A Delaware Court of Chancery judge on Thursday refused to cancel a 2016 deal in which Energy Transfer Equity issued $1 billion in equity units, finding there had been no harm to investors. At the same time, however, Vice Chancellor Sam Glasscock III said the transaction was unfair.

Dallas-based ETE claimed the decision as a win, telling investors that Glasscock had ruled in its favor by denying a request from a proposed class of investors that the issuance be rescinded. According to ETE, conversion of the units will go forward as scheduled on May 21.

Still, Glasscock said in a 78-page memorandum opinion that the deal, enacted as energy markets tanked two years ago, violated ETE's limited partnership agreement, which requires conflicted transactions to be “fair and reasonable” to the partnership.

An attorney for the plaintiffs did not immediately return a call Friday seeking comment on the decision.

Glasscock's ruling followed a three-day trial in February and put to rest one of the remaining issues after ETE's high-profile exit from a planned merger with The Williams Cos. Inc. in 2016.

Lawyers for ETE and its CEO and chairman Kelcy Warren defended the private offering in court filings as a way to raise cash for ETE's planned $38 billion buyout of Williams, a rival pipeline operator. However, the deal soured amid a downturn in the energy market, leaving ETE to face the possibility of severe downgrades in its credit rating.

Glasscock later ruled that a tax flaw had allowed Warren and ETE officials to walk away from the deal, over Williams' objections. The decision was upheld by the Delaware Supreme Court last year.

Initially, ETE had planned a public offering, but took the deal private, offering a limited group of investors and outsiders the opportunity to accumulate credit redeemable as common units after nine quarters, in return for forgoing distributions from the company. The deal allowed ETE to avoid borrowing and reduce its debt in order to avoid potentially “catastrophic” action from credit agencies, which were keeping a close watch on the energy sector.

Lee Levine, who holds about 55,000 ETE common units, filed a lawsuit claiming that the private offering was barred by ETE's partnership agreement and would generate a windfall for those who participated, at the expense of the partnership and its non-subscribing unitholders.

Levine did not participate in the transaction but said that he would have, if given the chance. His lawsuit had asked Glasscock to rescind the offering before it went into effect.

On Thursday, Glasscock ruled that the offering was not protected by contractual “safe harbors” because two out of the three members of a committee formed to evaluate the transaction were tied to ETE affiliates, and thus unfit to serve in that capacity. Nor could he justify the $0.285 accrual, which could have come at a “massive” cost to ETE if distributions were cut.

“The burden of showing fair price is on the defendants. Based on the record, they cannot satisfy that burden,” he said. “The $0.285 accrual guarantee looks like a gift to the insiders who subscribed to the securities, a massive hedge against distribution cuts.”

As it happened, though, the energy market has soared since 2016, and ETE's unit price has more than doubled since the failed merger with Williams, meaning that participants in the offering will do “extraordinarily well” when they convert their credit next week, Glasscock said.

The plaintiffs argued that ETE insiders must have known in early 2016 that the company's unit price was depressed and sure to bounce back. They argued that damages were not available in the case, and instead asked Glasscock to cancel the securities and instead pay subscribers the forgone distributions.

Glasscock, however, found no evidence that ETE had acted on nonpublic information, and he noted that participants in the issuance had actually fared worse than if their hedge had paid off.

“If the problematic hedge had, in fact, worked a benefit on the defendants, equity would act,” he wrote. “Here, however, there was no such benefit. The plaintiffs have established a breach, but not shown that the breach caused damage to ETE.”

Attorneys for ETE were not immediately available to comment.

The plaintiffs were represented by Michael Hanrahan, Paul A. Fioravanti Jr., Kevin H. Davenport, Samuel L. Closic and Eric J. Juray of Prickett, Jones & Elliott in Wilmington and Marc A. Topaz, Lee D. Rudy, Eric L. Zagar, Michael C. Wagner and Grant D. Goodhart III of Kessler Topaz Meltzer & Check in Radnor, Pennsylvania.

ETE and its directors were represented by Michael C. Holmes, John C. Wander, Craig E. Zieminski and Andrew E. Jackson of Vinson & Elkins in Dallas and Rolin P. Bissell, James M. Yoch Jr. and Benjamin M. Potts of Young Conaway Stargatt & Taylor in Wilmington.

The case is captioned In re Energy Transfer Equity Unitholder Litigation.