he

could “keep [Bumgarner] . . . at bay” in light of their personal and professional

relationship.272 Armstrong also testified that he believed that when the S-4 was filed,

it would “satisfy [Bumgarner’s] concerns.” 273 This is consistent with

contemporaneous emails: On January 11, 2016, Bumgarner emailed MacInnis and

Armstrong, challenging the S-4, and wrote, “I briefly jumped Alan about this matter

and got the ‘My hands are tied; I have to support the deal.’ response.” 274 Armstrong

268
Id. at 623:20–626:19(Armstrong); id. at 921:8–15(Bumgarner). Bumgarner’s concerns were
ultimately validated; as I discussed above, ETE and Williams later revised their synergies estimate
downward to $126 million. JTX-0957.0002.
269
Trial Tr. at 620:6–13(Armstrong); id. at 908:18–910:10(Bumgarner).
270
Id. at 624:6–24(Armstrong); id. at 919:15–19(Bumgarner).
271
Id. at 637:12–638:17(Armstrong).
272
Id. at 637:19–638:17(Armstrong).
273
Id. at 638:6–13(Armstrong).
274
JTX-0356.0002.

45
forwarded the thread to MacInnis and asked, “[d]o you think we should call him?

Or just let this run its course.” 275

From November 2015 through July 2016, Armstrong and Bumgarner met

approximately weekly. 276 Much of their communication occurred either in person

or via Armstrong’s personal email accounts; Armstrong testified that he was “pretty

careful to have most of [his] conversation[s] with [Bumgarner] in person.”277 The

bulk of the email communication between Armstrong and Bumgarner during this

time involved two of Armstrong’s personal email addresses at Gmail.com and

Cox.net. 278 In 2016, two days after being asked at a deposition whether he emailed

Bumgarner, Armstrong deleted his Gmail account, though he did not delete his

Cox.net account.279 At trial, Armstrong testified that he deleted the Gmail account

because it had been corrupted and was sending unsolicited spam messages to his

contacts, including Chappel.280 As discussed below, I find this testimony

unconvincing. 281

Although Armstrong deleted his Gmail account, ETE was able to uncover

much of his email communication by subpoenaing Bumgarner’s accounts. 282 On

275
Id. at .0001.
276
Trial Tr. at 621:7–13(Armstrong); id. at 910:12–14(Bumgarner).
277
Id. at 623:2–12(Armstrong).
278
Defendants’ Demonstrative Ex. 3.
279
JTX-1437.0008–.0009; Trial Tr. at 632:1–18(Armstrong).
280
Trial Tr. at 632:5–18(Armstrong).
281
See infra § II.E.
282
JTX-1394.

46
December 6, 2015, Bumgarner emailed Armstrong and requested Armstrong’s

“edits and corrections” to a document compiling purported factual errors in

Williams’ and ETE’s public statements about the Merger.283 According to the

document, the supposed errors suggested that it was “rational[] [to] conclude there

has been a deliberate attempt to deceive public investors on the part of the directors

of [Williams] and the investment banks that advised them.”284 Armstrong met with

Bumgarner in person to discuss the document,285 which later evolved 286 into a

federal securities class action complaint filed by Bumgarner.287

Before filing the federal complaint, Bumgarner emailed his lawyer, with

Armstrong blind-carbon-copied, and asked, “when can we file ? how can we also

join/help the Delaware cases ?”288 On December 26, 2015, Armstrong also answered

various factual questions from Bumgarner related to the joint press release.289

Bumgarner filed the lawsuit against Williams and ETE on January 14, 2016, alleging

federal securities violations and seeking to enjoin the Merger.290 After filing the

283
JTX-0273.0001.
284
Id. at .0004.
285
JTX-0275; JTX-0276.
286
Trial Tr. at 932:22–9:33:10(Bumgarner).
287
See generally JTX-0368.
288
JTX-0300.0003. This presumably referred to cases seeking to enjoin the Merger.
289
JTX-0320.
290
JTX-0368.0018.

47
lawsuit, Bumgarner continued to correspond with Armstrong about facts related to

the Merger.291

Bumgarner also obtained a copy of Armstrong’s notes to himself regarding

the S-4, and he emailed a document to the Wall Street Journal that mirrored the

structure and substance of those notes.292 Armstrong testified at his deposition293

and at trial that he did not recall supplying those notes to Bumgarner, though he

“t[ook] responsibility” at trial for the fact that Bumgarner “got ahold of th[e]

document[].”294 Bumgarner also sought Armstrong’s review of a draft letter to the

SEC reporting purported misleading statements and omissions in the S-4.295

Armstrong testified that he did not try to help Bumgarner with the lawsuit,

and merely attempted to “educate him on the synergies” and “show him where all

the public information was.”296 Likewise, Bumgarner testified that Armstrong did

not help with the lawsuit, had nothing to do with Bumgarner’s decision to sue, and

told Bumgarner that he did not “have a very good case.” 297 Bumgarner also testified

that Armstrong “played it straight,” behaved like a “Boy Scout,” and “represented

the company.” 298

291
JTX-0522; Trial Tr. at 947:14–19(Bumgarner); id. at 668:10–13(Armstrong).
292
Compare JTX-0223, with JTX-0252.
293
Armstrong Dep. at 156:13–161:7 (2019).
294
Trial Tr. at 631:3–14(Armstrong)
295
JTX-0801.
296
Trial Tr. at 626:3–627:2(Armstrong).
297
Id. at 906:15–20(Bumgarner); id. at 970:20–23(Bumgarner); id. at 971:15–972:3(Bumgarner).
298
Id. at 910:20–22(Bumgarner).

48
 Ultimately, Bumgarner’s claims were each dismissed or settled before the

agreed-upon June 28, 2016 Closing Date. On April 28, 2016, several of

Bumgarner’s claims were dismissed, 299 and his remaining claims were settled on

June 16, 2016. 300

Although the evidence demonstrates that Armstrong’s communications with

Bumgarner were intended to assuage concerns about the Merger synergy

disclosures, Armstrong did communicate anti-merger sentiments to others that were

then relayed to Bumgarner.301 In a December 22, 2015 email, Keith Bailey,

Williams’ former CEO, wrote to Bumgarner, “[h]eard this morning that Alan

[Armstrong] told the guy I had breakfast with that he had a 7/6 majority the night

before. That the activist investors threatened to sue if the deal wasn’t approved and

that flipped the two directors. . . . Alan also told this guy that at the December board

meeting he ‘unloaded’ on the directors who supported the deal for being

cowards.”302 However, when Bailey encouraged Armstrong to “give [ETE] the out”

to make it easier to address potential credit issues at Williams, Armstrong demurred,

stating that he preferred “other levers . . . to address ratings agency concerns.”303

299
Bumgarner, 2016 WL 1717206, at *6.
300
JTX-1295.
301
See JTX-0313.0001.
302
Id.
303
JTX-0369.0001.

49
Bailey subsequently authored two letters to Williams stockholders encouraging them

to vote down the Merger.304

7. Williams Encourages Its Stockholders to Approve the Merger

Although some Williams directors and executives continued to question the

merits of the Merger during the energy market tohubohu,305 the record demonstrates

that Williams worked to obtain stockholder approval of the Merger and pressed

towards closing.

On November 24, 2015, the Williams Board recommended that Williams

stockholders vote for the Merger. 306 As I noted above, after the energy market began

to deteriorate, the Williams Board issued a press release on January 15, 2016

announcing that it was “unanimously committed to completing the transaction with

[ETE] per the [M]erger [A]greement . . . as expeditiously as possible and delivering

the benefits of the transaction to Williams’ stockholders.” 307 Williams publicly

reaffirmed this position on February 17, 2016,308 although two directors expressed

disagreement internally about the use of the word “unanimous,” which they

described as “trickery.” 309 Williams also sued ETE on April 6 and May 13, 2016,

seeking specific performance of the Merger Agreement, and issued press releases in

304
JTX-0580; JTX-1244.
305
See supra at 26–27.
306
Stip. ¶ 33.
307
JTX-0379.0001.
308
JTX-0553.0004.
309
JTX-0545.0001.

50
connection with those lawsuits stating that the Williams Board was “unanimously

committed to enforcing its rights under the merger agreement.”310

On May 24, 2016, the parties filed an updated S-4 with the SEC. 311 In the

S-4, the Williams Board recommended that stockholders vote for the Merger, though

it disclosed that certain Williams directors voted against the Merger and

“continue . . . to disagree with the recommendation of” the majority of the Williams

Board. 312 On May 25, 2016, Williams scheduled a special stockholder meeting to

vote on the Merger and reaffirmed that Williams “remain[ed] committed to holding

the stockholder vote and closing the transaction as soon as possible.”313 On June 15,

2016, Williams restated its recommendation that the stockholders approve the

Merger. 314 The Williams Board committee that was responsible for overseeing the

Merger also conducted a week-long investor roadshow during which they made

in-person visits and phone calls to discuss the Merger with institutional investors

and other stockholders. 315

310
JTX-0826.0001; see also JTX-0935.0001; JTX-1179.0001.
311
JTX-1218.
312
Id. at .0029–.0031.
313
JTX-1221.0001.
314
JTX-1287.
315
Trial Tr. at 61:14–23(Chappel); Sugg Dep. at 334:21–335:9.

