Oral Argument on Plaintiffs' Motion for Preliminary Injunction

292 Pages·2012·0.59 MB·English

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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

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IN RE EL PASO CORPORATION : Civil Action
SHAREHOLDER LITIGATION : No. 6949-CS
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Chancery Courtroom No. 12B
New Castle County Courthouse
500 North King Street
Wilmington, Delaware
Thursday, February 9, 2012
9:40 a.m.

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BEFORE: HON. LEO E. STRINE, JR., Chancellor.

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ORAL ARGUMENT ON PLAINTIFFS' MOTION
FOR PRELIMINARY INJUNCTION

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CHANCERY COURT REPORTERS
500 North King Street
Wilmington, Delaware 19801
[phone]
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1 APPEARANCES:

2 P. BRADFORD DELEEUW, ESQ.
Rosenthal, Monhait & Goddess, P.A.
3 -and-
WILLIAM S. NORTON, ESQ.
4 of the South Carolina Bar
Motley Rice LLC
5 -and-
CHRISTINE S. AZAR, ESQ.
6 Labaton Sucharow LLP
-and-
7 IRA A. SCHOCHET, ESQ.
MATTHEW C. MOEHLMAN,, ESQ.
8 of the New York Bar
Labaton Sucharow LLP
9 -and-
MEGAN D. MCINTYRE, ESQ.
10 Grant & Eisenhofer, P.A.
-and-
11 MARK LEBOVITCH, ESQ.
SPENCER OSTER, ESQ.
12 of the New York Bar
Bernstein Litowitz Berger & Grossmann LLP
13 -and-
GUSTAVO BRUCKNER, ESQ.
14 of the New York Bar
Pomerantz, Haudek, Grossman & Gross LLP
15 for Plaintiffs

16 COLLINS J. SEITZ, JR., ESQ.
BRADLEY R. ARONSTAM, ESQ.
17 Seitz Ross Aronstam & Moritz
-and-
18 JOSEPH S. ALLERHAND, ESQ.
SETH GOODCHILD, ESQ.
19 of the New York Bar
Weil, Gotshal & Manges, LLP
20 for Defendants Kinder Morgan Inc., Sherpa
Merger Sub, Inc., and Sherpa Acquisition,
21 LLC
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CHANCERY COURT REPORTERS
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1 APPEARANCES CONTINUED:

2 RAYMOND J. DICAMILLO, ESQ.
Richards, Layton & Finger, P.A.
3 -and-
JOHN L. HARDIMAN, ESQ.
4 of the New York Bar
Sullivan & Cromwell LLP
5 for Defendant The Goldman Sach Group, Inc.

