Chancery Court Rejects Termination Fee Claim Sought by the Same Party Who Terminated the Merger

On December 1, 2017, in The Williams Companies, Inc. v. Energy Transfer Equity, L.P. and LE GP, LLC, the Delaware Court of Chancery dismissed Energy Transfer Equity’s (ETE) counterclaim seeking specific performance of a termination fee provision as a result of Williams’ alleged breach in informally withdrawing its contractual board recommendation approving Williams’ merger with an ETE affiliate. Notably, ETE had already successfully opposed Williams’ suit to force consummation of the merger, though on different grounds owing to the lack of a favorable tax opinion condition precedent. Describing ETE’s position of seeking a termination fee after terminating the merger as “unlikely,” the Court still acknowledged that Delaware is a “contractarian” jurisdiction and analyzed the contract language. Here, ETE argued that Williams breached a provision prohibiting the board’s withdrawal or qualification of the contractual recommendation by negatively commenting about ETE’s CEO and chairman and expressing pessimism in the press, public filings, and litigation against the CEO/chairman – hence, an informal withdrawal. Williams contended that this provision should be construed to refer only to board resolutions. The Court found that the termination fee provision “carefully define[d]” the recommendation as four distinct recommendations which the board made and affirmed, and never formally withdrew or modified. Therefore, the Court held that ETE was not entitled to the fee, but preserved the possibility that Williams’ actions could be relevant to a separate “best efforts” claim against Williams.