51
 On June 27, 2016, Williams held a special meeting of its stockholders to

approve the combination with ETE.316 Over 80% of votes cast were in support of

the Merger.317

8. Latham Declines to Render the 721 Opinion

The Merger ultimately failed to close due to the failure of a condition

precedent: Latham’s determination that it could not render the 721 Opinion. This

determination ultimately became the basis for my decision in 2016 declining to

enjoin ETE from terminating the Merger Agreement. 318

At trial in 2016, ETE’s head of tax, Brad Whitehurst, testified that he had an

“epiphany” in March 2016 that the precipitous drop in the value of ETE’s units

during the market turmoil could trigger a tax liability.319 Whitehurst testified that,

when reviewing the draft S-4 in March 2016, he realized for the first time that the

number of ETC shares that ETE would receive in exchange for the $6 billion cash

component—the hook stock—was fixed, not floating. 320 He testified that he

believed the fixed nature of the hook stock could pose a potential Section 721 issue,

and therefore brought the issue to Latham’s attention.321

316
Stip. ¶ 33.
317
Id.
318
See generally 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).
319
Williams Cos., 2016 WL 3576682, at *12.
320
JTX-1304.0038 at 150:19–151:23 (Whitehurst 2016 trial testimony).
321
JTX-1304.0041 at 162:23–163:22 (Whitehurst 2016 trial testimony).

52
 The record in this trial proved Whitehurst’s 2016 testimony to be false.

Instead, it was Darryl Krebs, a vice president in ETE’s tax department who reported

to Whitehurst, who first identified that the hook stock was fixed. Krebs testified that

when he reviewed the S-4 in March 2016, he noticed that ETE’s hook stock appeared

to be fixed at 19% of ETC shares.322 This “stuck out to [Krebs] as a little surprising,”

so he raised it with Whitehurst, who reported back to Krebs a week later that the

hook stock was indeed fixed at 19% of ETC shares. 323 Whitehurst therefore asked

Krebs to “think about it and see if there’s any other implications.” 324

On March 28, 2016, Krebs emailed Whitehurst with the subject line, “Disaster

or Opportunity,” and wrote that he “was thinking about the ETC share issue some

more and another potential issue occurred to [him].” 325 Krebs raised the possibility

that the hook stock could pose “a disguised sale issue under [Section] 721,” and

asked whether Latham had “looked at / evaluated this potential outcome in their 721

[O]pinion.”326 He recommended that Latham assess this issue, and added that if

Latham could not issue the 721 Opinion, “we can’t meet all of the conditions

required to complete the merger,” and Williams “will either have to renegotiate or

322
Trial Tr. at 1080:20–1081:17(Krebs); id. at 1162:8–17(Whitehurst).
323
Id. at 1081:11–1082:12(Krebs); id. at 1162:8–1165:7(Whitehurst).
324
Id. at 1082:13–18(Krebs); id. at 1164:18–1165:7(Whitehurst).
325
JTX-0757.0001.
326
Id.

53
the merger can’t be completed.”327 Krebs concluded his email by observing that

“[m]aybe there is a silver lining to the issue identified today.” 328

The next day, on March 29, 2016, Whitehurst called a Latham tax partner,

Tim Fenn, and asked that Latham investigate the issue.329 Latham then undertook

an “all hands on deck” analysis, during which it “pull[ed] in all of the associates in

Houston to start working on the transaction and doing research.” 330 In April 2016,

Latham devoted over 1,000 hours to the Section 721 issue. 331 Another partner at

Latham who worked on the matter, Larry Stein, described the task as “among the

most intense, if not the most intense process” he had experienced in his entire

career.332 While conducting its analysis, Latham participated in six calls with ETE’s

deal counsel, Wachtell, to “pressure test” Latham’s analysis.333 Stein and Fenn each

testified that these conversations with Wachtell reinforced Latham’s confidence in

its analysis that the 721 Opinion was problematic.334

In addition, on April 7, 2016, ETE retained William McKee, a tax attorney at

Morgan Lewis & Bockius (“Morgan Lewis”), to provide a second opinion and

327
Id.
328
Id.
329
Trial Tr. at 1462:1–13(Fenn); id. at 1129:24–1130:7(Whitehurst).
330
Id. at 1465:1–16(Fenn); id. at 1360:10–24(Stein).
331
Id. at 1465:1–1466:12(Fenn).
332
Id. at 1360:10–24(Stein); id. at 1468:10–1469:2(Fenn).
333
JTX-0837; JTX-0847; JTX-0848; JTX-0876; JTX-0892; JTX-0990; Trial Tr. at 1372:19–
1373:20(Stein); id. at 1435:9–1436:1(Stein); id. at 1485:23–1488:5(Fenn).
334
Trial Tr. at 1372:19–1373:20(Stein); id. at 1485:23–1488:22(Fenn).

54
determine whether there was a solution to the Section 721 issue. 335 McKee

concluded on April 11, 2016 that he would not be able to render a should-level 721

Opinion, albeit for reasons different than Latham’s.336 McKee then discussed his

conclusion with Latham. 337

On April 12, 2016, Latham reached a “tentative conclusion” that it could not

render the 721 Opinion, and then informed Williams’ deal counsel at Cravath.338

Less than three hours later, Cravath called Latham, disagreeing with Latham’s

conclusion, and stating that it believed it could render a “will-level” 721 Opinion.339

Cravath also discussed the issue with McKee the next day, at Whitehurst’s

request.340

Despite disagreeing with Latham’s assessment, Cravath proposed two

alternatives to Latham on April 14, 2016 that it contended would resolve the

Section 721 issue.341 Latham analyzed these proposals and, after consulting with

Wachtell and Morgan Lewis,342 determined that neither proposal would solve the

335
Id. at 1137:18–1138:3(Whitehurst); JTX-1306.0060 at 568:20–570:21 (McKee 2016 trial
testimony).
336
JTX-1306.0061 at 574:2–14 (McKee 2016 trial testimony).
337
Trial Tr. at 1484:23–1485:10(Fenn); id. at 1372:21–1373:20(Stein); id. at 1437:22–
1438:8(Stein); id. at 1147:13–20(Whitehurst).
338
JTX-1531; Trial Tr. at 1376:18–1377:15(Stein); Stip. ¶ 28.
339
JTX-0881.0001; JTX-0884.0001.
340
JTX-1306.0062 at 578:10–582:2 (McKee 2016 trial testimony); Trial Tr. at 1143:15–
1144:2(Whitehurst).
341
JTX-0950.
342
Trial Tr. at 1386:4–1391:11(Stein); id. at 1488:6–13(Fenn); JTX-0990; JTX-0877.0013–.0014;
JTX-0993; JTX-1119.

55
issue. 343 Latham reasoned that, because the proposals would not alter the economics

of the deal (which Cravath acknowledged 344), they would conflict with a line of tax

cases declining to give weight to non-economic amendments to transactions made

solely to avoid taxation.345

On April 18, 2016, the parties filed an Amendment to the Form S-4, stating

that “Latham & Watkins LLP has recently advised ETE that if the closing of the

merger were to occur as of the date of this proxy statement/prospectus it would not

be able to deliver the 721 Opinion.” 346

In late April 2016, Williams sought its own second opinion from Eric Sloan

of Gibson, Dunn & Crutcher.347 After three weeks of analysis, Sloan initially

determined that “it is tough to get to a should,” 348 though he concluded the next day

in a “close call”349 that he would be able to render a “weak should.” 350

On May 13, 2016, Williams sued ETE seeking to enjoin it from terminating

the Merger Agreement based on the failure of the 721 Opinion, which I denied on

343
Trial Tr. at 1379:13–1384:2(Stein); id. at 1481:21–1482:18(Fenn); id. at 1151:18–
24(Whitehurst); JTX-0986.0002–.0003; Williams Cos., 2016 WL 3576682, at *15–16.
344
Trial Tr. at 1008:1–4(Needham); JTX-1304.0015 at 58:8–17 (Van Ngo 2016 trial testimony).
345
See Comm’r v. Ct. Holding Co., 324 U.S. 331 (1945); Trial Tr. at 1380:16–1382:6(Stein); id.
at 1404:12–1407:3(Stein); id. at 1440:22–1441:11(Stein); id. at 1150:6–1151:3(Whitehurst).
346
Stip. ¶ 29.
347
JTX-1053.
348
Trial Tr. 1052:5–8(Needham); JTX-1170.0001.
349
JTX-1199.0002.
350
JTX-1177.0001.

