Energy Transfer, LP v. The Williams Companies, Inc.

• Court: Supreme Court of Delaware
• Decided: October 10, 2023
• Docket: 391, 2022
• Status: Published

Opinion

IN THE SUPREME COURT OF THE STATE OF DELAWARE

ENERGY TRANSFER, LP, et al., § § No. 391, 2022 Defendants and Counterclaim § Court Below: Court of Chancery Plaintiffs Below-Appellants, § of the State of Delaware § v. § § C.A. Nos. 12168 and 12337 THE WILLIAMS COMPANIES, INC., § § Plaintiff and Counterclaim § Defendant Below-Appellee. §

Submitted: July 12, 2023 Decided: October 10, 2023

Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, LEGROW, and GRIFFITHS, Justices, constituting the Court en banc.

Upon appeal from the Court of Chancery of the State of Delaware. AFFIRMED.

James M. Yoch, Esquire, Alberto E. Chávez, Esquire, YOUNG CONAWAY STARGATT & TAYLOR, Wilmington, Delaware; Paul D. Clement, Esquire (argued), Matthew D. Rowen, Esquire, CLEMENT & MURPHY, PLLC, Alexandria, Virginia, for Appellants Energy Transfer Corp LP, Energy Transfer Equity GP, LLC, Energy Transfer Equity LP, ET Corp GP LLC and LE GP LLC.

Kenneth J. Nachbar, Esquire, Susan Wood Waesco, Esquire, Matthew R. Clark, Esquire, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Antony L. Ryan, Esquire (argued), Kevin J. Orsini, Esquire, Michael P. Addis, Esquire, CRAVATH, SWAINE & MOORE LLP, New York, New York, for Appellee The Williams Companies, Inc.

GRIFFITHS, Justice: This marks the final chapter in a long-running legal saga stemming from a

failed, multibillion-dollar merger (the “Merger”) of two fuel pipeline giants—The

Williams Companies, Inc. (“Williams”) and Energy Transfer LP (“ETE”). Although

failed mergers are not uncommon, a failed merger without consequence is virtually

unheard of. Indeed, these collapses typically generate significant—typically,

monetary—consequences. This case is a perfect example.

The parties have spent the better part of a decade litigating over various fees

to which they argue they are entitled under the Merger Agreement. ETE continues

to assert its entitlement to a $1.48 billion breakup fee, despite being the party who

terminated the Merger. It also disputes that it must pay Williams a $410 million

reimbursement fee, which it was required to pay if the Merger failed and certain

conditions were met. Finally, ETE argues that a related $85 million attorney’s fee

award is unreasonable.

But we find no error with the Court of Chancery’s well-reasoned opinions that

hold that ETE is not entitled to an over-one-billion-dollar fee and find that ETE must

pay Williams the $410 million reimbursement fee and the related $85 million in

attorney’s fees. The litigation between the parties over their failed merger has now

come to an end.

We affirm.

2 I. Background1

A. The Parties2

Appellant Energy Transfer LP, formerly known as Energy Transfer Equity,

L.P.,3 is a Delaware limited partnership with its principal executive offices located

in Dallas, Texas. ETE’s family of companies owns and operates approximately

71,000 miles of natural gas, natural gas liquids, refined products, and crude oil

pipelines. ETE is run by its Chairman and Chief Executive Officer Kelcy Warren

(“Warren”). Jamie Welch (“Welch”) served as its Chief Financial Officer during the

relevant period.

Appellant Energy Transfer Corp LP (“ETC”) is a Delaware limited

partnership taxable as a corporation. Pursuant to the Merger, Williams would have

merged with and into ETC. ETC is a party to the Agreement and Plan of Merger

entered on September 28, 2015 (the “Merger Agreement”) and would have been the

managing member of the general partner of ETE following the consummation of the

Merger.

1 Unless otherwise noted, the facts are taken from the Court of Chancery’s 2021 post-trial opinion. See Williams Companies, Inc. v. Energy Transfer LP, 2021 WL 6136723 (Del. Ch. Dec. 29, 2021), judgment entered sub nom. The Williams Companies, Inc. v. Energy Transfer LP (Del. Ch. 2022) (hereinafter, “Chancery Post-Trial Opinion”). 2 Unless otherwise specified, we refer to Appellants collectively as “ETE.” 3 On October 19, 2018, Energy Transfer, L.P. changed its name to “Energy Transfer LP.” The parties agree that Energy Transfer Equity, L.P. is the same entity as Energy Transfer LP for the purposes of this litigation.

3 Appellant ETE Corp GP, LLC is a Delaware limited liability company, the

general partner of ETC, and a party to the Merger Agreement.

Appellant LE GP, LLC is a Delaware limited liability company, the general

partner of ETE, and a party to the Merger Agreement.

Appellant Energy Transfer Equity GP, LLC is a Delaware limited liability

company and a party to the Merger Agreement. 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.

Appellee Williams is a publicly traded Delaware corporation with its principal

executive offices located in Tulsa, Oklahoma. The company specializes in energy-

infrastructure projects, and it owns and operates interstate gas pipelines, as well as

gathering and processing operations throughout the country. It is managed by its

Chief Executive Officer, Alan Armstrong (“Armstrong”), and its Chief Financial

Officer, Don Chappel (“Chappel”). Williams is a party to the Merger Agreement.

B. Factual Background

1. Williams Agrees to the WPZ Transaction

In May 2015, Williams agreed to acquire the publicly held units in its master

limited partnership, Williams Partners, L.P. (“WPZ”). The agreement required

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

4 transaction (the “WPZ Termination Fee”). When ETE made an offer to acquire

Williams, ETE required Williams to terminate the WPZ transaction.

2. The Merger Agreement Negotiations

In May 2015, ETE submitted a bid to purchase Williams in an all-equity deal

and merger negotiations ensued over the summer of 2015. The parties elected to

structure the merger as an “Up-C” transaction: in exchange for their shares,

Williams’ shareholders would not receive ETE common units; instead, they would

receive stock in a newly formed entity called Energy Transfer Corp LP. Following

the transaction, ETC would own Class E Units representing roughly 57% of the

limited partner interest of ETE, leaving the existing limited partners of ETE with the

remaining 43% interest. The former Williams shareholders, in turn, would own

approximately 81% of ETC’s shares and would receive $6.05 billion in cash

consideration. ETE, for its part, would own all of Williams’ assets and the other

19% of ETC’s shares.

Given the unique equity component of the deal, “achieving economic

equivalence” was paramount to Williams’ board of directors (the “Williams

Board”).4 One cause for concern stemmed from the fact that Warren personally

owned a significant number of ETE units—generating roughly $200 million in

annual personal cash flow from the company’s quarterly distributions—and would

4 Chancery Post-Trial Opinion at *3; see also App. to Opening Br. at A3241–42.

5 control the combined entity post-merger. As such, he had both a reason and the

ability to take actions benefitting ETE at the expense of ETC. For example, if ETC

shares traded at a discount to ETE units due to disproportionate distributions of ETE

units, this would negatively affect the value of the merger consideration Williams’

shareholders had received.

Several features of the deal reflected Williams’ concerns. The $6.05 billion

cash payment, used by ETE to purchase shares in ETC, was designed as a “hook

stock” to align ETE’s and ETC’s financial interests. ETE also committed to paying

dividends on ETC shares equal to the distributions paid on ETE common units

through 2018 and to providing ETC shareholders with a one-time equalizing

payment at the end of two years if ETC shares were trading at a discount to ETE

common stock. Further, the Merger Agreement required that ETE maintain its

existing capital structure—composed of three classes of equity—through closing.

3. The Merger Agreement

Williams and ETE executed the Merger Agreement on September 28, 2015

and agreed to a closing date of June 28, 2016 (the “Closing Date”). The Agreement

contained several provisions that are at issue on appeal, including the Company

Board Recommendation, the Company Board Recommendation Change, the parties’

Efforts Obligations, and the Attorney’s Fee provision, all of which are defined and

described below.

6 a. The Company Board Recommendation and the Company Board Recommendation Change Provisions

Under the Agreement, the Williams Board was required to pass a series of

resolutions in support of the transaction (the “Company Board Recommendation”).5

If the Williams Board adversely changed its recommendation in favor of the merger

(the “Company Adverse Recommendation Change”),6 then Williams would be

required to pay a $1.48 billion breakup fee (the “$1.48 billion Termination Fee”) to

ETE if it chose to terminate the Merger on that ground.7 Under the Company

Adverse Recommendation Change provision, “[n]either the Board of Directors of []

[Williams] nor any committee thereof shall (i)(A) withdraw (or modify or qualify in

a manner adverse to [ETE]), or publicly propose to withdraw (or modify or qualify

in a manner adverse to [ETE]), the Company Board Recommendation[.]”8

b. The Parties’ Efforts Obligations and the Interim Operating Covenants

The parties also agreed to several covenants in the Merger Agreement

regarding their conduct between signing and closing, all of which are subject to

exceptions.9 First, they agreed to operate in the ordinary course of business in the

5 See App. to Opening Br. at A434 (Merger Agreement § 3.01(d)). 6 Id. at A464 (Merger Agreement § 4.02(d)). 7 See id. at A480 (Merger Agreement § 7.01(e)); see also id. at A474 (Merger Agreement § 5.06(d)(iii)). 8 Id. at A464 (Merger Agreement § 4.02(d)). 9 These exceptions are identified in Section 4.01 of the Parent Disclosure Letter. See infra at § I.B.4.

7 period between signing and closing (the “Ordinary Course Covenant”).10 Second,

the Agreement obligated the parties to use their reasonable best efforts to close the

transaction (the “Best Efforts” provision, and collectively with the Ordinary Course

Covenant, the “Efforts Obligations.”).11

In addition to the general Ordinary Course Covenant, ETE made specific

course-of-business covenants, which included agreements not to place distribution

restrictions on its units, not to amend its organizational documents, and to limit its

equity issuances (the “Interim Operating Covenants”).12 These were subject to an

“all material respects” qualifier by the time of Closing.13 For its part, Williams

agreed to cooperate with any reasonable request in furtherance of ETE’s financing

of the transactions (the “Capital Structure Representation”).14

Section 6.03(b) of the Merger Agreement required that ETE certify, as of

closing, its material compliance with the provisions included in the Ordinary Course

and Interim Operating Covenants.15 Were ETE to terminate the transaction while in

violation of its covenants, Section 5.06(f) of the Merger Agreement required that it

10 See App. to Opening Br. at A460–62 (Merger Agreement § 4.01(b)). 11 See id. at A468–70 (Merger Agreement § 5.03). 12 See id. at A460–62 (Merger Agreement § 4.01(b)). 13 See id. at A478 (Merger Agreement § 6.03(b)) (“[ETE] 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 . . . .”). 14 See id. at A476 (Merger Agreement § 5.14) (“[Williams] shall . . . provide cooperation reasonably requested by [ETE] that is necessary or reasonably required in connection with the Financing . . . .”). 15 Id. at A478 (Merger Agreement § 6.03(b)).

