Judge Says Kinder Morgan Owes Investors Damages for El Paso Pipeline Deal

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Energy pipeline operator Kinder Morgan Inc. is on the hook for the bulk of $171 million in damages owed to investors in an affiliate of El Paso Corp., which Kinder Morgan acquired in 2014, a Delaware judge ruled on Wednesday.

The ruling follows a decision in April that found investors in a master limited partnership, or MLP, were shortchanged when it overpaid in a 2011 pipeline deal with El Paso, which controlled the MLP.

The April ruling set the damage award, which is among the largest judgments of its kind by the Court of Chancery, a key venue for corporate disputes.

On Wednesday, Vice Chancellor Travis Laster rejected Kinder Morgan’s arguments to dismiss the case because last year it acquired control of both El Paso and the MLP, El Paso Pipeline Partners.

Kinder Morgan essentially had argued that one of its controlled affiliates now owned the litigation and investors lacked standing to sue.

Laster said in his 110-page opinion that dismissing the case would “generate a windfall” for Kinder Morgan at the expense of the limited partners who brought the case.

Kinder Morgan, or KMI, said it was disappointed by the ruling and that the contested deal was appropriate and in the best interests of the MLP.

“KMI is evaluating all options and intends to pursue an appeal to the Delaware Supreme Court,” the Houston-based company said in a statement. It said it had recorded a reserve for the lawsuit, had insurance and that any damages it ultimately might pay would not have any material financial impact.

Laster did find that Kinder Morgan was only liable for 58.6 percent of the judgment, which represented the portion of the MLP owned by independent investors. He said 41.4 percent of the common units were held by Kinder Morgan and its affiliates.

The lawsuit was brought by Peter Brinckerhoff, a holder of common units of the MLP, who alleged the MLP overpaid for two natural gas subsidiaries of El Paso for the benefit of the parent company.

Laster found the directors of the MLP caved in to parent company demands and approved a deal they had criticized in private.

The directors had argued the deal was fair because it would increase the distributions to holders of common units.

Shares of Kinder Morgan closed down 7.8 percent at $20.66 on the New York Stock Exchange. Moody’s lowered the company’s credit rating outlook to negative on Tuesday.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Tom Brown and Jonathan Oatis)