56
June 24, 2016 after trial.351 In my post-trial opinion denying specific performance,

I found that Latham’s determination that it would be unable to deliver the 721

Opinion was made in good faith and was not improperly motivated by any pressure

from ETE to avoid closing the Merger.352 I further held that because the 721 Opinion

was a condition precedent to closing, Williams was not entitled to an injunction

prohibiting ETE from terminating the Merger Agreement after the passage of the

Closing Date. 353

9. ETE Terminates the Merger After the Failure of the 721 Opinion

Williams and ETE had agreed to meet on June 28, 2016 at 9:00 AM to close

the Merger. 354 On June 28, 2016 at 9:00 AM, counsel for both parties met at the

offices of Wachtell, ETE’s counsel, with the necessary authority and all paperwork

to close, except for the 721 Opinion.355 The parties agree that Williams was ready,

willing, and able to close on June 28, 2016. 356 Counsel for ETE, however, informed

Williams that ETE would not close and would instead rely on the failure of the

condition precedent of Latham’s 721 Opinion. 357 Both before the market opened

and after it closed on June 28, 2016, Latham sent ETE and Williams letters indicating

351
Williams Cos., 2016 WL 3576682, at *2, 21.
352
Id. at *16.
353
Id. at *21.
354
Stip. ¶ 34.
355
Id. ¶ 35.
356
Id. ¶ 36.
357
Id.

57
that it could not deliver the 721 Opinion at those times. 358 On June 29, 2016, ETE

terminated the Merger Agreement due to the passage of the Outside Date under

Section 7.01(b)(i) of the Merger Agreement. 359

C. The Plaintiff Brings These Actions

This matter first came to me on April 6, 2016, when Williams filed an

expedited complaint challenging the Preferred Offering.360 Williams also filed a

lawsuit in Texas state court against Warren on the same day, also challenging the

Preferred Offering and contending that it constituted tortious interference with the

Merger Agreement.361 The Texas lawsuit was dismissed on May 24, 2016 because

it conflicted with a forum selection clause in the Merger Agreement. 362 On April

19, 2016, Williams filed an amended complaint in this matter. 363 ETE filed

counterclaims on May 3, 2016.364

On May 13, 2016, Williams initiated a separate action in this Court seeking

to enjoin ETE from terminating the Merger Agreement due to the failure of the 721

Opinion. 365 On May 24, 2016, the Defendants filed amended affirmative defenses

358
Id. ¶ 37.
359
Id. ¶ 38; Williams Cos., 2017 WL 5953513, at *8.
360
Verified Compl., Dkt. No. 1, Apr. 6, 2016.
361
JTX-0819.
362
JTX-1220.
363
Verified Am. Compl., Dkt. No. 48.
364
Def.’s Answer Pl.’s Verified Am. Compl., Affirmative Defenses, and Original Verified
Countercl., Dkt. No. 58.
365
Verified Compl., Dkt. No. 1, May 13, 2016.

58
and counterclaims, addressing both actions in this Court. 366 On June 14, 2016, I

ordered that the parties consolidate briefing and scheduling of the two actions to

litigate the issues concurrently. 367 I held a two-day expedited trial in both actions on

June 20 and 21, 2016 in Georgetown.

On June 24, 2016, I issued a post-trial memorandum opinion denying

Williams’ request to enjoin ETE from terminating the Merger because Latham’s

inability to deliver a 721 Opinion was a failure of a condition precedent under the

Merger Agreement.368 On June 27, 2016, the same day that Williams stockholders

approved the Merger, Williams appealed, and the Supreme Court affirmed my

Opinion in relevant part on March 23, 2017. 369

The parties thereafter filed amended claims and counterclaims.370 On

December 1, 2017, I granted Williams’ motion to dismiss ETE’s counterclaims in

part, denying ETE’s request for a breakup fee for the terminated Merger. 371 I denied

ETE’s motion for reargument of that decision on April 16, 2018. 372 On January 14,

2020, the parties filed cross-motions for summary judgment on the remaining

366
Defs.’ and Countercl. Pls.’ Am. Affirmative Defenses and Verified Countercl., Dkt. No. 79.
367
Scheduling and Coordination Order, Dkt. No. 101.
368
See generally Williams Cos., 2016 WL 3576682.
369
Williams Cos., 159 A.3d; see also JTX-1327.0001.
370
Verified Am. Compl., Dkt. No. 215; Defs.’ and Countercl. Pl.’s Second Am. and Suppl.
Affirmative Defenses and Verified Compl., Dkt. No. 219.
371
See generally Williams Cos., 2017 WL 5953513.
372
See generally Williams Cos., Inc. v. Energy Transfer Equity, L.P., 2018 WL 1791995 (Del. Ch.
Apr. 16, 2018).

59
claims, which “centered largely on Williams’ right to the WPZ Termination Fee

Reimbursement.”373 ETE filed a motion for sanctions on May 20, 2020 (the “Motion

for Sanctions”).374 I issued an opinion on July 2, 2020 denying summary judgment

but resolving certain non-dispositive contractual issues, and I held that the Motion

for Sanctions was best dealt with at trial or a separate evidentiary hearing.375

I held a six-day trial in May 2021. The parties submitted post-trial briefing,376

and I heard oral argument on September 17, 2021. On September 23, 2021, the

parties submitted flowcharts outlining their claims, counterclaims, and defenses,377

and I considered the matter fully submitted as of that date.

II. ANALYSIS
A. Legal Standards

The disputes in this case primarily concern the application of the Merger

Agreement. “Delaware law adheres to the objective theory of contracts, i.e., a

contract’s construction should be that which would be understood by an objective,

reasonable third party.” 378 In practice, the objective theory of contracts requires the

373
Williams Cos., Inc. v. Energy Transfer LP, 2020 WL 3581095, at *10 (Del. Ch. July 2, 2020).
374
Defs. and Countercl. Pls.’ Mot. Sanctions or, Alternatively, an Evidentiary Hearing Spoliation
Evid., Dkt. No. 503 [hereinafter “Motion for Sanctions”].
375
Williams Cos., 2020 WL 3581095, at *21.
376
Williams OB; ETE OB; Pl.’s and Countercl.-Def.’s Posttrial Reply Br., Dkt. No. 640; Defs.’
and Countercl. Pls.’ Reply Br. Supp. Its Countercl., Dkt. No. 645.
377
See Dkt. Nos. 651, 652.
378
Salamone v. Gorman, 106 A.3d 354, 367–68 (Del. 2014) (quoting Osborn ex rel. Osborn v.
Kemp, 991 A.2d 1153, 1159 (Del. 2010)).

60
court to effectuate the parties’ intent,379 which, absent ambiguity, “must be

ascertained from the language of the contract.” 380 In other words, “[t]he Court will

interpret clear and unambiguous terms according to their ordinary meaning.”381

Where a contract is ambiguous, however, the Court “must look beyond the

language of the contract to ascertain the parties’ intentions.”382 “A contract is not

rendered ambiguous simply because the parties do not agree upon its proper

construction.”383 Instead, “ambiguity exists ‘[w]hen the provisions in controversy

are fairly susceptible of different interpretations or may have two or more different

meanings.’”384

B. Williams Proved a Claim for the WPZ Termination Fee Reimbursement

In my summary judgment opinion, I held that the Merger Agreement

permitted Williams the opportunity to recover the WPZ Termination Fee

Reimbursement even though ETE validly terminated the Merger due to the failure

of Latham’s 721 Opinion. 385 Section 5.06(f) of the Merger Agreement allocates the

risk regarding the WPZ Termination Fee Reimbursement as follows:

379
Zimmerman v. Crothall, 62 A.3d 676, 690 (Del. Ch. 2013).
380
Comet Sys., Inc. S’holders’ Agent v. MIVA, Inc., 980 A.2d 1024, 1030 (Del. Ch. 2008) (quoting
In re IAC/InterActive Corp., 948 A.2d 471, 494 (Del. Ch. 2008)).
381
GMG Cap. Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 780 (Del. 2012)
(quoting Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997)).
382
Id. (quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195
(Del. 1992)).
383
Id.
384
Id. (quoting Eagle Indus., 702 A.2d at 1232).
385
Williams Cos., 2020 WL 3581095, at *11–14.

61
 If the Company or Parent terminates this Agreement
pursuant to (A) Section 7.0l(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”) . . . . The
Company agrees that in no event shall the Company be
entitled to receive more than one WPZ Termination Fee
Reimbursement.386

ETE terminated the Merger Agreement under § 7.01(b)(i) due to the passage

of the Outside Date. 387 Therefore, ETE is liable to Williams for the WPZ

Termination Fee Reimbursement if “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)” was unsatisfied at the time ETE

terminated the Merger Agreement.388 Thus the parties allocated the risk of a failed

merger in light of Williams’ payment of the WPZ termination fee to facilitate the

Merger.

Williams asserts that four conditions set forth in those sections were unmet at

the time ETE terminated the Merger Agreement. First, Williams claims that ETE

breached the Capital Structure Representation by issuing the Preferred Offering.389

Section 6.03(a)(i) of the Merger Agreement required the Capital Structure

386
JTX-0209.0059 (§5.06(f)) (emphasis added).
387
See Williams Cos., 2020 WL 3581095, at *7.
388
JTX-0209.0059 (§5.06(f)).
389
Williams OB § I.A.