8 reimburse Williams its $410 million payment to WPZ (the “WPZ Termination Fee

Reimbursement”).16

c. Attorney’s Fees Provision

Section 5.06(g) of the Merger Agreement provided that Williams was entitled

to “reasonable attorney[’s] fees and expenses” if it was the prevailing party in an

action to recoup the WPZ Termination Fee Reimbursement.17

4. The Parent Disclosure Letter & The $1 Billion Equity Issuance Exception Negotiation

Separate from, but incorporated into, the Merger Agreement were disclosure

letters the parties provided to one another that contained carveouts and exceptions

to the terms of the Merger Agreement. In ETE’s Parent Disclosure Letter (the

“Parent Disclosure Letter” or “PDL”), the exceptions are organized under headers

that correspond to specific sections within Section 4.01 of the Agreement. For

example, ETE’s Ordinary Course Covenant and Interim Operating Covenants, which

are in Section 4.01(b) of the Merger Agreement, are subject to exceptions in Section

4.01(b) of the Parent Disclosure Letter.18 The PDL states that “[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 the Parent Disclosure Letter.”19

16 Id. at A474 (Merger Agreement § 5.06(f)). 17 Id. (Merger Agreement § 5.06(g)). 18 Id. at A460 (Merger Agreement § 4.01(b)). 19 Chancery Post-Trial Opinion at *6.

9 The exception at issue on appeal appears in Section 4.01(b)(v) of the PDL.20

Section 4.01(b)(v) of the Merger Agreement restricts ETE’s ability to issue equity

securities,21 but Section 4.01(b)(v) of the PDL (the “$1 Billion Equity Issuance

Exception”) states that “[ETE] may make issuances of equity securities with a value

of up to $1.0 billion in the aggregate.”22

The $1 Billion Equity Issuance Exception was initially embedded within

Section 4.01(b)(v) of the Merger Agreement itself.23 But on September 27, 2015,

the day before signing, the parties moved that exception and several others from the

Merger Agreement into their respective disclosure letters.24 In ETE’s case, it

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 PDL titled

“Section 4.01(b)(v).”

The Court of Chancery later noted that “[t]he 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

20 See id. at A413 (Parent Disclosure Letter § 4.01(b)). 21 See id. at A460 (Merger Agreement § 4.01(b)(v)). 22 Id. at A413 (Parent Disclosure Letter § 4.01(b)(v)). 23 See App. to Answering Br. at B459–50 (Merger Agreement August 2015 Draft). 24 See App. to Opening Br. at A3308 (Van Ngo Tr.) (“[C]ertain of the exceptions to the interim operating covenants that the parties had negotiated have been removed from the body of the merger agreement and have been moved into the disclosure schedule.”).

10 substantive.”25 Williams’ counsel, Cravath, Swaine & Moore LLP (“Cravath”),

communicated to Wachtell, Lipton, Rosen & Katz (“Wachtell”), ETE’s counsel, that

they “were fine with this movement, with the understanding that it was

nonsubstantive,” meaning that each exception would apply to the section from which

it had been moved using corresponding headers.26 One of Williams’ attorneys also

testified that he communicated to ETE’s counsel his understanding that the

disclosure letters were “section-specific.”27

5. The Williams Board Approves the Merger

On September 25, 2015, the Williams Board voted to approve the Merger by

a vote of 8-5.28 Three days later, the Williams Board approved and declared the

Merger advisable. Williams subsequently terminated the WPZ agreement and paid

the WPZ Termination Fee. 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”).

25 Chancery Post-Trial Opinion at *7; see, e.g., App. to Opening Br. at A3121 (Chappel Tr.) (explaining that there would be “[n]o change in rights” based on moving provisions to the disclosure letters); id. at A3310 (Van Ngo Tr.) (“My experience with how disclosure schedules work as an M&A lawyer is that they are section-specific.”). 26 Chancery Post-Trial Opinion at *7. 27 App. to Opening Br. at A3310 (Van Ngo Tr.) (“During the first call we had regarding the representations and covenants, I noted to [ETE’s counsel] that . . . the disclosure letter is section- specific and that I preferred the ‘reasonably apparent on its face’ formulation for the savings clause. And her response was, ‘That’s fine.’”). 28 The day before, the Williams Board conducted a straw poll and preliminary rejected the Merger by a 6-7 vote. See Chancery Post-Trial Opinion at *9. Two directors—Janice Stoney (“Stoney”) and Joe Cleveland (“Cleveland”)—ended up changing their votes. Id.

11 6. The Energy Market Craters & the Parties Have Reservations

By the end of 2015, commodity prices dropped precipitously, and the energy

market deteriorated as a result. This led both ETE and Williams to take stock of the

value of the Merger.

ETE, for its part, grew concerned that its plan to finance the $6.05 billion cash

component of the deal would harm its credit ratings. Even the possibility of cutting

distributions, a drastic step, appeared to be on the table.29 By early 2016, ETE’s

CEO Kelcy Warren had begun looking for ways to restructure or “walk away” from

the transaction and expressed this to Williams.30 He approached Williams with ideas

for restructuring or abandoning the deal, which included cutting ETE’s historical

distribution or waiving Williams’ walkaway fee were it to agree to terminate the

Merger.31

Williams had concerns as well. Armstrong, Williams’ CEO, and dissenting

Williams directors communicated their concerns about the merits of the Merger in

internal emails and copied Stoney and Cleveland, the two directors who initially

29 Id. at A3492 (Welch Tr.) (“[T]he value of an ETE unit or an ETC share was, in large part, driven by people’s perception of, in fact, . . . the viability of that enterprise to continue to pay a distribution . . . .”). 30 Id. at A3518 (Welch Tr.); see also id. at A3391 (Warren Tr.) (“I felt very strongly that this was the wrong time to be incurring debt. . . . [I]f there’s any way that we could equitize or better equitize this transaction by using currency rather than cash, that would be a smart thing to do.”); id. at A3392 (noting discussions with Williams personnel to restructure the transaction). 31 Id.

12 opposed the merger but later voted to approve it.32 This did not appear to be a

campaign to turn the board against the deal, however, as Stoney later testified that

she never felt pressured to change her position.33

Although the Williams Board entertained some internal dissent about the deal,

on January 15, 2016, it determined that the Merger Agreement was a “valuable asset”

and issued a press release expressing its unanimous support for the deal. Williams’

financial advisors, Lazard and Barclays, concluded, moreover, that, even after the

financial downturn in the energy markets, the merger still represented a boon to

Williams’ shareholders. The Williams Board repeatedly recommended, throughout

the period leading to the June 28 closing date, that its stockholders approve the deal,

which they did on June 27, 2016, by a large margin.

7. ETE’s Proposed Public and Preferred Offerings

ETE, fearing a liquidity crunch, began exploring solutions to its potential

leverage issues. On January 27, 2016, ETE’s financial advisors proposed the idea

of issuing a new class of preferred stock on the public market (the “Proposed Public

Offering”). ETE had floated the possibility of cutting distributions, and the Proposed

Public Offering provided a solution that could limit the potential negative impacts

of doing so. The final form of the Proposed Public Offering included an 11-cent

32 See, e.g., id. at A915–17 (internal Williams’ email discussing concerns over ETE transaction). 33 See id. at A3960 (Stoney Tr.).

13 cash distribution and an additional 17½ cents of accrual credits for when the

preferred units converted to common units. The result was a solution that no longer

served the purpose of conserving cash but rather “represent[ed] a wealth transfer

from non-participating units to participating units.”34

To proceed with the Proposed Public Offering, ETE needed Williams’

consent, but Williams refused. If ETE cut distributions, no payments would flow to

former Williams’ shareholders, and they also would suffer dilutive effects from the

eventual conversion of the preferred ETE units. If ETE did not cut distributions,

ETC shareholders would still be disadvantaged by the distribution preference to

holders of the preferred ETE units. Williams’ financial advisors “advised the

Williams [B]oard that this would have an extraordinary detrimental impact on

Williams’ shareholders.”35 Williams offered to compromise if its shareholders were

allowed to participate, but ETE declined.

At the end of February 2016, ETE restructured the issuance as a private

offering, creating a new class of equity—Series A Convertible Preferred Units with

a higher distribution preference of 28½ cents—which it made available to ETE

insiders, including Warren (the “Preferred Offering”). The Preferred Offering

operated similarly to the Proposed Public Offering, but as a private placement it did

34 App. to Answering Br. at B2698. 35 App. to Opening Br. at A3149 (Chappel Tr.).

14 not require consent from Williams’ auditors.36 Indeed, it was exclusive to ETE

insiders, with Warren and a small group received over 85% of the units, and was

estimated to be valued at just under $1 billion. Because the new stock featured an

increased distribution preference, one market analyst wrote 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.”37

ETE closed the Preferred Offering on March 8, 2016 without notifying

Williams. Unsurprisingly, the Williams Board and management were displeased

with the Preferred Offering when they learned of it. The Court of Chancery

ultimately found, in an action brought by ETE unitholders, that the Preferred

Offering was “a hedge meant to protect [ETE] insiders from the anticipated bad

effects of the coming merger” and that it breached the company’s partnership

agreement.38

36 See In re Energy Transfer Equity, L.P. Unitholder Litig., 2018 WL 2254706, at *8 (Del. Ch. May 17, 2018), aff’d sub nom. Levine v. Energy Transfer L.P., 223 A.3d 97 (Del. 2019) (hereinafter, “Unitholder Litig.”) (“Williams Co.’s refusal to obtain the necessary consents meant that ETE could not consummate the public offering. Thus, on February 22, 2016, the Board decided to change course and pursue the Private Offering of securities. Notably, a private placement would not require Williams Co.’s consent.”). 37 Chancery Post-Trial Opinion at *15. 38 Id. at *26 (quoting Unitholder Litig. at *1).

15 On April 6, 2016, Williams filed separate suits in the Court of Chancery39 and

Texas state court to challenge the Preferred Offering.40 The Texas lawsuit was

against Warren personally and alleged tortious interference with the Merger

Agreement.41 It was dismissed in May 2016 based on a forum selection clause in

the Merger Agreement.42 The Preferred Offering also became the subject of a

separate unitholder action and the Court of Chancery found that it constituted a

breach of the ETE limited partnership agreement.43

ETE followed the Preferred Offering with an announcement on April 18, 2016

that it would cut common unit distributions for two years. The next day, Williams

amended its complaint in the Court of Chancery to reflect the ETE announcement.

