Title: Williams Companies, Inc. v. Energy Transfer Equity, L.P.

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
THE WILLIAMS COMPANIES, INC., § 
 
§ 
No.  330, 2016 
Plaintiff Below- 
§ 
Appellant, 
§ 
Court Below: - Court of Chancery  
 
§ 
of the State of Delaware 
v.  
§ 
 
§ 
C.A. Nos. 12168 & 12337 
ENERGY TRANSFER EQUITY, L.P., §              
et al.,  
§ 
 
 
§ 
Defendants Below- 
§ 
Appellees. 
§ 
 
 
Submitted:  January 11, 2017 
Decided:  March 23, 2017 
 
Before STRINE, Chief Justice; HOLLAND, VALIHURA, VAUGHN, and 
SEITZ, Justices, constituting the Court en Banc. 
 
Upon appeal from the Court of Chancery: AFFIRMED. 
 
Kenneth J. Nachbar, Esquire and Zi-Xiang Shen, Esquire, Morris, Nichols, Arsht & 
Tunnel LLP, Wilmington, Delaware; Sandra C. Goldstein, Esquire (argued), Antony 
L. Ryan, Esquire, and Kevin J. Orsini, Esquire, Cravath, Swaine & Moore LLP, New 
York, New York, for Plaintiff Below, Appellant, The Williams Companies, Inc. 
 
Rolin P. Bissell, Esquire, Elena C. Norman, Esquire, Tammy L. Mercer, Esquire, 
and Benjamin M. Potts, Esquire, Young Conaway Stargatt & Taylor, LLP, 
Wilmington, Delaware; Michael C. Holmes, Esquire (argued), John C. Wander, 
Esquire, Jennifer B. Poppe, Esquire, Jeremy C. Marwell, Esquire, Andrew E. 
Jackson, Esquire, Craig E. Zieminski, Esquire, Joshua S. Johnson, Esquire, and 
Gregory F. Miller, Esquire, Vinson & Elkins LLP, Dallas, Texas, for Defendants 
Below, Appellees, Energy Transfer Equity, L.P., Energy Transfer Corp LP, ETE 
Corp GP, LLC, LE GP, LLC, and Energy Transfer Equity GP, LLC. 
 
 
VAUGHN, Justice, for the Majority: 
 
 
1 
I.  INTRODUCTION 
 
This appeal arises from a merger agreement under which Energy Transfer 
Equity, L.P. (“ETE”), a Delaware limited partnership, agreed to acquire the assets 
of The Williams Companies, Inc., (“Williams”), a Delaware corporation.  Both 
Williams and ETE are involved in the gas pipeline business.  The Agreement and 
Plan of Merger (the “Merger Agreement” or “the Agreement”) signed by Williams 
and ETE contemplated two steps.  In the first step, Williams would merge into a 
new entity, Energy Transfer Corp LP (“ETC”), a Delaware limited partnership 
taxable as a corporation.  ETE would transfer $6.05 billion in cash to ETC in 
exchange for 19% of ETC’s stock.1  The $6.05 billion and 81% of ETC’s stock 
would be distributed to the Williams stockholders in exchange for their Williams 
stock.  In step two, ETC would transfer the Williams assets to ETE in exchange for 
newly issued ETE Class E partnership units.  The number of Class E units 
transferred and ETC shares issued would be the same number and the two were 
expected to be similar in value.  The result would be that the Williams shareholders 
                                               
 
1 While ETE and ETC are the primary defendants discussed in this opinion, the relationship of the 
remaining defendants is as follows: ETE Corp GP, LLC is a Delaware limited liability company 
and the general partner of ETC; LE GP, LLC is a Delaware limited liability company and the 
general partner of ETE; Energy Transfer Equity GP, LLC is a Delaware limited liability company 
that, pursuant to the Merger Agreement, would merge with LE GP, LLC and be the surviving 
entity and general partner of ETE.  Following the merger, ETC was to become the managing 
member of Energy Transfer Equity GP, LLC. 
 
 
2 
would receive $6.05 billion plus 81% of ETC’s stock, ETE would receive the 
Williams assets and 19% of ETC’s stock, and ETC would own ETE Class E 
partnership units equal in number to the shares issued by ETC.  The merger was 
conditioned upon the issuance of an opinion by ETE’s tax counsel, Latham & 
Watkins LLP (“Latham”), that the second step of the transaction, the transfer of 
Williams’ assets to ETE in exchange for the Class E partnership units, “should” be 
a tax-free exchange of a partnership interest for assets under Section 721(a) of the 
Internal Revenue Code 2  (the “721 opinion”).  The Agreement also contained 
provisions that required the parties to use “commercially reasonable efforts” to 
obtain the 721 opinion3 and to use “reasonable best efforts” to consummate the 
transaction.4 
 
After the parties entered into the Agreement, the energy market suffered a 
severe decline which caused a significant loss in the value of assets of the type held 
by Williams and ETE.  This caused the transaction to become financially 
undesirable to ETE.  It also led to ETE raising an issue as to whether the IRS might 
view a portion of the $6.05 billion not as payment only for the ETC stock, but as 
                                               
 
2 “No gain or loss shall be recognized to a partnership or to any of its partners in the case of a 
contribution of property to the partnership in exchange for an interest in the partnership.” I.R.C.  
§ 721(a). 
3 App. to Appellant’s Opening Br. at 680 (Merger Agreement, § 5.07(b)). 
4 Id. at 671 (Merger Agreement, § 5.03(a)). 
 
 
3 
payment in part for the Williams assets, thus rendering the second step of the merger 
taxable.  This issue ultimately led to Latham being unwilling to issue the 721 
opinion.  Since the 721 opinion was a condition of the transaction, ETE indicated 
that it would not proceed with the merger. 
 
Williams then sought to enjoin ETE from terminating the Merger Agreement, 
arguing that ETE breached the Agreement by failing to “use commercially 
reasonable efforts” to obtain the 721 opinion and “reasonable best efforts” to 
consummate the transaction.  Williams also argued that ETE was estopped from 
terminating the Agreement by a representation it made in the Agreement that it knew 
of no facts that would prevent the second step of the transaction from being treated 
as tax-free at the time the parties entered into the agreement. 
 
The Court of Chancery rejected Williams’ arguments.  Williams argues on 
appeal that the Court of Chancery erred by interpreting “commercially reasonable 
efforts” and “reasonable best efforts” as imposing on ETE only a negative duty not 
to obstruct performance of the Agreement.  The Court should, Williams contends, 
have interpreted the covenants as creating affirmative obligations on the part of ETE 
to work to ensure performance of the Agreement.  Williams also argues that the 
Court of Chancery should have recognized that ETE’s acts and omissions failed to 
comply with its affirmative obligations to try to obtain the 721 opinion.  Williams 
 
 
4 
further argues that the Court of Chancery erred by placing upon it the burden of 
proving that ETE’s breach of covenants materially contributed to the failure of the 
closing condition and that it should have shifted that burden to ETE.  Finally, it 
argues that ETE should be estopped from terminating the Agreement because it 
represented in the Agreement that it did not “know[] of the existence of any fact that 
would reasonably be expected to prevent [the transaction] from qualifying as an 
exchange to which Section 721(a) of the Code applies.”5 
 
In rejecting Williams’ arguments, the Court of Chancery concluded that ETE 
did not breach its covenants.  For the reasons which follow, we find that the Court 
adopted an unduly narrow view of the obligations imposed by the covenants.  We 
also agree with Williams that if a proper analysis of ETE’s covenants led to a 
conclusion that ETE breached those covenants, the burden would shift to ETE to 
prove that its breaches did not materially contribute to the failure of the closing 
condition.   
 
