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Commitments and Contingencies
9 Months Ended
Sep. 30, 2015
Commitments and Contingencies  
Commitments and Contingencies

 

12. Commitments and Contingencies

 

Legal

 

The Partnership is subject to a variety of risks and disputes and is a party to various legal proceedings in the normal course of its business. The Partnership maintains insurance policies in amounts and with coverage and deductibles that it believes are reasonable and prudent. However, the Partnership cannot assure that the insurance companies will promptly honor their policy obligations or that the coverage or levels of insurance will be adequate to protect the Partnership from all material expenses related to future claims for property loss or business interruption to the Partnership, or for third-party claims of personal injury and property damage, or that the coverage or levels of insurance it currently has will be available in the future at economical prices. While it is not possible to predict the outcome of the legal actions with certainty, management is of the opinion that appropriate provisions and accruals associated with all legal actions have been made in the accompanying Condensed Consolidated Financial Statements and that none of these actions, either individually or in the aggregate, will have a material adverse effect on the Partnership’s financial condition, liquidity or results of operations.

 

On July 6, 2015, officials from the United States Environmental Protection Agency and the Department of Justice entered a MarkWest Liberty Midstream pipeline launcher/receiver site in Washington County, Pennsylvania pursuant to a search warrant issued by the United States District Court for the Western District of Pennsylvania.  At the conclusion of the search, the governmental officials presented MarkWest Liberty Midstream with a subpoena to provide documents related to the design, construction, operation, maintenance, modification, inspection, assessment, repair of, and/or emissions from MarkWest Liberty Midstream’s pipeline facilities located in Pennsylvania.  MarkWest Liberty Midstream is providing information in response to the subpoena and related requests for information from the relevant agencies, and is in discussions with the relevant agencies regarding issues associated with the search and subpoena and its operations of, or supplementary permitting obligations for, its pipeline facilities in the Northeast.  Immediately following the July 6 search, MarkWest Liberty Midstream commenced its own assessment of its operations of launcher/receiver facilities.  MarkWest Liberty Midstream’s review to date has determined that other than potentially having to obtain minor source permits at a small number of individual sites, MarkWest Liberty Midstream’s operations have been conducted in a manner fully protective of its employees and the public, and in compliance with applicable laws and regulations.  It is possible that, in connection with any enforcement action associated with this matter, MarkWest Liberty Midstream will incur material assessments, penalties or fines, incur material defense costs and expenses, be required to modify our operations or construction activities which could increase operating costs and capital expenditures, or be subject to other obligations or restrictions that could restrict or prohibit our activities, any or all of which could adversely affect our results of operations and cash available for distribution.  The amount of any potential assessments, penalties, fines, costs or expenses that may be incurred in connection with the inspection and subpoena cannot be reasonably estimated at this time.

 

As more fully described in Note 3 of the Notes to the Condensed Consolidated Financial Statements, on July 11, 2015, the Partnership entered into the Merger Agreement with MPLX, MPLX GP, Merger Sub, and, for certain limited purposes set forth in the Merger Agreement, MPC.  Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Partnership, with the Partnership surviving the Merger as a wholly owned subsidiary of MPLX.  After the Merger, the Partnership’s common units will cease to be publicly traded.

 

On July 24, 2015, a putative unitholder class action complaint was filed by a single plaintiff who purports to be a unitholder of the Partnership in the Court of Chancery for the State of Delaware (Case No. 11332-VCG) against the individual members of the General Partner’s board of directors (the “Board”), the General Partner, MPLX, MPC and Merger Sub. The complaint, styled Katsman v. Frank M. Semple, et al., (the “Katsman lawsuit”) alleges that the Board breached its duties in approving the Merger with MPLX. Generally, the Katsman lawsuit alleges that the Board breached its duties to the Partnership’s common unitholders because the Merger does not provide the Partnership’s common unitholders with adequate consideration, the Board did not seek to maximize value for the benefit of the Partnership’s common unitholders, certain members of the Partnership’s management team will remain executive officers of MPLX after the consummation of the Merger and the Merger Agreement contains preclusive deal protective devices and does not provide for appraisal rights.  The Katsman lawsuit also alleges that MPC, MPLX and Merger Sub aided and abetted in such breaches. The Katsman lawsuit seeks, among other relief, to enjoin the Merger, or in the event the Merger is consummated, rescission of the Merger or monetary damages. The Katsman lawsuit also seeks an accounting and recovery of attorneys’ fees, experts’ fees, and other litigation costs.

 

On August 10, 2015, another purported unitholder of the Partnership filed a putative class action complaint, captioned Schein v. Semple, et al., (the “Schein lawsuit”) in the Court of Chancery of the State of Delaware, advancing substantially similar allegations and claims, and seeking substantially the same relief against the same defendants named in the Katsman lawsuit.

 

On August 14, 2015, another purported unitholder of the Partnership filed a putative class action complaint, captioned Kleinfeldt v. Semple, et al., (the “Kleinfeldt lawsuit”) in the Court of Chancery of the State of Delaware.  The Kleinfeldt lawsuit asserts substantially the same allegations and claims against the same defendants named in the Katsman and Schein lawsuits.

 

On September 9, 2015, the Katsman, Schein and Kleinfeldt lawsuits were consolidated into one action pending in the Court of Chancery of the State of Delaware, now captioned In re MarkWest Energy Partners, L.P. Unitholder Litigation.  The Chancery Court’s consolidation order contemplates that any future Delaware class action suits will be consolidated into this action.  On October 1, 2015, the Delaware plaintiffs filed a consolidated complaint against the individual members of the Board, MPLX, the general partner of MPLX, MPC and Merger Sub asserting that in connection with the Merger and related disclosures, among other things, (i) the Board breached its duties in approving the Merger with MPLX and (ii) MPC, MPLX, the general partner of MPLX, and Merger Sub aided and abetted these breaches.  The complaint seeks, among other relief, to enjoin the Merger, or in the event the Merger is consummated, rescission of the Merger or monetary damages.

 

The Partnership intends to vigorously defend this consolidated lawsuit. However, one of the conditions to the completion of the Merger is that no law, order, decree, judgment or injunction of any court, agency or other governmental authority shall be in effect that enjoins, prohibits or makes illegal consummation of any of the transactions contemplated by the Merger Agreement.  A preliminary injunction could delay or jeopardize the completion of the Merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the Merger.  An adverse judgment for rescission or for monetary damages could have a material adverse effect on the Partnership and MPLX following the Merger.

 

Contract Contingencies

 

Certain natural gas processing and gathering arrangements require the Partnership to construct new natural gas processing plants, natural gas gathering pipelines and NGL pipelines and contain certain fees and charges if specified construction milestones are not achieved for reasons other than force majeure. In certain cases, certain producers may have the right to cancel the processing arrangements if there are significant delays that are not due to force majeure. As of September 30, 2015, management does not believe there are any indications that the Partnership will not be able to meet the construction milestones, that force majeure does not apply, or that such fees and charges will otherwise be triggered.