8. Williams Grapples with Shareholder Litigation

In the meantime, Williams was faced with a raft of shareholder lawsuits

challenging the Merger. Williams was able to obtain either a dismissal or settlement

in each suit and successfully prevented any of the lawsuits from blocking the Merger.

One of these lawsuits was brought by John Bumgarner (“Bumgarner”), a

shareholder and former executive of Williams.44 Bumgarner initially took issue with

certain synergy estimates provided in support of the Merger. Armstrong, as a friend

39 See App. to Answering Br. at B2743. 40 See Williams Companies, Inc. v. Warren, No. DC-16-03941 (Dist. Ct. Dallas Cty.). 41 See id. 42 See App. to Opening Br. at A1175 (Williams v. Warren Dismissal Order). 43 Unitholder Litig. at *2. 44 See Bumgarner v. Williams Companies, Inc., 2016 WL 1717206 (N.D. Okla. Apr. 28, 2016).

16 and former colleague of Bumgarner, hoped to resolve the matter by engaging

personally with Bumgarner to allay his concerns. To prevent unintended escalation

and contain the matter in a way that he could continue leveraging his personal

relationship, Armstrong did not broadly disclose his communications with

Bumgarner, though he did inform the Chairman of the Williams Board, Frank

MacInnis.45 The Court of Chancery found that “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.”46

Armstrong and Bumgarner communicated frequently through personal email

accounts beginning in November 2015. They continued communicating even after

Bumgarner filed a securities class action against Williams on January 14, 2016 and

until shortly after the lawsuit was resolved in June 2016. In 2016, two days after

his deposition, during which Armstrong was asked if he communicated with

Bumgarner, he deleted one of the emails accounts he used to communicate with

45 See App. to Opening Br. at A3716–18 (Armstrong Tr.) (Armstrong explaining that he did not tell Williams’ counsel that Bumgarner was threatening a lawsuit because he “had a long relationship with John” and “did not think it would be in the company’s best interest to immediately get lawyered up” as this could lead to “a very aggressive fight”). 46 Chancery Post-Trial Opinion at *18.

17 him.47 The Court of Chancery found that his actions constituted spoliation of

evidence and awarded ETE monetary sanctions for his conduct.48

9. Williams Encourages Shareholders to Approve the Merger

Throughout the market downturn and internal debate over the merits of the

transaction, Williams remained committed to closing the transaction and obtaining

shareholder approval of the Merger. On November 24, 2015, the Williams Board

recommended that its shareholders vote for the deal.49 Then, in January and

February 2016, it stated repeatedly that it was “unanimously committed” to

closing.50 Directors who had voted against the deal internally expressed some

discomfort with that wording, and Williams later acknowledged that there had been

some disagreement among the board regarding the merger in an updated S-4 filing.51

47 Chancery Post-Trial Opinion at *18. 48 Id. at *36. 49 See App. to Opening Br. A566 (Form S-4 Registration Statement) (“After careful consideration, the W[illiams] Board has (i) approved the merger agreement, (ii) declared the merger agreement and the transactions contemplated thereby, including the merger, to be advisable and in the best interests of [Williams] and its stockholders, (iii) directed that the adoption of the merger agreement be submitted to a vote at a meeting of [Williams’] stockholders and (iv) resolved to recommend that [Williams’] stockholders approve the adoption of the merger agreement and the transactions contemplated thereby, including the merger and the Compensatory Proposal.”). 50 App. to Opening Br. at A768 (Williams January 15, 2016 Press Release); App. to Answering Br. at B2714 (Williams February 17, 2016 Press Release). 51 See App. to Opening Br. at A840 (“My concern with saying unanimous is that it represents more trickery.”); id. at A1174 (May 26, 2016 Amendment No. 8 to Form S-4) (“As of the date of this proxy statement/prospectus, a majority of the [Williams] Board continue to recommend a vote ‘FOR’ the Merger Proposal. Certain members of the [Williams] Board voted on September 28, 2015 against entering into the merger agreement and continue as of the date of this proxy statement/prospectus to disagree with the recommendation of a majority of the [Williams] Board that [Williams’] stockholders adopt the merger agreement.”).

18 The messaging, however, remained consistent, with the Williams Board continuing

to reaffirm its support for the transaction throughout the spring of 2016 in press

releases and during a week-long investor roadshow.52 In addition, Williams sued

ETE in April and May 2016 seeking specific performance of the Merger Agreement.

Williams’ efforts culminated in a shareholder vote on June 27, 2016, the day

before the Closing Date. Over 80% of shareholder votes cast were in favor of the

10. Latham Fails to Render the 721 Tax Opinion

Williams may have been “ready, willing, and able to close” by the Closing

Date, but this ultimately did not matter.53 In March 2016, ETE personnel flagged a

potential issue with the tax treatment of the transaction under Section 721(a) of the

Internal Revenue Code and forwarded the matter to Latham & Watkins.54 Latham

conducted a thorough investigation of the matter and “devoted over 1,000 hours” to

the issue.55

52 See, e.g., id. at A1659 (Williams April 6, 2016 Press Release) (“The Williams Board is unanimously committed to enforcing its rights under the merger agreement entered into with ETE on September 28, 2015 and to delivering the benefits of the merger agreement to Williams’ stockholders. ETE has no basis to avoid its obligations under the merger agreement.”); see also A1174 (May 24, 2016 Amendment No. 8 to Form S-4). 53 Id. at B8148. 54 As a condition precedent to the Merger, Latham was required to opine that the Merger “should” trigger favorable tax treatment under Section 721(a) of the Internal Revenue Code (the “721 Opinion”). 55 Chancery Post-Trial Opinion at *21.

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

provide an opinion stating the transaction “should qualify” under Section 721(a).56

Back and forth discussions ensued with Williams’ attorneys at Cravath, who

disagreed with Latham’s analysis, but a feasible workaround remained elusive.57

Shortly after, on April 18, 2016, the parties announced Latham’s position that it

would not be able to provide the 721 Opinion.

11. ETE Terminates the Merger

Williams and ETE were already locked in litigation over the Preferred

Offering when Latham announced it could not issue the 721 Opinion. On May 13,

2016, Williams filed another lawsuit to enjoin ETE from terminating the merger

based on Latham’s inability to provide the 721 Opinion. The Court of Chancery

consolidated the actions and held a two-day expedited trial starting June 20, 2016.

On June 24, 2016, the court ruled that the 721 Opinion was a condition precedent to

the merger and its failure excused ETE’s performance.58

Following the Court of Chancery’s decision, ETE’s counsel notified Williams

that it would not close due to failure of the 721 Opinion condition. On June 29, 2016

56 App. to Opening Br. at A4472 (Stein Tr.). 57 See Williams Companies, Inc. Energy Transfer Equity, L.P., 2016 WL 3576682, at *15–16 (Del. Ch. June 24, 2016), aff’d, 159 A.3d 264 (Del. 2017) (hereinafter, “Chancery Merger Termination Opinion”). 58 See Chancery Merger Termination Opinion at *2 (“Because . . . Latham, as of the time of trial, could not in good faith opine that tax authorities should treat the specific exchange in question as tax free under Section 721(a) . . . I find that the Partnership is contractually entitled to terminate the Merger Agreement . . . .”).

20 ETE terminated the Merger. This Court subsequently considered the case on appeal

and upheld the Court of Chancery’s ruling in March 2017.59 Although we were also

critical of ETE’s conduct and noted “there was evidence . . . from which [the Court

of Chancery] could have concluded that ETE did breach its covenants,” we affirmed

the Court of Chancery’s finding that Latham nevertheless operated in good faith and

independent of ETE when it decided not to issue the 721 Opinion.60

C. Procedural History

The termination of the Merger Agreement was just the beginning of legal

battles over damages stemming from the failed transaction, the most significant

involving claims to contractual termination fees. Williams sought payment of the

$410 million WPZ Termination Fee Reimbursement. Section 5.06(f) of the Merger

Agreement, which covered the WPZ Termination Fee Reimbursement, triggered

payment of the fee if ETE terminated the agreement due to passage of the outside

date and, at the time of termination, was in breach of any enumerated provisions,

including the Capital Structure Representation, the Ordinary Course Covenant, the

Interim Operating Covenants, and efforts obligations.61 According to Williams, ETE

was in breach of these provisions when it terminated. Specifically, Williams argued

that the Preferred Offering had resulted in inaccuracies in ETE’s representation that

59 Williams Companies, Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264, 267 (Del. 2017). 60 Id. at 273. 61 See App. to Opening Br. at A474 (Merger Agreement § 5.06(f)).

21 its capital structure was composed of three equity classes as well as breaches of its

Ordinary Course Covenant and Interim Operating Covenants. Williams also

continued to make arguments related to the 721 Opinion and alleged that ETE

breached its best efforts and tax representation obligations.

ETE, despite having refused to close, filed a counterclaim seeking payment of

the $1.48 billion Termination Fee alleging that Williams had caused a Company

Adverse Recommendation Change that undermined the Merger.62 Williams moved

to dismiss ETE’s counterclaims. At this stage, Williams and Cravath also modified

their fee arrangement. The two previously worked with an hourly fee arrangement

but shifted to a 15% contingent-fee arrangement in September 2017.63 In a

December 2017 opinion, the Court of Chancery rejected the counterclaim.64

Cross-motions for summary judgment on ETE’s liability for the WPZ

Termination Fee Reimbursement followed.65 ETE argued that (1) the failure of the

721 Opinion condition was not among the triggers for the WPZ Termination Fee

Reimbursement; (2) the failure of the condition precedent excused it from further

obligations under the Merger Agreement, including the payment of the WPZ

62 See Williams Companies, Inc. v. Energy Transfer Equity, 2017 WL 5953513, at *2 (Del. Ch. Dec. 1, 2017) (hereinafter, “Chancery Motion to Dismiss Opinion”). 63 See Williams Companies, Inc. v. Energy Transfer LP, 2022 WL 3650176, at *2 (Del. Ch. Aug. 25, 2022) (hereinafter, “Chancery Fee Opinion”). 64 See Chancery Motion to Dismiss Opinion at *8. 65 See Williams Companies, Inc. v. Energy Transfer LP, 2020 WL 3581095, at *1 (Del. Ch. July 2, 2020) (hereinafter, “Chancery Summary Judgment Opinion”).

