Kinder Morgan pays $27.5 million to settle pipeline partnership lawsuits

8/19/2015

By JEF FEELEY
Bloomberg

Kinder Morgan agreed to pay $27.5 million to resolve investors’ claims it artificially inflated more than $3.2 billion in payouts it collected from a pipeline partnership.

The company agreed to resolve lawsuits filed by investors in its Kinder Morgan Energy Partners unit claiming improper distribution of profit payments, according to court documents.

Kinder Morgan officials violated the partnership agreement by misclassifying expenses so it could wrongfully pump up payments to itself, the investors alleged in Delaware Chancery Court suits.

The challenged payments “were made in good faith and in a manner consistent” with the partnership agreement, David Conover, a Kinder Morgan spokesman, said in an e-mailed statement.

North American’s largest pipeline company agreed to the settlement “to avoid the substantial burden, expense and inconvenience” of litigation, Conover said.

Stuart Grant, a Wilmington, Delaware-based lawyer for investors who challenged the partnership payments, didn’t immediately return a call Friday seeking comment on the accord.

Billionaire Richard Kinder, a former Enron executive, stepped down as CEO of the pipeline empire he founded after unifying the company in a multibillion-dollar deal last year. He remains chairman.

Expansion Move

Kinder consolidated his pipeline holdings to strengthen his company for growth as the US shale drilling boom was set to open up $1.5 trillion in potential expansion.

Investors in Kinder Morgan Energy Partners accused the company in court filings of manipulating the partnership’s payout formula to rake in sums it wasn’t entitled to receive. The company improperly tabbed pipeline-maintenance funds as expenses to inflate its take, according to the filings.

They said the $3.2 billion in payouts Kinder Morgan got since 2010 were being “improperly subsidized” by the partnership’s other unitholders.

The case is In re Kinder Morgan Energy Partners LP Capex Litigation, NO. 9318-VCL, Delaware Chancery Court (Wilmington).