The Court of Chancery concluded that Latham’s determination that it could 
not issue the 721 opinion was a good faith determination made by it independent of 
any conduct by ETE.  This finding of fact is not challenged on appeal.6  Since the 
                                               
 
5 Id. at 652 (Merger Agreement at § 3.02(n)(i)).  
6 At oral argument, counsel for Williams acknowledged that Williams was not challenging the 
Court of Chancery’s finding that Latham’s determination was made in good faith. 
 
 
5 
facts as found by the Court of Chancery are that ETE’s conduct, or lack of conduct, 
did not contribute to Latham’s decision not to issue the 721 opinion, we are satisfied 
that when the burden of proving that ETE’s alleged breach of covenants is properly 
placed on it, ETE did meet its burden of proving that any alleged breach of covenant 
did not materially contribute to the failure of the Latham condition.   
 
We also agree with the Court of Chancery’s finding that ETE was not 
estopped from terminating the Agreement.  Accordingly, the judgment of the Court 
of Chancery will be affirmed. 
II.  FACTS AND PROCEDURAL HISTORY 
 
Williams, a Delaware corporation, is an energy infrastructure company which 
owns and operates midstream assets and interstate natural gas pipelines.  ETE is a 
Delaware limited partnership which, along with its family of companies, owns and 
operates tens of thousands of miles of pipelines which transport natural gas, natural 
gas liquids, refined products, and crude oil.  Williams and ETE entered into the 
above-described Merger Agreement in September, 2015. 
 
As mentioned, the parties agreed that a condition precedent to the merger was 
that ETE’s tax counsel, Latham, issue an opinion that the second step of the 
                                               
 
 
 
 
 
6 
transaction, ETC’s transfer of Williams’ assets to ETE in exchange for partnership 
units of ETE, “should” qualify as tax free under Section 721(a) of the Internal 
Revenue Code.7  Section 721 provides that “[n]o gain or loss shall be recognized 
to a partnership or to any of its partners in the case of a contribution of property to 
the partnership in exchange for an interest in the partnership.” 8  In addition to 
agreeing that the parties would use “commercially reasonable efforts” to obtain this 
tax opinion,9 the parties broadly agreed that they would use their “reasonable best 
efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and 
to assist and cooperate with the other parties in doing, all things necessary, proper 
or advisable to consummate and make effective, in the most expeditious manner 
practicable” the merger.10  At the time that the parties entered into the Agreement, 
the parties and their tax advisors all believed that the second step of the transaction 
would qualify as tax free under § 721(a). 
 
After the energy market went into a severe decline, ETE’s publicly traded 
partnership units dwindled to between a third and half of their value as compared to 
their value at the time the Agreement was signed, leaving ETE concerned about the 
                                               
 
7 I.R.C. § 721(a). 
8 Id.  
9 App. to Appellant’s Opening Br. at 680 (Merger Agreement § 5.07(b)).  
10 Id. at 671 (Merger Agreement § 5.03(a)).  
 
 
7 
effect of fulfilling its $6.05 billion cash obligation to ETC.  The parties discussed 
restructuring or terminating the Agreement, but were unable to reach an alternative 
arrangement.  The record is quite clear that ETE strongly desired that the 
transaction not go forward. 
 
ETE explored financing alternatives and ultimately decided to issue a new 
class of equity units that would reduce its cash distributions in the short term.  ETE 
pursued a potential public offering of those units. Williams, however, refused to 
disclose financial information that was required for ETE to complete the necessary 
filings with the Securities and Exchange Commission.  On March 8, 2016, ETE 
completed a private offering of convertible units instead. 
 
In March 2016, while evaluating what steps ETE might take to respond to the 
down turn in the energy market, Brad Whitehurst, ETE’s Head of Tax, according to 
his testimony, discovered an aspect of the second step of the transaction which he 
had not previously considered.  He testified that he originally thought that the $6.05 
billion was to be exchanged for a floating number of ETC shares.  In March, he 
realized that it was to be exchanged for a fixed number of shares.  Whitehurst then 
realized that the decline in ETE’s unit price caused the 19% of ETC shares, which 
ETE was to receive in the merger, to be worth substantially less than the $6.05 billion 
ETE was obligated to pay for those shares.  He testified that the ETC shares which 
 
 
8 
ETE was to receive would be worth only about $2 billion.  He was concerned that 
the IRS might attribute a portion of the $6.05 billion to the acquisition of the 
Williams assets, causing the second step in the merger to become a taxable event. 
 
Whitehurst notified ETE’s chairman of his concern and on March 29, 2016, 
Whitehurst contacted Latham and asked it to consider whether the difference in 
value between the $6.05 billion and the 19% of ETC shares would cause a tax 
problem.  Prior to this, Latham was fully prepared to issue the 721 opinion and had 
not considered how a change in ETE’s unit price would affect its opinion.  The 
attorneys at Latham extensively analyzed the transaction.  After consulting with 
Wachtell, Lipton, Rosen & Katz, ETE’s deal counsel, and Vinson & Elkins LLP, 
ETE’s litigation counsel, Latham indicated to ETE that it was likely unable to issue 
the 721 opinion.    
 
On April 7, 2016, Whitehurst contacted Morgan, Lewis & Bockius (“Morgan 
Lewis”), ETE’s specially retained tax counsel, and asked that firm to analyze the tax 
consequences of the Merger Agreement, specifically expressing his concern about 
the decreased value of ETE’s partnership units. 
 
On April 11, 2016, Latham informed ETE that it had conclusively determined 
that it would be unable to issue the 721 opinion as of that date.  Latham was 
concerned that the IRS could attribute the amount by which the $6.05 billion 
 
 
9 
exceeded the value of the ETC stock to the Williams assets under the disguised sale 
rules in Section 707 of the Internal Revenue Code.  It communicated its position to 
Cravath, Swaine & Moore LLP (“Cravath”), Williams’ tax and deal counsel, the 
next day.   
 
In the meantime, Morgan Lewis—independent of and without consulting 
Latham—concluded that it could not issue a 721 opinion if asked.  Morgan Lewis 
was concerned that the IRS might conclude that the parties had specifically allocated 
the cash to the ETC stock (and not to the Williams assets) for tax purposes, and that 
the second step was likely taxable as a disguised sale. 
 
Cravath disagreed with Latham’s conclusion, but on April 14, 2016 it offered 
two proposals that it thought would potentially fix the issue with the 721 opinion.  
Latham reviewed the proposals and determined that neither would result in its 
issuance of the 721 opinion.   
 
In an April 18, 2016 amendment to ETC’s proxy statement, ETE disclosed 
that Latham had advised that as of that time it would not be able to deliver a 721 
opinion. 
 
In late April, Cravath then had Gibson, Dunn & Cruther, LLP, Williams’ other 
deal counsel, review the issue.  It ultimately determined that it could give a “weak-
should” opinion if asked, but initially acknowledged that it would be difficult to 
 
 
10 
reach such a conclusion.11 At the time of the proceedings below, Latham held the 
position that it would be unable to issue the 721 opinion and anticipated that it would 
be unable to do so by the closing date. 
 
Williams filed its first complaint against ETE and LE GP, LLC on April 6, 
2016, challenging ETE’s private offering of convertible partnership units.  While 
the parties were engaged in discovery on that matter, Williams filed its second 
complaint against ETE, ETE Corp GP, LLC, and Energy Transfer Equity GP, LLC 
on May 13, 2016, challenging the defendants’ actions with regard to obtaining the 
721 opinion from Latham.  The Court of Chancery ordered that the issues be 
litigated together and held a trial for both actions on June 20 and 21, 2016.  This 
appeal concerns only Williams’ claims regarding the 721 opinion. 
 