22 Termination Fee; and (3) its breaches, if any, were concededly immaterial as

Williams was willing to waive them in order to close the transaction. ETE further

sought summary judgment as to whether it had breached its efforts obligations. Both

parties moved for summary judgment focused on whether ETE had breached its tax

representation obligations, ordinary course covenants, and capital structure

representation.

In its 2020 opinion, the Court of Chancery determined that most of the issues

the parties raised were best resolved at trial and limited its ruling to matters of

contractual interpretation. Approaching trial, the primary unresolved issue was

whether ETE, subject to materiality qualifiers, had breached any of the conditions

enumerated in Section 5.06(f) that would trigger liability for the WPZ Termination

Fee Reimbursement and if ETE had any legitimate defenses.66 After trial, the court

found ETE had “failed to comply ‘in all material respects’” with the Ordinary Course

Covenant and three Interim Operating Covenants through the Preferred Offering.67

ETE’s breach of the Ordinary Course Covenant occurred through breach of its own

LLC Agreement, as established in the separate securities litigation case stemming

66 See id. at *21 (“[ETE] also asserts affirmative defenses based on several issues in those counterclaims, including that Williams failed to substantially comply with the Merger Agreement, that Williams has unclean hands, and that even if ETE’s Preferred Offering violated the Merger Agreement, it was Williams’ wrongful refusal to consent to the Public Offering that caused that breach.”) 67 Chancery Post-Trial Opinion at *28.

23 from the Preferred Offering.68 The breaches of the Ordinary Course Covenant, the

Interim Operating Covenants, and the Capital Structure Representation were

sufficient for the court to find that the WPZ Termination Fee Reimbursement was

triggered.69 The Court of Chancery considered and rejected ETE’s arguments

concerning Williams’ alleged breaches of the Merger Agreement.

The Court of Chancery awarded fees to Williams in line with the fee-shifting

provision for WPZ Termination Fee Reimbursement in Section 5.06(g).70 Williams

and Cravath had restructured their fee agreement into a 15% contingent fee

arrangement, resulting in the payment of Cravath’s contingency fee by ETE. This

was a $74,846,161.32 fee over and above the WPZ Termination Fee

Reimbursement.71 ETE opposed Williams’ attempt to shift payment of the

contingency fee. In its opinion addressing the fee award, the Court of Chancery

found in favor of Williams.

ETE has appealed the Court of Chancery’s 2017 dismissal of ETE’s breach-

of-contract counterclaim; portions of the Court of Chancery’s 2021 post-trial opinion

awarding Williams the $410 million WPZ Termination Fee Reimbursement; and the

68 Unitholder Litig. at *25 (“The securities, to the extent they were transferred to the General Partner or its affiliates, breached the LPA, and I find that the Defendant Directors caused the General Partner to breach the LPA by issuing these securities.”). 69 See Chancery Post-Trial Opinion at *25. 70 See id. at *36 (“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 attorney[’s] fees and expenses.”). 71 See Chancery Fee Opinion at *2.

24 Court of Chancery’s 2022 finding that Williams’ attorney’s fee award was reasonable

under the Merger Agreement’s fee-shifting provision.

II. Analysis

This appeal presents four issues: first, whether the Court of Chancery erred

by dismissing ETE’s counterclaim for the $1.48 billion Termination Fee; second,

whether the Court of Chancery erred in finding that Williams did not materially

breach the Merger Agreement; third, whether the Court of Chancery erred in finding

that the Preferred Offering breached the Merger Agreement and was not excused by

the $1 Billion Equity Issuance Exception; and fourth, whether the Court of Chancery

abused its discretion by awarding Williams attorney’s fees and expenses pursuant to

a contingent fee agreement. As described below, we find all of ETE’s arguments on

appeal to be without merit.

A. Williams Did Not Adversely Modify the Company Board Recommendation and ETE Cannot Recover the $1.48 Billion Termination Fee

ETE first argues that the Court of Chancery erred in dismissing its

counterclaim seeking the $1.48 billion Termination Fee. ETE’s counterclaim alleged

that Williams breached the Merger Agreement by making public statements—“in

press releases, lawsuit pleadings, the Form S-4, and other sources”72—which

App. to Opening Br. at A1568 (ETE’s Second Am. & Supplemental Affirm. Defenses & Verified 72

Countercl. (the “Countercl.”) ¶ 54); see also id. at A1570–89 (Countercl. ¶¶ 60-96).

25 constituted a Company Adverse Recommendation Change, thus entitling ETE to the

fee. We review the Court of Chancery’s dismissal of a claim under Rule 12(b)(6) de

novo.73 Dismissal of a claim based on contract interpretation is proper “if the

defendants’ interpretation is the only reasonable construction as a matter of law.”74

This issue turns on the interpretation of Sections 3.01(d) and 4.02(d) of the

Merger Agreement. Under Section 3.01(d), the Williams Board was required to

adopt four resolutions in furtherance of the Merger (the “Company Board

Recommendation”):

The Board of Directors of the Company duly and validly adopted resolutions (A) approving and declaring advisable this Agreement, the Merger and the other Transactions, (B) declaring that it is in the best interests of the stockholders of the Company that the Company enter into this Agreement and consummate the Merger and the other Transactions on the terms and subject to the conditions set forth herein, (C) directing that the adoption of this Agreement be submitted to a vote at a meeting of the stockholders of the Company and (D) recommending that the stockholders of the Company adopt this Agreement ((A), (B), (C) and (D) being referred to herein as the “Company Board Recommendation”), which resolutions, as of the date of this Agreement, have not been rescinded, modified or withdrawn in any way.75

73 In re General Motors S’holder Litig., 897 A.2d 162, 167–68 (Del. 2006). 74 Vanderbilt Income & Growth Assocs., LLC v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del. 1996) (internal citations omitted) (emphasis in original); VLIW Tech., LLC v. Hewlett– Packard Co., 840 A.2d 606, 615 (Del. 2003) (emphasis in original). 75 App. to Opening Br. at A434 (Merger Agreement § 3.01(d)) (emphases added).

26 Section 4.02(d) describes the actions that could constitute a withdrawal,

modification, or qualification of the Company Board Recommendation (a

“Company Adverse Recommendation Change”):

(d) Neither the Board of Directors of the Company nor any committee thereof shall (i)(A) withdraw (or modify or qualify in a manner adverse to [ETE]), or publicly propose to withdraw (or modify or qualify in a manner adverse to [ETE]), the Company Board Recommendation or (B) recommend the approval or adoption of, or approve or adopt, declare advisable or publicly propose to recommend, approve, adopt or declare advisable, any Company Takeover Proposal (any action described in this clause (i) being referred to as a “Company Adverse Recommendation Change”) or (ii) approve or recommend, or publicly propose to approve or recommend, or cause or permit the Company or any of its Subsidiaries to execute or enter into any Company Acquisition Agreement.76

Section 4.02(f) contains a safe harbor provision that permitted Williams to make

certain disclosures:

(f) Nothing contained in this Section 4.02 or elsewhere in this Agreement shall prohibit the Company or any of its Subsidiaries from (i) taking and disclosing to its stockholders a position contemplated by Rule 14d-9, Rule 14e-2(a) or Item 1012(a) of Regulation M-A promulgated under the Exchange Act or (ii) making any disclosure to its stockholders if the Board of Directors of the Company or any of its Subsidiaries determines in good faith (after consultation with and receiving advice of its outside legal counsel) that the failure to do so would reasonably be likely to constitute a breach of its fiduciary duties to its stockholders under applicable Law; provided, however, that any such action or statement or disclosure made

76 Id. at A464 (Merger Agreement § 4.02(d)) (emphases added).

27 pursuant to clause (i) or clause (ii) shall be deemed to be a Company Adverse Recommendation Change unless the Board of Directors of the Company reaffirms its recommendation in favor of the Merger in such statement or disclosure or in connection with such action.77

On appeal, ETE argues that the above-described statements constituted a

Company Adverse Recommendation Change under Sections 3.01(d) and 4.02 of the

Merger Agreement. But as the Court of Chancery held, ETE’s reading of these

provisions was unreasonable.

The Court of Chancery properly applied Delaware contract interpretation

principles and determined that the Company Board Recommendation refers to the

four particular resolutions the Williams Board was required to adopt in favor of the

Merger. The grammatical construction of Section 3.01(d) is illustrative.78 In

Sections 3.01(d), the noun “resolutions” gives meaning to the four adjectival phrases

that follow to form the definition “Company Board Recommendation.” Further, the

dependent clause concluding the definition—which begins with the phrase “which

resolutions”—explicitly denotes that that Company Board Recommendation

consists of resolutions. There is no language that would suggest the Company Board

Recommendation is meant to be an expansive term or include anything other than

77 Id. at A464–65 (Merger Agreement § 4.02(f)) (emphases added). 78 See ITG Brands, LLC v. Reynolds Am., Inc., 2019 WL 4593495, at *4 (Del. Ch. Sept. 23, 2019) (citations omitted) (“In discerning the plain meaning of a contract, the court may look to the grammatical construction of a contractual provision.”).

28 the resolutions.79 Accordingly, we agree with the Court of Chancery that this

Section, along with Section 4.02, is clear on its face. Because ETE did not allege

that Williams withdrew, modified, or qualified the Company Board

Recommendation under Section 4.02(d) through the Closing Date, its claim

necessarily fails.

ETE separately argues that the Court of Chancery’s interpretation of Section

4.02(d) and 3.01(d) would render Section 4.02(f) “inexplicable and rank

surplusage.”80 We disagree. The Court of Chancery correctly observed that ETE

misunderstands how Sections 4.02(d) and 4.02(f) interact. Because Section 4.02(d)

is a fiduciary-out provision that prohibited certain board actions, while Section

4.02(f) is a safe harbor provision that permitted certain company disclosures if

certain conditions were met, Williams need not rely on the safe harbor to prevail

against ETE’s counterclaim.81 By its plain language, Section 4.02(f) is not a safe

harbor for making a modification or qualification of the Company Board

Recommendation. Because ETE does not allege that Williams made any statements

in connection with the exercise of a fiduciary out, Section 4.02(f) is not applicable.

79 ETE’s approach is further contradicted by the Merger Agreement’s own rules of interpretation, which indicate that the use of “[t]he words ‘hereof’, ‘herein’ and ‘hereunder’ . . . shall refer to this Agreement as a whole and not to any particular provision of this Agreement.” App. to Opening Br. at A488 (Merger Agreement § 8.04 (b)). It could have, for example, used the word “included,” which under Section 8.04 is “deemed to be followed by the words ‘without limitation.’” Id. 80 Opening Br. at 41; see also Reply Br. at 5–6, 9. 81 See App. to Answering Br. at B3600–01.