62
Representation to be true as of the Closing Date “except for any immaterial

inaccuracies.” 390

Second, Williams claims that ETE breached the Ordinary Course Covenant

and three Interim Operating Covenants by issuing the Preferred Offering. 391 Third,

Williams claims that ETE breached its obligation to use reasonable best efforts to

consummate the Merger, based on the failure of the 721 Opinion.392 Section 6.03(b)

of the Merger Agreement required ETE to “perform[] or compl[y]” with the

Ordinary Course Covenant, Interim Operating Covenants, and best efforts

obligations by the time of closing “in all material respects.”393 Finally, Williams

argues that ETE breached a representation that it knew of no facts that would prevent

the Merger “from qualifying as an exchange to which Section 721(a) of the [tax]

Code applies.”394 Section 6.03(a)(iv) required this representation to be true as of the

Closing Date except where the failure of the representation to be true “would not

reasonably be expected to have . . . a Parent Material Adverse Effect,” as defined in

the Merger Agreement.395

The parties agree that, subject to ETE’s affirmative defenses, Williams is

entitled to the WPZ Termination Fee Reimbursement if it prevails under any one of

390
JTX-0209.0063 (§6.03(a)(i)).
391
Williams OB § I.B.
392
Id. § II.B. See JTX-0209.0053 (§5.03(a)), .0060 (§5.07(a)).
393
JTX-0209.0063 (§6.03(b)).
394
Williams OB § II.A. See JTX-0209.0038 (§3.02(n)(i)).
395
JTX-0209.0063 (§6.03(a)(iv)).

63
these four theories. As explained below, I find that the Preferred Offering breached

at least the Ordinary Course Covenant, the Interim Operating Covenants, and the

Capital Structure Representation. I therefore need not consider whether ETE

separately breached its obligations with respect to the failure of the 721 Opinion.

C. ETE Breached the Ordinary Course Covenant and Interim Operating
Covenants

As described above, ETE agreed to several covenants restricting its actions

between signing and closing—the Ordinary Course Covenant and three Interim

Operating Covenants. In my summary judgment opinion, I held that “the Preferred

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

covenants.” 396 Two issues were left for trial: First, whether ETE’s violation of these

covenants was excused under the “in all material respects” qualifier, and second,

whether the Preferred Offering was nonetheless permitted under the $1 Billion

Equity Issuance Exception in the Parent Disclosure Letter.397

I discuss both in turn.

1. The Preferred Offering Did Not Comply with the Interim Operating
Covenants and Ordinary Course Covenant “In All Material Respects”

Section 6.03(b) of the Merger Agreement required, by the time of closing,

ETE to have “performed or complied” with the operating covenants “in all material

396
Williams Cos., 2020 WL 3581095, at *18.
397
Id. at *18–20.

64
respects.”398 ETE argues that the “in all material respects” qualifier adopts the

common law “material breach” standard. 399 That is incorrect.

This Court has consistently interpreted the qualifier “in all material respects”

to be “less onerous” for the party asserting breach than the common law material

breach standard. In Akorn, Inc. v. Fresenius Kabi AG, Vice Chancellor Laster

examined the meaning of the “in all material respects” qualifier in a merger

agreement.400 The Court reviewed treatises on M&A agreements and case law

interpreting the word “material” and determined that “in all material respects”

“limit[s] the operation of the [covenants to which it applies] to issues that are

significant in the context of the parties’ contract, even if the breaches are not severe

enough to excuse a counterparty’s performance under a common law [material

breach] analysis.”401

The Court therefore held that the “in all material respects” qualifier “calls for

a standard that is different and less onerous than the common law doctrine of

material breach”: It is meant to “exclude small, de minimis, and nitpicky issues that

should not derail an acquisition.”402 Since Akorn, this Court has repeatedly endorsed

that meaning of the “in all material respects” qualifier in the context of merger

398
JTX-0209.0063 (§6.03(b)).
399
ETE OB § III.A.3.a.
400
Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at *84–86 (Del. Ch. Oct. 1, 2018), aff’d,
198 A.3d 724 (Del. 2018).
401
Akorn, 2018 WL 4719347, at *84–86 (emphasis added).
402
Id. at *85–86.

65
agreements. 403 And our Supreme Court recently adopted this interpretation in AB

Stable VIII LLC v. MAPS Hotels & Resorts One LLC.404 ETE offers no reason to

depart from that meaning here.

Applying the “in all material respects” standard as set forth in Akorn, I find

that the Preferred Offering’s violation of the operating covenants is not excused by

that standard. The record at trial demonstrated that achieving economic equivalence

between the ETC shares, which the former Williams stockholders would receive,

and the ETE common units, was “paramount” to Williams 405 and became “the most

important and time-consuming part of the[] negotiations.”406 As Warren admitted at

trial, “equality of distributions between ETC shares and ETE units was a key aspect

of the merger.” 407

Of particular concern to Williams was the possibility that Warren, a

significant ETE common unitholder who would control both ETE and ETC after the

403
Dermatology Assocs. of San Antonio v. Oliver St. Dermatology Mgmt. LLC, 2020 WL 4581674,
at *26 (Del. Ch. Aug. 10, 2020) (“in all material respects” excludes those “small, de minimis, and
nitpicky issues that should not derail an acquisition”); Snow Phipps Grp., LLC v. Kcake
Acquisition, Inc., 2021 WL 1714202, at *38 (Del. Ch. Apr. 30, 2021) (same); AB Stable VIII LLC
v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, at *73 (Del. Ch. Nov. 30, 2020) (same),
aff’d, 2021 WL 5832875 (Del. Dec. 8, 2021); Channel Medsystems, Inc. v. Bos. Sci. Corp., 2019
WL 6896462, at *17 (Del. Ch. Dec. 18, 2019) (applying Akorn standard); In re Anthem-Cigna
Merger Litig., 2020 WL 5106556, at *134 n.426 (Del. Ch. Aug. 31, 2020) (distinguishing
“material breach” standard from “in all material respects” standard), aff’d sub nom. Cigna Corp.
v. Anthem, Inc., 251 A.3d 1015 (Del. 2021) (TABLE).
404
2021 WL 5832875, at *13 (Del. Dec. 8, 2021).
405
See supra note 38 and accompanying text.
406
See supra note 40 and accompanying text.
407
See supra note 38 and accompanying text.

66
Merger, could take actions that benefitted ETE unitholders at the expense of ETC.408

That is precisely what the Preferred Offering achieved. The Preferred Offering

guaranteed participants a cash distribution preference of 11 cents, plus an additional

17½ cents in accrual credits, regardless of whether any distributions were made to

common unitholders. 409 This had the effect of eliminating downside risk for

participants in the event of a distribution cut, which ETE had anticipated since

January 2016, 410 months before the Preferred Offering closed on March 8, 2016.411

Moreover, ETE made the Preferred Offering available only to ETE insiders,

with Warren, McReynolds and Davis receiving over 85% of the total preferred

units.412 And on the Closing Date—the relevant date for the purpose of assessing

materiality 413—ETE had in fact declared that if the Merger closed, it would cut

distributions on common units to zero for two years. 414 As one of ETE’s financial

advisors at Perella remarked, such a distribution cut “represent[ed] a wealth transfer

from non-participating to participating units.” 415

408
See supra note 36 and accompanying text.
409
Trial Tr. 371:20–373:1(Warren); JTX-0535.0019; JTX-0538.0002; Trial Tr. 351:1–
352:10(Warren).
410
See supra notes 123–24, 128–29, 150–51 and accompanying text.
411
See supra note 208 and accompanying text.
412
See supra note 213 and accompanying text.
413
JTX-0209.0063 (§6.03(b)).
414
See supra notes 241–42, 257 and accompanying text.
415
See supra note 186 and accompanying text.

67
 For these reasons, I found in the Unitholder action that the Preferred Offering

“was a hedge meant to protect [ETE] insiders from the anticipated bad effects of the

coming merger”—an “opportunity to eliminate downside risk” that ETE “insiders

seized” “for themselves and their cronies.” 416 Indeed, by transforming the ETE

common units held by insiders into preferred units, ETE gained the ability to cut

distributions to zero on ETE common units, along with its matching obligation

regarding ETC dividends,417 while shielding its own insiders from the downside.

That is, ETE was able to preserve distributions to ETE insiders while cutting out

(among others) the former Williams stockholders. And as of the Closing Date, that

is exactly what ETE planned to do. 418 To Williams, the Preferred Offering destroyed

the economic equivalence between the ETC shares and certain ETE units, and it

signaled that Warren was willing to take actions adverse to ETC if they benefited

him. That is hardly the type of picayune issue immaterial to a Merger where, as

Warren himself admitted, “equality of distributions between ETC shares and ETE

units was a key aspect.” 419

416
Energy Transfer, 2018 WL 2254706, at *1, 24.
417
See supra note 42 and accompanying text.
418
See supra notes 241–42, 257–59 and accompanying text.
419
See supra note 39 and accompanying text.

68
 ETE advances several arguments that, despite representing a wealth transfer

to ETE insiders, the Preferred Offering complied with the operating covenants “in

all material respects.” I find none of them persuasive.

