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

Summary

The Delaware Supreme Court affirmed the Court of Chancery’s judgment in a dispute over a merger agreement between The Williams Companies, Inc. and Energy Transfer Equity, L.P. The court held that the agreement’s commercially reasonable efforts and reasonable best efforts covenants imposed affirmative obligations, and that once a breach was established, the breaching party would bear the burden of proving that the breach did not materially contribute to the failure of a closing condition. Because the Court of Chancery found that ETE’s conduct did not materially contribute to tax counsel’s good-faith refusal to issue the required Section 721 opinion, and because ETE was not estopped from terminating the agreement, the judgment was affirmed.

Holdings

1. Covenants requiring commercially reasonable efforts and reasonable best efforts to obtain the tax opinion and consummate the merger impose affirmative obligations to take all reasonable steps to solve problems and complete the transaction, not merely a negative obligation to refrain from obstructing performance.
2. Once a breach of a covenant is established, the breaching party bears the burden of proving that the breach did not materially contribute to the failure of the transaction or closing condition.
3. ETE was not equitably estopped from terminating the merger agreement because the record did not establish that ETE knew of the later-developed tax theory when it made the representation or that it withheld a known fact from Williams.

Questions Presented

1. Whether the merger agreement's commercially reasonable efforts and reasonable-best-efforts covenants imposed affirmative obligations to take reasonable steps to obtain the required tax opinion and consummate the merger.
2. Whether, once a breach of those covenants is established, the breaching party bears the burden of proving that the breach did not materially contribute to the failure of the closing condition.
3. Whether ETE was equitably estopped from terminating the merger agreement based on its representation that it knew of no fact reasonably expected to prevent tax-free treatment under Internal Revenue Code § 721(a).

Disposition

affirmed