29 We also separately observe that the public statements that ETE claims

constitute a modification of the Company Board Recommendation include a

reaffirmation by the Williams Board that it was committed to completing the

Merger.82 Even if we found that these types of statements were the cause, or even

related to, ETE’s exercise of its right to avoid the Merger, the statements themselves

82 See App. to Opening Br. at A1172 (May 16, 2016 Amendment No. 7 to Form S-4) (“As of the date of this proxy statement/prospectus, a majority of the WMB Board continue to recommend a vote ‘FOR’ the Merger Proposal.”); id. at A1174 (May 26, 2016 Amendment No. 8 to Form S-4) (“As of the date of this proxy statement/prospectus, a majority of the [Williams] Board continue to recommend a vote ‘FOR’ the Merger Proposal.”); id. at A1659 (Williams April 6, 2016 Press Release) (“The Williams Board is unanimously committed to enforcing its rights under the merger agreement entered into with ETE on September 28, 2015 and to delivering the benefits of the merger agreement to its stockholders. . . . Williams looks forward to completing the transaction and delivering its benefits to the Company’s stockholders. The Williams Board has not changed its recommendation ‘FOR’ the merger agreement executed on September 28, 2015.”); id. at 1662 (Williams April 14, 2016 Press Release) (“The Williams Board is unanimously committed to enforcing its rights under the merger agreement entered into with ETE on September 28, 2015 and to delivering the benefits of the merger agreement to Williams’ stockholders. . . . Williams looks forward to completing the transaction and delivering its benefits to the Company’s stockholders. The Williams Board has not changed its recommendation ‘FOR’ the merger agreement executed on September 28, 2015.”); id. at 1665 (Williams May 13, 2016 Press Release) (“The Williams Board is unanimously committed to enforcing Williams’ rights under the Merger Agreement entered into with ETE on September 28, 2015 and to delivering the benefits of the Merger Agreement to Williams’ stockholders. This action was filed with that goal in mind. The Williams Board has not changed its recommendation ‘FOR’ the Merger Agreement executed on September 28, 2015.”); id. at A1769, 1799 (Williams’ Texas Litigation Complaint at ¶¶ 62, 177) (“Williams has taken all steps necessary and required under the Merger Agreement to consummate the Proposed Transaction;” “[Williams] has fulfilled its obligations under the Merger Agreement and is prepared to continue toward the consummation of the Proposed Transaction.”); C.A. No. 12168, Dkt. 48 (First Merger Action Am. Compl. ¶ 10) (“By contrast, Williams has taken all steps necessary and required under the Merger Agreement to consummate the Proposed Transaction.”); C.A. No. 12337, Dkt. 1 (Second Merger Action Compl. ¶ 41) (“By contrast, Williams has made every effort to have the Registration Statement declared effective, to enable counsel for Defendants to issue the 721 Opinion, to close the Proposed Transaction and to avoid this lawsuit. Despite these best efforts, Defendants’ obstructionist conduct has left Williams with no choice but to bring this action in order to protect its rights, negotiated for the benefit of Williams’ stockholders, under the Merger Agreement.”)

30 do not appear to qualify the Company Board Recommendation. And in any case,

ETE does not and cannot rebut the undisputed facts that Williams sued ETE to

compel the consummation of the Merger, that the Williams Board never acted

formally to withdraw the resolutions and affirmed the Company Board

Recommendation several times during the pendency of the Merger, and that an

overwhelming majority of Williams’ shareholders voted in favor of the Merger.

For the foregoing reasons, there is no reasonable reading of Sections 3.01(d)

and 4.02(d) that supports ETE’s argument that it is entitled to the $1.48 billion

Termination Fee for adversely modifying the Company Board Recommendation.

B. The Court of Chancery Did Not Err in Finding that Williams Did Not Breach the Merger Agreement

ETE’s next argument is that the Court of Chancery erred in awarding Williams

the $410 million WPZ Termination Fee Reimbursement. ETE argues that Williams

materially breached the Merger Agreement in multiple respects and is therefore not

entitled to the reimbursement. ETE asserted this argument through three affirmative

defenses presented at trial. First, ETE argues that Armstrong’s interactions with

Bumgarner (as well as other of his actions) breached Sections 5.03(a) and 4.01(b) of

the Merger Agreement (the Efforts Obligations). Next, ETE contends that the Court

of Chancery erred by not drawing an adverse inference that Williams was in breach

of the Merger Agreement due to Armstrong’s spoliation. ETE finally charges that

the Court of Chancery erred in finding that Williams’ refusal to cooperate with ETE’s

31 financing efforts satisfied the Capital Structure Representation, Section 5.14 of the

Agreement. We review the Court of Chancery’s findings for clear error.83 Errors of

law are reviewed de novo.84

1. The Court of Chancery Did Not Err in Finding that Williams Did Not Breach the Merger Agreements’ Efforts Obligations

ETE first argues that the Court of Chancery erred in finding that Williams did

not breach the Efforts Obligations and the Ordinary Course Covenant provisions of

the Merger Agreement. Section 5.03(a) provided that the parties were to use

“reasonable best efforts” to consummate the merger, including the “taking of all acts

necessary to cause the conditions to Closing to be satisfied as promptly as

practicable” and cooperating with each other to “contest and resist any . . . litigation”

challenging the merger.85 Section 4.01(a) required Williams to “carry on its business

in the ordinary course.”86 ETE contends that Armstrong’s actions fell far short of

what these provisions required and thus were material breaches of the Agreement.

We disagree.

83 Backer v. Palisades Growth Cap. II. L.P., 246 A.3d 81, 94-95 (Del. 2021). We give substantial deference to factual determinations based on live testimony. Schock v. Nash, 732 A.2d 217, 224 (Del. 1999). 84 Boyer v. Poole, 815 A.2d 348 (Del. 2003). 85 App to Opening Br. at A468 (Merger Agreement § 5.03(a)). 86 Id. at A456 (Merger Agreement § 4.01(a)).

32 a. Armstrong’s Actions Did Not Constitute a Material Breach of Williams’ Efforts Obligations

ETE’s first argument is that the Court of Chancery failed to find that certain

actions Armstrong took during the period between signing and closing amounted to

a clandestine campaign to sabotage the Merger and thus were a breach of the Efforts

Obligations.87 Specifically, ETE argues that the Court of Chancery committed an

error of law by reading an intent requirement into the provisions at issue to determine

that Armstrong’s communications were intended to assuage Bumgarner’s concerns

about the synergies estimates, not to thwart the Merger.88 The court did no such

thing. Rather, it carefully weighed the evidence and evaluated Armstrong and

Bumgarner’s credibility at trial in reaching its finding that Armstrong’s actions did

not constitute a breach of the Merger Agreement.

The Court of Chancery relied on extensive trial testimony from Armstrong

and Bumgarner in concluding that Armstrong’s actions did not breach the Efforts

Obligations. Armstrong and Bumgarner, as friends and former colleagues,

communicated frequently. When Bumgarner took issue with certain synergy

estimates provided in a joint press release, Armstrong sought to leverage their

relationship to ward off a legal fight with Bumgarner.89 Armstrong explained that

87 Opening Br. at 44. 88 Id. at 46. 89 Chancery Post-Trial Opinion at *18.

33 he limited the number of people who were aware of these interactions in order to

manage the situation with Bumgarner himself and avoid the matter escalating into a

“very aggressive fight.’”90 Although Bumgarner then filed a lawsuit, his claims were

all dismissed or settled prior to the closing date.91 Both Armstrong and Bumgarner

testified that Armstrong did not assist with the lawsuit and sought to discourage

Bumgarner from filing it in the first place.92 The court also credited testimony from

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

“represented the Company” in their discussions.93

The Merger Agreement did not enumerate specific steps a party had to take in

response to litigation beyond requiring them to take “reasonable best efforts to

contest and resist any such litigation.”94 So it was reasonable for Armstrong to have

sought to leverage his personal and professional relationship with Bumgarner. In

retrospect, this proved to be successful as the litigation was resolved prior to the

closing date. There is sufficient evidentiary support in the record for the Court of

Chancery’s finding that Armstrong sought to head off Bumgarner’s lawsuit and

90 Id. 91 See App. to Opening Br. at A744 (Bumgarner v. Williams Class Action Complaint); Bumgarner, 2016 WL 1717206, at *6; App. to Answering Br. at B3352 (Bumgarner v. Williams Settlement Agreement). 92 See id. at A3721 (Armstrong Tr.) (“I did not try to help him with his lawsuit by any stretch of the imagination.”); id. at A4066–67 (Bumgarner Tr.) (“[H]e didn’t like the idea of Williams being sued. . . . [H]e said we didn’t have a very good case.”). 93 Chancery Post-Trial Opinion at *19. 94 App. to Opening Br. at A468 (Merger Agreement § 5.03(a)).

34 Armstrong’s actions were in furtherance of the merger and in satisfaction of

Williams’ obligation to “contest and resist” adverse litigation.

b. None of Armstrong’s or Williams’ Other Actions Materially Breached the Agreement

ETE also claims that several other of Armstrong’s and Williams’ actions

constituted material breaches of the Agreement. But this argument fairs no better,

as the Court of Chancery’s well-founded factual findings show otherwise.

First, ETE contends that Armstrong encouraged two swing vote directors,

Cleveland and Stoney, to oppose the deal. But the Court of Chancery found that this

was not the case. As the court noted, “ETE introduced no evidence that Cleveland

or Stoney felt pressured to switch their votes; on the contrary, Stoney testified that

she never felt pressure to reconsider her position.”95

Second, ETE contends that Armstrong positioned Williams for a “walkaway

payment,” but this does not overcome the actions Williams took to effectuate the

Merger.96 As the trial court found, “although Williams did ask its financial advisors

to assess the value of a potential breakup fee from ETE, the Williams Board resolved

to support the Merger publicly, and ultimately sued to enjoin ETE from terminating

the Merger Agreement.”97

95 See Chancery Post-Trial Opinion at *34. 96 Opening Br. at 50. 97 Chancery Post-Trial Opinion at *34.

35 Third, ETE charges Armstrong with “‘working the press’ to write anti-ETE

articles,” but this stems solely from an email from one of Williams’ attorneys at

Cravath to Williams personnel, highlighting ETE’s attempt to turn hostile on the

deal.98 In an email sharing news coverage of ETE’s “attempts to back out” of the

Merger, Williams’ financial advisors at Lazard expressed relief that “[f]inally

someone is throwing the [] flag on what ETE is doing.”99 Van Ngo responded with

“Yes. We’ve been working the press on this.”100 ETE’s argument is essentially that

Williams, by calling out ETE’s own actions in opposition to the Merger, breached

its obligations to use best efforts to close the Merger. Not only is this not persuasive,

but it stands against the Court of Chancery’s finding that Williams took affirmative

steps to attempt to close the Merger.101

Fourth, ETE takes issue with Williams’ lawsuit against Warren for tortious

interference stemming from the Preferred Offering, characterizing it as “thinly-

veiled publicity stunt.”102 The Court of Chancery, however, rejected this claim,

noting that “ETE has introduced no evidence that Williams’ Texas lawsuit . . . was

intended to be a ‘publicity stunt.’”103 “Instead,” the court continued, “the lawsuit

represented Williams’ view that the Preferred Offering breached the Merger

98 Opening Br. at 50; see App. to Opening Br. at A889–90. 99 App. to Opening Br. at A889–90. 100 Id. 101 See Chancery Post-Trial Opinion at *34. 102 Opening Br. at 50. 103 See Chancery Post-Trial Opinion at *34.