First, ETE contends that the distribution preference was ultimately “of no

consequence” to Williams because the Merger never closed. 420 But ETE’s

obligation to pay the WPZ Termination Fee Reimbursement is only triggered if the

Merger failed to close. 421 If ETE’s argument was correct, Williams’ right to recover

the WPZ termination fee would be meaningless and unenforceable. Indeed, as I

have already held, “the benefits of § 5.06(f) would be illusory if (as ETE argues) the

termination . . . relieved ETE of all the conditions that could trigger the WPZ

Termination Fee Reimbursement.”422

Second, ETE contends that Williams was better off with the Preferred

Offering than it would have been if ETE had undertaken a contractually compliant

420
ETE OB § III.A.3.b.i.
421
JTX-0209.0059 (§5.06(f)).
422
Williams Cos., 2020 WL 3581095, at *13. None of ETE’s cited cases are to the contrary.
Matthew v. Laudamiel applied the common law materiality standard, which I have already held is
more onerous. 2014 WL 5499989, at *2 (Del. Ch. Oct. 30, 2014). In Great Lakes Chem. Corp. v.
Pharmacia Corp., the holding to which ETE refers had nothing to do with materiality. 788 A.2d
544, 549–50 (Del. Ch. 2001). Rather, the court there held that the plaintiff failed to allege that the
injury was caused by the breach. Id. Here, in contrast, I have already held at summary judgment
that causation is irrelevant because the Merger Agreement “contains no causal language that
suggests that to trigger the WPZ Termination Fee Reimbursement, the termination must result
from the unsatisfied condition.” Williams Cos., 2020 WL 3581095, at *12. Finally, Cedarview
Opportunities Master Fund, L.P. v. Spanish Broad. Sys., Inc. dealt with the question of damages,
not materiality. 2018 WL 4057012, at *12 (Del. Ch. Aug. 27, 2018).

69
equity issuance, such as an issuance of common units. 423 In particular, ETE contends

that an issuance of common units would have been “more dilutive to Williams.”424

But the diversion of cash flow from Williams stockholders to ETE insiders is a

distinct harm beyond the dilutive effect of an issuance of common units. Williams

agreed to some dilution in connection with the $1 Billion Equity Issuance Exception,

but it did not agree that ETE could divert distributions to ETE insiders while cutting

out Williams stockholders.425

Third, ETE argues that the Preferred Offering did not disrupt any of Williams’

contractual “economic equivalence rights.” 426 Specifically, ETE argues that the

Merger Agreement only guaranteed equivalence between dividends on ETC shares

and distributions on ETE common units, not ETE senior securities. 427 But this

proves too much; by creating a new class of securities to transfer wealth from

common unitholders to those other, favored, common unitholders allowed to

participate in the offering, ETE destroyed the equivalence between Williams

stockholders and the latter group of common unitholders. ETE next argues it could

have issued the very same Preferred Offering after closing.428 That may be true, but

is not pertinent. Regardless of what ETE could have done after closing relieved it

423
ETE OB § III.A.3.b.ii.
424
Id. at 66.
425
See infra § II.C.2.
426
ETE OB § III.A.3.b.iii.
427
Id.
428
Id.

70
of its contractual duties, its obligation was to comply with the operating covenants

at closing. 429 If ETE’s ability to act inconsistently with its operating covenants post-

closing excused its obligation to comply with them pre-closing, that obligation

would be rendered nugatory.

Finally, ETE argues that any dilution to Williams stockholders caused by the

Preferred Offering paled in comparison to the entire agreement’s value, and that

Williams demonstrated that the breach was immaterial by seeking to close the

Merger regardless. 430 At summary judgment, I rejected the general “proposition that

a party’s willingness to proceed with an agreement must mean that any violations

did not matter to it.”431 I instead cast the issue as a factual one for trial: “did

Williams’ perfervid desire to proceed despite the alleged breaches indicate that it

found ETE’s alleged violations immaterial?” 432

The evidence shows that Williams found ETE’s violations material. Multiple

Williams witnesses testified that they viewed the Preferred Offering as an

“outrageous”433 “sweetheart deal” for “the CEO of ETE and some small[,] selected

group of people”434 that was “a complete game changer with respect to what was

429
JTX-0209.0063 (§6.03(b)).
430
ETE OB § III.A.3.b.iv.
431
Williams Cos., 2020 WL 3581095, at *14.
432
Id. at *15.
433
See supra note 219 and accompanying text.
434
See supra note 221 and accompanying text.

71
bargained for in the merger agreement.” 435 One Williams stockholder lambasted the

Preferred Offering as “something similar” to a “fraudulent conveyance.”436

Williams also sued ETE in this Court and Warren personally in Texas state court

challenging the Preferred Offering while it was seeking to close the Merger. 437 The

record therefore demonstrates that Williams viewed the Preferred Offering to be

material despite its continued desire to close. A party may find a breach material in

light of its bargain, but still conclude that the transaction, net, is favorable. Such a

determination does not void its right to a remedy for the breach as provided by

contract under an “in all material respects” standard.

Accordingly, I find that Williams has proven that the Preferred Offering failed

to comply “in all material respects” with the operating covenants.

2. The $1 Billion Equity Issuance Exception Does Not Excuse ETE’s
Breach

The Ordinary Course Covenant and each of the Interim Operating Covenants

were subject to certain exceptions in Section 4.01(b) of the Parent Disclosure Letter.

With respect to the Ordinary Course Covenant, the Merger Agreement provided that

“[e]xcept as set forth in Section 4.01(b) of the Parent Disclosure Letter . . . Parent

shall, and shall cause each of its Subsidiaries to, carry on its business in the ordinary

435
See supra note 220 and accompanying text.
436
See supra note 218 and accompanying text.
437
See supra notes 360–61 and accompanying text.

72
course . . . .” 438 Likewise, each of the Interim Operating Covenants is preceded by

an identical “except as set forth in Section 4.01(b) of the Parent Disclosure Letter”

preamble.439

Section 4.01(b) of the Parent Disclosure Letter, in turn, organizes these

exceptions under headers that correspond to specific sections within Section 4.01(b)

of the Merger Agreement. 440 The $1 Billion Equity Issuance Exception falls under

a header titled, “Section 4.01(b)(v).”441

The parties dispute whether the $1 Billion Equity Issuance Exception creates

an exception to the Ordinary Course Covenant and all of the Interim Operating

Covenants, or just the Interim Operating Covenant located within Section 4.01(b)(v)

of the Merger Agreement, which prohibited the issuance of equity securities. As

discussed below, I find that both interpretations are reasonable, and therefore, the

“except as set forth in Section 4.01(b) of the Parent Disclosure Letter” qualifier in

the Merger Agreement is ambiguous.

ETE argues that the “[e]xcept as set forth in Section 4.01(b) of the Parent

Disclosure Letter” language in the Merger Agreement qualifies each of the operating

covenants, meaning that ETE could disregard any of them if it did so in connection

438
JTX-0209.0045 (§4.01(b)).
439
Id. at .0045 (§4.01(b)).
440
JTX-0194.0017–.0019.
441
Id. at .0018.

73
with an action permitted by Section 4.01(b) of the Parent Disclosure Letter.442 I find

this interpretation to be reasonable. I note that the “[e]xcept as set forth in Section

4.01(b) of the Parent Disclosure Letter” language is repeated twice—once before the

Ordinary Course Covenant, and once before the Interim Operating Covenants.443

Because Section 4.01(b) of the Parent Disclosure Letter contains no header

corresponding to the Ordinary Course Covenant, it would be reasonable to apply all

of the exceptions in Section 4.01(b) of the Parent Disclosure Letter to the Ordinary

Course Covenant; otherwise, the qualifier that precedes the Ordinary Course

Covenant would have no meaning. And if the phrase “[e]xcept as set forth in Section

4.01(b) of the Parent Disclosure Letter” creates an unqualified exception to the

Ordinary Course Covenant, it is reasonable to conclude that, when the identical

phrase appears again in front of the Interim Operating Covenants, it creates an

identical unqualified exception to those covenants.

I also note that the Parent Disclosure Letter states, “[t]he headings contained

in this Parent Disclosure Letter are for reference only and shall not affect in any way

the meaning or interpretation of this Parent Disclosure Letter.” 444 It is therefore

reasonable to disregard the headers—including numerical designations—in the

442
ETE OB § III.A.2.a.
443
JTX-0209.0045 (§4.01(b)).
444
JTX-0194.0002.

74
Parent Disclosure Letter referring to specific sections within Section 4.01(b) of the

Merger Agreement when interpreting the scope of the exceptions.

On the other hand, Williams argues that the exceptions in Section 4.01(b) of

the Parent Disclosure Letter are limited by the numerical designations in each of

their headers, such that the exceptions only qualify the covenants in the Merger

Agreement that correspond to those numerical designations. 445 This, too, I find a

reasonable interpretation. Through the headers, each exception in Section 4.01(b)

of the Parent Disclosure Letter refers to a single covenant within Section 4.01(b) of

the Merger Agreement.446 And the substance of each exception matches the

substance of the corresponding operating covenant. For example, the $1 Billion

Equity Issuance Exception falls under the header “Section 4.01(b)(v),” which

corresponds to a covenant in Section 4.01(b)(v) that prohibits the issuance of

equity.447 And Section 3.02 of the Merger Agreement explicitly provides that each

exception applies to its corresponding section or subsection in the Merger

Agreement. 448

Moreover, the headers are not ordered consecutively. For example, although

there are headers titled, “4.01(b)(ii)” and “4.01(b)(v),” there are no headers titled,

445
Williams OB § I.B.2.
446
JTX-0194.0017–.0019.
447
Compare id. at.0018 (Parent Disclosure Letter), with JTX-0209.0045(Merger Agreement).
448
JTX-0209.0030 (§3.02).