In its second complaint, Williams asserted its claims that ETE breached the 
Agreement by failing to use “commercially reasonable efforts” to obtain the 721 
opinion from Latham and “reasonable best efforts” to complete the transaction and, 
therefore, could not rely on the failure of the 721 opinion condition to terminate the 
agreement; and that ETE misrepresented that it knew of no facts that would 
reasonably prevent the second step of the transaction from being treated as tax-free, 
                                               
 
11 Williams Companies, Inc. v. Energy Transfer Equity, L.P., 2016 WL 3576682, at *8 (Del. Ch. 
June 24, 2016). 
 
 
11 
which estopped ETE from terminating the Agreement.  Williams sought a 
declaration that the defendants had committed material breaches of the Agreement 
and a permanent injunction to enjoin the defendants from terminating the 
Agreement.  
 
The Court of Chancery began its analysis by deciding whether Latham’s 
conclusion that it could not issue the 721 opinion was made in good faith.  It 
carefully and extensively considered the facts and circumstances surrounding 
Latham’s decision not to issue the 721 opinion.  The Court noted that the parties 
deliberately conditioned the merger on Latham’s subjective opinion that the 
transaction “should” be tax free under § 721(a), meaning that “it is quite likely that 
the [tax] decision will be upheld.”12   
 
The Court of Chancery realized that Latham had competing interests with 
regard to its issuance of the 721 opinion: while Latham’s client, ETE, would benefit 
substantially from its refusal to issue the 721 opinion, Latham also had an interest in 
maintaining its reputation by delivering an opinion that was consistent with its 
preliminary assessment from the time that the parties entered into the Agreement.  
The Court concluded that Latham’s ultimate refusal to issue the 721 opinion went 
                                               
 
12 Id. at *11. 
 
 
12 
against its reputational interests.  After reviewing the testimony, the Court found 
that “Latham took this responsibility [to deliver the 721 opinion] seriously.”13  The 
Court noted that there were a variety of opinions reached regarding the tax 
consequences of the transaction which indicated “the closeness of the issue and the 
unusual nature of the transaction here.”14  The Court came to the conclusion that 
Latham acted independently and in good faith in determining that it could not issue 
the 721 opinion.  The Court therefore found that as of the date of its opinion, the 
721 opinion condition had not been satisfied.   
 
The Court of Chancery next considered Williams’ claim that ETE breached 
its contractual obligation to use commercially reasonable efforts to obtain the 721 
opinion.  It began by noting that the term “commercially reasonable efforts” was 
not defined in the Agreement and there is no case law clearly defining the phrase.  
It then examined the discussion of “reasonable best efforts” which appears in the 
Court of Chancery case of Hexion Specialty Chemicals, Inc. v. Huntsman Corp.15  
The Court found that Hexion equated “reasonable best efforts” with good faith, and 
that “reasonable best efforts” was similar to “commercially reasonable efforts.”16  
                                               
 
13 Id. at *13. 
14 Id. at *14. 
15 965 A.2d 715 (Del. Ch. 2008). 
16 Williams Companies, Inc., 2016 WL 3576682, at *16. 
 
 
13 
From this, it concluded that ETE was “bound . . . to do those things objectively 
reasonable to produce the desired 721 Opinion.”17 
 
The Court observed that Williams could not point to any commercially 
reasonable efforts, or objectively reasonable actions, that ETE could have taken to 
secure the 721 opinion from Latham.  The Court also found that Whitehurst did not 
breach the “commercially reasonable efforts” covenant merely by bringing the § 721 
issue to Latham’s attention because, as the Vice Chancellor had already determined, 
Latham made its determination independently and in good faith.  The Court also 
addressed Williams’ heavy reliance on the Hexion18 case by distinguishing the case 
from the facts before him.  It noted that in Hexion, the company hired an advisor 
and “knowingly fed the advisor misleading or inaccurate information” to receive an 
opinion that would allow it to avoid a merger.19  In the current case, the Court of 
Chancery observed that the record did not reflect any affirmative acts taken by ETE 
to mislead Latham and prevent the issuance of the 721 opinion. 
 
Finally, the Court of Chancery addressed Williams’ claim that ETE falsely 
represented that it knew of nothing that would indicate that the 721 opinion could 
not be issued as of the date the Agreement was signed.  It noted that Latham’s 
                                               
 
17 Id.  
18 965 A.2d 715 (Del. Ch. 2008).  
19 Williams Companies, Inc., 2016 WL 3576682, at *18. 
 
 
14 
analysis was not a “fact” that required disclosure and was instead a theory of tax 
liability that was not developed at the time of signing the Agreement.20  The Court 
concluded that ETE did not breach its representations and warranties regarding the 
721 opinion.   
 
Based on its analysis, the Court of Chancery denied Williams’ request to 
enjoin ETE from terminating the merger based on the failure to obtain the 721 
opinion from Latham.  This appeal followed. 
III.  STANDARD OF REVIEW 
 
“We review the Court of Chancery’s conclusions of law de novo and its 
factual findings with deference.”21 
IV.  DISCUSSION 
A. 
 
Williams first claims that the Court of Chancery erred by improperly deciding 
that ETE did not breach its efforts obligations because it interpreted “commercially 
reasonable efforts” and “reasonable best efforts” as imposing only a negative duty 
not to thwart or obstruct performance of the Agreement, rather than  an affirmative 
duty to help ensure performance.  It argues that the Court of Chancery should have 
                                               
 
20 Id. at *19.  
21 SV Inv. Partners, LLC v. ThoughtWorks, Inc., 37 A.3d 205, 209-10 (Del. 2011).   
 
 
15 
recognized that ETE’s acts and omissions constituted a breach of its covenants 
because those acts and omissions were a failure by ETE to comply with its 
affirmative obligations to try to obtain the 721 opinion. 
 
Pertinent findings by the Vice Chancellor on this issue are as follows: 
Williams has not pointed to other facts which [ETE] 
withheld from or misrepresented to Latham that have 
caused it to withhold the 721 Opinion.  There is simply 
nothing that indicates to me that [ETE] has manipulated 
the knowledge or ability of Latham to render the 721 
Opinion, or failed to fully inform Latham, or do anything 
else, whether or not commercially reasonable, to obstruct 
Latham’s issuance of the condition-precedent 721 
Opinion, or that had a material effect on Latham’s 
decision.  Therefore, I have no basis to find that [ETE] is 
in material breach of the commercially reasonable efforts 
requirement.22 
 
 
The Vice Chancellor distinguished Hexion from the present case: 
 
 
Unlike the record in this case, in Hexion the buyer actively 
and affirmatively torpedoed its ability to finance.  If the 
record here reflected affirmative acts by [ETE] to coerce 
or mislead Latham, by which actions it prevented the 
issuance of the [721 Opinion], the facts here would more 
resemble Hexion, and the outcome here would likely be 
different.23 
 
                                               
 
22 Williams Companies, Inc., 2016 WL 3576682, at *17 (emphasis added).  
23 Id. at *18. 
 
 
16 
 
The Court of Chancery in this case took an unduly narrow view of Hexion.  
The buyer in Hexion required financing to complete the transaction.24  With respect 
to the financing requirement, the court there observed that “to the extent that an act 
was both commercially reasonable and advisable to enhance the likelihood of 
consummation of the financing, the onus was on [the buyer] to take that act.”25  
After the buyer developed concerns about the solvency of the combined entity, the 
court in Hexion observed that “a reasonable response to such concerns might have 
been to approach the [seller’s] management to discuss the issue and potential 
resolutions of it.”26  Later, after the buyer consulted with advisors and developed a 
more substantial solvency concern, the court observed that the buyer “was then 
clearly obligated to approach [the seller’s] management to discuss the appropriate 
course to take to mitigate” the solvency concerns. 27  The buyer chose not to 
approach the seller’s management, and the court reasoned “[that] choice alone would 
be sufficient to find that [the buyer] had knowingly and intentionally breached its 
covenants under the merger agreement.” 28   Hexion, with which we agree, 
                                               
