Research by a Gabelli School of Business professor has been cited in an opinion by one of the nation’s most influential business courts.
The opinion issued by the Delaware Court of Chancery concerned the nature of a case, In Re: El Paso Pipeline Partners, L.P. Derivative Litigation, which challenged the actions of the management of a master limited partnership. Vice Chancellor J. Travis Laster rejected the defendant’s argument that the action was derivative and must be dismissed. In so doing, he upheld a prior post-trial decision holding that those who approved several transactions did not comply with the responsibility to determine whether the actions were in the best interest of the limited partners.
El Paso Pipeline Partners had made several “dropdown” asset purchases, which were challenged by El Paso’s limited partners. El Paso was structured by its sponsor firm, El Paso Corporation, as a master limited partnership, with provisions that eliminated its fiduciary duties.
Laster cited Professor Brent Horton’s 2013 article, The Going-Private Freeze-Out: A Unique Danger for Investors in Delaware Non-Corporate Business Associations, which addressed the issue of limited partnership agreements replacing fiduciary duties with contractual standards.
Horton wrote in his article that such “fiduciary eliminations” result in “investors in publicly traded non-corporate business associations being uniquely susceptible to [breaches of fiduciary duty].”
The professor said, however, in the El Paso case, “the replacement of fiduciary duties with a contractual standard ended up helping the limited partners – help worth $171 million – because the court found that the inserted contractual standards were not met.”
Horton was pleased with Laster’s use of his article.
“I am thrilled that my work was read by the Court of Chancery and they thought it was good enough to cite in a decision,” Horton said. This is the second time that the Court of Chancery has cited Horton.