Kinder Morgan Inc. (KMI) has agreed to pay $27.5 million to settle two consolidated suits in Delaware state court accusing it of intentionally misclassifying expenses to artificially inflate payouts, of which it allegedly got 50 percent. The suits claimed KMI and the partnership’s general partner, subsidiary Kinder Morgan GP Inc., manipulated the formula used to determine the quarterly distributions issued by Kinder Morgan Energy Partners LP, now a wholly owned indirect subsidiary of KMI. The suits were brought on behalf of former KMP investors. The Defendants argued in June of last year that the plaintiffs hadn’t suffered any injury and that their claims were barred by the doctrines of laches, estoppel and acquiescence.

If the court approves the settlement, the final judgment will also include a release of all claims asserted in the Delaware consolidated lawsuit as well as claims in a similar action filed in Texas. Plaintiffs claimed that KMGP misallocated certain unspecified capital expenditures as expansion capital expenditures instead of as maintenance capital expenditures, with the intention of inflating KMP’s distributions to its investors, including KMGP.

The litigation initially claimed that hundreds of millions of dollars were improperly distributed from Feb. 5, 2011, through the closing of the merger. The suits sought disgorgement of any distributions to KMGP beyond amounts that would have been distributed in step with a supposedly correct allocation. KMGP claims it acted appropriately, that KMP’s unitholders were in no way harmed, and that all allocations were made in good faith. KMP unitholders were paid over a 22 percent premium for their units in connection with the merger, and KMP unitholders earned a total compound annual return of 16.4 percent during the purported class period from 2011 through the closing of the merger, according to KMP.

An agreement-in-principle to settle the action was reached in mid-June, at that time the case was taken off the calendar. Lead Plaintiff and the class are represented by Mark Lebovitch, David Wales and Katherine M. Sinderson of Bernstein Litowitz Berger & Grossmann LLP and Stuart M. Grant and Geoffrey Jarvis of Grant & Eisenhofer PA.


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