 
24 Hexion, 965 A.2d at 724. 
25 Id. at 749 (emphasis added).  
26 Id. (emphasis added).  
27 Id. at 750.    
28 Id.  
 
 
17 
recognized that covenants like the ones involved here impose obligations to take all 
reasonable steps to solve problems and consummate the transaction.29   
 
Section 5.03 of the Agreement in this case states: 
[The parties] shall use [their] reasonable best efforts to, 
and shall cause their respective Affiliates to use 
reasonable best efforts to, take, or cause to be taken, all 
actions, and to do, or cause to be done, and to assist and 
cooperate with the other parties in doing, all things 
necessary, proper, or advisable to consummate and make 
effect, in the most expeditious manner practicable, the 
[merger] . . .30 
 
This language not only prohibited the parties from preventing the merger, but 
obligated the parties to take all reasonable actions to complete the merger.  Section 
5.03 also provides that the parties will “us[e] reasonable best efforts to accomplish 
the following: (i) the taking of all acts necessary to cause the conditions to Closing 
to be satisfied as promptly as practicable.”31   
 
Section 5.07 states that “[the parties] shall cooperate and each use its 
commercially reasonable efforts to cause (i) the Merger to qualify for [tax free 
                                               
 
29 See id. at 755-56. “[The buyer’s] utter failure to make any attempt to confer with [the seller] 
when [the buyer] first became concerned with the potential issue of insolvency, both constitutes a 
failure to use reasonable best efforts to consummate the merger and shows a lack of good faith.” 
Id.  
30 App. to Appellant’s Opening Br. at 671 (Merger Agreement § 5.03(a)) (emphasis added). 
31 Id. (emphasis added). 
 
 
18 
treatment under Section 721].” 32   These provisions placed an affirmative 
obligation on the parties to take all reasonable steps to obtain the 721 opinion and 
otherwise complete the transaction.  The Court of Chancery erred here by focusing 
on the absence of any evidence to show that ETE caused Latham to withhold the 
721 opinion.   
 
There was evidence, recognized by the Court of Chancery, from which it 
could have concluded that ETE did breach its covenants, including evidence that 
ETE “did not direct Latham to engage earlier or more fully with Williams’ counsel, 
failed itself to negotiate the issue directly with Williams, failed to coordinate a 
response among the various players, went public with the information that Latham 
had declined to issue the 721 Opinion, and generally did not act like an enthusiastic 
partner in pursuit of consummation of the [Merger Agreement].” 33   For the 
foregoing reasons, the Court of Chancery did not properly analyze whether or not 
ETE breached its covenants. 
B. 
 
Williams next contends that, after finding that ETE breached its covenants, 
the Court of Chancery should have shifted the burden to ETE to prove that its breach 
                                               
 
32 Id. at 680 (Merger Agreement § 5.07(b)) (emphasis added).   
33 Williams Companies, Inc., 2016 WL 3576682, at *17.  
 
 
19 
did not materially contribute to the failure of the closing condition.  We agree that 
once a breach of a covenant is established, the burden is on the breaching party to 
show that the breach did not materially contribute to the failure of the transaction.34  
The plaintiff has no obligation to show what steps the breaching party could have 
taken to consummate the transaction. 35   To the extent the Vice Chancellor 
discusses the burden of proof on causation in the text of his opinion, he appears to 
improperly place that burden upon Williams with comments such as this:  
“Williams can point to no commercially reasonable efforts that [ETE] could have 
taken to consummate the [merger]; specifically, in this context, actions available to 
[ETE] that would have caused Latham, acting in good faith, to issue the 721 
Opinion.”36   
 
This quotation appears in the section of the Court of Chancery’s opinion in 
which it analyzes whether ETE breached its covenants.  Since the Court concluded 
that ETE did not breach its covenants, it did not separately analyze in the text of its 
opinion whether a breach of covenant materially contributed to the failure of the 
                                               
 
34 RESTATEMENT (SECOND) OF CONTRACTS § 245 cmt. B (1981).  
35 Bloor v. Falstaff Brewing Corp., 601 F.2d 609 (2d. Cir. 1979). “Plaintiff was not obliged to 
show just what steps [the defendant] could reasonably have taken” to facilitate the agreement. Id. 
at 614.  
36 Williams Companies, Inc., 2016 WL 3576682, at *16.  
 
 
20 
transaction.  It did, however, acknowledge and address the burden of proof issue 
in a footnote: 
Williams appears, in post-trial briefing to argue that the 
burden is on [ETE] to demonstrate a negative – that its lack 
of more forceful action after discovering the Section 
721(a) problem did not cause Latham’s inability to render 
the 721 Opinion.  Williams cites this Court’s decision in 
WaveDivision Holdings, LLC v. Millennium Digital Media 
Sys., LLC for the proposition that “[i]t is an established 
principle of contract law that where a party’s breach by 
nonperformance contributes materially to the non-
occurrence of a condition of one of his duties, the non-
occurrence is excused,” and that “once it has been 
determined that [a defendant] breached [the contract], the 
burden of showing that breach did not materially 
contribute to [failure of the condition] is properly placed 
on [the defendant].”  This is unremarkable; once a 
plaintiff has demonstrated a breach leading to adverse 
consequences, it is an affirmative defense that the 
consequences were otherwise unavoidable.  The problem 
for Williams is that the record is barren of any indication 
that the action or inaction of the Partnership (other than 
simply drawing Latham’s attention to the problem) 
contributed materially to Latham’s inability to issue the 
721 Opinion.  This is true regardless of whether [ETE’s] 
actions were commercially reasonable.  In other words, 
no matter how I allocate the burden of proof, the result is 
the same.37   
 
 
This footnote demonstrates that the Court of Chancery considered the result it 
would reach if it found that ETE breached its covenants as alleged by Williams and 
                                               
 
37 Id. at *16 n.130. (internal citations omitted).  
 
 
21 
shifted the burden to ETE to show that such breach did not materially contribute to 
the failure of the 721 opinion condition.   The Court finds in its footnote that when 
so analyzed, ETE met its burden by showing “that the record is barren of any 
indication that the action or inaction of the Partnership (other than simply drawing 
Latham’s attention to the problem) contributed materially to Latham’s inability to 
issue the 721 Opinion.”38  This determination is based on findings of fact which are 
not clearly erroneous.  For this reason, we have concluded that Williams’ argument 
that the Court of Chancery should be reversed because it improperly placed the 
burden of proving causation upon it, must fail. 
C. 
   
Finally, Williams claims that ETE is equitably estopped from terminating the 
Merger Agreement because at the time the agreement was entered into, ETE 
represented that it did not “know[] of the existence of any fact that would reasonably 
be expected to prevent [the transaction] from qualifying as an exchange to which 
Section 721(a) of the Code applies.”39 
 
 
 The doctrine of equitable estoppel may be invoked “when 
a party by his conduct intentionally or unintentionally 
leads another, in reliance upon that conduct, to change 
position to his detriment.”  To establish estoppel it must 
be shown that the party claiming estoppel lacked 
                                               
 
38 Id.  
39 App. to Appellant’s Opening Br. at 652 (Merger Agreement § 3.02(n)(i)).  
 
 
22 
knowledge or the means of obtaining knowledge of the 
truth of the facts in question; relied on the conduct of the 
party against whom estoppel is claimed; and suffered a 
prejudicial change of position as a result of his reliance.40 
 
 
Williams claims that it relied on ETE’s above-quoted representation when it 
agreed to enter into the particular transaction structure contained within the Merger 
Agreement, including the 721 opinion condition.  Williams contends that when 
ETE ultimately became concerned about the 721 opinion, the facts and law 
surrounding the transaction had not changed, and Latham should have considered 
the possibility that the value of ETE’s partnership units could decline when it 
initially represented that the transaction would qualify as tax free. 
 