75
“4.01(b)(iii) or “4.01(b)(iv).”449 The nonconsecutive numbering of the headers

indicates that the exceptions under each header are meant to refer specifically to the

section in the Merger Agreement matching the header. Furthermore, Section 4.01(b)

of the Parent Disclosure Letter repeats certain exceptions under multiple headers.450

If each exception applied to all the operating covenants in Section 4.01(b) of the

Merger Agreement, there would be no need for such repetition. Williams’ proposed

interpretation is also consistent with the phrase “[e]xcept as set forth in Section

4.01(b) of the Parent Disclosure Letter,” which could reasonably be read to simply

refer the reader to Section 4.01(b) of the Parent Disclosure Letter to determine

whether there any exceptions to a particular covenant.

Because I find that both interpretations are reasonable, it is appropriate to

examine the extrinsic evidence to determine the parties’ intent. As I discussed

above, the parties’ drafting history demonstrates that they intended the $1 Billion

Equity Issuance Exception, which fell under a header titled, “Section 4.01(b)(v),” to

qualify only the Interim Operating Covenants in Section 4.01(b)(v) of the Merger

Agreement. Up until the day before signing, the $1 Billion Equity Issuance

Exception was located within Section 4.01(b)(v) of the Merger Agreement, not the

Parent Disclosure Letter.451 Witnesses aligned with both parties testified that they

449
JTX-0194.0017–.0019.
450
Id. at .0018–.0019 (§4.01(b)(v)(4), (x)(1), (xi)(4)); id. at .0017, .0019 (§4.01(b)(ii)(1), (xi)(3)).
451
See supra notes 67–72 and accompanying text.

76
only moved it to the Parent Disclosure Letter—along with several other

exceptions—to maintain confidentiality, and that they did not intend the moves to

be substantive. 452

The parties’ conduct after signing also confirms that they intended this

interpretation. Williams’ Company Disclosure Letter was structured in the same

manner as the Parent Disclosure Letter, with exceptions that fell under headers that

referred to specific sections within Williams’ operating covenants in the Merger

Agreement. 453 After signing, Williams planned its own equity issuance, which was

permitted by an exception in its Company Disclosure Letter but featured a waiver

on IDRs that was prohibited under another operating covenant. 454 Consistent with

the view that the equity issuance exception in the Company Disclosure Letter did

not permit the IDR waiver, Williams requested ETE’s consent, and ETE exercised

its right to refuse, a right that would have been nonexistent under ETE’s current

litigation-driven view of the language.455 Accordingly, I find that the parties

intended the $1 Billion Equity Issuance Exception to qualify the covenants within

Section 4.01(b)(v) of the Merger Agreement, but not the other Interim Operating

Covenants or the Ordinary Course Covenant.

452
See supra notes 76–79 and accompanying text.
453
See supra notes 83–85 and accompanying text.
454
See supra notes 82–84, 86–87 and accompanying text.
455
See supra notes 88–89 and accompanying text.

77
 ETE next argues that, even if the $1 Billion Equity Issuance Exception refers

only to the Interim Operating Covenants at Section 4.01(b)(v) of the Merger

Agreement, it still cross-applies to other covenants, under the explicit terms of the

Agreement, where its “relevan[ce]” to those covenants is “reasonably apparent on

its face.” 456 ETE relies on the following provision of the Merger Agreement to

support this argument:

[A]ny information set forth in one Section or subsection of
the Parent Disclosure Letter shall be deemed to apply to
and qualify the Section or subsection of this Agreement to
which it corresponds in number and each other Section or
subsection of this Agreement to the extent that it is
reasonably apparent on its face in light of the context and
content of the disclosure that such information is relevant
to such other Section or subsection[.]457

Relying on the broad definition of “relevant” applicable to the Delaware Rules

of Evidence, ETE argues for a similarly broad interpretation of this provision, to

mean that an exception in the Parent Disclosure Letter applies to any covenant in the

Merger Agreement that is “logically related to” that covenant. 458 This reading

ignores that the provision requires the “relevan[ce]” of the exception to be

“reasonably apparent on [the] face” of the exception, which is clearly a limitation on

the breadth of the provision. 459 Indeed, in its briefing, ETE reads the “on its face”

456
ETE OB § III.A.2.c.
457
JTX-0209.0030 (§3.02) (emphasis added).
458
ETE OB § III.A.2.c.
459
JTX-0209.0030 (§3.02).

78
language out of the provision, describing it as the “reasonably apparent relevance”

standard. 460 If ETE’s reading were correct, the $1 Billion Equity Issuance Exception

would permit violations of any covenant so long as the violation was done in

connection with a compliant equity issuance. Accordingly, ETE argues that the

“reasonably apparent on its face” provision permitted ETE to violate the Ordinary

Course Covenant by engaging in a self-dealing transaction—the Preferred

Offering—that breached ETE’s own limited partnership agreement 461 because that

transaction was an equity issuance of under $1 billion.462 That is not a reasonable

interpretation of the provision.

Instead, I find that the plain meaning of the provision—that contract language

shall apply cross-sectionally where it is reasonably apparent on its face that the

language is relevant cross-sectionally—excuses actions that would otherwise breach

covenants where facially necessary to permit the activity provided by the

provision—that is, where absent cross-sectional applicability an inconsistency in the

contractual terms would result. For example, another exception under the “Section

4.01(b)(v)” header in the Parent Disclosure Letter allows ETE to “acquire units in

any of its Subsidiaries in an amount up to $2.0 billion in the aggregate.”463 It is

460
See ETE OB at 60 (“The text of the ‘reasonably apparent . . . relevance’ clause . . . .”); id. at 61
(“Under the ‘reasonably apparent relevance’ standard . . . .”).
461
Energy Transfer, 2018 WL 2254706, at *25.
462
See ETE OB at 61.
463
JTX-0194.0018 (§4.01(b)(v)(3)).

79
“reasonably apparent on [the] face” of this exception that it must cross-apply to the

covenant in Section 4.01(b)(iv) of the Merger Agreement, which states that ETE

may not “purchase, redeem or otherwise acquire any shares of . . . its Subsidiaries’

capital stock or other securities.”464 Otherwise, the exception would have no

meaning. This interpretation of the “reasonably apparent on its face” provision

comports with the ordinary meaning of the word “relevant,”465 and gives effect to

the requirement that the exception’s relevance to a covenant be “reasonably apparent

on [the] face” of the exception.466 In other words, the provision is a savings clause

for a draftsperson’s failure to adequately cross-reference a provision in the Merger

Agreement. 467

Applying this standard, the “relevan[ce]” of the $1 Billion Equity Issuance

Exception to the covenants ETE violated is not “reasonably apparent on [the] face”

of the exception, because ETE could have undertaken an equity issuance pursuant

to the exception that complied with each of the covenants. Because ETE could have

acted in compliance with the covenants without the application of the exception, its

relevance to the covenants is not facially apparent. Again, I held at summary

judgment that the Preferred Offering did not comport with ETE’s general Ordinary

464
JTX-0209.0045 (§4.01(b)(iv)).
465
Relevant, MERRIAM-WEBSTER (“having significant and demonstrable bearing on the matter at
hand”).
466
JTX-0209.0030 (§3.02).
467
See Trial Tr. 215:3–216:1(Van Ngo).

80
Course Covenant because “breaching its limited partnership agreement is not

‘ordinary course’ for the company.” 468 ETE does not dispute that it could have

structured the equity offering in a way that did not breach its partnership agreement.

And ETE also concedes that “ETE issued equity securities in the past, and it was

reasonably expected to do so during the Merger’s pendency.” 469 In other words,

ETE admits that certain equity issuances were ordinary course. Accordingly, the

$1 Billion Equity Issuance Exception is not facially relevant to the Ordinary Course

Covenant, because it is unnecessary to address a conflict with that covenant.

Likewise, I held at summary judgment that the Preferred Offering breached

ETE’s covenants that it would not (i) subject ETE to new distribution restrictions,

(ii) issue “securities in respect of . . . equity securities,” or (iii) amend its partnership

agreement.470 Again, ETE could have structured an equity offering in a way that

complied with each of those covenants. As a result, the relevance of the Equity

Issuance Exception to each is not facially apparent. For example, as ETE concedes,

equity issuances do not necessarily feature distribution restrictions.471 And if ETE

had issued equity out of the existing classes instead of swapping common units for

new preferred units, it would have complied with the covenant prohibiting ETE from

468
Williams Cos., 2020 WL 3581095, at *18.
469
ETE OB at 61.
470
Williams Cos., 2020 WL 3581095, at *18.
471
ETE OB at 61.