36 Agreement and was unfair to Williams stockholders.”104 ETE nevertheless continues

to try to characterize the lawsuit as part of a smear campaign, but it continues to miss

the mark. As support, it points to how the complaint in that action referred to Warren

as being “malicious.”105 ETE ignores that legal malice is an element of tortious

interference under Texas law.106 The complaint did not call Warren “malicious” but

rather that he acted with malice in satisfaction of the legal elements of its claim for

tortious interference.107 ETE also contends that “were this not a publicity stunt,

Williams would have refiled it after the Texas court dismissed it for violating the

Merger Agreement’s forum-selection clause.”108 Williams, however, does not have

the burden of proving a negative. The burden of proof for an affirmative defense is

on ETE, and it failed to carry that burden.109

In the end, ETE has little response to the undisputed facts that the Williams

Board resolved to support the merger, garnered stockholder approval for the deal,

104 Id. 105 Opening Br. at 51. 106 See Powell Indus., Inc. v. Allen, 985 S.W.2d 455, 456 (Tex. 1998) (“The elements of tortious interference with a contract are: (1) the existence of a contract subject to interference; (2) willful and intentional interference; (3) interference that proximately caused damage; and (4) actual damage or loss.”); Cont’l Coffee Prod. Co. v. Cazarez, 937 S.W.2d 444, 452 (Tex. 1996) (“[L]egal malice . . . exists when wrongful conduct is intentional and without just cause or excuse.”). 107 See, e.g., App. to Opening Br. at A991 (Williams v. Warren Complaint) (“Mr. Warren tortiously interfered with the Merger Agreement when he willfully, intentionally[,] and maliciously orchestrated the Special Offering with the purpose and effect of siphoning value to himself and away from Williams’ stockholders and ETE’s other common unitholders, in breach of the Merger Agreement.”). 108 Opening Br. at 51 (emphasis in the original). 109 Medek v. Medek, 2008 WL 4261017, at *10 (Del. Ch. Sept. 10, 2008) (“Defendants have the burden of proof on each of their affirmative defenses.”).

37 and sued to enjoin ETE from terminating the transaction. Thus, we see no error in

the Court of Chancery’s conclusion that ETE failed to prove that Williams materially

breached the Efforts Obligations and therefore is entitled to the $410 million WPZ

Termination Fee Reimbursement. Accordingly, we do not reach or address the Court

of Chancery’s alternative holding that even if there were breaches of these

provisions, they were cured at the time of the Closing Date.110

2. The Court of Chancery Did Not Abuse Its Discretion by Declining to Draw an Adverse Inference that Williams Breached the Merger Agreement

ETE next argues that the Court of Chancery erred by declining to draw an

adverse inference that Williams breached the Merger Agreement due to Armstrong’s

spoliation of evidence. It claims that the sanction imposed—fees and costs

connected with subpoenaing Bumgarner’s emails and bringing a discovery motion—

was “barebones.”111

We review a trial court’s imposition of a discovery sanction for abuse of

discretion.112 The Court of Chancery has broad discretion to fashion and impose

discovery sanctions.113 “To the extent a decision to impose sanctions is factually

based, we accept the trial court’s factual findings so long as they are sufficiently

110 See Chancery Post-Trial Opinion at *34. 111 Opening Br. at 54. 112 See Genger v. TR Invs., LLC, 26 A.3d 180, 190 (Del. 2011). 113 Id.

38 supported by the record, are the product of an orderly and logical reasoning process,

and are not clearly erroneous.”114

“Although we do not condone [Armstrong’s] intransigence,”115 the Court of

Chancery did not abuse its discretion in declining to draw an adverse inference here.

The Court of Chancery appropriately considered the remedial, punitive, and

deterrence goals sanctions serve116 and the factors of culpability, prejudice, and

fairness that determine the appropriateness of sanctions.117 It then weighed the lack

of prejudice to ETE against Armstrong’s culpability and Williams’ right to a fair

proceeding, and found that an award of monetary sanctions was sufficient under the

circumstances;118 namely that Williams had provided substantial evidence that any

emails from Armstrong’s deleted account were recoverable from Bumgarner’s

account and that Armstrong did not recall any other emails between himself and

Bumgarner. In addition, the court observed that to the extent Armstrong emailed any

other individuals identified by ETE, such emails could be recovered by subpoenaing

114 Shawe v. Elting, 157 A.3d 142, 149 (Del. 2017) (citation omitted). 115 Zachman v. Real Time Cloud Servs. LLC, 251 A.3d 115, 2021 WL 1561430, at *5 (Del. 2021) (TABLE). 116 See Beard Rsch., Inc. v. Kates, 981 A.2d 1175, 1189 (Del. Ch. 2009) (“Sanctions serve three functions: a remedial function, a punitive function, and a deterrent function.”) 117 See id., 981 A.2d at 1189 (“[T]he Court will consider . . . (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.”); see also TR Invs., LLC v. Genger, 2009 WL 4696062, at *18 (Del. Ch. Dec. 9, 2009), aff’d, 26 A.3d 180 (Del. 2011). 118 Chancery Post-Trial Opinion at *35–36.

39 the receiver.119 ETE repeatedly argues that the Court of Chancery misapplied the

burden of proof when it came to proving that ETE was not prejudiced, but regardless

of the allocation of the burden, the factual findings support the sanction that the trial

court awarded.

3. The Court of Chancery Did Not Err in Find Finding that Williams Did Not Breach the Merger Agreement’s Financing Cooperation Provision

ETE lastly argues that Williams materially breached Section 5.14 of the

Merger Agreement—the Financing Cooperation Provision—by refusing to consent

to ETE’s Proposed Public Offering. Section 5.14 requires Williams to “provide

cooperation reasonably requested by [ETE] that is necessary or reasonably required

in connection” with the financing of the transaction.120 The Court of Chancery did

not commit clear error in holding that Williams’ refusal to consent to the Proposed

Public Offering was not a breach of the Merger Agreement, as it found that: (1)

Section 5.14 contained a reasonableness qualifier; and (2) ETE’s request was

unreasonable given the unfair impact of the offering on Williams’ shareholders.121

119 Id. at *35. 120 App. to Opening Br. at A476 (Merger Agreement § 5.14). 121 See Union Oil Co. of California v. Mobil Pipeline Co., 2006 WL 3770834, at *11 (Del. Ch. Dec. 15, 2006) (finding that a party “acted well within the relevant confines of reasonableness as courts have understood it in [the merger] context, which is that a party may properly withhold consent to a transaction when the decision is made for a legitimate business purpose—i.e., where it has a legitimate concern over the buyer’s financial abilities”).

40 ETE first argues that the reasonableness qualifier only attaches to its request

itself, such that if the “requested cooperation [is] de minimis” in terms of the effort

required, the duty to cooperate is absolute.122 Because its request was ministerial in

nature, and because Williams’ duty to cooperate is not qualified by an “any-

legitimate-business-purpose out,” ETE argues that Williams had no choice but to

comply with its request.123 But such a reading would lead to an absurd outcome;

namely, that Williams could be forced to engage in conduct that would potentially

be damaging to the company or its shareholders.

Further, the Court of Chancery’s well-grounded factual findings demonstrate

that ETE’s request was patently unreasonable. As the court points out, the Proposed

Public Offering excluded Williams’ shareholders, and Williams’ financial advisors

counseled the company to withhold its consent precisely for this reason.124 The

Court of Chancery also found that Williams, instead of immediately withholding its

consent, offered to proceed with the offering if ETE allowed Williams’ shareholders

to participate.125 But ETE refused.126 And crucially, the Proposed Public Offering

violated the Merger Agreement. “[A]n obligation to take reasonable actions . . . does

not require a party ‘to sacrifice its own contractual rights for the benefit of its

122 Opening Br. at 57. 123 Reply Br. at 20. 124 Chancery Post-Trial Opinion at *33. 125 Id. 126 Id.

41 counterparty.’”127 The Court of Chancery did not clearly err in finding that Williams

did not breach Section 5.14 of the Merger Agreement.

C. The Court of Chancery Did Not Err in Finding that the Parent Disclosure Letter’s $1 Billion Equity Exception Did Not Apply to ETE’s Preferred Offering

ETE’s third argument on appeal is that the Court of Chancery erred in finding

that the Parent Disclosure Letter’s $1 Billion Equity Exception provision—Section

4.01(b)(v)—did not apply to ETE’s Preferred Offering, and thus did not excuse

ETE’s material breach of the Ordinary Course Covenant and the Interim Operating

Covenants. We review unambiguous contract language de novo.128 That said, “[t]o

the extent the trial court’s interpretation of contract language rests on findings

concerning extrinsic evidence, . . . this Court must accept those findings unless they

are unsupported by the record and are not the product of an orderly and logical

deductive process.”129

Under the Merger Agreement, the Ordinary Course Covenant and the Interim

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

Parent Disclosure Letter.”130 Section 4.01(b) of the PDL organizes these exceptions

127 Williams Field Servs. Grp., LLC v. Caiman Energy II, LLC, 2019 WL 4668350, at *34 (Del. Ch. Sept. 25, 2019), aff’d sub nom. Williams Field Servs. Grp., LLC v. Caiman Energy II, LCC, 237 A.3d 817 (Del. 2020) (quoting Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at *91 (Del. Ch. Oct. 1, 2018), aff’d, 198 A.3d 724 (Del. 2018)). 128 Sonitrol Holding Co. v. Marceau Investissements, 607 A.2d 1177, 1181 (Del. 1992) (citation omitted). 129 Id. (citation omitted). 130 App. to Opening Br. at A460 (Merger Agreement §4.01(b)).