However, ETE did not fail to disclose any facts known to it at the time the 
agreement was signed.  What changed was Latham’s theory of tax liability.   
There is nothing in the record to suggest that Latham’s ultimate tax theory, which 
took into account ETE’s devalued partnership units, existed at the time the 
agreement was signed and was withheld from Williams.  Williams contends that 
ETE conveniently pointed out the potential tax issue to Latham as a way to terminate 
the agreement once it became financially undesirable to ETE.  However, the Court 
of Chancery accepted Whitehurst’s testimony that he only realized the potential 
                                               
 
40 Waggoner v. Laster, 581 A.2d 1127, 1136 (Del. 1990) (quoting Wilson v. American Ins. Co., 
209 A.2d 902, 903-04 (Del. 1965)) (internal citation omitted).  
 
 
23 
issue when he was considering the tax implications of potential actions for ETE to 
take in response to the decline in the energy market.  Therefore, there is nothing to 
indicate that ETE knew of this potentially problematic theory of tax liability at the 
time it made its representations and chose not to disclose it to Williams.  At the 
time ETE entered into the agreement, it desired the consummation of the Merger 
Agreement and likely would have wanted to address any problem that could result 
in either party terminating the agreement.  Therefore, ETE did not breach its 
representations and warranties and Williams’ estoppel argument fails.  
V.  CONCLUSION 
 
For the foregoing reasons, the judgment of the Court of Chancery is affirmed.  
The time for filing a motion for reargument is shortened to seven days.41 
 
 
                                               
 
41 Supr. Ct. R. 18. 
 
 
24 
STRINE, Chief Justice, dissenting: 
The world can look much different depending on the lens through which you 
view it.  That is certainly the case when you are a judge or a jury.  And the lens that 
a judge uses when he determines whether a party has breached a contract and caused 
harm is supposed to influence how he assesses the evidence before him.  In the 
parlance of judges, the terms “burden of proof” and “standard of review” refer to the 
pair of glasses you wear to decide a case. 
In this case, there is no doubt that the Court of Chancery acted with its historic 
diligence in addressing expedited litigation involving a huge record with rapid speed 
and issuing a thoughtful, careful decision.  My friends in the Majority affirm the 
outcome of that decision, even though they concede that the Court of Chancery did 
not view the case through the appropriate lens.42  The Court of Chancery’s decision 
focuses intently on one issue, whether the person I will call the “Latham Tax 
Lawyer” was honest when he said he could not give the required tax opinion.  But, 
that was not the relevant issue.  The fact that the Latham Tax Lawyer did not give 
the required tax opinion was not contested.  If it had been the central issue, there 
would not have been a case.  The question was why the Latham Tax Lawyer did not 
                                               
 
42 Majority Op. at 18. 
 
 
25 
give the required opinion, and that was not a question centrally dependent on his 
state of mind, as if he was the defendant in a fraud trial. 
The Majority admits that the Court of Chancery did not analyze that question 
of why the Latham Tax Lawyer did not give the required opinion in the appropriate 
manner.43  The need for the opinion came about when an oil and natural gas pipeline 
operator, ETE, agreed to buy another pipeline operator, Williams.  They signed a 
merger agreement on September 28, 2015.  Like the Majority, I refer to that 
agreement as the “Merger Agreement.”  I also use “721 opinion” the way the 
Majority does, to refer to an opinion by the Latham Tax Lawyer, required by the 
Merger Agreement as a condition to closing, that the transfer of Williams’ assets in 
exchange for partnership units “should” be a tax-free exchange under Section 721(a) 
of the Internal Revenue Code.   
The Merger Agreement imposed a specific duty on ETE in connection with 
the 721 opinion, which was to use “commercially reasonable” efforts to obtain the 
opinion. 44  That is an affirmative covenant and a comparatively strong one. 45  
                                               
 
43 Id. 
44 App. to Appellant’s Opening Br. at 680 (Merger Agreement, § 5.07(b)).  The Majority also 
rightly notes that ETE was obligated to use “reasonable best efforts” to consummate the transaction 
as a whole.  Id. at 671 (Merger Agreement, § 5.03(a)). 
45  See LOU R. KLING & EILEEN T. NUGENT, NEGOTIATED ACQUISITIONS OF COMPANIES, 
SUBSIDIARIES AND DIVISIONS § 13.06 (2001) (observing that “best efforts” standards can 
potentially lead to the party making the promise having to take extreme measures to fulfill it and 
 
 
26 
Instead of determining whether ETE in fact used commercially reasonable efforts to 
obtain the 721 opinion, the Court of Chancery focused on whether ETE had 
somehow prevented the Latham Tax Lawyer from giving the 721 opinion,46 and 
concluded that, although ETE had certainly not desired the 721 opinion because it 
wished to get out of the deal, ETE had not coerced or misled Latham to prevent the 
issuance of that opinion.47 
The Court of Chancery, applying an understandable reluctance to call the 
Latham Tax Lawyer dishonest or a bad man, accepted his testimony, that he just 
could not get to the point where he could give the opinion.48  That was so even in a 
context where Latham had indicated at the time the Merger Agreement was signed—
indeed for the six months up until the moment ETE contacted it—that it was ready, 
based on what it knew, to give the required 721 opinion.49  That in a context where 
the most central consideration terms in the Merger Agreement used an exchange 
ratio trading a fixed amount of cash for a fixed amount of stock—stock that tracked 
                                               
 
that “commercially reasonable efforts” is a strong, but slightly more limited, alternative). 
46 E.g., Williams Companies, Inc., 2016 WL 3576682, at *18 (“Unlike the record in this case, in 
Hexion the buyer actively and affirmatively torpedoed its ability to finance.  If the record here 
reflected affirmative acts by [ETE] to coerce or mislead Latham, by which actions it prevent 
issuance of the 721 Opinion . . . the outcome here would likely be different.”). 
47 Id. at *18. 
48 Id. at *15. 
49 Id. at *7. 
 
 
27 
the performance of ETE, the value of which could obviously move based on 
evolving economic conditions, including the market’s assessment of the transaction 
itself.  The consideration portion of a definitive acquisition agreement like the 
Merger Agreement here is about as fundamental as it gets,50 and Latham never 
claimed not to know the amount of shares to be exchanged for cash was fixed.  And 
the public disclosures of the deal described this structure.51  As the Majority52 and 
the Court of Chancery53 acknowledge, ETE itself also represented and warranted 
that it knew of nothing that would prevent Latham from issuing the 721 opinion.54  
Fairly read, this means that ETE had no reason to believe that the structure of the 
deal’s exchange provisions would give rise to a challenge to its tax-free treatment.  
So, if, as ultimately happened, the Latham Tax Lawyer was unable to issue the 721 
opinion based on his post-signing recognition of facts known pre-signing, a 
                                               
 
50 JAMES C. FREUND, ANATOMY OF A MERGER: STRATEGIES & TECHNIQUES FOR NEGOTIATING 
CORPORATE ACQUISITIONS 56 (1975) (“[T]he subject of purchase price [is] obviously the single 
most important aspect of any acquisition transaction.”); id. at 175 (“In spite of all the legalistic 
paraphernalia of modern acquisitions . . . the purchase price remains the most venerable indicium 
of a gratifying deal.”); KLING & NUGENT, supra note 45, at § 1.01 (describing price and form of 
consideration as two of the “threshold questions” of an acquisition); id. at § 1.05[1] (describing 
the terms of a merger agreement specifying price and form of consideration as potentially “the 
most important in the entire agreement”). 
51 Appellees’ App. to Answering Br. at B0020-22 (Form 8-K/A, the Williams Companies, Inc. 
with corrected Merger Agreement, Oct. 1, 2015). 
52 Majority Op. at 21. 
53 Williams Companies, Inc., 2016 WL 3576682, at *6. 
54 App. to Appellant’s Opening Br. at A636-37 (Agreement and Plan of Merger, dated Sept. 28, 
2015 § 3.01(n)(i)). 
 