81
issuing “securities in respect of . . . equity securities.” Finally, ETE does not dispute

that it could have issued common units without amending its limited partnership

agreement.472 Simply put, none of the operating covenants breached by ETE

conflicted with the $1 Billion Equity Issuance Exception. Therefore, the exception’s

relevance to those covenants was not “reasonably apparent on its face.”

Accordingly, I find that the $1 Billion Equity Issuance Exception did not permit

ETE’s violations of its operating covenants.

* * *

Because I have found that Williams proved a claim for the WPZ Termination

Fee Reimbursement based on ETE’s breach of the operating covenants, I need not

discuss Williams’ other independent bases for proving its claim.473

I note, however, that Williams has also established a claim for the WPZ

Termination Fee Reimbursement based on the failure of the Capital Structure

Representation. Pursuant to the Capital Structure Representation, ETE represented

at signing that its capital structure consisted of three classes of equity securities:

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

472
ETE argues only that it would have to amend its partnership agreement to issue “new
securities.” Id. at 62.
473
Those bases generally involve the 721 Opinion.

82
 Class D Units”) and a general partner interest in Parent
(“Parent General Partner Interest”).474
This representation was brought down to closing “except for any immaterial

inaccuracies.” 475 In my summary judgment opinion, I held that, because the

Preferred Offering created a fourth class of equity that was part of ETE’s capital

structure on the Closing Date, the Capital Structure Representation was false on that

date. 476 As with the covenant breaches, two issues were left for trial: first, whether

that inaccuracy was “immaterial,” and second, whether the $1 Billion Equity

Issuance Exception in the Parent Disclosure Letter permitted the inaccuracy. 477

I find that Williams proved that the falsity of the Capital Structure

Representation was material. In the context of representations in merger

agreements, this Court has held that “[a] fact is generally thought to be ‘material’ if

[there] is ‘a substantial likelihood that the . . . fact would have been viewed by the

reasonable investor as having significantly altered the ‘total mix’ of information

made available.’”478 As I held above, the Preferred Offering was material to

Williams stockholders because it created a new equity class that granted ETE

insiders a distribution preference, allowing ETE to preserve cash flow to those

474
JTX-0209.0030 (§3.02(c)(i)).
475
Id. at .0063 (§6.03(a)).
476
Williams Cos., 2020 WL 3581095, at *4, 20–21.
477
Id. at *20–21.
478
Frontier Oil v. Holly Corp., 2005 WL 1039027, at *38 (Del. Ch. Apr. 29, 2005); accord Akorn,
2018 WL 4719347, at *86.

83
insiders while cutting out the Williams stockholders. 479 I therefore find that the

Preferred Offering rendered the Capital Structure Representation materially

inaccurate.

Furthermore, the $1 Billion Equity Issuance Exception did not permit the

falsity of the Capital Structure Representation. Unlike the operating covenants, the

Capital Structure Representation is not qualified by the “except as set forth in Section

4.01(b) of the Parent Disclosure Letter” preamble.480 Accordingly, the only way that

the $1 Billion Equity Issuance Exception could apply to the Capital Structure

Representation is through the “reasonably apparent on its face” test. 481 For reasons

similar to the related discussion above, the exception’s applicability is not facially

apparent, because there is no inconsistency in the language. ETE promised that its

existing classes of equity would carry down to closing, but its representation

concerning the number of outstanding units for each class was not so brought

down. 482 In other words, ETE was free to issue up to $1 billion in equity out of an

existing class, as provided for in the Parent Disclosure Letter, and in that case the

Capital Structure Representation would have remained true at closing. Because ETE

could have issued equity under the $1 Billion Equity Issuance Exception in a way

479
See supra § II.C.1.
480
See JTX-0209.0030 (§3.02(c)(i)).
481
See id. at .0030 (§3.02).
482
Id. at .0063 (§6.03(a)(i)).

84
that complied with the Capital Structure Representation, it is not facially apparent

that the exception is applicable to the Capital Structure Representation.

Accordingly, I find that Williams has independently proven a claim for the

WPZ Termination Fee Reimbursement based on the Preferred Offering’s violation

of the Capital Structure Representation. Having found that Williams proved a claim

for the WPZ Termination Fee Reimbursement, I turn to ETE’s affirmative defenses.

D. ETE’s Affirmative Defenses and Counterclaims Fail

ETE asserts three affirmative defenses and counterclaims that it contends

prevent Williams from recovering the WPZ Termination Fee Reimbursement. First,

ETE argues that Williams violated a provision requiring cooperation with respect to

financing by refusing the Proposed Public Offering. 483 Second, ETE argues that

Williams breached an obligation to notify ETE of purportedly material omissions

from the S-4.484 Third, ETE contends that Williams breached various obligations

based on the purported actions taken by Armstrong and the dissenting Williams

directors to thwart the Merger. 485

“[A] defendant seeking to . . . assert [a] breach as an affirmative defense [to

performance] . . . bears the burden to show that [the] breach . . . excused its non-

483
ETE OB § III.C.1.
484
Id. § III.C.2.
485
Id. § III.C.3.

85
performance.” 486 As discussed below, I find that ETE has failed to prove each of

these affirmative defenses and counterclaims.

1. ETE Did Not Prove That Williams Violated the Financing
Cooperation Provision

ETE argues that by refusing to consent to the Proposed Public Offering,

Williams breached its obligation under Section 5.14 of the Merger Agreement to

“provide cooperation reasonably requested by [ETE] that is necessary or reasonably

required in connection with . . . financing . . . arranged by [ETE].” 487 ETE contends

that Section 5.14 provides “no reasonableness qualifier” on Williams’ duty to

provide cooperation.488 I disagree. Section 5.14 provides that Williams was only

required to “provide cooperation reasonably requested by [ETE].” 489 Williams was

therefore under no obligation to cooperate with a request by ETE that was

unreasonable.

It is reasonable for “a party [to] withhold consent to a transaction when the

decision is made for a legitimate business purpose.”490 The record demonstrated that

Williams withheld consent to the Proposed Public Offering on the advice of its

financial advisors because it discriminated against Williams stockholders, who were

486
TA Operating LLC v. Comdata, Inc., 2017 WL 3981138, at *22 (Del. Ch. Sept. 11, 2017).
487
ETE OB § III.C.1.
488
Id. at 95.
489
JTX-0209.0061 (§5.14) (emphasis added).
490
Union Oil Co. of California v. Mobil Pipeline Co., 2006 WL 3770834, at *11 (Del. Ch. Dec.
15, 2006).

86
unable to participate in the offering. 491 I find this to be a legitimate business purpose,

particularly given that, instead of merely withholding consent, Williams offered to

proceed with the offering if ETE allowed Williams stockholders to participate.492

That was a reasonable counteroffer, which ETE refused.493 Moreover, “an

obligation to take reasonable actions . . . does not require a party ‘to sacrifice its own

contractual rights for the benefit of its counterparty.’”494 The Proposed Public

Offering violated the Merger Agreement for many of the same reasons that the

Preferred Offering did—including because it involved new distribution restrictions

and issued “securities in respect of . . . equity securities.” 495 I therefore find that it

was reasonable for Williams to refuse to consent to the Proposed Public Offering.

2. ETE Did Not Prove a Disclosure Violation

ETE next contends that Williams breached its obligation under Section 5.01

of the Merger Agreement to inform ETE of material facts omitted from the S-4 and

to correct those omissions.496 In particular, ETE contends that Williams did not

disclose to ETE (i) the purported threats of consent solicitation from Meister and

491
See supra notes 187–92 and accompanying text.
492
See supra note 196 and accompanying text.
493
See supra note 197 and accompanying text.
494
Williams Field Servs. Grp., LLC v. Caiman Energy II, LLC, 2019 WL 4668350, at *34 (Del.
Ch. Sept. 25, 2019) (quoting Akorn, 2018 WL 4719347, at *91), aff’d sub nom. Williams Field
Servs. Grp., LLC v. Caiman Energy II, LCC, 237 A.3d 817 (Del. 2020).
495
See supra at 28–33, 81–82.
496
ETE OB § III.C.2.

87
Mandelblatt, and (ii) certain Williams directors’ criticism of its bankers’ financial

analyses. 497 Section 5.01 of the Merger Agreement provides, in relevant part,

If at any time prior to receipt of the Company Stockholder
Approval any information relating to TopCo, Parent or the
Company, or any of their respective Affiliates, directors or
officers, should be discovered by TopCo, Parent or the
Company which is required to be set forth in an
amendment or supplement to either the Form S-4 or the
Proxy Statement, so that either such document would not
include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein,
in light of the circumstances under which they are made,
not misleading, the party that discovers such information
shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and, to
the extent required by Law, disseminated to the
stockholders of the Company.498

First, as discussed above, ETE failed to prove that Meister and Mandelblatt

threatened the Williams directors with a consent solicitation, or that any perceived

threats influenced the Williams Board’s decision to approve the Merger

Agreement. 499 Williams was under no obligation to inform ETE of threats that did

not occur. Second, Williams disclosed that a minority of its directors voted against

entering into the Merger Agreement and “continue to disagree with the

recommendation of the majority of the [Williams] Board”; 500 it was not required to

497
Id. § III.C.2.
498
JTX-0209.0051 (§5.01).
499
See supra at 20–22.
500
JTX-1218.0165.

88
disclose “the ground for a disclosed director dissent,” including any purported

disagreement with the analysis of Williams’ bankers.501 Accordingly, ETE has

failed to prove a breach of Section 5.01.