42 under headers that correspond to specific sections within Section 4.01(b) of the

Agreement. 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

the meaning or interpretation of this Parent Disclosure Letter.”131 The $1 Billion

Equity Issuance Exception falls under a header titled “Section 4.01(b)(v).”132 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 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[.]133

The Court of Chancery concluded that Section 4.01(b)(v) of the Parent

Disclosure Letter is ambiguous as to whether it applied to the Preferred Offering.

The court then looked to extrinsic evidence and found that it did not. Accordingly,

because Section 4.01(b)(v) of the Merger Agreement prohibits ETE from issuing

131 Chancery Post Trial Opinion at *29. 132 Id. 133 App. to Opening Br. at A445 (Merger Agreement § 3.02).

43 equity between signing and closing, the court found that ETE was in breach. We

defer to the Court of Chancery’s factual findings, including its determinations about

extrinsic evidence,134 and accept them here, as they are supported by the record and

are the product of an orderly and logical deductive process.135

1. ETE’s Contentions

ETE argues that Section 4.01(b)(v) of the Parent Disclosure Letter is clear and

unambiguous on its face. ETE specifically contends that the Court of Chancery

misinterpreted the Merger Agreement and Parent Disclosure Letter, which together,

in ETE’s view, make clear that the $1 Billion Equity Issuance Exception in Section

4.01(b)(v) applies to all of Section 4.01(b) and is not limited in application to the

corresponding section in the Merger Agreement.

ETE first points to the qualifying preambles to both the Ordinary Course

Covenant and the Interim Operating Covenants and argues that refusing to cross-

apply the PDL exceptions contradicts the plain meaning of the agreement and results

in surplusage since there are no corresponding exceptions to the Ordinary Course

Covenant. It then turns to language in Section 3.02 of the Merger Agreement that it

claims allows for application of the PDL to “all provisions . . . to which ‘it is

134 See Textron Inc. v. Acument Glob. Techs., Inc., 108 A.3d 1208, 1223 (Del. 2015) (finding that a trial court’s review of extrinsic evidence “is entitled to deference on appeal”). 135 See Sonitrol Holding Co., 607 A.2d at 1181.

44 reasonably apparent’ that the disclosure ‘is relevant.’”136 ETE draws a distinction

based on the use of “equity securities” in Section 4.01(b)(v) of the PDL rather than

the use of the term “Common Units.”137 According to ETE, the use of the broader

term “equity securities” rather than the narrower term “Common Units” was

purposeful. If ETE was limited to only issuing pre-existing classes of securities that

did not require amendments to its partnership agreement, then it was effectively

being limited to issuing only common units. ETE argues that if this was the case it

would result in a “complete rewrite of the parties’ agreement.”138

2. Williams’ Contentions

Williams also argues that Section 4.01(b)(v) of the Parent Disclosure Letter is

unambiguous. More pointedly, it argues that the $1 Billion Equity Issuance

Exception applies only to the operating covenant in the corresponding Section

4.01(b)(v) of the Agreement.139 Its interpretation, Williams notes, matches the

structure of the PDL, which lists the exceptions to a given section or subsection of

the Agreement beneath a reference to that section or subsection number.140 It also

points to Section 3.02 of the Merger Agreement, which it claims “expressly sets out

how to read the two contractual documents together.”141

136 Opening Br. at 64 (quoting App. to Opening Br. at A445 (Merger Agreement § 3.02)). 137 Opening Br. at 64–65. 138 Id. at 65. 139 Answering Br. at 56. 140 Id. at 57. 141 Id. (citing App. to Opening Br. at A445 (Merger Agreement § 3.02)).

45 3. The Court of Chancery’s Findings

The Court of Chancery concluded that the “except as set forth in Section

4.01(b) of the Parent Disclosure Letter” qualifier in the Merger Agreement was

ambiguous.142 Contractual ambiguity exists “‘[w]hen the provisions in controversy

are fairly susceptible of different interpretations or may have two or more different

meanings.’ Where a contract is ambiguous, ‘the interpreting court must look beyond

the language of the contract to ascertain the parties’ intentions.’”143 The court found

that both parties’ interpretations were reasonable for the reasons the parties

provided.144

4. The Plain Language and Structure of the PDL and Merger Agreement

A contract is ambiguous only when the provisions in controversy are

reasonably or fairly susceptible of different interpretations or may have two or more

different meanings.145 As discussed below, we agree with the Court of Chancery’s

determination that the relevant provisions of the PDL and Merger Agreement are

ambiguous as to whether the $1 Billion Equity Issuance Exception applies.

142 Chancery Post-Trial Opinion at *28. 143 Salamone v. Gorman, 106 A.3d 354, 374 (Del. 2014) (quoting GMG Capital Inv., 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))). 144 Chancery Post-Trial Opinion at *29. 145 Rhone-Poulenc Basic Chemicals Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992).

46 Section 4.01(b)(v) of the Parent Disclosure Letter states that “[ETE] may

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

aggregate.”146 Although this would, on its face, appear to excuse the Preferred

Offering, which fell below the $1 billion limit, the exception is located under the

sub-header Section 4.01(b)(v), suggesting that it is only an exception to Section

4.01(b)(v) of the Merger Agreement—which prohibits ETE from issuing equity

between signing and closing. If Section 4.01(b)(v) of the PDL only applied to this

covenant, then ETE’s breach of the other Interim Operating Covenants contained in

Section 4.01(b) of the Agreement would not be excused. If, on the other hand,

Section 4.01(b)(v) applied to all of Section 4.01(b), then ETE’s breach would be

excused in its entirety, and Williams would not be entitled to the WPZ Termination

Fee Reimbursement.

We begin with Williams’ reading—that the $1 Billion Equity Issuance

Exception in the PDL only modifies the prohibition on equity issuances in Section

4.01(b)(v) of the Agreement. We first note that that each of the headers used in the

Parent Disclosure Letter correspond with a single covenant in the Merger

Agreement. A reasonable reading of this drafting structure is that by placing the $1

Billion Equity Issuance Exception under the Section 4.01(b)(v) header, the exception

was intended to be exclusive to that section. Williams’ interpretation also finds

146 App. to Opening Br. at A413.

47 support in Section 3.02 of the Merger Agreement, which provides that “any

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[.]”147

We then turn to ETE’s reading—under which the $1 Billion Equity Issuance

Exception applies to Section 4.01(b) in its entirety. Its reading finds support under

Section 8.04 of the Agreement. It provides that “[t]he table of contents and headings

contained in this Agreement are for reference purposes only and shall not affect in

any way the meaning or interpretation of this Agreement[,]”148 indicating that the

headings used in the Parent Disclosure Letter were not intended to limit the cross-

sectional force of the exceptions therein. Further supporting ETE’s interpretation,

Section 3.02 of the Merger Agreement stipulates that any information in the Parent

Disclosure Letter applies to “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[.]”149

Given that one could reasonably read Section 4.01(b)(v) of the PDL to apply

to Section 4.01 of the Merger Agreement in its entirety or only to Section 4.01(b)(v)

147 Id. at A445 (Merger Agreement § 3.02). 148 Id. at A488 (Merger Agreement § 8.04(a)). 149 Id. at A445 (Merger Agreement § 3.02).

48 of the Merger Agreement, we agree with the trial court that Section 4.01(b)(v) of the

PDL is ambiguous. Thus, the Court of Chancery properly undertook a review of the

extrinsic evidence.150

5. Extrinsic Evidence

Where a contract is ambiguous, “the interpreting court must look beyond the

language of the contract to ascertain the parties’ intentions.”151 We do so by

employing a well-settled standard:

If the contract is ambiguous, a court will apply the parol evidence rule and consider all admissible evidence relating to the objective circumstances surrounding the creation of the contract. Such extrinsic evidence may include overt statements and acts of the parties, the business context, prior dealings between the parties, [and] business custom and usage in the industry. After examining the relevant extrinsic evidence, a court may conclude that, given the extrinsic evidence, only one meaning is objectively reasonable in the circumstances of [the] negotiation.152

Here the court found, through a logical and orderly deductive process, that the

extrinsic evidence weighed in favor of Williams’ interpretation, relying heavily on

testimony from both parties’ witnesses that “[u]p 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.”153 And the court pointed to

150 See Salamone v. Gorman, 106 A.3d at 374 (citations and internal quotation marks omitted). 151 See id. at 369 (citations omitted). 152 In re Mobilactive Media, LLC, 2013 WL 297950, at *15 (Del. Ch. Jan. 25, 2013) (alterations in original) (citations and internal quotation marks omitted). 153 Chancery Post-Trial Opinion at *29.

49 the testimony of Minh Van Ngo, Williams’ lead-deal attorney, who testified that, at

the time the change was made, his team at Cravath informed Wachtell, ETE’s

counsel, “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.”154

For its part, ETE argues that testimony from Chappel, Williams’ CFO, is

extrinsic evidence in its favor. He testified that a goal of the equity issuance

exception was to offer “some flexibility in dealing with the capital markets.”155 ETE

construes this as a blank check and believes that the court “did not—and could not—

square its reading” with this testimony.156 But ETE misses the fact that the $1 Billion

Equity Issuance Exception did provide flexibility by allowing issuances of existing

classes of equity up to a value of $1 billion. Chappel also provided testimony, which

according to ETE, “admitted that ETE’s interpretation of the interplay between the

disclosure letters and Merger Agreement was correct.”157 Specifically, Chappel

commented on three exceptions in Williams’ Company Disclosure Letter that cross-

applied to non-corresponding Merger Agreement provisions.158 But each of these

154 Id. at *9. 155 App. to Opening Br. at A3171 (Chappel Tr.). 156 Opening Br. at 66. 157 Id. at 67. 158 See App. to Opening Br. at A3164–70 (Chappel Tr.) (stating that Section 4.01(a)(ix) of the CDL is an exception to Williams’ ordinary course covenant; CDL Section 4.01(a)(v) is an exception to

50 would have been permissible under the “reasonably apparent on its face” language

of Section 3.02.159 Chappel’s testimony is not the “admission” ETE hopes.

There was sufficient record evidence, in our view, supporting the Court of

Chancery’s reasoned determination that Section 4.01(b)(v) of the PDL was intended

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. We

therefore defer to that finding.

D. The Court of Chancery Did Not Abuse Its Discretion in Finding that Williams’ Attorney’s Fees Were Reasonable

ETE’s final argument is that the Court of Chancery incorrectly approved an

$85,440,716.36 million attorney’s fees award (including prejudgment interest

compounded quarterly) under a contractual fee-shifting provision in the Agreement.