6 DONALD J. WOLFE, JR., ESQ.
T. BRAD DAVEY, ESQ.
7 SAMUEL L. CLOSIC, ESQ.
Potter, Anderson & Corroon LLP
8 -and-
PAUL K. ROWE, ESQ.
9 MICHAEL GERBER, ESQ.
BRADLEY R. WILSON, ESQ.
10 BENJAMIN D. SHIRESON, ESQ.
of the New York Bar
11 Wachtell, Lipton, Rosen & Katz LLP
for Defendants Douglas L. Foshee, J.
12 Michael Talbert, Juan Carlos Braniff,
David W. Crane, Robert W. Goldman, Anthony
13 W. Hall, Jr., Thomas R. Hix, Ferrell P.
McClean, Timothy J. Probert, Steven J.
14 Shapiro, Roberrt F. Vagt, John L.
Whitmore, El Paso Corporation, Sirius
15 Holdings Merger Corporation, and Sirius
Merger Corporation
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CHANCERY COURT REPORTERS
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1 THE COURT: Good morning, everyone.
2 Good morning, Mr. Wolfe.
3 MR. WOLFE: Good morning. May it
4 please the Court. Together with my several colleagues
5 who are with me from Potter Anderson this morning, I
6 represent the El Paso defendants in this matter.
7 Since we've already turned in a full line-up card for
8 our team, I will introduce just two, for the moment.
9 First, we're pleased to have with us Bob Baker, the
10 general counsel of El Paso.
11 THE COURT: I've been enjoying your
12 e-mails.
13 MR. WOLFE: And Paul Rowe of Wachtell,
14 whose e-mails you'd not have seen.
15 THE COURT: Not in this context.
16 MR. SEITZ: Good morning, Your Honor.
17 I'd like to introduce from the Kinder Morgan side, you
18 know Joseph Allerhand from the Weil Gotshal firm.
19 Brad Aronstam formerly of the Weil Gotshal firm but
20 now with me. And I'd like to introduce David --
21 THE COURT: I know you're reunited,
22 but I don't want to know whether it feels so good.
23 MR. SEITZ: And David DeVeau, who is
24 the deputy general counsel at Kinder Morgan, is with
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1 me today.
2 THE COURT: Good morning.
3 MR. DICAMILLO: Ray DiCamillo for
4 Goldman Sachs. I'd like to introduce my colleague
5 from Sullivan & Cromwell, John Hardiman.
6 THE COURT: Thank you, Mr. DiCamillo.
7 MR. GRANT: Good morning, Your Honor.
8 Today I have the emcee role as opposed to the leading
9 argument role, which Mark Lebovitch is going to take
10 from the Bernstein Litowitz firm. You know my partner
11 Megan McIntyre. And Ira Schocket and Christine Azar
12 from the Labaton firm.
13 MR. LEBOVITCH: Good morning,
14 Your Honor.
15 THE COURT: Good morning.
16 MR. LEBOVITCH: This is the time for
17 argument on the plaintiffs' motion for a preliminary
18 injunction.
19 Before delving into the facts of this
20 case, I want to make two preliminary broader points
21 which I think may help the Court's approach to the
22 case.
23 THE COURT: That are untethered to the
24 record.
CHANCERY COURT REPORTERS
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1 MR. LEBOVITCH: They are tethered.
2 THE COURT: There have been some very
3 successful lawyers in this town who have specialized
4 especially in appellate work that involved a total
5 disregard for the record below. And some of the
6 iconic rulings of Delaware corporate law are based on
7 those arguments. So I'll try to base this one on the
8 record. I think one that involves looking to the sky
9 and seeing three things particularly comes to mind.
10 MR. LEBOVITCH: The first point is
11 that the defendants' core positions here actually
12 represent a somewhat cynical view of Delaware law that
13 I think presents a doctrinal challenge to the Court.
14 I would like to touch on the practical reality of the
15 standard of judicial review, but I'll be brief.
16 First, one of the great well-known
17 virtues of Delaware law is its flexibility, its
18 nuanced nature. I think the defendants' petition in
19 this case threatens to turn that virtue into a vice.
20 The defendants are going to essentially say,
21 Everything is normal here. There is nothing to see
22 here. Move along. No, it's not, and they know it,
23 Your Honor.
24 A banker owning $4 billion of a
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1 corporate bidder while advising the target in an
2 exclusive negotiation is an absurd notion.
3 You're going to see a lot of the
4 straight-faced defense, Your Honor, but everyone in
5 the room -- everyone -- everyone in the room when
6 Goldman shows up understands what they are doing here.
7 And the question is, how do they rationalize it? How
8 do they get around it?
9 And I think that's the cynicism
10 because, make no mistake, Your Honor, Goldman is here
11 because they said they want to make the $20 million.
12 They want to get the lead table's credit for this
13 deal. And they don't believe there is any real-world
14 consequence.
15 THE COURT: What you're referring to
16 as the lead table's deal is that men and women of very
17 expensive suits act like sixth-graders about who gets
18 the banner lead on these deals, and all this kind of
19 stuff. You're betting that Goldman is going to chalk
20 this up in their share of the market cap for the year.
21 MR. LEBOVITCH: I think they'll like
22 to say it, but I'm telling Your Honor, if they thought
23 there was a negative consequence to being involved in
24 the deal, then they wouldn't be sixth-graders about
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1 this. It's their rationale. And the problem is that
2 they can handle the criticism.
3 They're counting on the fact that in
4 the end, Your Honor will say, Shame on you. But I
5 think if you're Goldman Sachs, your attitude is
6 everyone is saying, Shame on you. They can deal with
7 the Shame on you. Their client is not going to, in
8 the end, be upset with them if all that happens is
9 there is a slap on the wrist saying, God, I wish you
10 wouldn't do that, because they know they shouldn't
11 have done it.
12 And letting them in the room -- the
13 indifference of everyone involved to Goldman's being
14 in the room set the tone for this transaction,
15 Your Honor. Why do you think it is that management
16 decided that they were comfortable not disclosing
17 their own very serious conflict of interest? It set
18 the tone.
19 Defendants are really saying that
20 under Delaware law --
21 THE COURT: And that's not disclosed
22 in the proxy statement either, is it?
23 MR. LEBOVITCH: No, it's not,
24 Your Honor.
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1 The defendants are saying under
2 Delaware law, that flexibility that's a virtue really
3 means there is no limits, no rules; we can rationalize
4 anything.
5 Now, the plaintiffs here, Your Honor,
6 we are just not that cynical. We think under Delaware
7 law, letting Goldman play in this sandbox was not
8 okay. If there is a line anywhere, if there is going
9 to be any limit to the type of conflicts among bankers
10 that would be stopped, this case has to be it. Its
11 jut that unique set of facts.
12 And the board's reliance on Goldman in
13 this case actually tends to show an absence of good
14 faith and tends to show why they can't rely on Rule
15 141(e) in this case.
16 Now, I just want to turn briefly to --
17 THE COURT: You're going to have to
18 deal with -- obviously, they're going to say they're
19 very high-quality legal advisors. They brought in
20 another high-quality financial advisor. They took
21 steps to cabin the conflict of interest.
22 MR. LEBOVITCH: Yes.
23 THE COURT: Now, I know we're going to
24 have to deal with things like why, if someone is
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1 stepping out of a process, they're getting involved as
2 an advisor on the other banker's compensation and
3 tilting the other banker's compensation in a way where
4 the other banker is supposed to objectively benchmark
5 the two options, and they only get paid for the one
6 option, and it's the option that the other bank has a
7 conflict in. And I don't really understand how that's
8 standing behind a Chinese Wall. And I really am
9 anxious to hear about that role and about that. It
10 didn't seem to be immediately a logical role for the
11 conflicted banker to play.
12 MR. LEBOVITCH: Absolutely,
13 Your Honor. And actually, while people are thinking
14 about that, I will get to this, but the separation of
15 Goldman from this deal to the extent there was a
16 separation, it didn't matter because, as you know,
17 they were involved up to the point that the board
18 countered at a price, $28, that was less than
19 10 percent above the 25.50 offer that they had just
20 rejected as so low, so inadequate, they didn't even
21 want to engage. They didn't want to do due diligence.
22 They didn't want to counter.
23 And the CEO, after a conversation with
24 Rich Kinder comes back and says, Hey, let's counter.
CHANCERY COURT REPORTERS