 
28 
condition would have failed, quite unexpectedly and with more than the whiff of 
either a lack of care or less innocent causal factors, including improper client 
pressure.  Stuff like this happens in complex mergers.  But, what also typically 
happens then is that both parties work together to resolve those problems in good 
faith.  If one party does not, and that party also committed to a particular level of 
effort to fulfill such conditions, that may constitute a covenant breach. 
As the Majority notes, under our law if a party establishes a breach of a 
covenant to bring about a condition at closing, the burden is on the breaching party 
to show that the breach did not materially contribute to the failure of that closing 
condition. 55   In this context, where the Merger Agreement’s “commercially 
reasonable efforts” term obligated ETE to take affirmative steps to make sure the 
721 opinion condition was satisfied and, instead, ETE did not, ETE must then prove 
that the 721 opinion condition would not have been satisfied had it acted 
appropriately.56  In lieu of applying this framework, the Court of Chancery focused 
                                               
 
55 Majority Op. at 18-19. 
56 WaveDivision Holdings, LLC v. Millennium Digital Media Systems, L.L.C., 2010 WL 3706624, 
at *15 (Del. Ch. Sept. 17, 2010) (breaching party required to demonstrate that breach did not 
materially contribute to failure of condition); Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 
965 A.2d 715, 755 (Del. Ch. 2008) (placing burden on breaching party to show “that there were 
no viable options it could exercise to allow it to perform without disastrous financial 
consequences”); see also Bloor v. Falstaff Brewing Corp., 601 F.2d 609, 614 (2d Cir. 1979) 
(shifting burden to breaching party to “prove there was nothing significant it could have done to 
[fulfill its contractual commitment] that would not have been financially disastrous”); 
RESTATEMENT (SECOND) OF CONTRACTS 245 cmt. b (“[I]f it can be shown that the condition would 
 
 
29 
on whether the Latham Tax Lawyer was honest in saying he could not give the 721 
opinion.  Admittedly, the Court of Chancery opinion contained a cursory paragraph, 
consigned to a footnote, that said the record was “barren of any indication” that 
ETE’s action or inaction materially contributed to the Latham Tax Lawyer’s 
inability to issue the 721 opinion.57 
But, I do not believe that the footnote saying that if the Court of Chancery had 
properly placed this burden on ETE, then the case would have come out the same 
way, is a substitute for a proper analysis.58  The Latham Tax Lawyer was put in an 
extremely awkward position by the manner in which the potential 721 opinion issue 
was flagged by ETE itself and by ETE’s conduct after it asked the Latham Tax 
Lawyer to rethink his position based on his client’s musings.  By the time of trial, 
ETE had put the Latham Tax Lawyer as far out on a professional tree limb as it could 
without causing him to literally plummet to earth.  But, this behavior of ETE and 
its effect on the non-satisfaction of the condition was not viewed through the gimlet-
eyed lens that the appropriate standard of review required, one that required ETE to 
prove that its own breaching conduct did not materially contribute to the Latham 
                                               
 
not have occurred regardless of the lack of cooperation, the failure of performance did not 
contribute materially to its non-occurrence and the rule does not apply.  The burden of showing 
this is properly thrown on the party in breach.” (emphasis added)). 
57 Williams Companies, Inc., 2016 WL 3576682, at *16 n.130. 
58 Id. 
 
 
30 
Tax Lawyer’s inability to deliver the 721 opinion. 
ETE’s suspicious behavior really only got going several months after ETE 
and Williams signed the deal, after the energy markets in which they both participate 
materially deteriorated.59  This market decline meant both ETE and Williams were 
worth less.  For ETE that raised concerns about its capacity to take on additional 
debt to finance the cash component of the merger,60 and some at ETE also believed 
that Williams was more exposed to the downturn than ETE, thus also decreasing the 
value of what ETE was buying.61  Crucially, this also meant that, although at the 
time the Merger Agreement was signed, ETE was paying about $6 billion in cash in 
exchange for ETC stock worth roughly $6 billion, the ETC stock, which tracked 
ETE’s market value, had declined to around $2 billion.  Yet, because the amount of 
stock and the dollar amount were both fixed, the exchange became unequal with 
ETE giving, by some estimates, $4 billion more in cash than it was receiving in the 
current value of ETC stock.62   
By January, ETE’s chairman’s preferred solution was terminating the Merger 
                                               
 
59 Id. at *4. 
60 Id. 
61 App. to Appellant’s Opening Br. at A2599-600 (Plaintiff’s Corrected Opening Pretrial Br., 
dated June 16, 2016). 
62 Williams Companies, Inc., 2016 WL 3576682, at *6. 
 
 
31 
Agreement because of this economic deterioration. 63  Then, in late March, the 
Latham Tax Lawyer received an unexpected call from Brad Whitehurst.  
Whitehurst was ETE’s senior executive in charge of tax matters, among other things.  
The call was unexpected in the sense that in the six months from signing up until 
Whitehurst had what the Court of Chancery termed his “epiphany,”64 Whitehurst 
had never before raised a concern about the structure of the exchange.  But, 
Whitehurst’s epiphany was that he supposedly had believed that the number of ETC 
shares, i.e., stock tracking ETE’s performance, exchanged for cash would float based 
on their value, rather than the reality that both the cash consideration and number of 
shares were fixed.65  Whitehurst was supposedly concerned that, because the value 
of the ETC shares had declined materially due to economic conditions, the cash (still 
$6 billion) and the value of the shares (down from $6 billion to $2 billion) no longer 
matched.  Thus, on Whitehurst’s logic, the IRS might apply the “excess” $4 billion 
to the leg of the transaction where ETC contributed Williams’ assets to ETE in 
                                               
 
63 Id. at *4. 
64 Id. at *12. Epiphany is an odd word for this spiritual revelation.  Put aside the more general 
concern about combining the sacred and the profane, Whitehurst’s epiphany did not inspire him to 
selflessly give away his wealth and stock to devoting his life to helping the poor and lost come to 
righteousness.  His epiphany involved conjuring up a reason his employer could avoid buying a 
company it once dearly desired and instead forsaking that partner.  Less an epiphany, then, and 
more like if Fezziwig had been visited by Marley and urged to change his ways and become like 
pre-reform Scrooge! 
65 Williams Companies, Inc., 2016 WL 3576682, at *6. 
 
 
32 
exchange for ETE units, triggering a taxable gain.66   
Whitehurst then communicated this concern with the Latham Tax Lawyer on 
March 29, 2016 triggering a review by Latham of whether it could give the opinion.  
Absent Whitehurst’s epiphany that required Latham to dig into this new issue, no 
evidence in the record suggests that Latham would not have simply proceeded to 
give the opinion it had always intended to give.67  Indeed, at the time, as the Court 
of Chancery found, “no one else shared [Whitehurst’s] view.” 68   Whitehurst 
testified that, despite ample opportunities to do so, including reviewing drafts of deal 
documents describing the exchange ratio, he hadn’t understood that the amount of 
stock was fixed. 69   Williams, unsurprisingly, contested the innocence of this 
epiphany. 
Unlike the Majority, I see no part of the Court of Chancery’s decision where 
it accepted Whitehurst’s story that he only realized that the amount of stock was 
fixed six months after the agreement was signed.  Rather than deciding whether 
Whitehurst was telling the truth, the Court of Chancery just punted, assuming that it 
                                               
 
66 Id. 
67 Id. at *7 (“Before its conversation with Whitehurst, Latham was preparing to issue the 721 
Opinion and had never considered that it would be unable to issue it.” (emphasis added)). 
68 Id. at *6. 
69 Id. at *7. 
 