Principally, ETE argues that such an award was unreasonable because the Court of

Section 4.01(a)(iv) of the Merger Agreement; and CDL Section 4.01(a)(ix) is an exception to Section 4.01(a)(vi) of the Merger Agreement). 159 CDL Section 4.01(a)(v) allowed Williams to issue securities up to $1 billion in value in order to purchase WPZ units, and this necessarily applied to Section 4.01(a)(iv) of the Merger Agreement, which restricted Williams’ ability to acquire shares in its subsidiaries. See App. to Opening Br. at A379; id. at A457. CDL Section 4.01(a)(ix) allowed Williams to abandon properties not exceeding $100 million in value. See id. at A380. This exception necessarily applied to the ordinary course covenant, under which disposition of such properties would not be ordinary course. See id. at A3165 (Chappel Tr.) (agreeing that abandoning an asset of up to a hundred million dollars would not be an event in the ordinary course of Williams). CDL Section 4.01(a)(ix) also allowed Williams to dispose of properties in connection with drop transactions to WPZ. See id. at A380. Drop down transactions, however, may “have required amendments to both WPZ and [Williams’] organizational documents,” meaning that this exception also necessarily applied to Section 4.01(a)(vi) of the Merger Agreement, which prohibited amendment of organizational documents. Id. at A3168 (Chappel Tr.); see id. at A457.

51 Chancery shifted a contingent fee. An award of attorney’s fees is reviewed for abuse

of discretion.160 This Court “conducts a highly deferential abuse-of-discretion

review by keeping in mind the nonexhaustive factors of Rule 1.5(a) of the Delaware

Lawyer’s Rules of Professional Conduct.”161 And “[w]hile we review an award of

attorne[y’s] fees for abuse of discretion, we review the trial court’s interpretation of

a contractual fee-shifting provision de novo.”162

Section 5.06(g) addresses fee shifting under the Merger Agreement:

[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.163

Under this provision, ETE was required to pay Williams attorney’s fees and

expenses because of Williams’ successful suit to collect the $410 million WPZ

Termination Fee Reimbursement. The wrinkle here is that, in 2017, Williams and

160 William Penn P’ship v. Saliba, 13 A.3d 749, 758 (Del. 2011); see also RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 876 (Del. 2015); Bako Pathology LP v. Bakotic, 288 A.3d 252, 266 (Del. 2022). 161 Bako Pathology LP, 288 A.3d at 279 (citing TransPerfect Global, Inc. v. Pincus, 278 A.3d 630, 653 (Del. 2022) (internal quotations, citations, and brackets omitted). 162 Id. at 266–67 (internal quotations, citations, and brackets omitted). 163 App. to Opening Br. at A474 (Merger Agreement §5.06(g)) (emphasis added).

52 its counsel Cravath switched to a contingency fee arrangement entitling Cravath to

a 15% award on the WPZ Termination Fee Reimbursement judgment if Williams

prevailed. Accordingly, the Court of Chancery calculated Williams’ fee award based

on the contingency agreement.

ETE argues that the Court of Chancery’s fee award amounts to a

misinterpretation of Section 5.06(g), because at the time the parties signed the

Merger Agreement in 2015, every Delaware authority that awarded attorney’s fees

pursuant to a contractual fee-shifting provision did so based on a reasonable-hours-

billed times reasonable-rates lodestar. This uniform authority, ETE contends,

reflects what would be understood by an objective, reasonable third party in

interpreting the Section. We disagree. The only limitation contained in Section

5.06(g) is that the attorney’s fees be reasonable, and in fee shifting cases, a judge

determines whether the fees requested are reasonable.164 For the reasons described

below, we see no abuse of discretion.

The Court of Chancery largely based its reasoning on Shareholder

Representative Servs. LLC v. Shire US Holdings, Inc., a decision in which then-Vice

Chancellor McCormick observed that “there is nothing inherently unreasonable in

enforcing a contractual fee shifting arrangement to cover a contingent fee award.”165

164 See Mahani v. Edix Media Group, Inc., 935 A.2d 242, 245 (Del. 2007). 165 2021 WL 1627166, at *2 (Del. Ch. Apr. 27, 2021), aff’d, 267 A.3d 370 (Del. 2021).

53 The Shire court looked to Rule 1.5(a) of the Delaware Rules of Professional

Conduct, which contains eight factors Delaware courts can use to determine whether

a fee award is reasonable in a fee-shifting case, 166 and concluded that “[a] one-third

contingent fee arrangement is quite typical and commercially reasonable” and that

“[t]here is nothing inherently unreasonable in including prejudgment interest when

calculating the appropriate amount, particularly when the underlying agreement

includes interest in the relevant proceeds.”167

ETE first contends that the Court of Chancery erred in this case, and by

implication in Shire, in looking to Rule 1.5(a) to determine the reasonableness of a

fee award, because the rule does not cover contractual fee shifting and does not

address the question of whether the parties in fact intended the fee-shifting provision

to cover a contingency fee award. ETE’s argument is without merit. As the Court

of Chancery noted, the Rule explicitly contemplates contingent fees, and thus when

the parties entered into the Agreement, they should have been aware that “their

166 See Del. Lawyers’ R. Prof’l Conduct 1.5(a) (listing the eight factors as: “(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent”). 167 Shire, 2021 WL 1627166, at *2.

54 bargained for ‘reasonableness’ limitation on fee shifting did not automatically

prohibit contingency fees.”168

ETE next argues that the Court of Chancery’s reliance on Shire was in error,

because, in ETE’s view, the case is functionally inapposite. This argument does not

hold water. Even though Shire was decided before the Agreement was signed, Rule

1.5(a) existed as a guidepost.169 Further, the circumstances in Shire are not so far

afield from this case to deem it a poor analog. As the Court of Chancery observed,

both cases involve fee-shifting provisions that do not explicitly bar contingency fees,

the parties in both cases made legitimate business judgments by switching fee

arrangements mid-stream, and both involve common contingency fee percentages.

There is therefore little to suggest that the contingent-fee arrangement adopted

by Williams was unreasonable. Contingent fees are reasonable when they utilize a

reasonable lodestar multiple and are limited to a reasonable percentage of the

recovery.170 Here Cravath produced a lodestar—hours reasonably expended times a

reasonable hourly rate—of $47,116,996.73, putting its lodestar multiple at 1.7x.171

A lodestar multiple of 1.7x, particularly when compared to the 2.5x multiple

approved in Shire, is “on par with or less than awards [the Court of Chancery] has

168 Chancery Fee Opinion at *3. 169 Indeed, at that time, Delaware courts had consistently directed judges to consider the Rule when assessing a fee’s reasonableness. See, e.g., Mahani, 935 A.2d at 246. 170 See Americas Mining Corp. v. Theriault, 51 A.3d 1213, 1253 (Del. 2012). 171 Chancery Fee Opinion at *5.

55 previously deemed reasonable in the post-trial or advanced-stage litigation

context.”172 And, as the Court of Chancery noted below, 15% “is far below the 33%

contingent fee approved in Shire and well within the range of contingent fees that

have been approved as reasonable by [the court].”173 ETE appears to suggest that

the timing of Williams’ decision to change its fee arrangement was somehow

untoward, but there is no record evidence that it was anything other than an exercise

of Williams’ business judgment.

Next, ETE challenges the awarding of quarterly compound interest rather than

simple interest. Section 5.06(g) was silent on the matter and only stated that a

judgment in connection with the WPZ Termination Fee Reimbursement would be

due “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.”174 ETE contends

that Section 5.06(g) “should be interpreted in the same manner as Delaware’s

prejudgment interest statute, which similarly makes no references to compounding

and ‘has long been construed as providing for a simple interest calculation.’”175

“[A] court of equity,” however, “has broad discretion, subject to principles of

fairness, in fixing the rate [of pre-judgment interest] to be applied,” and “[i]n the

172 Shire at *3. 173 Chancery Fee Opinion at *4. 174 App. to Opening Br. at A474 (Merger Agreement §5.06(g)). 175 Opening Br. at 73 (quoting Rexnord Indus., LLC v. RHI Hldgs., Inc., 2009 WL 377180, at *9- 10 (Del. Super. Feb. 13, 2009)); see 6 Del. C. § 2301.

56 Court of Chancery the legal rate is a mere guide, not the inflexible rule.”176 Further,

“the discretion to select a rate of interest higher than the statutory rate . . . includes

the lesser authority to award compounding.”177 Considering the fact that ETE and

Williams were sophisticated parties who dealt in compound interest in their day-to-

day operations, the court determined that this was the proper form of interest.178 ETE

fails to show how the Court of Chancery abused its discretion by awarding quarterly

compound interest.

At bottom, ETE argues that affirming the Court of Chancery’s decision on this

issue would constitute bad public policy for the State of Delaware. ETE asserts that

when two sophisticated parties contract to an attorney’s fees provision, there is an

“obvious inference” that the “reasonable rates are going to be in a traditional,

reasonable rates, reasonable hours lodestar.179 But ETE itself admitted that this

could be contracted around.180 Indeed, it would be poor public policy to find that it

is per se unreasonable that a generic fee-shifting provision contains a prohibition

against the shifting of contingent fees.

176 Summa Corp. v. Trans World Airlines, Inc., 540 A.2d 403, 409 (Del. 1988) (citations omitted). 177 Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 173 (Del. 2002) (quoting Brandin v. Gottlieb, 2000 WL 1005954, at *29 n.83 (Del. Ch. July 13, 2000)). 178 See Chancery Fee Opinion, at *3 (“It is thus ‘hard[ ] to imagine a corporation today that would seek simple interest on the funds it holds.’” (quoting ONTI, Inc. v. Integra Bank, 751 A.2d 904, 926 (Del. Ch. 1999), as revised (July 1, 1999))). 179 See Video of Oral Argument, Delaware Courts, at 18:21–18:42 (July 12, 2023) https://tinyurl.com/4waaxdur. 180 Id. at 20:10-20:18.

57 The Court of Chancery’s award of attorney’s fees and interest was not an

abuse of discretion.

III. Conclusion

For the above reasons, we conclude that the Court of Chancery correctly held

that Williams did not adversely modify the Company Board Recommendation such

that it would entitle ETE to the $1.48 billion Termination Fee. The Court of

Chancery correctly found that Williams did not breach the Merger Agreement’s

Efforts Obligations. The Court of Chancery also correctly found that Section

4.01(b)(v) of the Parent Disclosure Letter did not apply to ETE’s Preferred Offering,

and thus was in breach of the Agreement. Finally, the Court of Chancery did not

abuse its discretion in awarding Williams reasonable attorney’s fees under a

contractual fee-shifting provision. We therefore affirm the Court of Chancery’s

judgment.