3. Any Breach by Williams of the Best Efforts or Ordinary Course
Provisions Was Cured by the Closing Date

Finally, ETE argues that Williams breached three covenants based on the

actions of Armstrong and other dissenting Williams directors: Williams’ obligations

to (i) use reasonable best efforts to consummate the Merger; 502 (ii) “carry on its

business in the ordinary course”; 503 and (iii) use “reasonable best efforts to contest

and resist” litigation challenging the Merger.504 Williams was obligated to have

“performed or complied” with these covenants “by the time of the Closing.” 505

ETE contends that Williams breached these covenants because Armstrong

“covertly worked with anti-Merger co-conspirators.”506 As I have found, however,

Armstrong’s communications with Bumgarner, while not a model of corporate

governance best practices, were intended to assuage Bumgarner’s concerns about

the synergies estimates, not to thwart the Merger. 507

501
Newman v. Warren, 684 A.2d 1239, 1246 (Del. Ch. 1996).
502
JTX-0209.0053 (§5.03(a)).
503
Id. at .0041 (§4.01(a)).
504
Id. at .0053 (§5.03(a)).
505
Id. at .0063 (§6.02(b)).
506
ETE OB at 98.
507
See supra § I.B.6.

89
 ETE also contends that Armstrong and other dissenting Williams directors

tried to “fan the deal break flames” by attempting to dissuade Cleveland and Stoney

from supporting the Merger, positioning Williams for a “walkaway payment,”

“working the press” to “write anti-ETE articles,” and suing Warren “in a thinly-

veiled publicity stunt.” 508 The evidence at trial refuted each of these contentions.

ETE introduced no evidence that Cleveland or Stoney felt pressured to switch their

votes; to the contrary, Stoney testified that she never felt pressure to reconsider her

position.509 Moreover, although Williams did ask its financial advisors to assess the

value of a potential breakup fee from ETE,510 the Williams Board resolved to

publicly support the Merger, 511 and ultimately sued to enjoin ETE from terminating

the Merger Agreement.512 And ETE has introduced no evidence that Williams’

Texas lawsuit against Warren challenging the Preferred Offering was intended to be

a “publicity stunt.” Instead, the lawsuit represented Williams’ view that the

Preferred Offering breached the Merger Agreement and was unfair to Williams

stockholders.

In any event, and more fundamentally, Williams’ obligation to comply with

these covenants was due “by the time of the Closing.” 513 And by June 28, 2016, the

508
ETE OB at 102.
509
See supra note 138 and accompanying text.
510
See supra note 142 and accompanying text.
511
See supra notes 139, 307–08, 310, 312–14 and accompanying text.
512
See supra note 351 and accompanying text.
513
JTX-0209.0063 (§6.02(b)).

90
date on which Williams and ETE had agreed to close, 514 Williams was in full

compliance: Williams had settled the Bumgarner lawsuit,515 sued ETE seeking to

enjoin it from terminating the Merger Agreement,516 obtained stockholder approval

of the Merger, 517 and showed up at the scheduled closing.518 Indeed, ETE concedes

that on June 28, 2016, Williams was ready, willing and able to close.519 Therefore,

even to the extent that, between signing and closing, the actions of Armstrong and

the dissenting Williams directors violated covenants, Williams “had abandoned its

flirtation” with those violations by the time of closing, “thereby curing its breach.”520

Accordingly, I find that ETE failed to prove any of its affirmative defenses or

counterclaims.

E. ETE Is Entitled to Monetary Sanctions for Armstrong’s Deletion of His
Gmail Account

On May 20, 2020, ETE filed the Motion for Sanctions based on Armstrong’s

deletion of the Gmail account he used to correspond with Bumgarner about the

Merger. 521 ETE asks the Court to make adverse findings, draw adverse inferences,

514
See supra note 50 and accompanying text.
515
See supra notes 299–300 and accompanying text.
516
See supra note 351 and accompanying text.
517
See supra note 317 and accompanying text.
518
See supra note 355 and accompanying text.
519
Stip. ¶ 36.
520
Akorn, 2018 WL 4719347, at *100.
521
See generally Motion for Sanctions.

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award ETE attorneys’ fees and costs, and prohibit Williams from recovering

attorneys’ fees and costs. 522

“The Court has the power to issue sanctions for discovery abuses under its

inherent equitable powers, as well as the Court’s ‘inherent power to manage its own

affairs.’”523 “Sanctions serve three functions: a remedial function, a punitive

function, and a deterrent function.”524 With these functions in mind, the Court

considers the following factors in determining whether sanctions are appropriate:

(1) “the culpability or mental state of the party who destroyed the evidence”; (2) “the

degree of prejudice suffered by the complaining party”; and (3) “the availability of

lesser sanctions which would avoid any unfairness to the innocent party while, at the

same time, serving as a sufficient penalty to deter the conduct in the future.” 525 “The

Court has wide latitude to fashion an appropriate remedy, but the remedy must be

tailored to the degree of culpability of the spoliator and the prejudice suffered by the

complaining party.”526

With respect to the first element, I find that Armstrong’s destruction of his

Gmail account was spoliation of evidence. Although Armstrong testified at trial that

he deleted the Gmail account because it was sending spam messages to his

522
Id. ¶ 1.
523
Beard Rsch., Inc. v. Kates, 981 A.2d 1175, 1189 (Del. Ch. 2009) (quoting Residential Funding
Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 106 (2d Cir. 2002)).
524
Id.
525
Id.
526
Id. at 1189–90.

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contacts, 527 Williams failed to introduce any evidence corroborating that

testimony—such as an example of the spam emails. Given this lack of corroborating

evidence, and the fact that Armstrong deleted the account just two days after being

asked at a deposition if he emailed with Bumgarner about the Merger, 528 I do not

find his testimony to be credible.

Turning to the second element, however, ETE has failed to demonstrate that

Armstrong’s destruction of his Gmail account ultimately prejudiced ETE. ETE was

able to recover Armstrong’s communications with Bumgarner by subpoenaing

Bumgarner’s emails.529 Although ETE acknowledges this, it argues that Bumgarner

discarded most of his paper records, which may have included handwritten notes

from Armstrong, as well as Bumgarner’s notes from meetings with Armstrong.530

But even if true, ETE fails to explain how those handwritten notes would have been

recoverable through Armstrong’s deleted Gmail account. ETE also points out that

Armstrong communicated with Williams’ former CEO, Bailey, 531 and that he

testified that he may have done so from that Gmail account.532 But “an email, almost

by definition, has a sender and a receiver.”533 Therefore, “[e]ven if [Armstrong] had

527
See supra note 280 and accompanying text.
528
See supra note 279 and accompanying text.
529
See supra note 282 and accompanying text.
530
ETE OB § III.C.5.
531
See supra notes 301–03 and accompanying text.
532
Trial Tr. 688:9–689:11(Armstrong).
533
Beard Rsch, 981 A.2d at 1193 (declining to draw adverse inference based on deletion of emails).

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destroyed certain emails [to Bailey] on his end, the emails still would exist on the

other end and [c]ould have been produced.” 534

With respect to the third element, I find that making adverse inferences or

findings would be unfair to Williams in light of ETE’s lack of prejudice. Sanctions

in some form, however, are appropriate given Armstrong’s degree of culpability.

I therefore find that ETE is entitled to recover its fees and costs in connection with

subpoenaing Bumgarner’s email, and for bringing the Motion for Sanctions.

F. Williams Is Entitled to Attorneys’ Fees and Costs, and Interest

Section 5.06(g) of the Merger Agreement provides that Williams is entitled to

fees, costs, and interest if it is forced to bring a suit to collect the WPZ Termination

Fee Reimbursement and prevails:

[I]f . . . Parent fails promptly to pay any amount due
pursuant to Section . . . 5.06(f), and, in order to obtain such
payment, . . . the Company commences a suit that results
in . . . a judgment against Parent for the amount set forth
in Section . . . 5.06(f) . . . Parent shall pay to the Company
. . . the other party’s costs and expenses (including
reasonable attorneys’ fees and expenses) in connection
with such suit, together with interest on the amount of such
payment from the date such payment was required to be
made until the date of payment at the prime rate as
published in the Wall Street Journal in effect on the date
such payment was required to be made. 535

534
Id.
535
JTX-0209.0059 (§5.06(g)).

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 Because I have found that Williams is entitled to the WPZ Termination Fee

Reimbursement, Williams is also entitled to recover its reasonable fees and expenses

in bringing about this result.

III. CONCLUSION

For the foregoing reasons, judgment is entered in favor of the Plaintiff in the

amount of $410 million, plus interest at the contractual rate, and its reasonable

attorneys’ fees and expenses. The Defendants are entitled to their fees and expenses

for subpoenaing Bumgarner’s documents and bringing their Motion for Sanctions.

The parties should confer and submit a form of order consistent with this Opinion.

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