 
33 
was not material to the ultimate issue.70  Indeed, that punt illustrates the importance 
of using the correct lens and the inadequacy of the Court of Chancery’s footnote 
because, to my mind, it matters very much in determining whether ETE met its 
burden to assess whether Whitehurst, a primary operative for ETE on this 
transaction, was telling the truth when he said that he, the Executive Vice President 
and Head of Tax of a publicly traded partnership that was a routine dealmaker, was 
not aware that the value of only one side of a critical part of the merger consideration 
floated with the valuation of ETE’s business and was thus subject to the vagaries of 
the market price of oil and gas.  If one does not believe that rather improbable claim, 
it colors everything that Whitehurst says he did or didn’t do and of conduct in the 
record that he cannot disclaim.71 
                                               
 
70 The Vice Chancellor noted “I do not need to resolve the issue of Whitehurst’s motivation” when 
dealing with Latham’s analysis, id. at *12, and that the question of if Whitehurst’s call to Latham 
was “a veiled suggestion” that Latham assist ETE in avoiding the transaction was “an issue on 
which I need not opine,” id. at *17.  Indeed, the Vice Chancellor seemed to even express some 
skepticism when he referred to “Whitehurst’s epiphany, if such it was.”  Id. at *12. 
71 I respectfully disagree with my friends in the Majority on one key, related point.  The Majority 
says that Williams does not challenge that Latham’s “determination that it could not issue the 721 
opinion was a good faith determination made by it independent of any conduct by ETE.”  Id. at 4 
(emphasis added).  Although I agree that Williams does not challenge on appeal the Court of 
Chancery’s finding that Latham acted in good faith in declining to give the 721 opinion, I do not 
agree that Williams did not challenge the Court of Chancery’s terse conclusion that Latham’s 
failure to issue the opinion was not influenced by the conduct of ETE and, in particular, 
Whitehurst.  In fact, the central focus of Williams’ appellate argument is that the Court of 
Chancery failed to apply the appropriate prism on that question, and that it erred because it should 
have required ETE to show that the 721 opinion condition would not have been satisfied had it 
acted appropriately.  See, e.g., Appellant’s Opening Br. at 23 (“Following Delaware law, the 
Court of Chancery should have . . . [required] ETE to prove that [its] acts and omissions did not 
 
 
34 
Lawyers by nature tend to be loyal to their clients.  This is sort of baked into 
our professional rules. 72   When Whitehurst told the Latham Tax Lawyer his 
concerns, it was rather obvious that ETE did not wish to go through with the deal.  
If somehow a condition excused closing, that would have made ETE ecstatic.  
When Whitehurst therefore started musing about the potential tax law implications 
of a provision in the agreement that is kind of hard not to know about, it is difficult 
to imagine that he was not putting implicit, but undeniably extant, pressure on the 
Latham Tax Lawyer to have doubts about whether he could give the opinion.  Now, 
of course, ETE argues that this pressure was just of a legitimate legal nature, in the 
sense of raising, in an innocent way, a potential legal problem to be solved. 
To assess if this were so, one would of course wish to consider whether 
Whitehurst was credible in claiming that by gosh, the part-fixed, part-floating nature 
                                               
 
materially contribute to the failure of the closing condition.”); id. at 28 (“ETE’s secrecy, its refusal 
to permit Latham to engage with Cravath, its decision to box Latham in by quickly publishing 
Latham’s views, its refusal to explore potential solutions to Latham’s concerns, its failure to 
explore Williams’ proposed fixes or to ask its tax advisors to try to come up with their own and, 
generally, its decision to place its own economic interest in terminating the Transaction ahead of 
its contractual commitments all plainly breached ETE’s efforts obligations.”); id. at 36 (“We 
simply do not know how Latham ultimately would have resolved the issues if, contrary to fact, 
ETE had engaged meaningfully with Williams and otherwise complied with its efforts 
obligations.”). 
72 E.g., Del. Lawyers’ Rules of Prof. Conduct R. 1.3 cmt. 1 (“A lawyer should pursue a matter on 
behalf of a client despite opposition, obstruction or personal inconvenience to the lawyer, and take 
whatever lawful and ethical measures are required to vindicate a client’s cause or endeavor. A 
lawyer must also act with commitment and dedication to the interests of the client and with zeal in 
advocacy upon the client’s behalf.”). 
 
 
35 
of the exchange just occurred to him when his employer no longer wished to do the 
deal, and he had just became curious about its tax implications then.  And that all 
of this was true even though a core part of Whitehurst’s title suggests he was 
supposed to think about the implications of the exchange ratio and the tax eligibility 
of the deal before ETE signed the agreement.  And, it is not as though Whitehurst 
came off the back of the proverbial vegetable truck.  Before ETE, he had a long tax 
career73 and no doubt saw the effects of more than one boom and bust cycle in the 
oil and gas industry.  If his testimony that he did not know about the ratio until six 
months after the deal was signed was not credible, Whitehurst’s legal curiosity 
would tend to look like an attempt to influence the Latham Tax Lawyer not to give 
the 721 opinion and it would also tend to suggest his communication with the 
Latham Tax Lawyer conveyed client pressure to get to no.  Given that ETE, and by 
extension, Whitehurst, had exactly the opposite duty—to act in a commercially 
reasonable fashion to obtain the 721 opinion 74 —this would be extremely 
problematic. 
Compounding this curious beginning is how Whitehurst and the Latham Tax 
                                               
 
73 App. to Appellant’s Opening Br. at A2817 (Trial Tr., Vol. 1, dated June 20, 2016, Bradford 
Whitehurst). 
74 See Majority Op. at 17 (“These provisions placed an affirmative obligation on the parties to take 
all reasonable steps to obtain the 721 opinion and otherwise complete the transaction.”). 
 
 
36 
Lawyer, and therefore ETE, approached its compliance with the covenant to act in a 
commercially reasonable fashion.  The Majority seems to suggest that ETE 
encouraged the Latham Tax Lawyer to come to the table with its transactional 
counsel, Wachtell, and try to brainstorm about the tax issue and solve it.75  That is 
in fact the opposite of what the record suggests happened.  When Wachtell was 
approached by the Latham Tax Lawyer about the tax issue—nine days after the issue 
was originally raised, a lifetime by deal standards—Wachtell’s reaction was that 
there was no issue.76  Thus, Wachtell was well positioned to help ETE satisfy its 
contractual duties by working with Latham to get to the point where the required 
opinion could be given.  Instead of encouraging this type of cooperation and making 
absolutely clear to Latham that ETE wanted it to get to yes and to be supple and 
open-minded about noodling with others about the issue, ETE did the opposite and 
at no point was Wachtell asked to assist with the analysis.  Rather, the record 
suggests ETE took steps to keep Wachtell away from collaboration with Latham to 
get to yes.77  Likewise, when ETE hired other tax lawyers, at Morgan Lewis, to 
consult on the issue, it did not ask them to get in a room with Latham and Wachtell 
                                               
 
75 Id. at 8. 
76 App. to Appellant’s Opening Br. at A907 (Handwritten notes of April 7, 2016 conference call 
(JX132)). 
77 Id. at A2865 (Trial Tr., Vol. 1, dated June 20, 2016, Alison Preiss Video Clips). 
 
 
37 
and figure out a way to get to yes.78  In fact, ETE told Morgan Lewis that they were 
not to talk to Latham.79 
Even more important, Whitehurst and Latham kept the other side of the 
transaction in the dark for a commercially unreasonable and thus highly suspect 
period of time.  It was a full two weeks after Whitehurst contacted the Latham Tax 
Lawyer, before Latham informed Williams’ counsel, Cravath, that they were not in 
a position to deliver the 721 opinion.  This was the first time that Cravath, or, it 
appears, any of Williams’ advisors or staff, had heard of the problem and it was only 
once the Latham Tax Lawyer had come to a firm conclusion.  Then, a mere six days 
later, ETE filed an amended proxy statement that publicly disclosed Latham’s 
position that it would not deliver the 721 opinion, in Whitehurst’s words 
“poison[ing] the well.”80  There was no reason to amend the disclosure so urgently 
nor is it obviously the case that Latham’s view necessarily had to be included at the 
time.81   
                                               
 
78 A Cravath partner testified that a Wachtell partner told him that Wachtell “was not permitted 
by” ETE to speak with Morgan Lewis.  Id. at A2800 (Trial Tr., Vol. 1, dated June 20, 2016, Minh 
Van Ngo). 
79 Id. at A2930 (Trial Tr., Vol. 2, dated June 21, 2016, William McKee).  
80 Id. at A2433 (Deposition of Brad Whitehurst taken on June 13, 2016). 
81 In fact, Cravath objected to including the disclosure—unsurprising because they had not heard 
back from Latham on their proposed fixes, much less on their position that the issue was, in fact, 
a nonissue.  Id. 
 
 
38 
Under the circumstances, disclosing Latham’s position easily could be read as 
another tactic by ETE to pin the Latham Tax Lawyer down.  In human terms, by 
issuing a public statement that Latham could not deliver the 721 opinion, ETE put 
the Latham Tax Lawyer in a position of having to publicly move off its previous 
position after the world had been told what that was.  It does not take much 
experience with human nature to realize how much more difficult it is to get 
someone—say a judge—to reverse herself after making a ruling than it is to get that 
person to remain open to multiple possibilities in advance of a ruling.  Anyone who 
consults statistics about the success rate of reargument motions would be convinced 
of this obvious human reality.  That reality must be taken into account with the stark 
numbers: ETE concealed the issue from Williams for fourteen days, but took barely 
six days to try to work the issue out with them. 
Somewhat trampled in ETE’s rush to file the good news were Cravath’s 
proposals for addressing Latham’s concerns, which they delivered to Latham only 
two days after hearing of the concerns for the first time.  Latham didn’t get back to 
Cravath on those proposals until well after the proxy was filed, fifteen days after 
Cravath proposed them.  Of course, we know Latham’s answer was that neither 
proposal was workable, although there was testimony that some at Latham believed 
 
 
39 
at least one proposal would help and that there was concern it “helps enough.”82  
Morgan Lewis also seemed to think that one of Cravath’s proposals might work.83  
But, by this time, Latham was in the public Klieg lights, its client ETE clearly did 
not wish to get to yes, and Whitehurst was not arguing that everyone get in a room 
and solve the problem.  Rather, the Court of Chancery’s fact finding suggests the 
conversation was rather one way:  “Latham conveyed its conclusion on the 
proposed modifications to both Williams and Cravath.”84  So, these suggestions, 
which in a more collaborative environment shaped by good faith on the part of ETE 
might have provided a complete solution, instead were given little consideration. 
The failure to get to yes is all the more questionable because of the number of 
people who seemed to think Whitehurst’s theory was, at best, strained.  Initially, no 
one on either side shared Whitehurst’s view or that of the Latham Tax Lawyer who 
adopted it.85  Lawyers from both Cravath and Wachtell thought there was either no 
issue or potential solutions to the issue Whitehurst identified.  Williams’ expert, 
Professor Howard Abrams, testified no reasonable tax attorney would refuse to issue 
                                               
 
82 Id. at A928 (Email chain re: McKee & Structure Changes, dated Apr. 15, 2016 (JX151)). 
83 Id. at A1028 (Email chain re: Notes from Latham call, with attachment, dated May 23, 2016 
(JX534)). 
84 Williams Companies, Inc., 2016 WL 3576682, at *8. 
85 Id. at *6. 
 
 
40 
the 721 opinion,86 and, indeed, ETE’s own experts, Abraham Shashy and Professor 
Ethan Yale,87 didn’t buy into the Latham Tax Lawyer’s theory—they had their own 
reasons for warning the transaction risked not receiving tax-free treatment,88 and 
those experts conceded that changing certain questionable factual assumptions 
provided to them by ETE might reverse their conclusion entirely.89   
Like the Court of Chancery, this recitation of the record leaves me 
sympathetic with the Latham Tax Lawyer when he said he could not get to yes.  But, 
unlike the Court of Chancery, this record suggests to me the need for a view of the 
evidence through the right lens, not to exculpate the very conduct that put Latham 
                                               
 
86 Id. at *14.  Professor Abrams is the Warren Distinguished Professor and director of the tax 
program at University of San Diego Law School.  App. to Appellant’s Opening Br. at A2891 
(Trial Tr., Vol. 2, dated June 21, 2016, Howard Abrams). 
87 Abraham N. M. Shashy, Jr. is the Tax Practice Group Leader at the law firm King & Spalding 
LLP, id. at A1840-41 (Expert Affidavit of Abraham N. M. Shashy, Jr., dated June 3, 2016 
(JX572)), and Professor Ethan Yale is a Professor of Law at the University of Virginia School of 
Law, id. at A1890 (Expert Affidavit of Professor Ethan Yale, dated June 3, 2016 (JX573)). 
88 Id. at A1870 (Expert Affidavit of Abraham N. M. Shashy, Jr., dated June 3, 2016 (JX572)) 
(stating that “the risk is substantial” that the transaction would not receive tax-free treatment); id. 
at A1911 (Expert Affidavit of Professor Ethan Yale, dated June 3, 2016 (JX573)) (stating “there 
is serious doubt” that the transaction would receive tax-free treatment). 
89 Id. at A2244 (Deposition of Abraham N.M. Shashy, Jr. taken on June 11, 2016); id. at A2926 
(Trial Tr., Vol. 2, dated June 21, 2016, Ethan Yale).  The crux of the issue was that ETE told the 
tax experts that there was no non-tax motive for the transfer of ETC shares to ETE, e.g., id. at 
A2230 (Deposition of Abraham N.M. Shashy, Jr. taken on June 11, 2016), but, Williams argues 
that the Court of Chancery’s finding that another reason for the transfer was that “it aligned 
interests between [ETE] and ETC” so that “[a]ctions taken by [ETE after the consummation of the 
merger], therefore, would likely be consistent with the interests of ETC and its stockholders as 
well,” Williams Companies, Inc., 2016 WL 3576682, at *13, suggests ETE’s provided assumption 
was inaccurate, and, thus, ETE’s experts would likely have come to a different view with a more 
accurate picture of the transaction. 
 
 
41 
in such an awkward position.  In other words, the Court of Chancery’s sympathy 
toward the Latham Tax Lawyer had the effect of ignoring the covenant-breaching 
behavior that put the Latham Tax Lawyer under undue professional pressure in the 
first place.  The multiple forms of behavior that breached ETE’s affirmative 
obligation are exactly the kind of conduct that compromised the ability of the Latham 
Tax Lawyer to find a way to yes, and that foreclosed any meaningful consideration 
of economically immaterial adjustments to the transaction that might have solved 
any genuine tax concern.   
As to this, there is, of course, a final irony.  Adjusting the manner in which 
the agreed-upon consideration would pass, by a modest amendment of the merger 
agreement, would have had no material economic effect on ETE from the terms of 
the deal it clearly struck.  That this would have simply required ETE to amend a 
provision that the tax lawyer, Whitehurst, who was central to its contractually 
improper behavior claimed he did not know about and that was the “inspiration” for 
his tax concerns has a metallic taste to it, because if Whitehurst did not consider 
those provisions important enough to understand, the modest amendment required 
to fix the problem certainly would not have undermined any contractual expectation 
central to ETE’s decision to bind itself to buy Williams. 
The Court of Chancery was of course right that “even a desperate man can be 
 
 
42 
an honest winner of the lottery.” 90  But under settled contract law, when, in 
desperation, you breach your obligation to help a condition come about, you do not 
get credit for rigging the game.  For these reasons, I would remand and require a 
new trial at which ETE would be required to prove that its breach did not materially 
contribute to the failure of the Latham Tax Lawyer to deliver the 721 opinion.  
 
                                               
 
90 Williams Companies, Inc., 2016 WL 3576682, at *2.